Funders
of the unsuccessful $185 million claim brought by aggrieved investors after the
2004 Feltex float have been ordered to pay over three million in costs to the
successful defendants: Feltex directors and the float promoters Credit Suisse,
First New Zealand Capital and Forsyth Barr.
Harbour Litigation Investment Fund LP and Joint
Action Funding Ltd provided the financial muscle for small shareholders who
banded together to sue Feltex for losses suffered when the share price tanked
after Feltex went public. They lost
comprehensively when the High Court ruled the 2004 prospectus not
misleading. As sucessful defendants,
claims for costs were made by those who were Feltex directors in 2004 together
with the float promoters who had been sued.
They claimed indemnity costs; compensation for every dollar spent on the
case alleging the investors’ claim was without merit, had been poorly
researched and badly presented – all of which created needless costs for the
defence.
Harbour Litigation and Joint Action had
accepted liability for any costs order when underwriting the investors’ court
case. There was evidence that Harbour
Litigation had taken insurance cover (capped at five million dollars) against
the possibility of having to pay increased costs on losing. The defendants said litigation funders are in
the business to make a profit and should pay the full costs when losing. The High Court was told that if the $185
million claim had succeeded in full, Harbour Litigation and Joint Action would
have taken $60 million as their pay-off. Justice Dobson said the courts have accepted
there is a place for litigation funders, providing access to justice where
there are multiple small claimants seeking to pursue a common claim. It did not follow that use of a litigation
funder, alone, was reason to order indemnity costs. There was no order for indemnity costs.
Justice Dobson did increase the level of costs
payable above those normally awarded to reflect the amount of work
involved. The court hearings ran for 52 sitting
days with evidence heard from 33 witnesses including eleven giving expert
evidence. Over 1800 documents were
produced in evidence requiring a comprehensive electronic data management
system to capture and display the documents.
Harbour Litigation and Joint Action were ordered to pay extra above
standard court rates of between 15% and 50% across various categories of costs
claimed. They were ordered to pay Feltex
directors $1.12 million, Credit Suisse $803,640, First New Zealand $576,268 and
Forsyth Barr $493,883.
Justice Dobson commented specificially on some
of the costs claimed stating that the rates paid overseas experts might be seen
to be “eye-wateringly high”. The full
costs of fees and disbursements for two of the expert witnesses called for the
defence amounted to $1.3 million. One of
them, Professor Cornell based in the US, charged $US995 per hour for his
services. Justice Dobson queried whether
Australasian experts with sufficient expertise could not be found.
At the behest of litigation funders,
Justice Dobson ordered claims for alcohol be deleted from all recoveries
claimed by the defendants and their lawyers for overnight accommodation and
meals.
Houghton
v. Saunders – High Court (24.03.15)
15.023