Houghton v Saunders
[2019] NZCA 506
•11 October 2019 at 4.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA437/2019 [2019] NZCA 506 |
| 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 |
| Hearing: | 9 and 10 October 2019 |
Court: | Brown, Simon France and Hinton JJ |
Counsel: | C R Carruthers QC and P A B Mills for Appellant |
Judgment: | 11 October 2019 at 4.00 pm |
Reasons: | 18 October 2019 |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellant is to pay one set of costs to the first respondents and one set of costs to the second and third respondents, in both instances for a standard appeal on a band A basis with usual disbursements. We certify for two counsel in both instances.
____________________________________________________________________
REASONS OF THE COURT
(Given by Brown J)
Introduction
This is another interlocutory appeal in the “Feltex” litigation. It is against a judgment of Dobson J delivered on 15 August 2019 making orders for discovery and security for costs and ruling inadmissible parts of the evidence which the appellant proposes to lead from an economist, Mr Greg Houston.[1] On 11 October 2019 we delivered a results judgment dismissing the appeal.[2] Our reasons for doing so now follow.
Background
[1]Houghton v Saunders [2019] NZHC 2007 [High Court decision].
[2]Houghton v Saunders [2019] NZCA 491.
A combined investment statement and prospectus for an initial public offering (IPO) of shares in Feltex Carpets Ltd (Feltex), issued on 5 May 2004, contained a revenue forecast for the financial year ending 30 June 2004 (the FY04 revenue forecast) and a projection for the financial year ending 30 June 2005 (the FY05 projection) as follows:
| For the year ending | Forecast June 2004 $000 | Projection June 2005 $000 |
| Total operating revenue | 335,498 | 348,147 |
| Earnings before interest, tax, depreciation, amortisation and write-offs – EBITDA | 41,641 | 51,683 |
| Net surplus attributable to Shareholders | 10,113 | 23,889 |
Mr Houghton[3] brought proceedings under the Securities Act 1978 and the Fair Trading Act 1986 which included allegations that the FY04 revenue forecast and the FY05 projection were untrue statements and misleading and deceptive conduct. In August 2012 it was ordered that issues raised by the proceeding should be dealt with in two stages.[4] The first stage was to determine Mr Houghton’s own claim, together with the issues that were common to the claims of all the other shareholders whom he represented. The remaining issues arising for the other shareholders who had opted in were to be determined at the second stage.
The FY04 revenue forecast
[3]In a representative capacity for himself and others who had been allotted shares in Feltex and who opted into the representative action.
[4]Houghton v Saunders [2012] NZHC 1828, [2012] NZCCLR 31 at [39].
The first stage culminated in the Supreme Court’s decision in Houghton v Saunders[5] upholding this Court’s finding that the FY04 revenue forecast was untrue at the time of allotment of the shares offered for subscription.[6] Consequently the second stage of the trial, scheduled to commence in the High Court on 4 November 2019, will address, among other issues, whether any of the investors represented by Mr Houghton suffered loss by reason of the untrue statement concerning the FY04 revenue forecast and, if so, the quantum of such loss.[7]
The FY05 projection
[5]Houghton v Saunders [2018] NZSC 74, [2019] 1 NZLR 1 [Supreme Court decision] at [231].
[6]Houghton v Saunders [2016] NZCA 493, [2017] 2 NZLR 189 [Court of Appeal decision] at [204].
[7]Supreme Court decision, above n 5, at [383].
The appellant’s challenge to the FY05 projection was rejected by the High Court.[8] Noting that the appellant’s criticism of the FY05 projection as unreasonable relied in part on the circumstances surrounding profit downgrades for Feltex announced on 1 April and 20 June 2005,[9] Dobson J identified the inference he was invited to draw as being that adverse changes must have been readily predictable in May 2004.[10] This ought to have required the directors to adopt a more cautious approach in their projection for FY05.[11] The Judge stated:[12]
That is classic hindsight thinking. Reflecting on the totality of evidence as to the position as assessed by the directors at the time of the prospectus, I am not persuaded by the plaintiff’s arguments that the approach the directors adopted in light of all the information available to them at the time was unreasonable.
[8]Houghton v Saunders [2014] NZHC 2229, [2015] 2 NZLR 74.
[9]At [331].
[10]At [333].
[11]At [333].
[12]At [334].
Dobson J concluded:[13]
Having regard to all of the information available to the directors at the time the prospectus issued, and in light of the relative thoroughness of the process undertaken to arrive at those projections, I am satisfied that the assumptions relied on, and the projected numbers in the FY2005 projection, were reasonably open to the directors. It follows that they were not misleading.
[13]At [337].
This Court considered that the Judge’s reasoning could not be faulted.[14] An appeal to the Supreme Court on this issue was also dismissed.[15] However, because of the significance which it assumed in the admissibility argument, it is convenient at the outset to record the Supreme Court’s analysis concerning the FY05 sales projection:
[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 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.
[265] As pointed out in the Courts below, however, the evidence called by Mr Houghton did not challenge the reasons given for assuming an increase in revenue. We are thus not in a position to examine their validity or otherwise. While the sales revenue shortfall against projection began immediately in July and worsened over the next months, there are dangers in judging by hindsight. The due diligence committee and the directors did have information before them which suggested the market in FY05 would be buoyant.
[266] We are therefore not able to hold it proved that, at the time of the allocation of shares, the FY05 sales revenue projection was not reasonably assessed as within the range of possible outcomes and thus an untrue statement.
(Footnotes omitted.)
Mr Houston’s instructions
[14]Court of Appeal decision, above n 6, at [122].
[15]Supreme Court decision, above n 5, at [373] and [384].
At the November hearing the claimants wish to rely on a report by Mr Houston dated 19 July 2019 (the initial report) and a supplementary report dated 5 August 2019 (the supplementary report) as evidence of the loss suffered by reason of the untrue statement.
The instructions to Mr Houston of 2 July 2019 in respect of his initial report were as follows:
Please provide an expert estimate as at 2 June 2004 as to whether and if so to what extent the Feltex IPO price would have been lower than the actual price at which shares were allotted to investors had Feltex announced that:
· In relation to its FY04 revenue forecast:
>the FY04 revenue forecast was no longer a probable outcome;
>the assumptions on which the FY04 revenue forecast were based were no longer reasonable;
>the sales revenue in January 2004, February 2004, April 2004 and May 2004 were bad; and
>total sales for FY04 year were likely to be between $7.5 million and $9 million below the forecast annual total;
· in relation to its FY05 revenue projection:
>it was unrealistic to consider that Feltex could achieve the level of sales projected for FY05;
>a 4.7 per cent increase for FY05 revenue was ambitious, and ‘even more so’ after the results in April 2004 and May 2004; and
>the FY05 sales revenue projection was reasonably within the range of possible outcomes.
In the initial report the content of the postulated announcements in relation to the FY04 revenue forecast and the FY05 revenue projection were described respectively as “the FY04 revenue information” and “the FY05 revenue information”. The content of the assumed announcement relating to the FY04 revenue forecast derived from the Supreme Court’s finding that it was an untrue statement. In the case of the assumed announcement concerning the FY05 revenue projection, it was acknowledged by the appellant that the source was [263]–[264] of the Supreme Court’s judgment.[16]
[16]At [7] above.
Section 5 of the initial report addressed the price effect of the FY04 revenue information while section 6 addressed the price effect of the FY05 revenue information. Section 7 was directed to the “total value of the FY04 and FY05 revenue information”. No admissibility objection was taken to section 5 of the report although we were informed that the conclusions will be contested. However the respondents objected to the admissibility of section 6 and that part of section 7 which addressed the FY05 revenue information.
The instructions to Mr Houston of 1 August 2019 to provide a supplementary report stated:
Please provide a supplementary expert report addressing as at 2 June 2004 the following three questions in relation to the analysis that you presented in your earlier report, ie:
1. How would the values presented in table 7.1 of the First Houston Report change if you were to apply the estimated market response to the change in FY05 revenue announced on 1 April 2005, as derived at paragraphs 211 to 212 of the First Houston Report?
2. What is your estimate of the value of the FY04 and FY05 revenue information under an assumption that Feltex’s FY05 revenue was to be less than its FY04 revenue by either 2 per cent or 3.8 per cent?
3. How would the values presented in tables A.1 and A.2 of the First Houston Report change if Feltex was assumed to cease to be a going concern from FY06, with a terminal value of either:
a. zero; or
b. 49.136 million — ie, the net tangible asset value forecast as at June 2004 as presented at page 87 of Feltex’s prospectus.
The respondents’ interlocutory application
The respondents sought a ruling on the admissibility of section 6 of Mr Houston’s initial report together with that part of section 7 that addressed the FY05 revenue information. They also challenged the entirety of his supplementary report. In addition they sought orders for particulars of the individual claims for claimants whose cases were to be determined at the second stage of the trial, orders consequent on non‑compliance with previous discovery orders and further directions consequent upon non-compliance with prior orders for security for costs in respect of the stage two trial.
The High Court judgment
The admissibility of the Houston reports
The respondents argued that the instructions to Mr Houston in respect of the FY05 revenue information were misconceived. Mr Houghton had failed to establish the FY05 projection constituted an untrue statement. An opinion on the financial impact of the FY05 revenue information would require revisiting that stage one final determination. On grounds of issue estoppel and res judicata the respondents submitted it was not open to the claimants to raise arguments that had that consequence.
Mr Carruthers QC countered that Mr Houston’s analysis of the FY05 revenue information did no more than assess the impact on the Feltex share price of the knock-on effect on the FY05 revenue projection which was necessarily rendered less reliable by the acknowledgement required of the directors that their FY04 revenue forecast was materially overstated.
The difficulty which Dobson J saw with that submission was that it treated the absence of disclosure by the directors on 2 June 2004 of the FY05 revenue information as non-compliant disclosure, such categorisation being contrary to the findings of all courts that the FY05 revenue projection did not contain any untrue statement. He stated:
[71] I am unable to accept Mr Carruthers’ characterisation that [Mr Houston’s valuation exercise in response to the instruction concerning the FY05 revenue information] is a component of calculating the impact of the FY04 revenue information by factoring in some knock-on effect on the market’s assessment of other aspects of the prospectus. The outcome of Mr Houston’s analysis of the FY05 revenue information reflects the separate impact on the market price for Feltex shares on 2 June 2004 that is said to arise from the market not knowing the FY05 revenue information.
Consequently the Judge concluded that the FY05 revenue projection component of Mr Houston’s initial report was not relevant, nor in terms of s 25 of the Evidence Act 2006 was it likely to be substantially helpful in determining the loss that the claimants could establish as arising from the untrue statement in the prospectus.[17]
[17]High Court decision, above n 1, at [73]–[74].
Similarly the Judge accepted the respondents’ objection that the supplementary instruction to Mr Houston depended on a factual premise for which there was no relevant basis. It followed that his opinions on the additional propositions could not be substantially helpful in resolving the stage two issues.[18]
Discovery
[18]At [80].
The Judge recorded that all the stage two claimants will contend that, had they known of the untrue statement in the prospectus at the time they committed to purchase their shares, they would have reversed their investment decision.[19] Consequently the individual circumstances in which they proceeded with the purchases and then retained the shares would be relevant. The respondents’ complaint was that the number of documents disclosed was improbably small with inadequate details of the extent of searches undertaken to locate documents. In a number of cases it was said that the only open document disclosed was the opt in form completed by shareholders to join the representative action.
[19]At [8].
After reviewing in some detail the extent of discovery provided by several claimants, the Judge directed each stage two claimant to file a supplementary discovery affidavit by 28 August 2019 addressing the following matters:[20]
(i)particulars of the steps taken to search for relevant documents, including identification of the categories of documents searched for;
(ii)parts 4 and 5 as prescribed in the form in the High Court Rules 2016; and
(iii)discovery of categories of documents that had been requested in a letter from Gilbert Walker to the claimants’ solicitors dated 13 April 2019, the relevant component of which is annexed to this judgment as schedule A.[21]
Security for costs
[20]At [37] and [4(b)].
[21]Schedule A listed six categories of documents which applied to investors in all sub-groups and two additional categories for sub-group B investors.
In a judgment of 14 June 2019 Dobson J directed that security for costs for the stage two hearing of $1.65 million was to be provided by 12 July 2019 in the form of either cash lodged in Court or a solicitor’s trust account or, by agreement between the parties, a bond or a bank guarantee.[22] There was no appeal from that order.
[22]Houghton v Saunders [2019] NZHC 1362.
Security not having been provided, the respondents at the hearing on 8 August 2019 proposed the provision of alternative forms of security, either by the larger of the stage two claimants or by means of an order attributing personal liability to Mr Gavigan as the alter-ego of the litigation funder.
After canvassing the options with counsel during the hearing, Dobson J issued a minute on 9 August 2019 setting out the provisional form of an order for alternative modes of security in the following terms:[23]
[1] The claimants have until 16 August 2019 to provide security in terms of my costs judgment for the sum of $1.65 million in relation to stage two. I do not discount the possibility that an ATE policy covering adverse costs orders against the claimants in a sum of not less than $1.65 million, provided by an underwriter whose obligations are enforceable in New Zealand and who is deemed reputable and solvent, would be a sufficient form for the security that has been ordered.
[2] If the security as contemplated is not provided by 16 August 2019, then by 23 August 2019 the following alternative to the security previously ordered is to be provided. A number of the largest claimants, being between three and six of them at the claimants’ option, are to provide security severally for the respective portion that each represents of the total of the claims of those contributing, for a total of $1.65 million. Such security is to be provided in cash or by way of bank bond.
[3] In the event that this alternative becomes necessary, then the defendants are also to have the benefit of a guarantee in their favour from Mr Anthony Gavigan, payable on the default by any of the claimants of their several liabilities of the total of $1.65 million.
[4] If the substitute forms of security described in [2] and [3] above become necessary, then the claimants may at any point thereafter, apply to be released from that form of security on provision of the security in favour of the defendants for the sum of $1.65 million in the form originally contemplated or such alternative form as may be reasonably acceptable to the defendants.
[5] In the event that the stage two security is not resolved by 23 August 2019 by one of the specified alternatives, then the defendants will be at liberty to apply at short notice for a stay of the proceedings on whatever terms are contended as appropriate. As discussed with counsel, given the length of the history of this matter and the extent of steps taken since the Supreme Court judgment in August 2018, once a stay is in contemplation, I am unlikely to be persuaded to grant a temporary stay on any open-ended basis.
[23]Houghton v Saunders HC Wellington CIV-2008-409-348, 9 August 2019.
The judgment under appeal recorded that on 13 August 2019 counsel for the claimants advised that they did not seek amendment to the proposed terms while foreshadowing that arrangements were still in train to provide security as previously indicated. The memorandum materially stated:
2.In terms of paragraph [2] of the Minute, the plaintiff has no comment on the terms of the orders which Your Honour proposes. As far as the plaintiff is concerned, they will achieve their intended effect.
3.The plaintiff intends to provide security in terms of paragraph [1] of the proposed orders by 16 August 2019.
In a memorandum of 14 August 2019 the respondents proposed an additional paragraph which the Judge adopted in the orders ultimately made.
Issues on appeal
Although the judgment also contained a direction requiring further particulars of a claim which was challenged in the notice of appeal, that aspect of the appeal was abandoned. Hence the agreed issues on appeal were:
(a)whether section 6 and that part of section 7 of Mr Houston’s initial report that addressed the FY05 projection and the entirety of his supplementary report were admissible;
(b)whether the Judge erred in deciding that the discovery provided by the claimants whose claims are proposed to be determined at stage two of the proceeding was insufficient; and
(c)whether the Judge was entitled to make the orders for security for costs to be provided in the alternative forms at [2]–[4] in [23] above.
The admissibility of Mr Houston’s reports
Appellant’s submission
Mr Carruthers disavowed any attempt to rely on the FY05 projection as being an untrue statement. Rather it was the appellant’s case that the untrue statement in respect of the FY04 forecast had a repercussion or “knock-on” effect on the other financial information in the prospectus and in the marketplace as at 2 June 2004, particularly the FY05 projection and broker commentary on the expectations for future cash flows of Feltex from 2 June 2004 onwards.
Mr Carruthers explained the chain of causation from the untrue statement in relation to the FY04 revenue information to losses by shareholders in this manner:
· the untrue FY04 revenue forecast caused a direct loss as valued by Mr Houston;
· however, in addition, the FY04 revenue information (being the extent of the untruth) caused the reasonableness of the FY05 revenue projections to change in terms expressed by the Supreme Court at [264]; and
· the change in the reasonableness or reliability of those projections was negative and established a further source of loss to Feltex shareholders.
As Mr Carruthers put it in his written submissions:
29. Without wanting to tangle with what was or was not a compliant disclosure in relation to the FY05 revenue information, the simple point is that the FY04 revenue information — had it been disclosed — would have changed investors’ assessment of the FY05 revenue projection (irrespective of what may or may not have been disclosed about those projections). The Supreme Court’s findings in relation to those projections (which formed the basis for the FY05 revenue information) are stated in terms of how investors would likely have interpreted those projections.
Respondents’ submission
Mr Galbraith QC for the first respondents argued that section 6 (and relatedly section 7) of Mr Houston’s initial report were based on a mistaken interpretation of observations made by the Supreme Court. The words relied on by the appellant at [263]–[264] were not findings or even steps in the Court’s reasoning but simply an articulation of Mr Houghton’s arguments. The supplementary report was inadmissible because it responded to three additional questions each of which necessarily assumed the disclosure at 2 June 2004 of additional corrective disclosure for which there was no evidential foundation and no relevant finding of an untrue statement. Opinion evidence as to loss said to arise from undisclosed information about the FY05 projection was therefore irrelevant to the issue of loss to be determined at stage two.
Consequently he submitted Dobson J was correct to conclude that a Court could not therefore obtain “substantial help” from opinion evidence prepared in reliance on the assumptions the subject of Mr Houston’s instructions. In particular it was submitted that the phrase “change in reasonableness” in the second step of Mr Carruthers’s chain of causation[24] was not only a clear and impermissible attempt to resurrect the unsuccessful challenge to the FY05 projection but also it did not accurately describe Mr Houston’s proposed evidence. Indeed Mr Galbraith submitted that the appellant’s core submission, that “no part of [Mr Houston’s] analysis turns on an implied obligation to disclose the FY05 revenue information”, asserted nothing less than the very opposite of what Mr Houston did and was instructed to do.
[24]At [27] above.
For the second and third respondents Mr Smith QC made the point that the hypothetical FY05 corrective disclosure not only contained a different set of information to the FY04 disclosure but aimed to “correct” a different part of the prospectus, that is the true FY05 projection. Its value impact was estimated as a distinct valuation exercise, using different valuation methods. The only changes in the supplementary report were to the estimated price impact of the hypothetical FY05 corrective disclosure but, as Dobson J noted, the price impact of the FY04 corrective disclosure was held constant from the initial report.
Mr Smith observed that the words “knock-on” or similar did not appear in Mr Houston’s evidence which was unsurprising given the instructions. He reiterated the point that those instructions cherry-picked observations (not findings) from the Supreme Court’s judgment. He cautioned that split trials are fundamental to the operation of representative proceedings but unless the courts are vigilant to avoid collateral retrospective attacks on liability findings the procedural value of split trials will be compromised.
Discussion
The Supreme Court held that, judged at the time of the due diligence committee meeting on 2 June 2004, the extent of the likely revenue shortfall for FY04 meant that the FY04 revenue forecast was no longer the probable outcome and the assumptions on which the forecast was based were no longer reasonable.[25] In order to avoid the FY04 revenue forecast in the prospectus being untrue, the directors would have had to disclose that information (described by Mr Houston as the FY04 revenue information). Mr Carruthers’ argument is that, had that been disclosed, it would have changed the investors’ assessment of the FY05 revenue projection.
[25]Supreme Court decision, above n 5, at [231].
The respondents did not challenge the proposition that there may be a repercussion or knock-on effect from the disclosure of the FY04 revenue shortfall, describing the proposition as in itself neither controversial nor disputed. They accepted the observation of Dobson J that the knock-on effect on the market’s view of the reliability of the FY05 revenue projection may well be a component of the market’s reaction to disclosure of the untruth of the FY04 revenue forecast.[26] They contended that an event study such as that undertaken by Mr Houston in section 5 of his initial report necessarily incorporates and captures any investor perceptions concerning the reliability of the FY05 projection.
[26]High Court decision, above n 1, at [72].
However the respondents’ complaint is that in section 6 Mr Houston assesses not the knock-on effect of the FY04 revenue information but rather an additional “loss” arising from additional “corrective disclosure” for FY05 for which there is no foundation. They say his instruction to do so was misconceived. The Judge’s acceptance of that proposition[27] was attacked by Mr Carruthers as a mischaracterisation of Mr Houston’s analysis. He submitted that no part of that analysis turned on an implied obligation to disclose the FY05 revenue information.
[27]At [71], set out at [16] above.
That submission is not consistent with Mr Houston’s stated understanding of his instruction. In his initial report he said:
136The FY05 revenue information amounts to a disclosure that, although it was possible that Feltex could achieve its FY05 sales revenue projection, this was unrealistic, ambitious and “even more so” after the sales results for April 2004 and May 2004.[28] …
He proceeded to explain his instruction in this way:
137I have been asked to estimate the price effect of the FY04 and FY05 revenue information, under the assumption that Feltex disclosed all of this information to the market on 2 June 2004. In my opinion, in light of the FY04 revenue information conveying a shortfall in FY04 revenue, an announcement that Feltex’s FY05 revenue projection was ambitious and “even more so” after the results in April 2004 and May 2004 would have caused market participants to revise their estimates of FY05 revenue downwards.[29] …
[28]Referencing [264] of the Supreme Court’s decision, above n 5.
[29]Again referencing [264].
When it was put to Mr Carruthers that the analysis by Mr Houston flowed from the premise of an announcement in June 2004 about the FY05 revenue projection, he responded that the three components of the assumed announcement in Mr Houston’s instruction were distilled from the Supreme Court’s judgment. He contended that Mr Galbraith and Mr Smith had attacked the significance of the Supreme Court’s findings, particularly in relation to the FY05 projection.
In his comments in reply he advanced the proposition that, while the Supreme Court had ruled that the FY05 projection did not qualify as an untrue statement, the Court had in fact upheld the criticisms of the projection. As he put it:
[The FY05 projection] has not been proved to be an untrue statement. Now that is a very significantly different position from saying that the Supreme Court didn’t criticise the underlying basis on which the FY05 projection was made because the Supreme Court deliberately did that by upholding Mr Houghton’s evidence.
However we agree with the respondents that the Supreme Court’s comments at [263] and [264] were not “findings”. They were observations made in the course of a discussion which led to the rejection of the appellant’s claim that the FY05 revenue projection contained an untrue statement.
The point is most clearly demonstrated by reference to the first of the three assumed FY05 disclosures in Mr Houston’s initial instructions, namely that it was unrealistic to consider that Feltex could achieve the level of sales projected for FY05.[30] While recognising Mr Houghton’s contention, it is plain that the Supreme Court did not conclude that the FY05 sales revenue projection was unrealistic as at 2 June 2004. Had it done so it could not also have found that the FY05 sales revenue projection was reasonably within the range of possible outcomes, namely the third assumed item of FY05 disclosure. We accept Mr Galbraith’s submission that an unrealistic projection would necessarily be unreasonable and hence untrue.
[30]While the third assumption is not in itself precluded by res judicata (in fact it is the Court’s finding) and the second may not be, the first is clearly the overriding basis for Mr Houston’s section 6 analysis.
Hence we accept the respondents’ submission that it follows from the principles of issue estoppel and res judicata that the appellant cannot advance a claim for loss at the stage two trial that relies on facts which are inconsistent with the findings made at stage one. As the England and Wales High Court remarked in Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd:[31]
There are other instances in which [the claimant’s] case at this quantum trial wholly ignored earlier findings of the High Court that did not suit it, not least the approach of its accountancy expert … It goes without saying — or rather, it should — that quantum trials that follow detailed liability findings by the court ought to treat those findings as what they are, namely the final resolution of that particular component of the litigation between the parties.
[31]Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd [2018] EWHC 1577 at [8].
Consequently we affirm the Judge’s finding that section 6 and section 7 (to the extent it addresses the FY05 revenue information) of Mr Houston’s initial report are inadmissible and do not satisfy the requirement of substantial helpfulness in s 25 of the Evidence Act. The supplementary report is similarly inadmissible for the reasons earlier noted.[32]
[32]At [29] and [31] above.
From time to time objections to admissibility will be held over to trial, whether on account of benevolence, caution or some other reason. That is not an appropriate avenue here where there has been a ruling below with which we find no error and where the costs associated with obtaining evidence in response may not be recoverable given the uncertainties in relation to security for costs.
Further discovery
Appellant’s submissions
The appellant contended that discovery orders in respect of categories 1, 2 and 3 in Schedule A to the judgment under appeal were unnecessary because discovery had been made in compliance with the High Court Rules 2016 by those claimants whose claims were scheduled to be heard at the stage two hearing. However categories 4, 5 and 6 were said not to be matters in respect of which discovery was relevant. Hence direction (iii)[33] was unnecessary.
[33]At [20] above.
With reference to items (i) and (ii) it was argued that cls 10 and 11 of the standard form of discovery affidavit were inapplicable; in the case of cl 10, the claimants do not consider that there are “persons” now in control of documents which have ceased to be in the claimants’ control; so far as cl 11 is concerned, the claimants do not know of documents which would be discoverable if the claimants had control of such documents.
Respondents’ submissions
The burden of the argument in support of the discovery order was borne by Mr Olney. He reviewed the adequacy of discovery by a number of the stage two claimants, reiterating the Judge’s analysis and pointing out that the appellant’s written submissions did not address the concerns identified. He emphasised that the orders made should properly be viewed as an appropriate exercise of case management by an experienced Judge highly familiar with the case.
The first respondents supported that submission, observing that the pursuit of this aspect of the appeal was puzzling given the abandonment of the appeal against the direction that the claimants should provide specific pleadings.
Discussion
In Ashmore v Corp of Lloyd’s Lord Templeman observed:[34]
… the appellate court should be reluctant to entertain complaints about a judge who controls the conduct of proceedings and limits the time and scope of evidence and argument. So too, where a judge, for reasons which are not plainly wrong makes an interlocutory decision or makes a decision in the course of a trial the decision should be respected by the parties and if not respected should be upheld by an appellate court unless the judge was plainly wrong.
[34]Ashmore v Corp of Lloyd’s [1992] 1 WLR 446 (HL) at [453]–[454].
Ashmore was cited by this Court in Knauf Insulation Ltd v Tasman Insulation New Zealand Ltd where it was said:[35]
[10] Third, both interlocutory judgments relate to matters of case management which are appropriately resolved by the trial court and nothing raised before us suggests the Judge has adopted the wrong approach. Appellate courts should be, and traditionally have been, reluctant to interfere with an interlocutory decision unless it is such as to effectively resolve the case or has such a substantial impact on the trial that it would be unfair to require the appellant to wait until after the trial to pursue it. That is not the case here.
[35]Knauf Insulation Ltd v Tasman New Zealand Ltd [2013] NZCA 427, (2013) 21 PRNZ 535.
Particularly given the context of the challenged discovery orders, having been crafted in the interval between the two trial phases and by a Judge who has been involved throughout the litigation, we consider it proper to address this aspect of the appeal with the traditional restraint applicable to the trial court’s case management function.
We do not perceive any error in the nature and scope of the discovery orders. They appear designed to facilitate the resolution of the stage two issues. At least to some extent the discovery task would appear to have a connection with the further particulars of the claims which the Judge directed, the provision of which is no longer resisted. And if it transpires there are no documents of the nature specified in the order, then there will be nothing to discover.
Security for costs
Appellant’s submissions
The appellant contended that the security for costs orders were inappropriate to the extent that they required stage two claimants and Mr Gavigan, as the director of Joint Action Funding Ltd, to provide security for costs. Citing Jupiter Air Ltd (in liq) v Australian Aviation Underwriting Pool Pty Ltd Ms Mills submitted that security for costs may not be ordered against a non-party, even though costs orders can be made.[36]
[36]Jupiter Air Ltd (in liq) v Australian Aviation Underwriting Pool Pty Ltd (2002) 16 PRNZ 702 (HC).
Ms Mills also invoked Oxygen Air Ltd v LG Electronics Australia Pty Ltd as authority for the proposition that, although a director of a litigant company may voluntarily undertake to provide personal security on the company’s behalf, an order for security cannot be made against the director.[37] Reference was made to a decision of French J delivered on 8 June 2011 at a much earlier stage in this litigation in which it was said that she ruled that security for costs may not be ordered against Joint Action Funding Ltd or a qualifying shareholder which is a non-party.[38]
Respondents’ submissions
[37]Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2018] NZHC 2504, [2018] NZAR 1699.
[38]Houghton v Saunders (2011) 20 PRNZ 509 (HC).
Mr Cooper assumed the burden of the security for costs argument, making five points:
· the terms of an order for security for costs is a trial management issue;
· in substance the order challenged gave the appellant an opportunity to satisfy the security obligation in an alternative way;[39]
· the issue is now moot as the appellant chose not to take up the option available. No sanction followed from the appellant’s choice and there is no longer a live issue between the parties;
· contrary to the appellant’s argument, there was jurisdiction to make the order; and
· the order which the Judge proposed was in effect consented to.
Discussion
[39]Mr Cooper expressly accepted that the alternative security orders were not made against the claimants or against Mr Gavigan and could not be enforced against them.
Save to the extent to which the issues raise a question of jurisdiction, we view this matter as also one of trial management. We do not propose to prolong this judgment and delay the release of our reasons by exploring the jurisdiction debate. Suffice to say that in our view the appeal on this issue is answered by the second, third and fifth points advanced by Mr Cooper.
Result
The appeal is dismissed.
The first respondents sought costs for each separately represented first respondent together with certification for second counsel. We consider such an order is excessive on an interlocutory appeal. The appellant is to pay one set of costs to the first respondents and one set of costs to the second and third respondents, in both instances for a standard appeal on a band A basis with usual disbursements. We certify for two counsel in both instances.
Solicitors:
Antony Hamel, Dunedin for Appellant
Gilbert Walker, Auckland for First to Sixth Named First Respondents
Wilson Harle, Auckland for Seventh Named First Respondent
Russell McVeagh, Wellington for Second and Third Respondents
9
3
0