Houghton v Saunders HC Christchurch CIV-2008-409-348

[2011] NZHC 1440

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2008-409-348

BETWEEN  ERIC MESERVE HOUGHTON Plaintiff

ANDTIMOTHY ERNEST CORBETT SAUNDERS & ORS

First Defendants

ANDCREDIT SUISSE PRIVATE EQUITY INC Second Defendant

ANDCREDIT SUISSE FIRST BOSTON ASIAN MERCHANT PARTNERS LP Third Defendant

ANDFIRST NEW ZEALAND CAPITAL SECURITIES LTD

Fourth Defendant

ANDFORSYTH BARR LTD Fifth Defendant

Hearing:         30 September 2011 (Heard at Auckland)

Counsel:         A J Forbes QC and P A B Mills for the Plaintiff

D J Cooper and S East for First Defendants
No appearance for the Second and Third Defendants
D H McLellan for Fourth Defendant
A Challis for Fifth Defendant

Judgment:      7 October 2011 at 10:00 AM

JUDGMENT OF POTTER J

on application to transfer proceeding

In accordance with r 11.5 High Court Rules

I direct the Registrar to endorse this judgment with a delivery time of 10 a.m. on 7 October 2011.

HOUGHTON V SAUNDERS & ORS HC CHCH CIV-2008-409-348 7 October 2011

Solicitors:           Wilson McKay, Auckland - [email protected]

Bell Gully, Auckland –  [email protected]

Copy to:            A Forbes QC, Christchurch   – [email protected] and  [email protected]

D McLellan Auckland –  [email protected]

A Challis, Auckland - [email protected]

Introduction

[1]      By interlocutory application dated 20 June 2011 the first to third and fifth to seventh named first defendants1 (―the defendants‖), apply for orders that this proceeding be transferred to the Auckland registry and entered on the Commercial List.   Counsel confirmed that the application has two limbs: first to transfer the proceeding to the Auckland registry; secondly, to have it entered on the Commercial List.    If  the  Court  were  not  persuaded  to  exercise  its  discretion  to  enter  the

proceeding on the Commercial List, the defendants nevertheless seek transfer of the proceeding to the Auckland registry.

[2]      The second and third defendants (―Credit Suisse‖) note that Credit Suisse has no commercial presence in New Zealand and its solicitors are based in Wellington. They consider a transfer to Auckland would be ―marginally more convenient‖  for Credit Suisse but do not take a position.   The fourth defendant, First NZ Capital Securities Limited (―FNZC‖) and the fifth defendant, Forsyth Barr Limited (―Forsyth Barr‖) also support the application on the grounds of convenience.

[3]      The plaintiff opposes the application on a number of grounds set out in the notice of opposition dated 13 July 2011.

[4]      The application was heard by me, a Commercial List Judge, under r 29.14 of the High Court Rules.

Nature of proceeding

[5]      The plaintiff, Mr Houghton, is a former shareholder of the failed company Feltex Carpets Ltd (―Feltex‖).  He brings a representative proceeding on behalf of himself and approximately 1800 shareholders against the former Feltex directors and other entities associated with a public float share issue that took place in May/June

2004.  The claim primarily centres on the prospectus issued on 5 May 2004 which

1      The application is brought by all first defendants other than the fourth named first defendant Mr Craig Edgeworth Horrocks who is separately represented. Counsel for the defendants advised that Mr Horrocks supports the application.

Mr Houghton alleges contained untrue and misleading statements.  The initial public offer allotment date was 4 June 2004.

[6]      According to the plaintiff, the Feltex share float raised more than $250m. However, less than a year later on 31 March 2005, Feltex announced a downgrading of the profit that had been forecast in the prospectus.  In October 2005, the directors reported a loss of $400,000 for the second half of the financial year and a full year result of $11.8m, compared with a projected profit of $25.8m.  By March 2006 the shares, issued at $1.70 per share following a book build process, had declined to an approximate value of 60 cents per share.   In September 2006 receivers of Feltex were appointed.  The company was placed in liquidation on 13 December 2006.  All

$254m in shareholder value was lost, with creditors owed approximately $30-40m.

[7]      Mr A J Gavigan, who did not hold shares in Feltex, incorporated a company

Joint Action Funding Ltd (―JAFL‖) as a vehicle to fund this litigation.

[8]      The proceeding was filed in the Christchurch registry of the High Court because Mr Timothy Saunders, the first named defendant who was formerly the Chairman of Directors of Feltex, resides near Christchurch.  All procedural matters in relation to the proceeding have been under the control of French J in the Christchurch registry.  She has issued a number of minutes and judgments, to which I subsequently refer.   One of her judgments was appealed and a recent judgment, issued on 8 June 2011, has also been appealed and awaits hearing by the Court of Appeal.

Relevant High Court Rules

[9]      Rule  5.1(1)(a)  provides  that  the  proper  registry  of  the  Court,  where  a proceeding must be commenced by filing a statement of claim under r 5.25(1), is the registry nearest to the residence or principal place of business of the first named defendant, when there are two or more defendants.  Under this rule the proceedings were filed in Christchurch.

[10]     Relevant to the defendants‘ application for change of venue are the following provisions.

[11]     Rule 5.1(5) provides:

(5)       If it appears to a Judge, on application made, that a different registry of the court would be more convenient to the parties, he or she may direct that the statement of claim or all documents be transferred to that registry and that registry becomes the proper registry.

[12]     Rule 10.1 provides:

10.1     Venue and changing it

(1)       The place of trial is the town where the registry of the court in which the statement of defence is to be filed is situated.

…

(4)       Despite subclauses (1) to (3), the court may at any time order that the proceeding be tried at a place—

(a)      that the parties consent to; or

(b)      where the proceeding can be more conveniently or more fairly tried.

(5)       When the court orders a change of venue, it may direct that all subsequent steps in the proceeding be taken at the place where the trial is to take place.

[13]     Relevant  to  the  defendants‘ application  to  transfer  the  proceeding  to  the

Commercial List, r 29.14 provides:

29.14   Proceedings in other registries

(1)       Despite rule 5.1, a plaintiff in a proceeding to which section 24B(1) of the Act2 applies may file that proceeding in a registry of the court at which a commercial list is established.

(2)       A defendant in a proceeding to which section 24B(1) of the Act applies may apply to a commercial list Judge for an order that the proceeding, if it may not be or has not been filed at a registry of the court where a commercial list is established, be transferred to that registry and entered on that list.

(3)       If subclause (1) is invoked or an order under subclause (2) is made, a commercial list Judge may give whatever directions the Judge thinks

2      Judicature Act 1908.

are just to minimise difficulties caused to any party arising from distance from the registry of the court at which the commercial list is established.

(4)       Without limiting subclause (4), a commercial list Judge may order that the trial, or part of the trial, or any interlocutory application be heard and determined in the registry in which the proceeding was originally commenced or at any other venue.

Procedural history

[14]     Before addressing the reasons advanced by the respective parties in favour of and against transfer of the proceedings to Auckland and entry in the Commercial List, it is necessary to summarise the considerable procedural history of this matter so the background and context in which the application is brought can be properly understood.

[15]     On 26 February 2008 the proceeding was commenced by the plaintiff filing in  the  Christchurch  registry  a  statement  of  claim  together  with  an  ex  parte application for orders that the plaintiff be a representative of all former shareholders in Feltex except those who elected to ―opt  out‖  of the represented group.  The ex parte application was granted by an Associate Judge.

[16]     In  a  four  day  hearing  in  July  2008  French  J  heard  five  interlocutory applications by the defendants:

(a)       To review and rescind orders for directions made by an Associate

Judge;

(b)To strike out three of the causes of action pleaded in the statement of claim;

(c)       To stay the proceeding as an abuse of process on the grounds of champerty;

(d)      For further particulars of the statement of claim; (e)    For security for costs.

[17]     The outcomes of these various applications were:

(a)      The opt-out procedure approved by the Associate Judge was replaced with an opt-in procedure whereby qualifying shareholders were given until 19 December 2008 to advise the Court they consented to being part of the proceeding.  The form of consent was to be prepared by the plaintiff and submitted to the Court for approval.

(b)      Two causes of action by the second plaintiff were struck out.

(c)       The stay of proceedings on the grounds of champerty was dismissed.

The Court found there was no abuse of process that would warrant a stay but reserved the right to keep the funding agreement (which the defendants had contended was champertous and constituted an abuse of process) under review as the proceeding progressed.

(d)The application for further particulars was adjourned to a date to be fixed following discovery and inspection.

(e)      The   application   for   security  for   costs   was   deferred   until   the composition and size of the represented class was determined.

[18]     French  J  noted  in  her  judgment  that  intensive  case  management  was appropriate to ensure a claim of this sort did not become bogged down in procedural arguments.3

[19]     The judgment was appealed by the defendants.

[20]     On 24 July 2009, French J issued a judgment on two further interlocutory applications by the defendants:4

3      Houghton v Saunders HC Christchurch CIV-2008-409-348, 7 October 2008 at [229].

4      Houghton v Saunders HC Christchurch CIV-2008-409-348, 24 July 2009.

(a)       For production of documents; and

(b)      For stay of the proceedings.5

[21]     The Judge noted that since her previous judgment: 6

... the plaintiffs have been in some disarray.

[22]     The opt-in consent form had been sent to shareholders in November 2008 without first being submitted to the Court for approval and the plaintiff ‘s solicitors, Wakefield & Associates, had been granted leave to withdraw in March 2009.  New solicitors had not been instructed until June 2009.  An amended statement of claim had been filed but no draft form of consent had been submitted for the Court‘s approval.

[23]     The outcomes of those applications were:

(a)       The application for production of documents was dismissed.    (The

plaintiff‘s claim to privilege was upheld).

(b)The application for an interim stay was granted pending the outcome of the appeal.   Her Honour referred to the disadvantages for the plaintiff if  a stay was  granted but  also  to  Mr Forbes‘ acknowledgement that the plaintiffs themselves had been guilty of delay.  The Judge concluded that on balance it was in the interests of justice for the stay to be granted.  She said:7

My primary reason for coming to that conclusion is the need to avoid confusion and ensure the orderly conduct of this proceeding.

[24]     On 18 December 2009 the Court of Appeal issued its judgment.8     The Court referred back to the High Court the representative nature of the claim for review in

5      Houghton v Saunders HC Christchurch CIV-2008-409-348, 24 July 2009.

6 At [9].

7 At [80].

8      Saunders v Houghton [2009] NZCA 610.

accordance with various directions given by the Court of Appeal, and maintained the stay pending review of the case by the High Court.

[25]     The   Court   of  Appeal   dismissed   the   defendants‘  appeal   against   the representation order and dismissal of their application for permanent stay but maintained the interim stay.  The cause of action alleging breach of fiduciary duty was struck out.

[26]     The Court of Appeal contemplated that the plaintiff would tender to the High Court and the defendants a draft amended statement of claim and that the High Court would then convene ―... an early conference to review the case‖.9

[27]     Once the draft pleading was tendered, the Court of Appeal anticipated there would be a hearing in the High Court to determine whether the interim stay should be lifted so the pleading could be filed.   The Court suggested that conditions of lifting the stay could be imposed ―... so that the funder is placed firmly under the control of the Court and required to act responsibly‖.  The High Court was to review all aspects and then decide ―... about the future of the litigation and the rules of the

game from now on‖.10

[28]     The Court of Appeal said:11

If the representation order is granted, in whatever form, the judge must maintain as the case develops a continuous appraisal of whether it should be sustained, varied, or rescinded.  The more the judge learns about the case the more discriminating and confident that continuing appraisal will be.  Indeed all elements of the representation and security orders and the approval of the funder and its terms should be regularly reviewed.

[29]     On 18 March 2010 French J directed that the draft amended statement of claim and draft opt-in consent form be tendered by 12 April 2010.   This was not done and at a subsequent telephone conference the Judge ordered the documents to

be filed by 30 April 2010. They were eventually filed in early May 2010.

9 At [110].

10 At [111].

11 At [40].

[30]     Following a hearing on 17 May 2010 French J issued a results judgment on

19 May 2010 which was followed by her reasons on 26 May 2010.12   She recorded that the delay in the plaintiff tendering a draft amended statement of claim was ―... particularly unsatisfactory because of an argument that some of the  claims may possibly be statute barred as at 2 June 2010‖13  (that date was subsequently amended to 4 June 2010 being six years after the date of the allotment of shares).  Because of that concern the application for lifting the stay was dealt with in two stages.  The first stage was to consider whether the stay should be lifted for the limited purposes of allowing an amended statement of claim to be filed and an approved notice sent to all qualifying shareholders.   The second stage was to consider the balance of the issues identified by the Court of Appeal.   The stay was lifted for those limited purposes and on specified conditions regarding the draft opt-in notice, including that

any communications from Mr Gavigan to prospective members of the class about the

proceeding were first to be approved by the plaintiff‘s legal representatives.

[31]     Following  a  further  hearing  in  November  and  December  2010  French  J issued an interim judgment dated 9 March 2011.14   On this occasion the Christchurch earthquake had intervened, rendering it impossible to issue a full judgment by the end of February 2011 as the Judge had intended.  In the interim judgment the Judge granted the plaintiff‘s application to lift the interim stay, subject to the plaintiff or JAFL making provision for security for costs in the sum of $200,000.  The judgment

also approved the representative order, and required Mr Gavigan to file an affidavit advising progress with prospective funders.   The judgment also recorded that the actual funder would be required to satisfy the Court that it had the means to pay the full costs of the litigation and that arrangements made with JAFL did not prejudice the rights of qualifying shareholders under the funding agreement with JAFL.  The

reasons for these rulings were given in a reserved judgment issued by French J.15

[32]     In that judgment French J noted that the current High Court Rules do not contain any specific class action rules such as exist in other jurisdictions and that in

the absence of any rules the Court itself had to fashion the type of safeguards for the

12     Houghton v Saunders HC Christchurch CIV-2008-409-348, 19 May 2010.

13 At [5].

14     Houghton v Saunders HC Christchurch CIV-2008-409-348, 9 March 2011.

15     Houghton v Saunders HC Christchurch CIV-2008-409-348, 8 June 2011.

defendants such rules might be expected to provide.16     In particular she said, the Court should ensure the funder is placed under the control of the Court and is required to act responsibly.

[33]     She referred to the defendants‘ submissions about the numerous delays by the plaintiff and to the fact that JAFL did not have funding available to meet the costs of the litigation which, the defendants submitted, was fatal to the stay being lifted. However, the Judge said that after very careful deliberations she considered the preferable course of action was to lift the stay and allow the claim to continue pending  the  outcome  of  the  negotiations  with  prospective  funders,  subject  to

provision of security for costs. 17   She also determined various strike out applications

by the defendants which resulted in the second cause of action against the Credit

Suisse directors being struck out.

[34]     In a minute of 20 July 2011, following a telephone conference with counsel, French  J  gave  directions  regarding  the  application  for  transfer  to  the Auckland registry in the Commercial List which is the subject of this judgment.  She also made timetable orders for filing by the plaintiff of a second amended statement of claim and the statement of defence, and for filing by the plaintiff of a notice of application under r 10.15 for separate trials

[35]     At the hearing of the transfer application I was advised that on Monday 3

October 2011 there was to be a hearing in the Christchurch Registry of the plaintiff‘s claims to confidentiality in respect of the JAFL agreement.  The scope of discovery would be determined by the outcome of that application.  (In the memorandum filed for the telephone conference on 20 July 2011, counsel for the plaintiff had outlined proposals for disclosure by the represented qualifying shareholders on a limited, representative basis).

[36]     Following the judgment of 8 June 2011, security for costs was provided on 19

June 2011.  The application for transfer to the Auckland Registry was made on 20

16 At [37].

17 At [86].

June 2011 and the appeal against the judgment of 8 June 2011 was filed by the defendants on 21 June 2011.

Pleadings

[37]     Since the Court‘s minute of 20 July 2011 the following pleadings have been filed:

(a)       Second amended statement of claim dated 22 July 2011;

(b)Statement of defence by first to third and fifth to seventh named first defendants dated 19 August 2011;

(c)       Amended statement of defence by second and third defendants dated

19 August 2011;

(d)      Statement of defence by fourth defendant dated 26August 2011. (e)   Statement of defence by fifth defendant dated 26 August 2011;

(f)       Plaintiff‘s application for order for a split trial under r 10.15 dated 16

September 2011.

Transfer of proceedings to Auckland Registry

[38]     The   defendants   rely   on   rules   5.1(5)   and   10.1(4)   and   contend   that considerations of convenience and cost support the application being granted.  The defendants submit:

(a)      Considerations of convenience do not simply mean the convenience of one party or the Court but rather the convenience having regard to the case in all its bearings: Consumer Council v Pest Free Service

Ltd;18

18     Consumer Council v Pest Free Service Ltd [1978] 2 NZLR 15, 19 (CA).

(b)      Issues of convenience are not affected by whether or not a party has

―waived‖ his or her right to file for a transfer of proceedings when convenience is the ground relied on for transfer: NZ Food Group (1992) Ltd v Diverse Holdings Ltd;19

(c)       The counsel and solicitors for the majority of parties are based in

Auckland:

(i)The solicitor and two of three counsel for the plaintiff are in Auckland.     Only  Mr  Forbes QC,  senior  counsel  for  the plaintiff, is based in Christchurch.

(ii)Solicitors and counsel for the first, fourth and fifth defendants are in Auckland.

(iii)     Solicitors   for   the   second   and   third   defendants   are   in

Wellington but have offices in Auckland.

(iv)JAFL, the promoter and organiser of the plaintiff‘s case has its registered office in Auckland and its sole director Mr Gavigan lives in Auckland.

(v)Of  the  parties,  only  the  first  named  first  defendant  Mr Saunders lives near Christchurch.  The representative plaintiff Mr Houghton lives near Nelson.

(vi)Auckland will be a more convenient venue for the significant majority of the witnesses to be called at trial (but Mr Cooper accepted in oral submissions that such an assertion could only be speculative at this stage).

(vii) Damage  and  disruption  caused  by  the  Christchurch earthquakes   is   likely   to   add   to   the   inconvenience   of

19     NZ Food Group (1992) Ltd v Diverse Holdings Ltd HC Christchurch CP34/00, 27 June 2000 at

[25].

Christchurch as a venue for further interlocutory hearings and the trial.   (Mr Cooper did not pursue this ground in oral submissions).

(d)A trial in Auckland would be substantially more convenient for the majority of counsel and also for witnesses and parties.   This would result in a significant saving in accommodation and other travel costs.

(e)      The delay in bringing this application (three years four months after the proceedings  were  commenced)  is  explained  by the  procedural history and the reasons for lack of progress to date.   It has not previously been practical to bring the application for transfer because the proceedings have been stayed from mid-2009 until June this year. The stay of proceedings was granted (at least in part) on the basis of delays and default by the plaintiff.   The plaintiff has contributed to delay by breaching timetable orders.   There is no avoidable delay attributable to the defendants who have complied with all timetable orders.

(f)      The essential issue has been ―... whether the claim can proceed at all and if so, on what terms‖.20     It would have been premature and inconsistent for the defendants to apply to move the proceeding to Auckland at the same time as arguing that the proceeding should not continue at all and seeking a permanent stay.   Only once that issue was determined and reasons given in the judgment of 8 June 2011 was

it appropriate to make application to transfer the proceedings.   That was done promptly on 21 June after security for costs was paid on 19

June 2011.

(g)The proceedings are at a very early stage.  There has been no order for discovery and none of the usual pre-trial interlocutory steps such as non-party discovery, particulars, interrogatories, notice to admit facts

etc.  No hearing date has been allocated.

20     Houghton v Saunders HC Christchurch CIV-2008-409-348, 8 June 2011 at [20].

[39]     The plaintiff says, as to the claim that the proceeding is at an early stage:

(a)      The pleadings have been finalised and all parties have now filed pleadings.21

(b)There have been numerous interlocutory applications filed to date, all except three by the defendants.22

(c)       Thirty  of  the  interlocutory  applications  have  been  dealt  with  by

French J in Christchurch.

(d)There have been 15 days of hearing leading to three substantive interlocutory judgments.

(e)       There have been 14 telephone conferences with French J.

(f)      There have been two appeals against the judgments of French J, the first of which was the subject of the judgment of the Court of Appeal dated 18 December 2009, the second of which has yet to be heard.

(g)There has been close case management of the proceeding throughout by French J. She has considerable background knowledge of the case.

(h)There are further interlocutory applications in the pipeline – the confidentiality application to be heard on Monday 3 October 2011 and the application under r 10.15 for split trials.

[40]     As to convenience of the parties, the plaintiff submits:

(a)      Counsel  for  three  of  the  six  parties  are  not  based  in  Auckland, including senior counsel for the plaintiff, Mr Forbes.

21 See [37] above.

22     The plaintiff claims some 30 interlocutory applications have been filed but as a  summary provided by the defendants shows, there have been six sets of interlocutory applications made. These were made by six of the first defendants, by the fourth first defendant Mr Horrocks and also, in most cases, by the second, third, fourth and fifth defendants.

(b)The plaintiff wants the proceeding to remain in Christchurch where it was properly filed.

(c)      Under r 10.1(4) the Court must be affirmatively satisfied that overall the proceeding can more conveniently and fairly be tried elsewhere. Convenience to counsel has been accorded somewhat less prominence than that of the parties and witnesses in recent years.23

(d)It  is  a  matter  of  speculation  at  this  stage  where  the  majority  of witnesses are likely to come from.  (Mr Cooper accepted this in oral submissions).

(e)      Neither the plaintiff nor the second and third defendants are based in Auckland.  The plaintiff lives in Nelson.  Three of the first defendants reside  in  Melbourne  and  Mr  Saunders  resides  near  Christchurch. Some 30 per cent in number and 58 per cent in value of the current

1800 represented complainants reside in or south of the Wellington region and fewer than 20 per cent by number and value reside in the Auckland region.

(f)      Hearing time for the trial, estimated to take six to eight weeks, is likely to be available in Christchurch sooner than in Auckland. (Information obtained from the respective Registries showed a difference of approximately six months from setting down, in favour of Christchurch).

(g)Christchurch  is  New  Zealand‘s  second  largest  international  airport with frequent daily flights available to all those who may be required to attend the hearing.

(h)The interim stay ordered by French J on 24 July 2009 did not arise solely  as  a  consequence  of  the  defaults  of  the  plaintiff.     The

defendants had appealed the judgment of French J dated 7 October

23     Mosaed v Mosaed (1990) 2 PRNZ 327, 7 FRNZ 266 at 351; Prudential Insurance Co NZ Ltd v

Slater (1990) 4 PRNZ 639 at 642.

2008 and the interim stay was to avoid confusion and ensure the orderly conduct of the proceeding.

(i)There has been no significant default by the plaintiff since the first amended statement of claim was filed on 24 May 2010 in accordance with the Court‘s directions in May 2010.

(j)All future steps in the proceeding and all communications with the claimants or to or through the media or posted on a website are to be made after reference to the plaintiff‘s counsel.   There is express provision in the JAFL agreement to this effect (as required by the Court) and this has occurred.

(k)The defendants could have applied to transfer the proceeding at any time between the proceeding being commenced in February 2008 and the interim stay in July 2009.  Further, they could have sought leave to file a transfer application after the interim stay was ordered.   They clearly did not consider there was a proper basis for doing so earlier, and there is not a proper basis for doing so now.

(l)       The defendants have appealed the judgment of French J dated 8 June

2011 and are still maintaining that the claim should be permanently stayed. The inconsistency in their position remains.

Application to enter proceedings on the Commercial List at Auckland

Eligibility for commercial list

[41]     Section 24B(1) of the Judicature Act 1908 lists the classes of proceedings eligible for entry on a Commercial List as follows:

(a)       Any proceedings arising out of or otherwise relating to:

(i)       The ordinary transactions of persons engaged in commerce or trade or of shippers:

(ii)      The carriage of goods for the purpose of trade or commerce:

(iii)     The construction of commercial, shipping, or transport documents:

(iv)     The export or import of merchandise:

(v)       Insurance, banking, finance, guarantee, commercial agency, or commercial usages:

(vi)      Disputes arising out of intellectual property rights between parties engaged in commerce:

(b)      Applications to the court under the Arbitration Act 1908:

(c)       Appeals against determinations of the Commerce Commission:

(d)      Proceedings under any of the provisions of sections 80, 81, 82, and

89 of the Commerce Act 1986:

(e)       Cases   stated   by   the   Financial   Markets   Authority,   and   civil proceedings under the Securities Act 1978 or the Securities Markets Act 1988:

(f)       The following proceedings in relation to companies registered under the Companies Act 1955 or the Companies Act 1993, as the case may be:

(i)       Applications for directions by liquidators and receivers:

(ii)      Defended   applications   under   section   209ZG   of   the

Companies Act 1955 or section 174 of the Companies Act

1993:

(iii)     Disputes relating to takeovers:

(iv)      Disputes between shareholders or classes of shareholders of companies (other than companies registered under Part 8 of the Companies Act 1955 and companies registered under the Companies Act 1993 and having not more than 25 shareholders):

(g)       Proceedings  of  a  commercial  nature  required  or  permitted  to  be entered on a commercial list by or under any Act or by or under the High Court Rules or any rules made under section 51C of this Act.

[42]     The defendants submit that although a proceeding need come within only one of the categories set out in s 24B(1), this proceeding falls within four categories:

(a)      Subclause (a)(i): an ordinary transaction of persons engaged in commerce.  The defendants submit that each of the parties in this case is engaged in commerce or was involved in commerce in terms of the

relevant issues in this case; the plaintiff and those he represents, through the purchase of shares in Feltex; the first defendants as directors of Feltex making a public offer of security; the second defendant, Credit Suisse PE, by the promotion of the public offer at issue; the third defendant, Credit Suisse MP, as the vendor and issuer of shares forming part of the public offer at issue; and the fourth and fifth defendants, FNZC and Forsyth Barr, by their involvement as organising participants and joint lead managers of the public offer at issue.

It is further submitted that the initial public offering of shares in a company to be listed on the New Zealand Stock Exchange, was an intensely commercial transaction and that the prospectus was plainly a commercial document;

(b)Subclause (a)(iii): the construction of commercial documents.   It is submitted that the prospectus to be interpreted in this case is a commercial document by which shares are offered and issued. Regardless of there being factual issues to be determined the issues in the proceeding will necessarily involve the interpretation of the prospectus.

(c)      Subclause (e): civil proceedings under the Securities Act 1978.  The proceeding involves a claim under s 56 of the Securities Act 1978 that Feltex‘s prospectus contained statements deemed to be ―untrue‖ pursuant to the terms of the Act.  There are other causes of action that also rely on the same allegedly ―untrue‖ statement in the prospectus as are  relied  on  in  the  Securities Act  claim.    Moreover  each  of  the defendants relies on a defence to all causes of action under s 63 of the Securities Act.   It is submitted that this is the clearest  ground of eligibility.   This is the type of claim for which the Securities Act specifically provides and there is express provision for it to be eligible for the commercial list.

(d)Subclause  (g):  proceedings  of  a  commercial  nature  not  otherwise referred to.  It is submitted that the parties and the subject-matter are all of an intensely commercial nature.   In addition to the claimed breaches of s 56 of the Securities Act, the plaintiff claims breaches under the Fair Trading Act 1986 by the defendants and that one of the defendants, Samuel John Magill, continued to engage in conduct post- allotment of the shares that was misleading or deceptive or likely to mislead or deceive in breach under s 9 of the Fair Trading Act.  The plaintiff also alleges negligence arising from an alleged breach by each of the defendants of a duty of care owed to potential investors.

[43]     The plaintiff submits that the proceeding ―does not really have the necessary commercial flavour‖ of ―ordinary transactions of persons engaged in commerce or trade‖ or that it is of a ―commercial nature‖.  The plaintiff says that while the second to fifth defendants are commercial entities the vast majority of the claimants (those represented by the plaintiff) are not and are not commercial share traders.  They are largely ―mum and dad‖ investors.

[44]     I have no doubt that the proceeding falls within the eligibility criteria for the Commercial List under s 24B of the Judicature Act.  It probably does so under all four of the headings relied on by the defendants.   As was submitted, the clearest ground is that this is a civil proceeding under the Securities Act 1978 and it has the commercial flavour frequently identified by the courts for eligibility for the Commercial List.  As Barker J said in Taspac Oysters Ltd v James Hardie & Co Pty

Ltd:24

The test for eligibility in the List has been stated many times ... , i.e. does the proceeding  have  a  sufficient  ‗commercial  flavour‘  to  come  within  the general purpose and intendment of the legislation.

[45]     However,  I  do  not  accept  the  defendants‘  submission  that  the  fact  the plaintiff‘s claim is organised, managed and funded by a professional litigation funder contributes to the commercial flavour of the transactions in issue.  That method of

funding  litigation  could  be  utilised  in  respect  of  a  transaction  which  lacks  any

24     Taspac Oysters Ltd v James Hardie & Co Pty Ltd [1990] 1 NZLR 442 at 445.

commercial  flavour.    It  is  simply a  funding  mechanism  which,  although  it  has significant implications for the supervision and control of this proceeding, does not impact on the nature of the underlying transactions.

Should the proceeding be transferred to the Commercial List?

[46]     Where proceedings have been issued in another registry and removal to the Commercial List is opposed, the Court will consider whether there will be benefit in the progress of the litigation as a result of removal to the Commercial List.25

[47]     The defendants submit that an advantage of the Commercial List is the added supervision and expediency for interlocutory matters and that entry on the Commercial  List  will  generally  promote  the  prompt  and  orderly  resolution  of complex litigation of a commercial nature.   The defendants referred to  Godfrey Waterhouse v Contractors Bonding Ltd26  which concerned an application for the removal of a proceeding from the Commercial List.  The case involved allegations of deceit, breach of fiduciary duty and negligence with special damages claimed of over

$4m.  A litigation funder was involved which was likely to give rise to a number of interlocutory applications and possible appeals.   Allan J held that the proceeding should remain on the Commercial List, it being clearly eligible for entry in the first place. Allan J stated:27

[55]      In my view, the current state of the Commercial List is such that the Court is easily able to accommodate successive interlocutory applications in cases on the list, and to resolve those applications more expeditiously than under the conventional case management regime.

[56]      The restriction on rights of appeal to the Court of Appeal is intended to weed out appeals on relatively minor (especially procedural) matters so as to ensure that the substance of the dispute reaches the Court at the earliest reasonable time.   It is not intended to preclude a party from taking to the Court of Appeal significant interlocutory issues, not obviously devoid of merit. The Court has not routinely accorded significant weight in the context of removal applications to appeal right restrictions.

25     New Zealand Rugby Football Union v Canterbury International Ltd (2001) 16 PRNZ 213, 215 (HC).

26     Godfrey Waterhouse v Contractors Bonding Ltd HC Auckland CIV-2010-404-3074, 13

December 2010.

27     At [55]-[57].

[57]      Having weighed the competing considerations I am satisfied that it is appropriate that this case remain in the Commercial List.   The manifest advantages of doing so outweigh the defendant‘s concerns.

[48]     In Allied Nationwide Finance Ltd (in rec) v Southland Building Society28

Asher J said in relation to discovery and interlocutory orders:29

...the commercial list with its frequent calls and consequent ability to have interlocutory issues determined promptly provides an efficient procedure.  If a stay application is made, that can be dealt with quickly.

[49]     He also said that urgency was not a qualifying factor, although he recognised

the plaintiff‘s legitimate wish to have the proceeding determined quickly.

[50]     However,  in  Commerce  Commission  v Cards NZ  Ltd30 Rodney Hansen J

said:31

[13]      The  Commercial  List  will  continue  to  offer  advantages  in  some cases – see the comments of Paterson J in Cellier Le Brun Limited v Le Brun (2002) 16 PRNZ 376 at 380.  But when a proceeding is assigned to a Judge for management through the interlocutory stages to trial, as all agree should occur in this case, there is no reason to think that the Commercial List will offer any tangible advantages.

[14]     I have enquired into whether there is any logistical reason why the proceedings could not be managed and heard in Wellington.   I have been assured there are not.   The largest court can accommodate the projected number of counsel and witnesses and the large volume of documents expected.

[15]      The application then turns on the questions of cost and convenience and, ultimately, as the overriding consideration, of fairness.   This broadly coincides with the approach to be taken to an application for change of venue under r 479,32  which is the essential character of the application now that the advantages of the Commercial List can be set to one side.

[16]      Such applications place an onus on the party seeking transfer, but not one that is particularly difficult to discharge.  A change of venue should be ordered if, on an overall consideration of questions of relative convenience and fairness, the Court is affirmatively satisfied that the proceeding can be more conveniently and fairly tried elsewhere: Consumer Council v Pest Free Service Ltd [1978] 2 NZLR 15 (CA) at 18.

28     Allied Nationwide Finance Ltd (in rec) v Southland Building Society HC Auckland CIV-2010-

404-008228, 19 August 2011.

29 At [26].

30     Commerce Commission v Cards NZ Ltd HC Wellington CIV-2006-485-2535, 5 April 2007.

31     At [13]-[16]

32     Rule 10.1 of the current High Court Rules.

[51]     As the interlocutory proceedings to date have demonstrated, the issues arising in this case from the representative nature of the proceeding, the presence of a litigation funder, the four affirmative causes of action and the two affirmative defences pleaded by the defendants, are numerous and complex.  The interlocutory proceedings have included matters inappropriate for the Commercial List including

strike out applications and two appeals.33

[52]     It is apparent from the current state of the proceeding that there will be further interlocutory processes.  They will include, importantly, matters relating to discovery which are likely to involve novel issues arising from this being a class action brought on behalf of some 1800 shareholders.  This type of action is without precedent in New Zealand and lacks the benefit of rules to assist the Court.

[53]     The proceeding has been under the close management and control of French J in the Christchurch registry, as is readily apparent from the procedural history set out above.34      In  this  respect  I  note  the  references  of  the  Court  of Appeal  to  the requirement for a High Court Judge to maintain close management and control of the proceeding and the funder, and the advantage that will be gained by thorough familiarisation with and understanding of the proceeding.  When the Court of Appeal

referred to the need for ongoing close management and control of the proceeding, I do not consider the Court envisaged that such management and control should be provided by the proceeding being transferred to the Commercial List.  It is true, as was observed in the Allied Nationwide Finance Ltd case, that the frequent calls and consequent ability to have interlocutory issues determined promptly in the Commercial List can provide an efficient procedure.  But in a proceeding which is unique and complex, as this one is, the efficiencies that can be provided by management through the interlocutory stages to trial and preferably including trial,

by an assigned Judge, offer greater advantages.

33     Section 24G of the Judicature Act 1908 provides that no appeal shall lie from an interlocutory decision of the High Court in respect of any proceeding entered on a Commercial List unless leave is granted by the High Court.  There is a high threshold for granting leave under s 24G of the Judicature Act to appeal from interlocutory judgments in the Commercial List.

34 See [14]-[36] above.

[54]     I agree with the submission of the plaintiff that the firm control required in respect of the proceeding and the funder will best be achieved by the proceeding continuing  to  be  managed  in  the  Christchurch  registry  by  French  J.     This arrangement is preferable to the likely numerous and complex future interlocutories being listed in the Commercial List with the possibility that a Commercial List Judge would not preside over the substantive trial.   Given the unique nature of this proceeding and the complex issues that will arise (albeit many of them factual), I consider that in any registry of the High Court, the management and control required for this proceeding would be best met by a Judge assigned to the proceeding.

[55]     I therefore conclude that while the proceeding is eligible for entry on the Commercial List, it is not as well suited to the Commercial List processes as to close management by a Judge, as has been the procedure to date.

Should the proceeding be transferred to the Auckland registry?

[56]     Having determined that the Commercial List does not offer advantages in the particular circumstances  of this  case  which  should persuade me to exercise my discretion  to  order  entry  of  this  proceeding  on  the  Commercial  List,  I  turn  to consider whether questions of convenience and cost and the overriding consideration of fairness satisfy me affirmatively that the proceeding can be more conveniently and fairly tried in Auckland than in Christchurch.  I remind myself that the onus is on the defendants to so satisfy the Court, but the onus should not be regarded as one especially difficult to discharge.  The plaintiff ‘s initial nomination of venue based on the residence of the first named of the first defendants is not of itself probative of convenience.

[57]     Mr Cooper emphasised that the test of convenience must be an objective one and  that  what  the  plaintiff  wants  cannot  be  decisive  because  that  would  be tantamount to a right of election by the asserting party, in this case the plaintiff.

[58]     I accept the fact that counsel for the first, fourth and fifth defendants are Auckland based is a measure of convenience which translates into aggregate cost.  I consider the geographical base of instructing solicitors to be much less relevant.

[59]     I also accept that on present indications there is no particular convenience shown to favour Christchurch other than the residence in Christchurch of Mr Forbes, senior counsel for the plaintiff.

[60]     The situation in respect of witnesses is unclear.  Mr Cooper submitted that the witness list is likely to have an ―Auckland flavour‖ but he accepted that the situation was speculative at this stage.  It seems there will be the need for overseas witnesses including parties and experts and that witnesses are likely to reside in various parts of New Zealand.

[61]     Much is made by the defendants of delays in the proceeding which they place exclusively with the plaintiff.  Mr Forbes on behalf of the plaintiff readily accepted that there was delay on the plaintiff‘s part and by his lawyers and his representatives until the amended statement of claim was filed on 24 May 2010.  He noted, however, that the delay was primarily due to the efforts the plaintiff‘s representatives were then making to put in place funding arrangements for the commercial litigation funder to fully fund the proceeding.   He confirmed that this has now been done, including funding for adverse costs.

[62]     The proceeding has also suffered legitimate delay because of the exercise by the defendants of their right to appeal interlocutory judgments of this Court.  There will be further delay while the current appeal from the judgment of 8 November

2011 is heard and determined by the Court of Appeal.

[63]     In appealing against the judgment of 8 June 2011, which lifted the interim stay and approved the representative order, the defendants are continuing to maintain their stance that this action should not proceed at all.  That has been their consistent stance from the outset.  It seems to me illogical for them to contend that whereas it would have been inconsistent to seek a transfer to the Auckland registry and the Commercial List at an earlier stage (including preceding the interim stay granted on

24 July 2009, 17 months after the proceeding was commenced), bringing the application for transfer now is not inconsistent.  Their stance has been and is, that the action should not proceed at all.  The lifting of the stay in the judgment of 8 June

2011, does not therefore provide a convincing explanation as to why the transfer

application is now pursued, about three years and four months after the proceeding was filed in the Christchurch registry.

[64]     Having  weighed  carefully  the  competing  contentions  of  the  parties,  I conclude that ―...  convenience having regard to the case in all its bearings‖35   will best be served by declining the defendants‘ application to transfer the proceeding to the Auckland registry.  Such cost savings as might be achieved by transfer, are more than outweighed by the convenience and efficiency of continuing the close management and control of the proceeding by French J in the Christchurch registry.

By that process a fair and just outcome will most expeditiously be achieved for all parties.

Result

[65]     For  these  reasons  the  defendants‘  application  for  the  proceeding  to  be transferred  to  the  Auckland  registry  and  entered  on  the  Commercial  List  is dismissed.

Costs

[66]     I did not receive submissions as to costs.  The plaintiff has been successful. My provisional view is that the plaintiff is entitled to costs on a 2B basis together with disbursements fixed, if necessary by the Registrar at Christchurch.  If counsel cannot agree costs on the basis of that indication they may submit memoranda within

21 days.

35     Consumer Council v Pest Free Service Ltd [1978] 2 NZLR 15, 19 (CA).