BUSINESSDESK: Tony Gavigan, the former Fay Richwhite investment banker who secured foreign backing for the class suit against the directors of failed carpet maker Feltex, is essential to the lawsuit and shouldn't be removed as the funder, the Court of Appeal heard today.
The former directors of Feltex and the brokerages that promoted the company’s shares made the appeal against Mr Gavigan and his Joint Action Funding Limited being the court-approved funder of the action.
They have sought to have him removed over statements he has made and his ability to meet costs if they successfully defend the High Court class action.
Mr Gavigan is bankrolling the suit through an investment agreement with London-based Harbour Litigation Funding and has organised the action since Feltex collapsed in 2006, owing creditors between $30 million and $40 million, and destroying some $254 million in shareholder value.
"Without him involved we wouldn't have this claim," senior counsel for the class action Austin Forbes told the court on the second day of a two-day hearing in Wellington today.
The claim's lead plaintiff is Eric Houghton, who invested in Feltex when it was floated, and has been joined by some 3000 other former shareholders.
Mr Forbes said British backer Harbour Funding Litigation doesn't invest in New Zealand and entered into an investment agreement via a limited partnership with JAFL on the basis that the Gavigan-controlled entity would be Harbour's point of contact.
General details of the funding agreement between JAFL and Harbour would be shared with the defendants' counsel, who sought assurances there would be enough cash to cover their costs if the class suit wasn't successful, he said.
He would also likely be able to get similar terms for the insurance cover obtained by the plaintiffs.
“In both cases I have gained instruction that evidence to support the funder's ability to meet its obligation under its agreement with JAFL” has been authorised, he said.
Justices Mark O’Regan, Anthony Randerson and Rhys Harrison reserved their decision, and will release a minute once counsel have looked at the Harbour agreement.
David Cooper, counsel for the directors, told the court the details of that arrangement may satisfy his appeal over the confidentiality of the funding but wouldn't necessarily allay their concerns as to JAFL's suitability as the court-approved funder.
Feltex's directors at the time of the offer were Tim Saunders, Sam Magill, John Feeney, Craig Horrocks, Peter Hunter, Peter David and Joan Withers. The other parties to the class suit include broking firms Credit Suisse, First NZ Capital and Forsyth Barr, which sold and promoted the offer.
Counsel for Credit Suisse, Adrian Olney, sought to have most of the claims thrown out on the basis that they had not been filed in time, but accepted that if the court decided to implement a cut-off time for shareholders to opt in, then "that would be better than nothing".
When it finally gets to court, the Feltex action will be divided into two stages. The first will hear Houghton’s entire case, with the second using the first for binding rulings on common claims.