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Houghton v Saunders

Houghton v Saunders

Case [2014] NZHC 2229 15 September 2014

Securities Act 1978

Due Diligence

Misleading or Deceptive Conduct

Misrepresentation

Civil Liability

Securities Law

Corporate Law & Governance

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IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2008-409-348 [2014] NZHC 2229

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 Defendants

CREDIT SUISSE PRIVATE EQUITY INC (FORMERLY CREDIT SUISSE FIRST BOSTON PRIVATE EQUITY INC)

Second Defendant

CREDIT SUISSE FIRST BOSTON ASIAN MERCHANT PARTNERS LP Third Defendant

FIRST NEW ZEALAND CAPITAL Fourth Defendant

FORSYTH BARR LIMITED Fifth Defendant

Hearing:
17-21 March, 24-28 March; 31 March-4 April; 7-11 April;

14-17 April; 28 April-2 May; 5-9 May; 12-16 May; 19-23 May;
3-6 June; and 9-12 June 2014

Counsel:

A J Forbes QC, P A B Mills, A J F Wilding and T J P Gavigan for plaintiff

A R Galbraith QC, D J Cooper, S V A East and L M Campbell for first defendants (except Mr Magill)

T C Weston QC and D J Cooper for Mr Magill

J B M Smith QC, A S Olney and C J Curran for second and third defendants

D H McLellan QC, J S Cooper and R M Stewart for fourth defendant

A C Challis, D P Turnbull and H N McIntosh for fifth defendant

Judgment:

15 September 2014

HOUGHTON v SAUNDERS [2014] NZHC 2229 [15 September 2014]

RESERVED JUDGMENT OF DOBSON J

Contents

Background........................................................................................................................................ [2] The parties ....................................................................................................................................... [17] The preparation of the prospectus ................................................................................................. [19] The claims ........................................................................................................................................ [29] The range of pleaded criticisms ..................................................................................................... [42] Summary of the outcome ................................................................................................................ [50]
The test under the SA cause of action ............................................................................................ [56] The test for assessing whether a statement in a prospectus is untrue........................................ [58] The “prudent but non expert person”/“notional investor” ........................................................ [78] Level of reliance required to trigger liability ............................................................................ [102] Expressions of opinion, including prospective financial information ..................................... [121]

Plaintiff ’s evidence ........................................................................................................................ [127] Defendants’ evidence ..................................................................................................................... [155]
Analysis of the criticisms .............................................................................................................. [163]

AUndisclosed adverse trends in current trading ................................................................ [164] Adverse trend in gross sales revenue, and volume of sales ............................................... [164] Unacknowledged adverse trend in result for six months to 30 June 2004 ........................ [193] Removal of provision for management incentive plan ...................................................... [195]

BMisstatements or statements omitted as to risks confronting Feltex .............................. [197] Risks arising from reduced tariffs and increased imports of carpet into Australia ........... [197] Adverse impact of a strengthening in the New Zealand dollar.......................................... [229] The adoption of lean manufacturing techniques ............................................................... [242] The quality of Feltex’s relationship with major customers ................................................ [255] Carpet manufacturers have high break-even cost structures ............................................ [276]

CMisleading or unreasonable assumptions in predicting future performance ................ [280] Existing customers will continue to trade with Feltex at their current level ..................... [297] No change in competitive markets and industry conditions .............................................. [301] No change in the level of imported carpet ........................................................................ [304] Raw material costs, carpet selling prices.......................................................................... [307] Feltex’s market share would grow by one per cent ............................................................[311] The FY2005 projection was not reasonably…

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 [2014] NZHC 2229
Case: [2014] NZHC 2229
Decision Date: 15 September 2014

CaseChat Overview and Summary

Eric Houghton, the representative plaintiff for a class of shareholders, sued various defendants for alleged misleading conduct in relation to a prospectus issued by Feltex Carpets Limited, a carpet manufacturer, in May 2004. The prospectus was issued for an initial public offering of Feltex shares. Mr Houghton subscribed for shares in the IPO and subsequently bought more on market. He was one of many shareholders who lost their investment when the company was placed in liquidation in December 2006. Mr Houghton's case was brought on behalf of other shareholders who acquired shares in the IPO and suffered loss on that investment. Mr Houghton's claim was brought in four causes of action against six defendants. The first cause of action was a claim for breach of the Fair Trading Act 1986. The second was for a breach of the Securities Act 1978 by Mr Magill as the only executive director. The third cause of action was a claim for breach of the Securities Act 1978 against all defendants. The fourth was a claim for negligent misstatement against all defendants. The defendants denied all the allegations of misleading content and omissions. They also raised defences that the claims were time barred and that there was no duty of care in tort in the circumstances. The plaintiff failed to establish any material misleading content or omissions in the prospectus. The plaintiff also failed to establish any recoverable loss. The defendants were satisfied with the outcome of the case and the costs order.

Orders