The High Court has declined to strike out an application by former Feltex directors seeking relief from their liabilities under a provision in the Securities Act 1978.
However, the issue may be revisited in the second stage of the civil trial concerning a 2004 prospectus forecast.
A stage two trial has been set down for November with lead plaintiff Eric Houghton returning to represent about 3600 investors in the case following a Supreme Court decision finding that a revenue forecast was untrue.
Former directors Timothy Saunders, Samuel Magill, John Feeney, Craig Horrocks, Peter Hunter, Peter Thomas and Joan Withers, sale promoter Credit Suisse Private Equity and vendor Credit Suisse First Boston Asian Merchant Partners are the defendants.
Earlier this month their lawyers argued for relief under section s63 of the Securities Act 1978 that they acted with honest and reasonable belief.
Houghton responded with an application to strike out the defendants' reliance on s63 and a defence relying on an analogous approach under the Fair Trading Act 1986.
In a reserved decision this week, Justice Robert Dobson declined the strike out application.
"Because the plaintiff cannot make out at this stage that resort to s63 is untenable in all circumstances that may ensue, the application to strike out must be dismissed."
Feltex listed on the stock exchange in 2004 following an initial public offer priced at $1.70 a share, but those shares were "effectively worthless" just 18 months later when the company collapsed into receivership.
The investors are claiming more than $200 million in damages.
The August 2018 Supreme Court decision by Chief Justice Sian Elias and Justices Susan Glazebrook, Mark O'Regan, Terrence Arnold and Stephen Kos ruled the 2004 Feltex prospectus contained an untrue statement over forecasts for that year - enough to warrant the second stage of a trial.
The Supreme Court judges dismissed an appeal against First NZ Capital and Forsyth Barr as joint lead managers, saying those investment firms were not promoters under the act.
The s63 issues argued before Justice Dobson addressed both reasonableness and honesty.
"I agree with [Plaintiff lawer Colin Carruthers, QC] on this point. If the correct legal analysis resulted in s63 not being available to any of the defendants because findings by the Supreme Court precluded their being able to make out that they had acted reasonably, then it would be appropriate to exclude the prospect of argument on s63 from the issues to be determined at the stage two hearing. The defendants could not reserve their entitlement to raise it merely because it was unnecessary for them to explicitly plead it as an affirmative defence."
The strike-out application was based solely on the proposition that the defendants could not make out that they had acted reasonably in light of the Supreme Court finding.
"Reviewing the Supreme Court's judgment as a whole, I incline to the view that it contemplates any application of s63 would await the stage two hearing," Justice Dobson noted.
"However, if the plaintiff was in other respects able to discharge the onus for striking out I would not deny it that relief because of the terms in which the Supreme Court contemplated the stage two hearing would take place."
In November the High Court will have to work out whether the untrue statement in the prospectus caused a loss for investors.