Former Feltex Carpets shareholder Eric Houghton's lawyer has argued in the Supreme Court that the failed company's 2004 prospectus wasn't valid because it contained untrue statements about its sales prospects.

Patricia Mills for Houghton told Supreme Court Chief Justice Sian Elias and Justices Terence Arnold and Mark O'Regan that because the Feltex prospectus contained an untrue statement it wasn't a valid offer document and meant, therefore, that the company wasn't entitled to offer securities to the public. Houghton is seeking leave to appeal to the Supreme Court after his case was dismissed by the Court of Appeal.

She cited a finding in last year's Court of Appeal ruling that Houghton had grounds to pursue a claim that the offer document contained misleading statements, a reference to the forecasts for the 2004 year. The appeal court didn't dwell on that point, deeming those forecasts immaterial and the contention that the forecast caused losses "untenable".

Mills today agreed with a question put to her by Justice Elias that her client's "real quarrel" with the Court of Appeal judgment was with "the requirement of materiality".

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David Cooper, counsel for the former Feltex directors, said that given the findings of the lower court that any inaccuracies in the document were immaterial, 'then whatever the outcome, it doesn't make a difference."

Feltex investor Houghton originally sued the former Feltex directors, owners and sale managers in a representative High Court action seeking $185 million including interest for shareholders he said had been misled by the 2004 prospectus. Justice Robert Dobson found in favour of the defendants while noting some criticisms of the offer documents.

In dismissing his subsequent appeal to the Court of Appeal last year, Justices Ellen France, Tony Randerson and Helen Winkelmann ruled that the only conduct that could be deemed misleading or deceptive wasn't material enough to cause loss.

Houghton was successful in convincing Justices Randerson and Winkelmann, being the majority, that the High Court erred in its definition of promoter, finding the joint lead managers First NZ Capital and Forsyth Barr should have been captured by the lawsuit, although that's since changed under the new securities law regime which excludes the concept of promoter as those liable for misleading statements.

In seeking leave to appeal to the Supreme Court, Mills said obligations under the Financial Markets Conduct Act were "substantially similar to the structures in the Securities Act" it replaced.

The Supreme Court bench asked the phalanx of lawyers for the various classes of respondents for their thoughts on whether there were issues to be answered under the Fair Trading Act after Mills said FTA claims should be heard in a stage 2 trial. In the High Court, Justice Dobson had struck out those claims made under the Fair Trading Act, ruling that the directors and promoters' conduct is regulated by the Securities Act.
Feltex failed in 2006.

Justice Elias said the court would now consider its request for leave to appeal.