LDC Finance Limited (in receivership and in liquidation) v Miller
[2013] NZHC 2993
•12 November 2013
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV-2012-442-000391 [2013] NZHC 2993
BETWEEN LDC FINANCE LIMITED
(In Receivership and In Liquidation) First Plaintiff
JANET VERENA WILSON and ROLAND LLOYD FAWCETT Second Plaintiffs
KAYE DENISE WHALAN,
JANET VERENA WILSON and ANOR Third Plaintiffs
FAWDAN SUBDIVISIONS LIMITED and ANGUS & GRETA MCNEIL Fourth Plaintiffs
IAIN BRUCE SHEPHARD and HEATH LESLIE GAIR as liquidators of LDC
Fifth Plaintiffs
ANDDAVID GORDON MILLER, KEVIN ELLIOTT and ORS First Defendants
CARRAN MILLER STRAWBRIDGE LIMITED
Second Defendant
PERPETUAL TRUST LIMITED Third Defendant
SHERWIN CHAN & WALSH Fourth Defendant
Hearing: 6 and 7 November 2013
Appearances: D G Dewar and K Sullivan for Plaintiffs
T H A Spear for First Defendants
No Appearance (by leave) for Second Defendant
M Smith for Third DefendantO J Meech and A Payne for Fourth Defendant
LDC FINANCE LIMITED (In Receivership and In Liquidation) v DAVID GORDON MILLER, KEVIN ELLIOTT and ORS [2013] NZHC 2993 [12 November 2013]
Judgment: 12 November 2013
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] This case arises from the losses incurred by investors in LDC Finance
Limited (LDC) (in receivership and in liquidation).
[2] The first plaintiff is the company itself, and the fifth plaintiffs are the liquidators. The second, third and fourth plaintiffs plead that they represent investors:
The second plaintiffs seek to represent a group of depositors holding secured investments in LDC.
The third plaintiffs seek to represent unsecured depositors of money with
LDC.
The fourth plaintiffs seek to represent a group of persons who not only held investments and deposits with LDC, both secured and unsecured, but were also clients of the second defendant, Carran Miller Strawbridge Limited (Carran Miller), a chartered accountancy company.
[3] The first defendants (the directors) were the directors of LDC at material times. Mr Miller, Mr Elliott and Mr Hardiman were also directors, consultants or employees of the second defendant (Carran Miller).
[4] Carran Miller is a company carrying on business in chartered accountancy which is said to have acted for LDC, and the fourth plaintiffs.
[5] The third defendant, Perpetual Trust Limited (Perpetual) is a trustee company and was the trustee for investors in LDC under the Securities Act 1978. LDC operated under a trust deed and it is said that Perpetual was responsible for monitoring LDC’s compliance with that deed.
[6] The fourth defendant, Sherwin Chan & Walsh (Sherwin Chan) is a partnership carrying on practice as chartered accountants which, at material times, acted as auditor for LDC.
[7] The current pleading is the first amended statement of claim dated
6 September 2013. Annexed to this judgment is a chart which summarises the bases of the causes of action presently brought by each of the plaintiffs against each of the defendants.
[8] There is one issue requiring determination now. The second, third and fourth plaintiffs, who as noted represent stated classes of persons who were investors with LDC, seek directions under r 4.24 of the High Court Rules in relation to bringing this proceeding on a representative basis. Rule 4.24 provides:
One or more persons may sue or be sued on behalf of, or for the benefit of, all persons with the same interest in the subject matter of a proceeding –
(a) with the consent of the other persons who have the same interest; or
(b) as directed by the Court on an application made by a party or intending party to the proceeding.
[9] The director, Perpetual, and Sherwin Chan oppose this application. Carran
Miller does not.
[10] When LDC went into receivership in September 2007 more than 1,000 individual investors had placed moneys with the company, in 1,139 individual investments. Some investors had secured investments, others unsecured. The secured creditors, whom the second plaintiffs seek to represent, have received partial distributions of funds recovered during the receivership but no payments have been received by unsecured creditors. Secured creditors are owed $1,533,558 by way of interest, over and above principal and interest repayments received, and unsecured creditors are owed $12,516,826.
[11] The second, third and fourth plaintiffs say they represent 480 investors in respect of 656 of the total of 1,139 deposits held in the company. These are 90 per cent of the value of secured deposits and 78 per cent of unsecured deposits. Whilst
initially some uncertainty surrounded the ability of the liquidators or representatives to contact all depositors, Mr Gair, liquidator, says he is now confident that all investors can be contacted. If all persons with the same interest consent to being represented in a proceeding, they may do so without a direction from the Court.1 It is doubtful this position will be achieved.
[12] In Houghton v Saunders,2 French J in the High Court was required to determine an application for a representation order in respect of litigation commenced on behalf of two groups of shareholders in Feltex. She listed the principles she had distilled from the authorities as follows:3
(i)The Rule should be applied to serve the interests of expedition and economy, the underlying reasons for its existence being judicial economy, elimination of duplication, sharing of costs, and also access to justice.
(ii) ... the test is whether the parties to be represented “have the same
interest in the proceeding as the named parties”.
(iii) The words “same interest” extend to a significant common interest in
the resolution of any question of law or fact arising in the proceeding.
(iv)The Court should take a liberal and flexible approach in determining whether there is a common interest ...
(v)The requisite commonality of interest is not a high threshold and the Court should be wary about looking for impediment to the representative action rather than being facilitative of it (Registered Securities Limited (in liq) & Ors v Westpac Banking Corporation (2000) 14 PRNZ 348).
(vi)A representative action should not, however, be allowed in circumstances which would:
1 Rule 4.24(a) High Court Rules.
2 Houghton v Saunders (2008) 19 PRNZ 173 (HC).
3 At [100].
a. deprive a defendant of a defence which it could have relied on in a separate proceeding against one or more members of the class;
or
...
b.enable a person within the representative class to succeed where that person would not have succeeded had they brought an individual claim. Or to put it another way, each member of the class must have the same cause of action and there should be no defences available as against some members but not others.
[13] This judgment was appealed to the Court of Appeal. The Court did not expressly refer to these principles. However, in Cooper v ANZ Bank New Zealand Ltd,4 Peters J at [27] accepted a submission by the plaintiffs that the Court of Appeal’s approach is consistent with that of French J. I respectfully agree.
[14] The Court of Appeal said:5
[13] ... The principles now established are that a representative action can be brought where each member of the class is alleged to have a separate cause of action, provided:
(a) the order may not confer a right of action on the member of the class represented who could not have asserted such a right in separate proceedings, nor may it bar a defence which might have been available to the defendant in such separate proceeding;
(b) there must be an interest shared in common by all members of the group; and
(c) it must be for the benefit of other members of the class that the plaintiff is permitted to sue in a representative capacity.
[15] The Court of Appeal also stated that a “generous approach to representation applications” adopting a “relatively low threshold” is the correct approach to an application for a direction under r 4.24.6 This is consistent with r 1.2 of the High
Court Rules:
4 Cooper v ANZ Bank New Zealand Ltd [2013] NZHC 2827.
5 Saunders v Houghton [2010] 3 NZLR 331 (CA).
6 At [10] and [12].
The objective of these rules is to secure the just, speedy and inexpensive determination of any proceeding or interlocutory application.
[16] In accordance with pre-trial directions counsel filed submissions well in advance of the hearing. As a result of reading those submissions I issued a Minute raising with counsel issues which I considered would merit discussion between counsel in advance of the hearing, given the required approach to an application of this kind.7 As a result there were discussions between counsel both before, and at various points during, the allotted time for the fixture which resulted in agreement on almost all points previously in issue and a significantly narrower compass of issues which must be resolved in order to determine this application.
[17] Broadly, the defendants accept that representative actions on behalf of groups of investors are appropriate, subject to two issues being satisfactorily resolved. These are:
(a) The precise definition of the classes.
(b)Whether potential members of identified classes should be included in the applicable represented group automatically, with the right to opt out, or whether potential members of an applicable group should only be members of the group if they opt into it.
Appropriate classes of plaintiffs, for representation
[18] One of the points which became apparent from examination of counsel’s written submissions was concern on the part of each defendant that the plaintiffs had not appropriately defined the classes of investors who should form a represented group. As a result of negotiations between counsel the plaintiffs now accept that the classes should be redefined, which will result in some changes to the intended representatives. Counsel only differ in relation to one of the classes the plaintiffs now propose, which are:
1.1 LDC investors who, prior to 19 September 2006:
7 [15] above.
(a) invested in new secured debenture stock and/or unsecured deposits (term deposits or on-call deposits); and/or
(b)renewed existing investments in secured debenture stock and/or unsecured term deposits; and/or
(c) permitted existing on-call deposits to remain on-call.
1.2 LDC investors who between 19 September and 26 April 2007:
(a) invested in new secured debenture stock and/or unsecured deposits (term deposits or on-call deposits); and/or
(b)renewed existing investments in secured debenture stock and/or unsecured term deposits; and/or
(c) permitted existing on-call deposits to remain on-call.
1.3 LDC investors who, between 27 April 2007 and 5 September 2007:
(a) invested in new secured debenture stock and/or unsecured deposits (term deposits or on-call deposits); and/or
(b)renewed existing investments in secured debenture stock and/or unsecured term deposits; and or
(c) permitted existing on-call deposits to remain on-call.
1.4LDC investors that were also clients of Carran Miller Strawbridge Limited and/or received financial advice from directors or employees of Carran Miller Strawbridge Limited.
[19] The class in issue is the first. It will be noted that this class comprises investors who took certain steps prior to 19 September 2006, that being two days after 17 September, which is the date six years prior to this proceeding being issued, and thus a date relevant to the operation of the Limitation Act. The position of Sherwin Chan, whose counsel, Mr Meech, argued this point on behalf of all defendants, is this:
• Whilst auditors of a company owe to it a duty of care to perform their auditing functions in accordance with relevant professional standards, in
doing so they do not generally assume a responsibility to anyone other than the company, and through it, its shareholders. They do not owe a duty to present or future creditors, or to those who may be contemplating investing, or further investing, in the company’s debt or equity securities, whether by purchase or subscription.8
• The Securities Act and Regulations prevent the issue, by a fundraiser such as LDC, of equity debt and participatory securities to the public without registration and use of a prospectus, which must incorporate audited accounts drawn up at a recent date.
• An auditor must know that in order to raise funds from the public the company has this obligation and will provide its prospectus to potential investors as part of the process of encouraging them to invest. The audit report will give comfort in relation to the financial statements. The Court of Appeal in Boyd Knight v Purdue & Matthew has found that these factors give rise to the necessary closeness of relationship between the auditor and those who invest on the strength of the prospectus so that the
auditor owes them a duty to be careful in giving its auditor’s certificate.9
• An auditor’s report provides an opinion about the financial statements of the company which has been audited, and confirms the accuracy of the financial statements, but does not make any comment on the state of the company’s affairs. The auditors do not owe a duty to assess, on behalf of potential investors, whether the company is creditworthy. As the Court of Appeal said in Boyd Knight, the auditor’s duty is to inform not to give
advice.10
• The auditor’s report does not therefore have any context for anyone who has not read the accounts. Without having read the accounts the reader of the report learns nothing from the report except that the company has a set of accounts which comply with the regulations and present a true and
fair view. Thus, in certifying the accounts, an auditor cannot be taken to
8 Boyd Knight v Purdue & Matthew CA248/98, 23 March 1999.
9 Boyd Knight [52].
10 Boyd Knight [54].
have accepted an obligation to an investor who has not read and relied upon the accounts. Reliance, and a consequential duty of care, cannot be asserted in a vacuum. The financial statements must have had a specific influence on the mind of the investor; it is not sufficient for an investor to say that although he or she did not look at the accounts, nonetheless reliance was placed in a general way on the statutory scheme, and an assumption was made that an investment in the company would be sound, or that the issuer of the securities was creditworthy, on the basis that there was a trustee playing a supervisory role in connection with the prospectus
and an auditor had furnished a report as required by the regulations.11
• On 19 September 2006 LDC registered Prospectus 4 which was based on audited financial statements to 31 March 2006, audited on 30 June 2006. Prospectus 3, based on the prior year’s financial statements, expired on
20 September 2006.
• There is a period of two days between the date six years prior to the issue of this proceeding, and the date on which Prospectus 4 was registered. Any persons who invested funds during that period could only succeed in a claim against Sherwin Chan if they could prove the existence of a duty of care, within the principles enunciated in Boyd Knight, in relation to Prospectus 1, 2 or 3. Investors to whom a duty was similarly owed, but who invested before 17 September, would be barred by the Limitation Act from bringing claims.
• Grouping investors in the manner set out in group 1.1 above therefore falls foul of two of the principles applying to representative actions. First, the class would include persons who could not have asserted a cause of action in a separate proceeding, along with those who invested within the two day period. Secondly, it could bar a defence based on limitation principles in respect of those who invested prior to
17 September.
11 Boyd Knight at [54].
[20] Based on this analysis Mr Meech says that if there are to be represented classes of investors, the classes must be defined not only by way of type of investment, but also, and perhaps in particular, by reference to time of investment.
[21] For the plaintiffs Mr Sullivan says that the time for considering limitation issues is not now, when leave to bring a representative action is being sought. He says limitation points may differ between defendants, the plaintiffs have accommodated the concerns of the defendants by reclassifying the proposed representative classes in the way I have set out, and creating class 1.1 preserves the right to argue limitation points once the pleadings have been recast and the application of limitation rules has emerged more clearly. The plaintiffs’ proposed solution to the issue identified by Mr Meech is that in due course, it may be necessary to determine whether class 1.1 should be further divided between those investors who invested within the two day window, and those who invested prior to
17 September. If that were to result in claims by persons within the latter category being struck out, the plaintiffs should have the right to substitute different representatives for those remaining in the class.
[22] I agree with Mr Sullivan in part, but disagree with him in part also. He says that approving class 1.1 now is acceptable from a jurisdictional perspective, but in my view it is not. The principles upon which the Court may approve a representative action make it clear that there cannot be representation of a group of plaintiffs where proceeding in that way would deprive a defendant of a defence – here, limitation – that it would otherwise have.
[23] However, I agree with Mr Sullivan that it is premature, on the information I have at present, to determine a limitation point in favour of the defendants. The argument put forward by Mr Meech is of considerable force. If the facts, once established, support its application, it may well be unanswerable but in my view, given that the case has not yet even been pleaded with the newly proposed representative classes defining their causes of action, it is premature to determine a limitation point.
[24] In my view the correct way to plot a course through the conundrum created by these opposing imperatives is to adjourn the application so far as it relates to class
1.1, for review and final determination when the amended pleading by the plaintiffs has been filed and can be assessed. In reaching this conclusion, I have also taken into account Mr Sullivan’s assurance that when the facts relating to those investors who may be in this class are known, their right to claim will be assessed in terms of limitation issues, and further, there may not in fact be any persons whose investments fit into the two day period I have described. In short, the ability of all persons whose investments fall into the whole of the proposed class 1.1 to actually claim will be reconsidered.
[25] The remaining proposed classes for representation have the general agreement of counsel. For Perpetual Mr Smith specifically reserves his position on applying to strike out if current allegations against Perpetual are retained in their present form in the next amended statement of claim. That reservation is noted. For the directors Mr Spear reserves the right to argue, again after the next amended statement of claim is filed, that one of the classes could give a right of action for breach of fiduciary duty to a group of investors who would not be able to bring that claim independently. His reservation is noted.
[26] In Houghton v Saunders, French J referred to it being necessary for the definition of a represented class to be clear from the outset.12 Her Honour also noted King v GIO Australia Holdings Ltd,13 where redefinition of an intended class was permitted and, in my view, that course is justified in this case. This proceeding was issued in some haste, to minimise the impact of timing limitations, and there are complexities around defining classes by conduct as well as by time. It would not be
just, nor consistent with the imprimatur to apply the rule with flexibility, to close down now the case for investors by declining leave to the presently agreed representative classes, or to bar further consideration of those classes after the next amended pleading is produced. Some 1100 separate proceedings could result. But this evolutionary process must have a clear ending. I discuss this further at [51] and
[52].
12 Houghton v Saunders (2008) 19 PRNZ 173 at [14].
13 King v GIO Australia Holdings Ltd (2000) 100 FLR 209.
Should investors opt into or out of the classes for which representation is proposed?
[27] This case has its origin in the actions of a group of investors who felt some disenchantment about the actions of the receivers of LDC or, as they saw it, their inaction, in relation to taking steps to claim from the current defendants the substantial losses each incurred on the company’s collapse. Over time, an initially small group of investors has garnered the support of a large number of investors and as a result there is now an investors’ representative group (the IRG) which, in conjunction with the liquidators, has been instrumental in bringing this proceeding.
[28] It is clear from the affidavits filed in relation to the present application that membership of the IRG continues to grow. Initially some difficulties were experienced in making contact with investors, but as investigations have continued a point has been reached where there is a level of confidence that with some effort, all investors can now be contacted.
[29] Initially the plaintiffs approached this case on the basis that all investors should be represented in this proceeding, unless they specifically opt out of this position. That met with opposition from all defendants. An opt-out procedure did not find favour with French J in Houghton v Saunders.14 Now a modified position is taken. The plaintiffs say that those who have committed to membership of the IRG should be taken as having opted in, and that remaining investors should be contacted to determine whether they, too, wish to opt in. The only question for me to decide is whether those who are members – or perhaps more accurately, supporters – of the
IRG have opted in, or whether (given that each would be given a chance to withdraw) taking that approach amounts to an opt out position, partially in disguise, for those in the group.
[30] The IRG is not an entity of itself, nor does it hold on behalf of any investor a written instruction to bring this proceeding. However, whilst it might fairly be said that the group started out on a relatively loose basis as a collection of persons who
felt aggrieved by what had happened to them and wanted to pursue options for doing
14 See [157] to [168]. See also Saunders v Houghton (CA) at [12].
something about it, as time has gone on a greater level of organisation and formality has evolved.
[31] This is evident from various affidavits sworn and filed in this proceeding. In September 2012 Mr G J Wilson swore an affidavit. He is chairman of the LDC investor recovery group, a group chosen to assist and represent the interests of LDC investors. At that point the group had been in place for approximately three months. He says the group came about due to a concern that the receivers of LDC were focusing all their attention on one piece of litigation (with another company). Only recently had he realised that his assumption, that whatever rights he had in relation to his investment would be protected during the receivership process, was in fact incorrect.
[32] Mr Wilson says that after an initial informal meeting of about 120 to 130 investors, a letter was sent to investors inviting them to a meeting at which a steering committee would be set up and steps would be discussed to investigate claims which might result in recovering losses.
[33] A steering group was set up and in September 2012 this proceeding was filed. In October that year Mr Wilson wrote to all investors then identified, reporting on the aim of the group and on this proceeding. He said this:
To ensure complete and accurate representation please complete the form attached and return it even though you may have already given your name and details to the IRG.
It is important to note that by joining the IRG you are not committing to pay any money. What we want to do is look at ways of funding this case. We will be talking to an independent funder who may meet all of the costs of the court case for a pre-agreed fee.
The form attached provided spaces for investors to complete details of their investments and contained the following passage:
I wish to be enrolled as a member of the LDC Investor Recovery Group but understand that by enrolling I am not committing to any expense or cost, unless it is subsequently authorised by me.
[34] Mr Wilson produced a number of these forms, completed by investors, some of which contained additional handwritten expressions of support for the actions of the group. As a result of circulation of this letter to 878 investors, 264 responses were received with the result that by October 2012 there were 343 members of the group, and responses were still being received on a regular basis.
[35] The letter sent in October 2012 specifically referred to investors being represented in the case separately to the liquidators as they may have rights which differed from the rights the liquidators may have. Investors were informed that the proceeding was in the name of six other parties appointed as representatives of all investors, as well as the liquidators, and stated that investors were very welcome to join the substantial number of investors who had expressed the desire to recover some of the funds. Mr Wilson expressed the view that it was in the investors’ interests that they should join.
[36] On 26 July 2013 the liquidators sent a reporting letter to investors, on a number of issues including this proceeding. Of present relevance the letter stated:
If the application succeeds it is likely that the Court will order that each investor will be sent a letter asking them to confirm if they wish to be represented in the court proceedings. Such a letter will be approved by the Court and will provide you with an opportunity to get a full set of the court documents filed and set out how it is intended that the representative plaintiffs represent the interests of investors. Representation will not require investors to pay any costs of the court proceedings. The funding of the court proceedings is explained further below.
[37] The letter went on to describe the claims against each of the defendants.
[38] The letter also contained a notice of a meeting of investors. After a description of the business to be conducted the following resolution was proposed:
A general resolution of all investors appointing the LDC Investor Recovery Group to continue to communicate with all investors to keep them informed of developments and to liaise with the liquidators over the conduct of the court proceedings. The wording of the resolution as to any authority to be granted to the Investor Recovery Group can be discussed at the meeting and may alter in accordance with the wishes of the meeting.
[39] For this, and other resolutions proposed for the meeting, explanatory notes were also included. Relevantly, the notes said:
The first resolution seeks to recognise the importance of the Investor Recovery Group and to formalise their role as the voice of the investors. The group represents both stockholders and depositors. Our letter which is sent in this pack includes their contact details. Their role will become more important as the proceedings progress and allow us to liaise closely with them. They also wish to take an active part in the proceedings given that some of them are named as plaintiffs. Those plaintiffs are applying to be appointed formally by the court as representatives of all investors.
We are not aware of any reasons why the Investor Recovery Group should not liaise closely with us and more formally represent the interests of the LDC investors.
We would urge all investors to vote in support of resolution 1. A majority of all investors at the meeting or voting by proxy need to vote for this resolution in order to adopt it.
[40] After drawing to my attention the evidence I have summarised, Mr Sullivan submits that there can be no doubt that all investors who have joined the group to date have taken an active step in supporting the proceeding. This, he submits, should be treated as opting into one of the representative groups. He says that if any investor or investors felt they were joining the group but not necessarily becoming a party to litigation, by representation, such person or persons can and will be given the option of opting out. He pointed out that many hundreds of investors have joined
the group since the proceeding commenced.15
[41] I am satisfied on the evidence that all investors who have joined the IRG are fully aware of the litigation, and that the claim is being brought in part by persons who represent classes of all investors. I am satisfied that the members of the IRG are members because they recognise and support the steps it is taking to try to recover the losses they have incurred. The question is whether this is sufficient to amount to opting to be represented as litigants in this case, or whether membership of the IRG
amounts only to support of a claim being brought by others.
15 According to the affidavit of Mr Gair dated 29 October 2013, there are now members of the IRG who own 662 of the 1,139 deposits, and those members hold 90% of the value of secured investments and 78% of unsecured investments.
[42] Both counsel for the plaintiffs urged me to accept that those who had joined the IRG had taken sufficient steps to fairly be found to have opted into the case. For Sherwin Chan Mr Meech said that if the Court is satisfied that those who have joined the IRG have consented to being joined to the proceeding, they should be taken as having opted in. Mr Smith expressed doubt that members of the group had in fact opted in, noting that they had received a letter in July 2013 indicating that they
would be asked to do so.16 Mr Spear said that the directors accept that members of
the IRG have opted in.
[43] I have considered the evidence, mindful of the purpose of r 4.24 and the liberal approach the Court should take to applications of this kind. For the following reasons, I find that those who were members of the IRG as at the date of the last affidavit sworn by Mr Gair, 29 October 2013, have opted to be represented in this proceeding.
[44] First, as long ago as October 2012, Mr Wilson wrote to investors who had then been identified, specifically referring to “complete and accurate representation”, in the context of the proceedings. Those contacted were advised they would not be called upon for financial contributions, which could only be relevant to those responding, if in so doing they were becoming involved in the case.
[45] Secondly, the same letter expressly referred to investors being represented separately from the liquidators as they may have different rights. The letter also encouraged investors to join the IRG in the context of recovering lost funds.
[46] Thirdly, the IRG was formed to recover losses incurred by investors. That is its sole purpose, so there would be no point in an investor joining the IRG if that were not also the wish and intention of the investor. Only the losses of investors who are represented will be claimed, so by joining the investors who have done so have taken a step to add their losses to the claim.
[47] Although the letter sent by the liquidators in July 2013 did indicate that it was likely the Court would order that each investor be asked to confirm whether he or
16 At [36].
she wished to be represented, the explanatory notes accompanying the letter also referred to those named as plaintiffs applying to the court to be appointed to represent all investors.
[48] The reference in that letter to the likelihood of the Court ordering that each investor confirm a wish to be represented was unfortunate, as it indicated a prospective outcome that is the opposite of that now sought, and may well have led some investors to think that they could make a decision later to be part of the case if they wanted to. I think, however, that it remains open to me to find that members of the IRG had already agreed to be represented, when that statement is read in the context of the other statements I have referred to, and the purpose of the IRG. In case any member or members of the IRG do not wish to be represented, provision can be made for members of the IRG to be informed that they have the right to signify their intention not to be represented, notwithstanding the fact that by virtue of joining the group, they have elected to be represented.
[49] So far as investors who are not members of the IRG are concerned, it will be necessary for them to opt into this proceeding. The final date for opting in will be
30 April 2014. The losses claimed by investors will be capped by the losses of those who have opted in subject, of course, to the quantum being reduced should the claims of any investor or investors be struck out, whether on the basis of a limitation or otherwise. As well, the quantum would be reduced should any investors later opt out. The plaintiffs are to inform the defendants should that occur.
Other issues
[50] Counsel are agreed that within 10 working days the plaintiffs are to advise the defendants of the identity and investment details of the intended representative plaintiffs in the newly identified classes, and I so direct.
[51] Counsel are also agreed that the representation order made in this judgment should be subject to review, on application on 14 days notice.
[52] As the solicitors for the plaintiffs prepare the second amended statement of claim and undertake the inevitably substantial amendments required not only by the alteration of the representation classes but also in other respects, it is at least possible that it will emerge that the classes should again be reviewed. That view may also be formed by one or more of the defendants after service of the third amended statement of claim. Apart from any other point which may present itself, issues relating to class 1.1 remain to be resolved, as noted. For these reasons I consider counsel’s proposal is sound, though consider that there must be a cut-off point beyond which further review of the classes cannot take place. After further consideration of this point I think that date should be 30 working days after the date which will be fixed for inspection of documents, or further order of the Court.
[53] The defendants are entitled to details of each investor who opts into each class, those details to include the investor’s name, and the date, type and value of the relevant investment or investments. The plaintiffs have agreed to provide this information in stages, and informally, for the time being but counsel agree that a final list must be provided within 10 working days of the close of the opt in period on 30 April, and I agree this is appropriate.
Outcome
[54] I direct:
(a) Representative proceedings may be brought in respect of the classes of persons described as classes 1.2, 1.3 and 1.4 set out in [18] above.
(b)Within 10 working days the plaintiffs are to advise the defendants of the identity and investment details of the intended representative plaintiffs for each of the approved classes.
(c) The application for directions in relation to class 1.1 set out in [18] is adjourned for further consideration after the filing and service of the third amended statement of claim. In the meantime leave is granted, should it be needed, for the third amended statement of claim to plead a
representative action for class 1.1 investors should the representatives of that class so elect.
(d)The representation directions now made are subject to review on the application of any party on 10 working days notice provided that no application may be made after 30 working days after the date which will be fixed for inspection of documents, or further order of the Court.
(e) Those investors who had joined the investors’ representation group as at 29 October 2013 have opted to be represented in this proceeding by plaintiffs who represent specific classes of investors, but subject to having the right to elect not to be so represented. The solicitors for the plaintiffs will notify the defendants of any such election within
10 working days of receiving it.
(f) Any other investors (not members of the IRG at 29 October 2013) who wish to be represented in this proceeding may give written notice of that wish to the chairman of the IRG or to the solicitors for the plaintiffs on or before 30 April 2014.
(g)A list of all members of each represented class of investors with full details of their investments will be provided to each defendant by
14 May 2014.
(h)A letter is to be sent to all investors by the solicitors for the plaintiffs within five working days of approval of the form of the letter by the Court.
[55] A Minute will be issued in relation to the draft letter, and giving procedural directions.
[56] Costs are reserved for further consideration when all issues relating to
representation have been concluded.
J G Matthews
Associate Judge
Solicitors:
Thomas Dewar Sziranyi Letts, Lower Hutt. Spear Law, Nelson.
C & F Legal Ltd, Nelson. Gilbert Walker, Auckland.
Minter Ellison Rudd Watts, Wellington.
Summary of first amended Statement of Claim 6 September 2013
First Plaintiff
LDC Finance Limited
(in receivership and liquidation)
Second Plaintiffs
Janet Verena WILSON
Roland Lloyd FAWCETT (representative of group of secured depositors)
Third Plaintiffs
Kaye Denise WHALAN
Janet Verena WILSON
CW Fishing and Motorsport Consulting Limited (representative of a group of unsecured depositors)
First Defendants
David Gordon MILLER
Kevin ELLIOTT
Christopher John HARDIMAN John Charles JANETTO (directors of LDC)
Breach of s 131 (SOC pp 20-21) Breach of s 135 (SOC pp 21-23) Breach of s 136 (SOC pp 23-24) Breach of s 137 (SOC pp 24-25)
Breach of s 131 (SOC pp 20-21) Breach of s 135 (SOC pp 21-23) Breach of s 136 (SOC pp 23-24) Breach of s 137 (SOC pp 24-25) Breach statutory duty (SOC pp 26-27)
Breach of s 131 (SOC pp 20-21) Breach of s 135 (SOC pp 21-23) Breach of s 136 (SOC pp 23-24) Breach of s 137 (SOC pp 24-25) Breach of statutory duty
(SOC pp 26-27)
Second Defendant
Carran Miller Strawbridge
Limited
(accountancy practice which acted for first and fourth plaintiffs and entities associated with first plaintiff)
Breach of duty of care
(SOC pp 29-30)
Breach of duty of care
(SOC pp 29-30)
Breach of duty of care
(SOC pp 29-30)
Third Defendant Perpetual Trust Limited (LDC’s Trustee pursuant to Securities Act 1978 and monitoring compliance with LDC’s trust deed)
Breach of contract (SOC pp 30-32) Breach of duty (SOC pp 32-35)
Breach of duty (pp 32-35) Breach of statutory duty (SOC pp 35-38)
Breach of trust and equity
(SOC pp 38-42)
Breach of duty
(SOC pp 32-35)
Breach of statutory duty
(SOC pp 35-38)
Breach of trust and equity
(SOC pp 38-42)
Fourth Defendant Sherwin Chan Walshe (Chartered accountants, auditors for LDC)
Breach of contract (pp 42-45) Breach of duty of care (45-47) Negligent misstatement(47-50) Breach statutory duty (50-53)
Breach of duty of care (SOC pp 45-47) Negligent misstatement (SOC pp 47-50)
Breach of statutory duty
(SOC pp 50-53)
Breach of duty of care (SOC pp 45-47) Negligent misstatement (SOC pp 47-50)
Breach of statutory duty
(SOC pp 50-53)
Fourth Plaintiffs
Fawdan Subdivisions Limited
Angus Iain MCNEIL and
Greta MCNEIL
(as trustees of the McNeil Family Trust;
representative of group of clients of the second defendant who held secured and unsecured investments/deposits with LDC)
Breach of s 131 (SOC pp 20-21) Breach of s 135 (SOC pp 21-23) Breach of s 136 (SOC pp 23-24) Breach of s 137 (SOC pp 24-25)
Breach of duty of care and fiduciary duty
(SOC pp 27-28)
Breach of duty of care
(SOC pp 29-30)
Fifth Plaintiffs
Iain Bruce SHEPHARD and
Heath Leslie GAIR
(as interim liquidators of LDC Finance)
Failure to keep proper accounting records (SOC pp 18-20)
Breach of s 131 (SOC pp 20-21)
Breach of s 135 (SOC pp 21-23) Breach of s 136 (SOC pp 23-24) Breach of s 137 (SOC pp 24-25)
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