Lack
of rules governing class actions has left Feltex shareholders wandering through
a maze as they attempt to recover compensation for alleged wrongdoing in 2004
at the time of the $250 million Feltex public offer. Credit Suisse tried to argue that shareholder
delays mean some investors are out of time, having lost any right to sue.
Shareholders who in
2004 bought into Feltex at $1.70 per share allege they were misled about the
company’s prospects when taking up the offer.
The share price dropped two-thirds in the subsequent two years. By December 2006, Feltex was in liquidation. Legal action has been taken against the then
directors of Feltex, the promoters of the offer (Credit Suisse) and brokers managing
the public offer (First NZ Capital and Forsyth Barr). Legal action is underway in the name of a Mr
Houghton from Upper Moutere and a Mr Jones from Dunedin, acting on their own
behalf and as representatives of similarly affected shareholders.
Unlike Australia and
the United States, there are no explicit rules in New Zealand for class
actions, allowing one individual to take legal action on behalf of a number of
people all affected in a similar manner.
The Feltex litigation is attempting to piggyback a class action into the
New Zealand courts on the back of High Court procedural rules which allow one
person to bring a claim on behalf of others where they have “the same interest
in the subject matter”. This procedure
requires prior court approval.
The court was told the
process has been in some disarray. Court proceedings were filed back in February
2008. There were then delays over
finding funding for the litigation and then questions about the suitability and
legality of any claim being funded by a commercial litigation funder. Investors were contacted and invited to join
the litigation before the High Court had approved forms they were asked to
sign. Lawyers initially acting for the
investors withdrew from the case in March 2009 and there was a three month
delay before new lawyers took up the case.
With little progress
made, investors were running up against time limits. The court was told part of their case would
possibly become statute-barred by early June 2010. The exact date was not known. Because Feltex investors are taking a novel
approach to create a class action, it was not known at which stage individual
investors were considered to have commenced legal action such that the clock
stopped ticking and time stopped running.
Time limits are
imposed to prevent endless litigation and protect defendants from dormant
claims being commenced long after contemporary evidence is no longer available.
Feltex investors are
suing for negligence (which has a six year time limit running from the date of
the alleged negligence) and for breaches of the Fair Trading Act (which has a
three year time limit running from the date any loss was discovered or should
have been discovered).
The Supreme Court
ruled that the critical date for Feltex investors was the date Mr Houghton
filed his action in the High Court and the court nominated him as a
representative of all those who bought shares in the Feltex public float. This date is 26 February 2008. From this date, all the investors Mr Houghton
represents are considered to have commenced legal action, even though they
signed forms at a later date to “opt-in”.
The court was told that as at February 2012 a total of 2,852
shareholders have opted to join the representative action. Investors have yet to have their day in
court arguing the merits of their claim.
Credit
Suisse v. Houghton – Supreme Court (9.04.14)
14.016