Failed Feltex case costs litigation funders $3.1M in costs, before disbursements
Former directors of Feltex Carpets and promoters of its 2004 initial public offering have been awarded a scaled-up $3.1 million in costs after being found not liable for alleged disclosure failings in its prospectus.
Once disbursements are included, total costs could rise to $5 million, before costs associated with the actual costs of the hearing.
In a judgement last September in the High Court at Wellington, Justice Robert Dobson found in favour of the defendants on all of numerous causes of action. Feltex investor Eric Houghton had sued the former Feltex directors, owners and sale managers in a representative action seeking $185 million including interest for shareholders his suit said had been misled by the 2004 prospectus.
Justice Dobson said in his March 24 decision on costs that the plaintiff had accepted that costs should follow but disputed the magnitude and increase of the costs claimed. However, the judge accepted some of the arguments put forward by the defendants, lifting the total costs in their favour by about $1 million compared to what is known as their scale costs entitlement.
Among their arguments was that the lawsuit sought hundreds of millions of dollars, forcing the defendants to take it seriously and bring in experts on arcane economic and financial matters that proved very expensive. The claims for costs included about $820,600 for US Professor Bradford Cornell, a senior consultant at Compass Lexecon, and $211,750 for Rob Cameron, of investment bank Cameron Partners. Lawyers for Houghton objected to those fees and various related expenses but Justice Dobson only agreed to a 35 percent reduction in costs for Professor Cornell.
"In complex commercial and regulatory cases, the court has been relatively liberal in not questioning the reasonableness of what, by New Zealand standards, are eye-wateringly high charges demanded by economists of international repute and other specialist experts in similarly arcane areas," he said.
Houghton won't personally have to pay because the lawsuit was bankrolled by Harbour Litigation Investment Fund and Joint Action Funding Limited, which had accepted they would indemnify the plaintiff in the event the case failed.
The biggest award of costs was to the former directors, Tim Saunders, Sam Magill, John Feeney, Craig Horrocks, Peter Hunter and Peter Thomas, at about $932,000. Credit Suisse was awarded costs of $804,000, while First NZ Capital got $576,000 and Forsyth Barr got about $494,000.
Within a year of NZX listing, Feltex stock had become 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.