Feltex shareholders appeal High Court ruling

Feltex director Peter Thomas and chairman Tim Saunders arrive at the Auckland District Court. Photo / Dean Purcell

Shareholders in the failed Feltex Carpets, led by Eric Houghton, have appealed the High Court decision which found the directors were not liable for alleged disclosure failings in the 2004 prospectus.

In a reserved judgment in the Wellington High Court on Sept. 15, Justice Robert Dobson cleared the former Feltex directors of misleading investors in its prospectus, but did note there were some criticisms to be made of the offer documents.

Houghton's appeal, lodged with the Court of Appeal on Monday, says the High Court erred in its judgment that New Zealand securities legislation does not seek to limit the extent of risk to investors are exposed. The High Court trial was a two-stage process where Houghton was essentially a test case for the other shareholders.

The notice of appeal lists 13 grounds of appeal against the High Court judgment covering what the appellants see as errors in the judge's interpretation of the Securities Act and the Fair Trading Act, as well as in its definition of a promoter and the loss suffered by the shareholders.

The appeal seeks to set aside the relevant parts of the High Court judgment and the order for costs, entering judgment in favour of Houghton for $20,000 plus interest, and awarding costs.

Houghton sued the former Feltex directors, owners and sale managers in a representative action seeking $185 million including interest for shareholders, saying they had been misled by the 2004 prospectus. Within a year of NZX listing the stock was virtually worthless, thanks to a series of warnings that the company would miss its forecasts. Receivers were appointed in September 2006. Australian carpet maker Godfrey Hirst ended up buying the assets.

At the time of his decision, Justice Dobson said while his findings were sufficient to determine his decision, the prospect of appeals, raised "repeatedly" during the hearing, had prompted him to record findings "on numerous other issues which were the subject of intense evidence and argument."

They would become relevant "in the event that I am subsequently held to be wrong in dismissing the claims of misleading content in, or omissions from, the prospectus," Justice Dobson said in his decision.

The notice names the former Feltex directors Timothy Saunders, Samuel Magill, John Feeney, Craig Horrocks, Peter Hunter, Peter Thomas and Joan Withers as first respondents.

Credit Suisse Private Equity, the promoter of the sale, is the second respondent, while owner Credit Suisse First Boston Asian Merchant Partners is third. First NZ Capital and Forsyth Barr, which managed the IPO, are fourth and fifth respondents.

Roger Cann of Wilson McKay is acting as solicitor for the appellant.