Tetro
[2025] NZHC 189
•17 February 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-002671
[2025] NZHC 189
UNDER Part 19 of the High Court Rules 2016 BETWEEN
MARCUS TETRO and MARK GATWARD
as members of the Committee appointed to manage the claim brought on a representative basis by the shareholders of INTUERI EDUCATION GROUP LIMITED
for an order that the distribution of settlement proceeds be approved
Applicants
Hearing: 4 February 2025 Appearances:
F Cuncannon and K Muirhead for the Applicants (by VMR
Judgment:
17 February 2025
JUDGMENT OF GARDINER J
This judgment was delivered by me on 17 February 2025 at 2pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Cuncannon Barristers & Solicitors, Auckland
Re TETRO & GATWARD [2025] NZHC 189 [17 February 2025]
Introduction
[1] The applicants, Marcus Tetro and Mark Gatward (together, the Committee), seek the Court’s approval of a proposed methodology for the distribution of settlement proceeds to the claimants in a class action concerning Intueri Education Group Ltd (Intueri).1 The claimants were investors in Intueri who purchased shares through the company’s Initial Public Offering (IPO) in 2014, or subsequently on the open market. Intueri was placed into liquidation in 2017. The claimants commenced proceedings alleging that the IPO documents were misleading and that Intueri had breached its continuous disclosure obligations (the Representative Proceeding). The proceedings settled in September 2024.
[2] The issue for the Court is whether the Committee’s proposed methodology for the distribution of settlement funds is fair and reasonable.
Background
[3] Intueri owned in whole or in part private training establishments (PTEs) in New Zealand and Australia. These establishments delivered NZQA-accredited qualifications across a range of subjects to domestic and international students.
[4] Until 2014, Intueri was ultimately owned by an Australian company, AWN Holdings Ltd (AWN). As mentioned, in 2014, Intueri undertook an IPO. The registered Intueri prospectus and investment statement (collectively, the IPO Documents) provided that Intueri was to acquire Quantum Education Group (Quantum), which owned and operated three New Zealand PTEs. The IPO was said to be conditional upon the Quantum acquisition becoming unconditional. Intueri and Quantum’s size, track record and revenue featured prominently in the IPO Documents, including statements about the number of Quantum’s student enrolments and their course completion rate.
1 Fullerton v AWN Holdings Ltd CIV-2020-404-551. Andrew J granted leave to the plaintiffs to proceed by way of originating application: Re Tetro & Ors HC Auckland CIV-2024-404-2671, 31 October 2024.
[5] The claimants allege that the IPO Documents were misleading because they did not explain that a significant proportion of Quantum’s reported enrolment numbers included students who had withdrawn early in the course; or that the reported high rates of course completion excluded these early withdrawals. Furthermore, that around 50 per cent of Quantum’s revenue and 100 per cent of its profit was attributable to a ‘loophole’ which meant it could retain the fees paid by these early withdrawal students without providing them with any education services or including their numbers in official reports to the Tertiary Education Commission (TEC). The claimants say that, had the market been aware of the unsustainability of Quantum’s overall business model, the IPO would never have taken place.
[6] In November 2015, Intueri announced on the NZX and ASX that the TEC had notified Intueri it would be undertaking a review of Quantum and another PTE owned by Intueri. In February 2016, Intueri announced a revenue impairment on Quantum of $53.1 million following the imposition of stricter enrolment criteria. On 1 June 2017, Intueri and six subsidiaries went into voluntary administration. On 1 September 2017, Intueri and six subsidiaries were placed into liquidation.
[7] Mr Tetro is one of two trustees of M S Tetro Trust, which purchased Intueri shares on the open market in July 2015. At the point at which Intueri collapsed, the Trust had not sold any of its shares. Mr Tetro formed the Committee with two other Intueri investors, Newton Pontes and Frances Fullarton.
[8] The Committee commenced the Representative Proceeding on 3 April 2020, with Messrs Ponte and Fullarton becoming the representative plaintiffs. The defendants were AWN and persons understood to be directors of AWN and Intueri at relevant times. At the same time, leave was sought to proceed by way of representative proceeding under r 4.24 of the High Court Rules 2016. On 29 April 2021, Fitzgerald J made the representative orders.2
[9] On 14 August 2024, the Committee entered into a conditional settlement agreement to resolve all claims (Settlement Agreement). The terms of the Settlement Agreement are confidential. Pursuant to the Settlement Agreement, notices of
2 Fullerton v Arowana International Ltd [2021] NZHC 931, [2021] NZCCLR 28 at [154]–[157].
discontinuance were filed on 17 September and 27 September 2024 by all plaintiffs with no issues as to costs.
[10] The Settlement Agreement did not specify the methodology by which settlement funds (the Resolution Sum) was to be distributed and this was a matter left for the Committee.
The Committee’s role and why approval is sought
[11] The Committee seeks approval of its proposed distribution methodology, formulated with reference to two key documents each Intueri investor was required to execute to participate in the Representative Proceeding: the Services Deed and the Committee Agreement.
Services Deed
[12] The Services Deed was a deed for the provision of services with respect to the Representative Proceeding. It further specified the funding arrangements for the litigation, with LPF Litigation Funding No. 30 Ltd (LPF) paying all the costs of the litigation (the Project Costs). In the event of settlement, per cl 5.1, LPF would be repaid the Project Costs and receive 25 per cent of any Resolution Sum (known as the Services Fee).
Committee Agreement
[13] The Committee Agreement sets out the terms of the arrangement by which the claimants authorised a committee of plaintiff representatives to conduct and settle their claims. The Committee Agreement provides:
(a)the Committee, initially consisting of Mr Tetro and Mr Pontes, would be established (cl 1.1 and sch 1); and
(b)the Committee had full, irrevocable and unconditional authority to:
(i)represent and act for the claimants, including in relation to the conduct and settlement of the Representative Proceeding (cls 1.3, 5.1 and 5.2); and
(ii)determine the proportionate percentage that each claimant had in relation to the claims (cl 5.2(d)).
[14] Further, cl 4.2(b)(i) sets out the method by which the Committee must determine the distribution of any settlement funds to claimants:
…
(b)If the Resolution Sum has been received pursuant to a settlement agreement…, then the balance of the Resolution Sum shall be allocated to the Plaintiffs as follows:
(i)The Committee shall undertake such allocation in its reasonable discretion, having regard to any factors that the Committee may reasonable consider appropriate, including, without limitation:
(A)the best interests of the Plaintiffs taken as a whole; and
(B)the Claims Percentage (defined in clause 5.2(d)) for each Plaintiff,
in consultation with the Lawyers, and the Committee shall be entitled to engage any legal, financial or other advisers it sees fit for the purpose of performing its obligations under this sub-clause (b) at the Plaintiffs’ cost.
[15] The above clause is subject to cl 5, which recognises the term in the Service Deed requiring repayment of the Project Costs and the Service Fees to LPF.
[16] The Claims Percentage is defined in cl 5.2(d). This provides that the Committee has full, irrevocable and unconditional authority to:
determine… the proportionate interest that each Plaintiff has in relation to the Claim (“Claims Percentage”), by reference to any factor that the Committee may (reasonably acting) consider appropriate, including, without limitation, the number of Intueri shares held by each Plaintiff, the price paid for such Intueri shares and the amount of losses claimed by the Plaintiffs with respect to the Claims.
[17] Under cl 4.2(b)(ii), the Committee has the choice to seek a ratifying vote of claimants or the Court’s endorsement as to whether the Committee’s distribution determination is “fair and reasonable”:
(ii)As soon as reasonably practicable after making its determination under subclause (b)(i), the Committee may either seek a ratifying approval of such determination by a vote of all Plaintiffs and if such vote is approved by 75% in value of all Plaintiffs based on their Claims Percentage, such determination shall be binding on all Plaintiffs, or it may apply to the Court for the Court's endorsement and/or ratification that the Committee's allocation methodology and allocations under sub-clause (b) were fair and reasonable, with the costs of this process to be deducted from the Plaintiffs' share of the Resolution Sum.
(iii)If the Court finds the Committee's method for allocation and allocations of the Resolution Sum under sub-clause (b)(ii) were:
(A)fair and reasonable, then the Committee shall procure the distribution of the applicable allocation of the Resolution Sum to each Plaintiff as determined by it pursuant to sub-clause (b)(ii); or
(B)not fair and reasonable and provides an alternative method for allocating the Resolution Sum, then the Committee shall distribute the Resolution Sum to each Plaintiff in accordance with such alternative methodology.
The parties agree that any finding of the Court pursuant to this sub-clause (b) shall be final and binding, and not capable of dispute, and each Plaintiff hereby irrevocably and unconditionally waives any right that it, he or she may have to challenge the Court's directions as to the allocation.
The Court’s role
[18] In Southern Response Earthquake Services Ltd v Ross, the Supreme Court noted that it is common for the courts to make orders approving settlements and distribution proposals, in exercising its adjudicative power in its protective and supervisory jurisdiction.3
3 Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126, [2021] 1 NZLR 117 at [81]–[82].
[19] The Court approved the test for settlement approval as set out by the Federal Court of Australia in Camilleri v Trust Company (Nominees Ltd):4
(a)the central question for the Court is whether the proposed settlement is fair and reasonable in the interests of the group members considered as a whole: …
(b)there will rarely be one single or obvious way in which the settlement should be framed, either between the claimants and the defendants (inter partes aspects) or in relation to sharing the compensation among claimants (the inter se aspects) — reasonableness is a range and the question is whether the proposed settlement falls within the range:
…
(c)it is not the task of the Court to ‘second guess’ or go behind the tactical or other decisions made by the plaintiff’s legal representatives, but rather to satisfy itself that the decisions are within the reasonable range of decisions, having regard to: the circumstances which are “knowable” to the plaintiffs and their representatives; and a reasonable assessment of risks, based on those circumstances: …
(d)the list of factors typically relevant to an assessment of the reasonableness of a proposed settlement … is a useful guide but is neither mandatory nor necessarily exhaustive …
(e)in relation to the inter se fairness, a particular concern of the Court is to confirm that the interests of the lead plaintiff, or signed-up clients of a given firm of solicitors, are not being preferred over the interests of other group members … the arrangement should be framed to achieve a broadly fair division of the proceeds, treating like group members alike, as cost-effectively as possible: …
[20] Te Aka Matua o Te Ture | the New Zealand Law Commission recently reviewed the legal framework for class action litigation funding. The Commission concluded that a broad test (fair, reasonable and in the interests of the class) for distribution of settlement proceeds is preferable, with more specific considerations included as relevant factors.5
4 Camilleri v Trust Company (Nominees) Ltd [2015] FCA 1468 at [5], as summarised by Mallon J in Re Strahl [2021] NZHC 3608 at [24].
5 Law Commission Ko ngā Hunga Take Whaipānga me ngā Pūtea Tautiringa | Class Actions and Litigation Funding (NZLC R147, 2022) at [11.112]–[11.115].
The Committee’s process
[21] Mr Tetro’s affidavit filed in support of the application confirms the process by which the Committee devised the distribution methodology. The Committee had regard to the Committee Agreement, as well as seeking legal advice on options before arriving to a decision. The Committee’s decision was unanimous and circulated to the claimants on 27 September 2024.
[22] Following the Committee’s update, Claims Administrator for the Representative Proceeding, Kim Lee-Richards, confirms every claimant was sent an individual email with their trade data for checking, as well as a request for their bank account details to enable quick distribution of the funds once the methodology was finalised. Ms Lee-Richards further deposed, as at noon on 21 January 2025, she received responses from 247 of the 282 claimants about the proposed distribution methodology. There have been 35 claimants from whom she has not received a response, and she indicated she was in the process of following up with them. None of the communications she has received to date expressed any questions or concerns regarding the proposed distribution methodology.
[23] At the hearing, Ms Cuncannon advised that since Ms Lee-Richards’ affidavit, a further 8 claimants have responded, with none raising any issues with the proposed distribution methodology. That leaves 27 claimants who have not responded to the Claims Administrator.
[24] Ms Cuncannon explains that the Committee has chosen to seek the Court’s endorsement of the allocation methodology (as opposed to ratification by 75 per cent of claimants) as it is hoped that the Court’s judgment will encourage claimants to confirm their trade data to the Claims Administrator for the purpose of a distribution assessment. Accordingly, the Committee seeks an ancillary order that, for the purpose of conducting the distribution assessment, the Claims Administrator is to use the trade data held by Cuncannon Partners on the date 20 working days after receipt of the Court’s judgment.
The Committee’s distribution methodology
[25] The Committee considers that the fair and equitable way to distribute the net Resolution Sum is to share the funds pro rata between the claimants based on each claimant’s assessed loss. The assessed loss for each claimant is the difference between:
(a)the price for all shares purchased; and
(b)the price of all shares sold (if any).
[26] This methodology means that any claimant who was able to sell any of their shares for more than the purchase price of all their shares has no loss and will not receive any part of the settlement funds.
[27] In his affidavit, Mr Tetro explains the Committee’s reasons for adopting a pro rata approach in this case. These include that the approach reflects the losses claimed in the Representative Proceeding, and the Committee's view that the Intueri IPO would never have gone ahead had the true position been known.
[28] Mr Tetro explains that the Committee considered other distribution options. Specifically, the Committee considered whether a loss assessment should include interest for loss of use of money by claimants, on the basis that a claimant who bought shares at the IPO (for example) has been out of pocket for longer than someone who purchased Intueri shares on the open market after the IPO. Mr Tetro says that the Committee concluded that the task of applying interest to individual claimants would be very complex and time-consuming, and result in material additional cost and delay.
[29] Mr Tetro deposes that the Committee also considered whether there were any principled distinctions between class members that should be reflected in the methodology. In particular, whether there were any legal or factual distinctions between IPO claims and the continuous disclosure claims that would warrant a different approach to loss assessment. Mr Tetro says that the Committee considered the Livingstone v CBL Corp Ltd (in liq) decision in which this Court approved a
pro rata methodology for the Livingstone claimants, and a methodology that gave a small uplift to IPO shareholders in the Harbour proceeding.6 The Committee considered that case to be different because the IPO and continuous disclosure claims were based on different alleged failures, and there was a significant difference in the prospects of recovery due to the insurance position. In this case, the allegation is simply that the IPO would never have proceeded had proper disclosure been made and that corrective disclosure of the same facts was not made at any point. There was no issue with insurance in this case.
[30] Mr Tetro explains that the Committee also considers a pro rata approach appropriate as it is easy for claimants to understand and the most straightforward, and therefore cost- effective way to allocate funds.
Is the Committee’s distribution methodology fair and reasonable?
[31] I am satisfied that the Committee has undertaken a thoughtful and thorough process to determine a fair distribution methodology.
[32] Furthermore, I am persuaded that a pro rata distribution between claimants based on each claimant’s assessed loss is fair and reasonable, being within the range of reasonable approaches. This approach is consistent with the losses claimed in the proceeding and the claimants’ theory of the case that the IPO would never have gone ahead had the market known the true position about Quantum’s business model.
[33] I am satisfied that the Committee considered whether a principled distinction should be drawn between investors who purchased shares in Intueri through the IPO and those who bought shares later, on the open market. As Mr Tetro notes, in Livingstone v CBL Corp Ltd (in liq), Gault J accepted the Harbour Committee’s decision to distinguish between those who purchased at IPO and on-market because of legal advice that the IPO claims were stronger and there was a greater chance of recovery due to the insurance position. Similarly, in Re Strahl, Mallon J accepted a weighted distribution based on different prospects of success between two classes of
6 Livingstone v CBL Corp Ltd (in liq) [2023] NZHC 2712 at [79], [83] and [92].
claimants.7 However in this case, the IPO and on-market claimants had the same claim
— they each relied on the same alleged misrepresentation, made first in the IPO and continuously from then. Both classes of claimant had the same prospect of success. Furthermore, the insurance issue relevant to the Harbour Committee’s methodology did not exist here. In any event, Gault J accepted that the Livingstone claimants’ pro rata distribution methodology was also fair and reasonable, reflecting the fact that the Court’s role is simply to determine whether the methodology is within the range of reasonable sharing methodologies.
[34] As to the Committee’s decision not to allocate interest to each claimant according to when they purchased their shares, all shares must have been purchased between 2014 and 2017 and all claimants have been without their money since 2017. I consider it reasonable for the Committee to have concluded that the time and cost involved in distinguishing between claimants in this respect was not justified.
[35] Overall, I am satisfied that the Committee’s pro rata distribution between claimants according to their assessed loss is fair and reasonable and should be approved.
[36] I also consider that the following orders, sought to ensure the distribution can proceed as efficiently as possible, are appropriate:
(a)that for the purpose of conducting the distribution assessment the Claims Administrator is to use the trade data held by Cuncannon Partners on the date 20 working days after receipt of the Court’s judgment; and
(b)any settlement funds that have not been paid to claimants within 120 days of the Court’s judgment are to be redistributed to the other claimants or, if the Committee considers the cost of doing so would be disproportionate, paid to the Inland Revenue Department as unclaimed money.
7 Re Strahl, above n 4.
Ancillary orders
[37] The parties also seek an order that the affidavits filed by Mr Tetro and Ms Lee-Richards are not to be searched on the court file without order of the Court, on the basis these contain information subject to settlement negotiation privilege, legal professional or litigation privilege and private information about the claimants.
[38] Having considered the contents of the affidavits, I am satisfied that this order is appropriate.
Result
[39]I order:
(a)for the purpose of conducting the distribution assessment, Ms Lee-Richards is to use the trade data held by Cuncannon Partners 20 working days after the date of the receipt of this judgment;
(b)the assessed loss of each claimant is the difference between:
(i)the price paid for all shares purchased by the claimant; and
(ii)the price received from shares that were sold by the claimant (i.e. the difference between purchases and sales (if any));
(c)the net Resolution Sum is to be shared pro rata by reference to each claimant’s assessed loss;
(d)any funds from the Resolution Sum that have not been paid to claimants within 120 days of this judgment are to be redistributed to the other claimants or, if the Committee considers the cost of doing so would be disproportionate, paid to the Inland Revenue Department as unclaimed money; and
(e)the affidavits of Mr Tetro and Ms Lee-Richards are not to be published and are not to be searched on the Court file without order of the Court.
Gardiner J
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