Houghton v Saunders [2021] NZSC 38

A recent decision by the Supreme Court has brought an end to a long-running saga through the New Zealand courts. Commenced in 2008, a class action suit of some 3,600 shareholders has rolled on against the directors of Feltex Carpets Limited (Feltex) and its (former) private equity owner, Credit Suisse, for thirteen years.

In 2008, Eric Houghton (representing the 3,600 shareholders) brought proceedings against the directors of Feltex, Credit Suisse, First New Zealand Capital (as it was known then), and Forsyth Barr. Mr Houghton alleged that the prospectus that was issued for Feltex’s IPO in 2004 was misleading. The proceedings were split into two stages – the first stage dealing with liability, and the second stage dealing with quantum.

In 2018, at the culmination of the first stage of the trial, the Supreme Court dismissed the claims against First New Zealand Capital and Forsyth Barr but found against the directors and Credit Suisse, determining that the prospectus contained an untrue statement and constituted misleading conduct under the Fair Trading Act. However, three years later, the proceedings have reached an anticlimactic end, with the claim being struck out for failure by the claimant to provide security for costs.

Background

Following the finding of the Supreme Court, the proceedings were referred to the High Court for stage two of the trial, initially scheduled to commence in November 2019.[1] As a funded class action, it was agreed that defendants were entitled to security for costs, which the Court set at $1.65 million.[2] The date of the trial was later postponed to May 2020 to give the claimant more time to arrange the security.

However, by May 2020 the claimant had repeatedly failed to secure funding by deadlines set by the Court and had still not arranged the security. In response, the defendants applied to the High Court for a strike out of the proceedings for failing to comply with orders and for want of prosecution.[3]

High Court Strike Out

The High Court considered that the claimant had exhausted his reasonable attempts to comply and that the claim could not continue on an open-ended basis.[4] The Court noted that allowances should be made for the unprecedented economic times of the pandemic, but that this should be balanced with the interests of the defendants and the public interest.[5] It stressed the injurious effect repeatedly delaying such a large trial has on other litigants and the courts’ finite resources.[6]

Furthermore, the Court recognised that had the case been brought by an individual or self-funded plaintiffs, it would have already been dismissed, and that it would be an injustice to allow the claimants repeated indulgent delays simply by virtue of being a class action.[7] The Court granted the defendants’ application, imposing a strike out order unless the claimant could provide the security in cash or on agreed terms by 13 July 2020.[8]

Court of Appeal

The claimant appealed the decision to the Court of Appeal, which upheld the strike out, holding that the claimant failed to show that the interests of justice required the decision to be changed.[9] Affirming the reasons in the High Court, Goddard J reiterated the rights of the defendants to a timely trial and that it was contrary to the public interest to allow the case to “continue to absorb the finite resources of the courts, to the detriment of other litigants”.[10] The Court concluded that the appeal failed “by a wide margin.”[11]

Supreme Court

Despite the forceful determination of the Court of Appeal, the claimant applied for leave to appeal the strike out decision once more to the Supreme Court. In a short judgment, the Court dismissed the application, finally bringing the litigation to an end.

In dismissing the application, the Supreme Court ruled that it would not relitigate the Court of Appeal’s decision that the claimant’s proposal for security for costs had little prospect of success.[12] Furthermore, the Court deemed that there was limited scope to appeal on the grounds of a miscarriage of justice in civil cases, and that to continue the case here into its thirteenth year would instead be contrary to the public interest.[13]

Conclusion (Russell Stewart)

Russell Stewart, who acted for First New Zealand Capital throughout the first stage of the trial, says that while the strike out may be an underwhelming end to such a prolonged battle, it provides a valuable reminder that for even the most dogged litigation to succeed, parties must comply with the necessaries of procedure and that the public interest requires litigation to be determined in a timely manner.