The complexities of administering class actions are coming to the fore in the Feltex litigation, as its lead plaintiff goes uninsured and security for costs remains unpaid.
Eric Houghton's $185 million claim on behalf of more than 3,000 Feltex Carpets investors is now at the valuation or quantum stage after the Supreme Court ruled last year the carpet-maker's 2004 prospectus had an untrue statement and that could lead to liability under the Securities Act.
Feltex collapsed less than two years after going public.
This month, former Fay Richwhite banker Tony Gavigan has been told personally to pay $1.65 million in security for costs to bring the case to stage two.
At this next stage, the courts will decide whether investors put money in reliance on the prospectus and whether that caused loss.
The case had been funded by British outfit Harbour Litigation Funding up until the end of 2015, after which Gavigan organised other investors to bankroll the case. Gavigan's funding was provided by Joint Action Funding which former lawyer John Eichelbaum also has shares in but the pair fell out in a bitter dispute over funding arrangements.
Gavigan said he disputes the fact he should pay more for security for costs and says he needs more time to get insurance for the next stage.
He would not be drawn on who is now bankrolling the case but said Supreme Court funding came from "several sophisticated investor claimants," and 100 smaller claimants.
Stage two funding has been sourced from a group of five Auckland businessmen, he told BusinessDesk.
The defendants, former directors and the Credit Suisse entities that acted as promoters and vendors want to press ahead with a High Court hearing in November.
In a judgment dated Sept. 13, Justice Robert Dobson describes the proceeding as "stale and protracted", and notes that despite the fact security for costs has gone unpaid, the defendants don't want to go down the usual route of a stay application which would pause proceedings.
"In practical terms, they are concerned to commit the claimants to the most workable arrangements that can be achieved to minimise the prejudice in preparation of their defences while maintaining the present fixture."
While earlier this year there were 52 claimants wanting to give evidence at the trial, the judge has suggested that be limited to 15 due to the five weeks allocated for the hearing.
In the meantime, the case will come before the Court of Appeal next month on witness matters. Gavigan says the evidence issue needs to be resolved before insurance can be finalised.
Despite the case being now more than a decade old and almost 15 years since the float, Gavigan says matters are being rushed and, while the funders will get insurance, it will take time.
"I feel the claimant group is being treated unfairly, is being rushed into an unsafe situation, it is being threatened with costs against certain large claimants personally - who simply will not proceed on that basis," he says.
• 2004- Feltex Carpet floats
• 2006 - Moved into receivership and liquidation
• 2008 - Eric Houghton files representative claim
• 2014 - Justice Dobson finds against claimants in High Court
• 2016 - Court of Appeal upholds most of High Court decision
• 2018 - Supreme Court reverses Court of Appeal, but First NZ Capital and Forsyth Barr removed from the case.