Houghton v Saunders
[2019] NZHC 2906
•7 November 2019
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2008-409-348
[2019] NZHC 2906
BETWEEN ERIC MESERVE HOUGHTON
Plaintiff
AND
TIMOTHY ERNEST CORBETT SAUNDERS, SAMUEL JOHN MAGILL, JOHN MICHAEL FEENEY, CRAIG
EDGEWORTH HORROCKS, PETER DAVID HUNTER, PETER THOMAS and JOAN WITHERS
First DefendantsCREDIT SUISSE PRIVATE EQUITY INCORPORATED
Second Defendant
CREDIT SUISSE FIRST BOSTON ASIAN MERCHANT PARTNERS LP
Third Defendant
Hearing: 4 November 2019 Counsel:
C R Carruthers QC and P A B Mills for plaintiff
A R Galbraith QC, D J Cooper, S T Coupe and M C Harris for first defendants (except for separate representation noted below) T C Weston QC for Mr Magill
C L Broad for Mr Horrocks A E Ferguson for Ms Withers
J B M Smith QC, A S Olney and C J Curran for second and third defendants
Judgment:
7 November 2019
REASONS JUDGMENT OF DOBSON J
[Application for adjournment of stage two trial]
HOUGHTON v SAUNDERS [2019] NZHC 2906 [7 November 2019]
[1] On 25 October 2019, the plaintiff applied for an adjournment of the five week hearing of stage two of these proceedings, scheduled to commence on 4 November 2019. The application was opposed, and I heard argument from counsel throughout the morning of 4 November 2019 on their competing positions.
[2] The ground relied on for seeking the adjournment was the plaintiff’s recent application to the Supreme Court for leave to appeal a judgment of the Court of Appeal in which the plaintiff has been unsuccessful in challenging my interlocutory determination excluding parts of the evidence of the plaintiff’s economic expert, Mr Greg Houston. The plaintiff has also sought leave to appeal an earlier Court of Appeal judgment which upheld my refusal to strike out the defendants’ reliance on s 63 of the Securities Act 1978. However, Mr Carruthers QC accepted that the prospect of that second appeal did not afford grounds for an adjournment. It is being pursued now as a matter of efficiency.
[3] When I enquired of Mr Carruthers his proposals for timetabling the stage two hearing within the allocated fixture in the event that his application for an adjournment was dismissed, he advised that the hearing would not proceed as the claimants were not ready at this time to advance their stage two claims.
[4] Given the inevitability in those circumstances that an adjournment on some terms would follow, I advised counsel at 2.15pm on 4 November 2019 that the present hearing would be vacated and that stage two of the proceeding has to stand adjourned, initially, sine die. I indicated I would provide reasons for my decision and now do so.
The legal test
[5] Applications for adjournment of a trial are to be considered under r 10.2 of the High Court Rules 2016, which provides:
The Court may, before or at the trial, if it is in the interests of justice, postpone or adjourn the trial for any time, to any place, and upon any terms it thinks just.
[6] The scope of the interests of justice in this context was recently described by Venning J in the following terms:1
[13] The interests of justice are the overriding consideration. Those interests are not limited to doing justice to the party seeking the adjournment. The Court must also do justice to the parties who wish to retain the benefit of the fixture and must also consider the interests of litigants in other cases before the Court as well as the general interest in maintaining public confidence in the ability of the Court to manage and hear cases within a reasonable timeframe.
[14] As French CJ said in Aon Risk Services Australia Ltd v Australian National University:
the time of the court is a publicly funded resource. Inefficiencies in the use of that resource, arising from the vacation or adjournment of trials, are to be taken into account. So too is the need to maintain public confidence in the judicial system.
Scope of the issues sought to be appealed
[7] The primary position for the claimants is that revelation of the untrue statement in a timely way would have led to their reversing their investment decisions so their claims are for the loss between the subscription price they paid for the shares and the price at which they later sold their shares, or for a total loss if they held the shares until they were worthless.
[8] As an alternative to that measure of loss, the claimants seek the difference between the subscription price and whatever is determined as the fair price of the shares had the price not been influenced by the untrue statement.2 Mr Houston’s evidence is relied on by the claimants to make out the projected difference in value that they would rely on. Thus far, a part of his analysis has been ruled inadmissible in my judgment and that of the Court of Appeal, in essence because it responds to instructions from Mr Gavigan that invited Mr Houston to treat criticisms of the 2005 financial year revenue projection (FY05 projection) as leading to separately assessible loss.
1 NZ Iron Sands Holdings Ltd v Toward Industries Ltd [2019] NZHC 2516 (citations omitted).
2 These approaches to quantification of loss rely respectively on [136] and [134] of the Supreme Court judgment: Houghton v Saunders [2018] NZSC 74.
[9] In contrast, it is accepted that Mr Houston’s analysis of the impact of the untrue statement in the 2004 financial year revenue forecast (FY04 forecast) is admissible and relevant.
[10] In opposing the adjournment, the defendants argued that all other aspects of the stage two hearing could proceed, recognising that I would need to reserve my decision pending the Supreme Court’s decision on the granting of leave and, if leave is granted, on its decision as to the admissibility of Mr Houston’s analysis of the impact of the FY05 projection. The defendants submitted that they were, in all respects, ready for trial and were ready to proceed when the matter was called on 4 November 2019.
[11] Mr Carruthers rejected the defendants’ proposal on the ground that there were wider and more important consequences of a reversal of the present rulings on the inadmissibility of this aspect of Mr Houston’s evidence than those characterised by the defendants.
[12] Mr Carruthers indicated that he wishes to put to individual claimants, when giving their evidence, the terms of the Supreme Court’s views on the relative reliability of the FY05 projection, as an aspect of reconstructing the reactions they would have had if the untrue statement (that is, about the FY04 forecast) had been revealed at the relevant time. The Supreme Court’s views were set out in my judgment on the admissibility of this part of Mr Houston’s evidence,3 but for convenience are repeated here:4
[263] We accept that the FY05 sales revenue projection was not arrived at by adding a percentage increase to the FY04 forecast figure. In our view, however, this does not answer Mr Houghton’s point, which is that it was unrealistic, in light of the history of the company and in particular the bad results in January, February, April and May, to consider that Feltex could achieve the level of sales projected for FY05.
[264] There are a number of points that support Mr Houghton’s submission. The first is that Feltex’s strategy had been to concentrate on margin rather than volume and in particular to concentrate on the middle and premium markets in residential. There does not appear to have been a decision to abandon this strategy. Rather, the increase in volume was projected to occur in those higher
3 Houghton v Saunders [2019] NZHC 2007 at [60].
4 Houghton v Saunders [2018] NZSC 74 (citation omitted).
margin products and not in the mass market. This would make it harder to achieve the one percent increase in market share, which was measured by volume, because the mass market made up the greater proportion of the market. We also accept the submission that a 4.7 per cent increase in revenue was ambitious and that this was even more so after the results in April and May. We also note that the results in the first six months of FY05 would suggest in hindsight that the sales projection was in fact unrealistic.
[13] I have not seen the briefs of evidence served for the stage two claimants. I understand that none of the briefs address the point Mr Carruthers wishes to raise as part of the claimants’ evidence-in-chief, namely inviting a response to the views of the Supreme Court, in particular in [264] of its judgment, by way of expansion of their evidence.5
[14] Mr Carruthers’ concern is that the High Court and Court of Appeal rulings on the inadmissibility of the parts of Mr Houston’s evidence that rely on the Supreme Court’s views about the FY05 projection would be relied on by the defendants to challenge the admissibility of additional evidence-in-chief from the claimants as Mr Carruthers has foreshadowed. Arguably, parity of reasoning would require me to recognise that any such references were inadmissible on the same grounds.
[15] In attempting to project how this aspect of the evidence from the claimants might play out, defendants’ counsel were inclined to accept the admissibility of general comments by the claimants to the effect that, had they received advice correcting the untrue statement about the FY04 forecast at the relevant time, they would also have viewed other information in the prospectus, including the FY05 projection, as less reliable. Acceptance of the admissibility of such evidence was obviously without waiving the prospects of challenging the credibility of individual claimants that such reactions would have arisen.
[16] Defendants’ counsel indicated a number of potential impediments to having claimants comment on the Supreme Court’s 2018 view on the quality of the FY05 projection. As I understood them, the objections that would be advanced would rely
5 Mr Carruthers referred to a partial exception, namely in the briefs of evidence for Sir Paul Collins and that of another representative of Active Equities Limited as a claimant, where they seek to comment on the Supreme Court’s views as experts.
on grounds other than the reasoning relied on to exclude the relevant part of Mr Houston’s analysis.
[17] I do not express a view on the prospects of the claimants obtaining leave to supplement their evidence-in-chief by commenting on individual reactions to the Supreme Court’s view on the FY05 projection. However, if the topic was to be raised with claimants, my provisional view remains that my ruling (and that of the Court of Appeal) on the inadmissibility of the relevant part of Mr Houston’s evidence would not be determinative of the admissibility of such comments from the claimants.
[18] The references to the views of the Supreme Court would arise in distinct contexts. For the claimants, such references would be to bolster their claims that disclosure of the untrue statement would have caused them to reverse their decisions to invest (that is, the primary basis for claiming loss), such as on grounds that their reaction was consistent with that of the Supreme Court in casting doubt on the reliability of other aspects of the prospectus.
[19] In contrast, the relevant part of Mr Houston’s evidence draws on the Supreme Court’s views in a separate analysis on the difference between the subscription price paid by the claimants and what would have been the fair value of the shares had the untrue statement not been contained in the prospectus (that is, on the alternative basis of loss claimed).
[20] My provisional view is accordingly that the breadth of consequences of a reversal of the present ruling on the inadmissibility of that part of Mr Houston’s analysis do not extend to a finding that would be determinative against the admissibility of the additional evidence Mr Carruthers would hope to elicit from the claimants. That concern is therefore not a sufficient impediment to proceeding with the hearing subject to reservation of the position on the balance of Mr Houston’s evidence, in the event that it was ruled admissible by the Supreme Court.
[21] I did not take the defendants to contest the importance to the claimants’ case of the potential inclusion of Mr Houston’s separate analysis, thus far ruled inadmissible. That separate analysis, if admitted, could add materially to
Mr Houston’s projection of the diminution in value of between seven and eight cents per share when reporting on the impact of the untrue statement about the FY04 forecast. I understand from counsel that, if the alternative basis of loss applies for all claimants, then each cent of diminution of value that is made out equates to approximately $730,000 before any allowance for interest.
[22] Given the protracted history of the proceeding, I would not consider it unreasonable for the claimants to have to prepare for trial on the alternative bases that
– as matters presently stand – Mr Houston’s evidence identifies a diminution in value of between seven and eight cents per share as a result of the untrue statement in the FY04 forecast, plus the unresolved prospect that this aspect of the claims for damages could be amplified if the Supreme Court rules that Mr Houston’s separate analysis of the impact of the FY05 projection is admissible. Those contingencies could have been accommodated if the fixture had proceeded, subject to reserving my decision until the outcome in the Supreme Court was known and providing for the contingency of a separate hearing to adduce the evidence if ruled admissible by the Supreme Court.
Other considerations
Delay
[23] The defendants raised several aspects of delay as affecting the assessment of the overall interests of justice.
[24] Following the issue of a prospectus, the claimants subscribed for shares in Feltex in mid-2004. Each side blames the other for parts of the delay until the stage one trial before me, which commenced in March 2014. The causes and consequences of delays to that point have previously been considered. When the proceeding was referred back to the High Court for stage two, I certainly took it to be the case that all involved appreciated the need for prompt progress towards final determinations. That certainly should have been the case. During the course of stage two of the proceedings, the plaintiff/claimants have accumulated an impressive record of non-compliance with timetabling directions, as well as failures to comply with the original terms of my directions as to security for costs, and their own subsequent assurances of progress on that matter. The proceedings stayed on track for the stage two hearing, at least in part
because of the defendants’ preparedness to tolerate those aspects of non-compliance, and in particular to press on with the hearing despite not having the comfort of security for costs that had been ordered in their favour.
[25] The defendants also criticise the plaintiff for the delay in filing the application for leave to appeal to the Supreme Court. The Court of Appeal’s results judgment was delivered on 11 October 2019, followed by the reasons for the judgment on 18 October 2019. The application for leave to appeal was filed on 29 October 2019. Given the urgency with the fixture pending, Mr Smith QC for the second and third defendants submitted that this was a case in which the application for leave to appeal ought to have been filed promptly after receipt of the results judgment, that course being an option open under the terms of the Supreme Court Rules 2004. Mr Smith argued that if that course had been adopted and the plaintiff had pressed for urgent determination of the application for leave, with which the defendants would have co-operated, then a decision on the leave application may have been available prior to the commencement of the trial on 4 November 2019.
[26] That timing seems optimistic, but the defendants’ point is that the application for leave was not in fact filed until so near the commencement of the fixture that the defendants and the Court were inevitably confronted with an unresolved application for leave being advanced as a ground for adjourning the five week fixture some three days before it was scheduled to commence.
[27] Mr Carruthers denied that there was any obligation to file the application for leave to appeal prior to receiving, and being able to consider, the reasons for the Court of Appeal’s judgment. He submitted it would have been irresponsible to do otherwise.6 Mr Carruthers submitted that it was reasonable for him to have the application for leave to appeal to the Supreme Court ready for filing six working days after receipt of the Court of Appeal’s reasons.
6 Materials produced to the Court included a Facebook posting by Mr Gavigan on 11 October 2019 that an appeal to the Supreme Court from the Court of Appeal’s decision “has been drafted”, but the defendants did not rely on it as evidence that the filing of the application for leave to appeal had been unreasonably delayed.
[28] Given Mr Carruthers’ stance that the claimants were not ready to proceed with the stage two hearing on 4 November 2019, it is reasonable to infer that conclusion would have been evident to counsel for the claimants, at the latest, by the time of receipt of the Court of Appeal’s results judgment. In those circumstances, counsel would not have been motivated to expedite the application for leave to appeal in order to pursue possible resolution of whether leave would be granted prior to the commencement of the 4 November 2019 fixture.
[29] I am not persuaded that the extent to which the plaintiff has previously been given indulgences for further time and the extent of non-compliance with the orders for security for costs, plus the circumstances in which the application for leave to appeal was filed so close to the commencement of the fixture, could be decisive against granting the adjournment. In numerous respects, the prejudice caused to the defendants by delay in compliance, or delay beyond the reasonable time that might be expected for steps to have been taken, could not disentitle the plaintiff to an adjournment where other circumstances warranted it. Delay is, however, a minor factor weighing against the grant of an adjournment.
Prejudice to the defendants
[30] All defendants claim significant prejudice from the delay in achieving finality. For the directors, Mr Cooper made the point that the stage two hearing was scheduled to commence some 11 years and eight months after the proceeding had started, that being some 15 years after the issue of the prospectus. He submitted that the stale and protracted litigation has taken an inevitable toll on the directors’ professional and personal lives, with several of them now being retired and in advanced years. He reasonably submitted that they are entitled to finality in the proceedings.
[31] The second and third defendants, being Credit Suisse corporate entities, cannot raise the same matter of personal pressures. However, there will have been a loss of institutional memory with the extent of turnover that will have occurred over time, which is likely to impair the taking of instructions, and those defendants are also entitled to have the claims against them progressed to finality within reasonable timeframes.
Public interest
[32] Defendants’ counsel also raised the public interest, as reflected in the need for efficient use of court resources and the maintenance of public confidence in the ability of the Court to manage and hear cases within a reasonable timeframe.7 The proceedings have been accorded priority in the allocation of interlocutory hearings, and the Registry’s offer of dates for the substantive stage two hearing. The wastage of resource following from a last-minute adjournment of a five week fixture inevitably has a negative impact on the length of time other litigants must wait to have their cases heard.
[33] Depending on other circumstances arising on such adjournment applications, this consideration can carry significant weight. In the present case, it is a minor factor against granting the adjournment. Given the plaintiff’s intention to seek leave to appeal to the Supreme Court, had the fixture proceeded it would inevitably be on a basis that was contingently part heard, depending on the outcome of any appeal for which leave was granted in the Supreme Court. That option would have risked its own range of inefficiencies.
Striking appropriate balance in representative actions
[34] Mr Weston QC for Mr Magill submitted that case management of class actions is “a tricky thing”. He submitted that access to justice is also access to justice for defendants, and in this case the significant number of somewhat more than 3,600 claimants could become a tool of oppression of the defendants because the implicit weight of their combined interest might pressure the Court to make accommodations for the claimants that would not be tolerated in actions brought by individual plaintiffs.
[35] The point is well made. Representative actions are a potentially important mechanism for improving access to justice. Put crudely, unusual indulgences allowed to claimant groups because of the extent of a claimant class risk giving representative actions a bad name. Mr Weston was implicitly warning that granting the indulgence
7 Compare NZ Iron Sands Holdings Ltd v Toward Industries Ltd, above n 1, at [13].
of a last-minute adjournment of a five week hearing, where it would not be justified for an individual claimant, risked creating an unhelpful and unsatisfactory precedent. Again, the risk of a perception that the sheer number of claimants in the class has been used as a tool of oppression of the defendants is a minor factor against granting the adjournment on the grounds sought.
[36] These valid concerns may be treated as an aspect of the public interest in efficient use of court resources. The Court should strive to demonstrate its ability to manage cases efficiently in the interests of all participants. The present case contains a number of idiosyncratic factors as a representative action, the contractual arrangements for which were put in place before the development of practices reflected in more recent representative actions that might now be treated as settled terms. Accordingly, case managing this litigation is in no way a precedent for any other.
Standing back
[37] I do not accept the breadth of the significance to the rest of the claimants’ case of achieving any answer the Supreme Court might give, as claimed by Mr Carruthers. I do not accept that the absence of a possible reversal of my admissibility ruling by the Supreme Court would, of itself, be determinative in the foreshadowed attempts Mr Carruthers describes to have claimants address their primary basis for loss by reference to the terms of the Supreme Court’s views on the FY05 projection.
[38] Nonetheless, I accept the potential importance to the claimants’ alternative basis for seeking damages of being entitled to adduce Mr Houston’s evidence that has thus far been ruled inadmissible.
[39] I give little weight to the claimed imperative to have the admissibility ruling reversed in order to procure funding. The claimants had adequate opportunity prior to there being any difficulty with the scope of Mr Houston’s evidence to procure funding and, at least in respect of security for costs, were in default of obligations that ought to have been in place before the scope of Mr Houston’s evidence became an issue at all.
[40] Factors against granting an adjournment include the cumulative impact of delays throughout stage two, plus the material prejudice to all defendants from the delay that will now arise in having stage two determined. There is also the adverse impact on the public interest in the last-minute disruption to a significant block of the Court’s time, with the negative consequences for other court users and the questions it raises over the quality of case management of such commercial litigation.
[41] Balancing all these factors, I would have been minded to dismiss the application for an adjournment on the ground relied on.
[42] As I perceive Mr Carruthers’ position, he would rather have had a separate decision on the plaintiff’s entitlement to an adjournment on the ground relied on (that is, the importance of resolving any appeal on the admissibility ruling), before the Court took into account the practical reality of the claimants being unable to proceed because they are not adequately prepared for the hearing. There would have been further inefficiency if counsel, including those from out of town, had been required to return to court for what would then have been the presentation of a fait accompli.
Outcome
[43] Accordingly, the hearing was adjourned on terms requiring the claimants to pursue their application for leave to appeal to the Supreme Court and, if leave is granted, to pursue a fixture for the appeal against the admissibility rulings, with the utmost urgency.
Costs
[44] I further directed that the defendants are entitled to an award for wasted costs. Those are to be quantified by way of memoranda by 25 November 2019. The claimants will have 15 working days in which to respond after service on them of the defendants’ memoranda. I will decide whether the quantum of wasted costs can be settled on the papers, which is my preference, after consideration of all memoranda filed.
[45] If the amount determined for wasted costs is not paid within 10 working days of my order on quantum, then that amount is to apply by way of reduction from the
$930,000 to which the claimants are presently entitled, but which has not been reimbursed by the defendants, pending provision of stage two security.
[46] Since the hearing, I have asked the Registry to advance prospects for the adjourned hearing and have issued a minute requiring indications of availability for a five week fixture starting on 11 May 2020.
Dobson J
Solicitors:
Antony Hamel, Dunedin for plaintiff
Gilbert Walker, Auckland for first defendants (other than Mr Horrocks and Ms Withers) Wilson Harle, Auckland for Ms Withers
Clendons, Auckland for Mr Horrocks
Russell McVeagh, Wellington for second and third defendants
Counsel:
C R Carruthers QC and P A B Mills for plaintiff
A R Galbraith QC and D J Cooper for first defendants (other than Mr Magill, Mr Horrocks and Ms Withers)
T C Weston QC for Mr Magill B D Gray QC for Ms Withers
J B M Smith QC and A S Olney for second and third defendants
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