'Excessive' Feltex costs may hinder future cases - Crown

The “eye wateringly large” $952,000 in costs awarded to five former Feltex directors could dampen regulator appetite for taking future cases, Crown prosecutors argued in court today.

The Crown is appealing the costs and compensation awarded to the directors following their acquittal last August of charges brought by the Registrar of Companies, a unit of the Ministry of Economic Development.

Former chairman Tim Saunders, chief executive Peter Thomas, and directors John Hagen, Peter Hunter and John Feeney were found not guilty of charges relating to Feltex’s December 31 interim accounts.

In awarding costs, Judge Jan Doogue said the ministry “failed to have proper regard to or draw the obvious conclusions from the information” provided by the accused directors and the case should never have been brought.

Opening the Crown’s case for the appeal, prosecutor Simon Moore told the High Court at Auckland the size of the awarded costs was “manifestly excessive and unreasonable."

The magnitude of the costs attracted significant negative publicity for the Registrar of Companies and could present inhibiting factors for other regulators taking future cases, particularly in the current economic climate, he said.

Justice Raynor Asher noted that the funds did not come out of the Registrar’s own budget but from the wider taxpayer pool.

However, he added that should the same costs multiple be applied to the upcoming Bridgecorp trial – a much more complex and lengthy case – the outcome could be “very frightening indeed” for the public.

Mr Moore said government agencies had a responsibility to be frugal during this time of government fiscal pressure.

On the costs in question, he said the quantity awarded was twice as much as the next largest recorded when the Ministry of Fisheries coughed up $369,500 for a failed prosecution of Maruha Corporation.

In that case Maruha’s lawyers initially sought $850,000, arguing that MFish acted in “bad faith” while negligently relying on "shonky science."

In the Feltex case, there was no suggestion that the Registrar acted in bad faith. 

Mr Moore pointed out that the Feltex charge was a fine-only regulatory offence that had to be heard in the District Court because there was no mechanism for dealing with regulatory matters by use of a tribunal.

He argued that while the Feltex directors might have suffered reputational damage, there was potentially more at stake for the Maruha case in terms of a potential prison sentence, loss of quota and vessel.

In the Feltex case, Judge Doogue’s order against MED amounted to $952,000, of which $517,145 is for Bell Gully, $203,857 for Paul Davison QC, $127,400 for Allan Galbraith QC and disbursements of $104,000.

Mr Moore said the Feltex award (70% of total costs) was a significantly higher multiple than the prosecution costs of $144,000, which also included costs of pre-charging advice.

Justice Asher said no doubt the counsel for the directors would describe that as “modest."

Mr Moore replied that Allan Galbraith “went as far to describe it as 'outrageously modest.'”

Mr Moore said: “We accept this was a case where it was required to engage a leading law firm and two leading silks, but that factor on its own or connected with others does not justify elevation of an award which otherwise would have been more modest if less experienced legal advisors had been engaged.”

In other words, he said, “Rolls Royce representation may have been justified but that doesn’t necessarily mean the court should have made a Rolls Royce award order.”