A class action against the promoters and directors of Intueri Education Group is taking the novel course, in New Zealand at least, of seeking summary judgment from the High Court.
Seeking summary judgment is a declaration that the plaintiffs, investors in the $177 million Intueri float in 2014 and after it listed on NZX, are so confident of their case that they don't think the float promoters, ASX-listed Arowana, its directors and Intueri directors, have any arguable defence.
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However, they will have to convince a judge of that and Arowana has promised to "vigorously defend" itself.
Adina Thorn, the lawyer handling the case for the plaintiffs, said she believes they have a "strong case."
Litigation funder LPF Group is bankrolling the case and director Phil Newland said this was the first time it had committed to funding a summary judgment which "indicates our confidence in this case."
Other lawyers have said this is the first time they have seen a request for summary judgment in a class action suit.
"Certainly, in the New Zealand context, it's a novel thing," though it has happened before overseas, said Oliver Gascoigne, a senior associate at Buddle Findlay.
"In brief terms, summary judgment is available if the plaintiff can satisfy the court that the defendant has no defence," but the onus will be on the plaintiff to prove that.
Such an option is "generally not appropriate where pleadings are necessary" or where there's a credible dispute, he said.
On the substance of the plaintiff's allegations, that the promoters, Arowana and Intueri directors withheld vital information and made false or misleading statements, the court will look at recent judicial decisions, such as the Supreme Court's decision in 2018 in the class action case of investors against the former Feltex directors.
That decision broadened the courts' interpretation of whether investors had suffered losses as a result of a false or misleading statement in a prospectus to include reliance on wider market commentary.
"The courts certainly take a liberal approach to allowing representative proceedings," Gascoigne said.
Grant Cameron, who is representing claimants in a class action case against Southern Response, the government-owned insurer that took over claims on policies written by AMI before it failed in 2012, said seeking summary judgment "is very unusual."
"It seems to me that it's open to them in law and it's for the other side to now produce their defences and they have to state why they think they're arguable defences," the lawyer said.
"They will have to persuade the court that the defences are arguable."
Arowana has told BusinessDesk that various people working for it "believed they were doing the right thing at the time, in particular, engaging local New Zealand industry experts, advisers and investment banks."
However, much of its protestations are that organisations including the Financial Markets Authority, stock exchange operator NZX and law firm Chapman Tripp vetted its offer documents.
However, none of these organisations are responsible for fact-checking a prospectus and the legal onus remains on the promoters, Arowana and its directors and Intueri's directors.
Chapman Tripp said that "due to our strict duties of confidentiality and continuing duty of confidence to any client who may have engaged with the firm – even after any matter has come to an end – we are not at liberty to comment."
Arowana has noted that both the FMA and Serious Fraud Office investigated Intueri and its subsidiary, Quantum Education, between 2015 and 2017 and took no further action.
Arowana has also accused the Tertiary Education Commission of failing to include "counterfactual evidence" the company provided it with in its report published in December 2017.
TEC told BusinessDesk that "because the matter is currently before the court, we are unable to comment."
Arowana said, "no findings as to any illegality were made by these regulatory bodies," but TEC said in December 2017 that Quantum "deliberately took advantage of reporting procedures to enable the business to keep millions of dollars in student fees."
TEC said Quantum had taken steps to retain newly enrolled students on its books until the students were no longer entitled to a fees refund, but before Quantum had to officially record their enrolment.
"That meant Quantum could keep the fees, which were often paid with student loans," TEC said.
"This wasn't illegal, but we need to note it was entirely unacceptable," it said, adding that it had acted to remove the loophole in reporting procedures that Quantum had exploited. It took no action against Quantum because it was already in liquidation by that time.
Arowana insists that "the TEC understood the reporting procedures and there could not have been a 'loophole.'"
But the basis of the case against it is that the Intueri offer documents said Quantum had 4,628 students enrolled in 2013 and that student course completion rates in 2012 were 91 percent.
In fact, of the 4,628 Quantum enrolments in 2013, 2,877 were students who enrolled, used government-provided student loans to pay for the course and then withdrew before starting or very early into the course.
Quantum reported only 1,741 enrolments to the TEC and the percentage success rates in the offer documents were based on the numbers it reported to TEC, not the total enrolments.
The float allowed Arowana to sell down its stake in Intueri to 24.9 per cent for estimated net cash proceeds of A$94.7 million.
Arowana reported a A$109.5 million net profit for the year ended June 2014, up from A$900,000 the previous year and after a A$132.7 million net gain from selling down Intueri and revaluing its remaining stake.
A graph in the slide presentation accompanying the results showed the major reason for Arowana's shares rising was the Quantum purchase and subsequent Intueri float.