HOUGHTON v SAUNDERS [2019] NZCA 506

HOUGHTON v SAUNDERS [2019] NZCA 506 [11 October 2019]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA437/2019[2019] NZCA 506BETWEEN ERIC MESERVE HOUGHTONAppellantAND TIMOTHY ERNEST CORBETTSAUNDERS, SAMUEL JOHN MAGILL,JOHN MICHAEL FEENEY, CRAIGEDGEWORTH HORROCKS, PETERDAVID HUNTER, PETER THOMAS ANDJOAN WITHERSFirst RespondentsCREDIT SUISSE PRIVATE EQUITYINCORPORATEDSecond RespondentCREDIT SUISSE FIRST BOSTON ASIANMERCHANT PARTNERS LPThird RespondentHearing: 9 and 10 October 2019Court: Brown, Simon France and Hinton JJCounsel: C R Carruthers QC and P A B Mills for AppellantA R Galbraith QC, D J Cooper and M C Harris for First and Thirdto Sixth named First RespondentsT C Weston QC for Second named First RespondentB D Gray QC and A E Ferguson for Seventh namedFirst RespondentJ B M Smith QC, A S Olney and C J Curran for Second andThird RespondentsJudgment: 11 October 2019 at 4.00 pmReasons: 18 October 2019JUDGMENT OF THE COURTA The appeal is dismissed.B The appellant is to pay one set of costs to the first respondents and one set ofcosts to the second and third respondents, in both instances for a standardappeal on a band A basis with usual disbursements. We certify for twocounsel in both instances.____________________________________________________________________REASONS OF THE COURT(Given by Brown J)Introduction[1] This is another interlocutory appeal in the "Feltex" litigation. It is against ajudgment of Dobson J delivered on 15 August 2019 making orders for discovery andsecurity for costs and ruling inadmissible parts of the evidence which the appellantproposes to lead from an economist, Mr Greg Houston.1 On 11 October 2019 wedelivered a results judgment dismissing the appeal.2 Our reasons for doing so nowfollow.Background[2] A combined investment statement and prospectus for an initial public offering(IPO) of shares in Feltex Carpets Ltd (Feltex), issued on 5 May 2004, contained arevenue forecast for the financial year ending 30 June 2004 (the FY04 revenueforecast) and a projection for the financial year ending 30 June 2005 (the FY05projection) as follows:For the year ending ForecastJune 2004$000ProjectionJune 2005$000Total operating revenue 335,498 348,1471 Houghton v Saunders [2019] NZHC 2007 [High Court decision].2 Houghton v Saunders [2019] NZCA 491.Earnings before interest, tax, depreciation,amortisation and write-offs – EBITDA41,641 51,683Net surplus attributable to Shareholders 10,113 23,889[3] Mr Houghton3 brought proceedings under the Securities Act 1978 and theFair Trading Act 1986 which included allegations that the FY04 revenue forecast andthe FY05 projection were untrue statements and misleading and deceptive conduct.In August 2012 it was ordered that issues raised by the proceeding should be dealtwith in two stages.4 The first stage was to determine Mr Houghton's own claim,together with the issues that were common to the claims of all the other shareholderswhom he represented. The remaining issues arising for the other shareholders whohad opted in were to be determined at the second stage.The FY04 revenue forecast[4] The first stage culminated in the Supreme Court's decision in Houghton vSaunders5 upholding this Court's finding that the FY04 revenue forecast was untrueat the time of allotment of the shares offered for subscription.6 Consequently thesecond stage of the trial, scheduled to commence in the High Court on4 November 2019, will address, among other issues, whether any of the investorsrepresented by Mr Houghton suffered loss by reason of the untrue statementconcerning the FY04 revenue forecast and, if so, the quantum of such loss.7The FY05 projection[5] The appellant's challenge to the FY05 projection was rejected by theHigh Court.8 Noting that the appellant's criticism of the FY05 projection asunreasonable relied in part on the circumstances surrounding profit downgrades forFeltex announced on 1 April and 20 June 2005,9 Dobson J identified the inference he3 In a representative capacity for himself and others who had been allotted shares in Feltex and whoopted into the representative action.4 Houghton v Saunders [2012] NZHC 1828, [2012] NZCCLR 31 at [39].5 Houghton v Saunders [2018] NZSC 74, [2019] 1 NZLR 1 [Supreme Court decision] at [231].6 Houghton v Saunders [2016] NZCA 493, [2017] 2 NZLR 189 [Court of Appeal decision] at [204].7 Supreme Court decision, above n 5, at [383].8 Houghton v Saunders [2014] NZHC 2229, [2015] 2 NZLR 74.9 At [331].was invited to draw as being that adverse changes must have been readily predictablein May 2004.10 This ought to have required the directors to adopt a more cautiousapproach in their projection for FY05.11 The Judge stated:12That is classic hindsight thinking. Reflecting on the totality of evidence as tothe position as assessed by the directors at the time of the prospectus, I am notpersuaded by the plaintiff's arguments that the approach the directors adoptedin light of all the information available to them at the time was unreasonable.[6] Dobson J concluded:13Having regard to all of the information available to the directors at the timethe prospectus issued, and in light of the relative thoroughness of the processundertaken to arrive at those projections, I am satisfied that the assumptionsrelied on, and the projected numbers in the FY2005 projection, werereasonably open to the directors. It follows that they were not misleading.[7] This Court considered that the Judge's reasoning could not be faulted.14An appeal to the Supreme Court on this issue was also dismissed.15 However, becauseof the significance which it assumed in the admissibility argument, it is convenient atthe outset to record the Supreme Court's analysis concerning the FY05 salesprojection:[263] We accept that the FY05 sales revenue projection was not arrived atby adding a percentage increase to the FY04 forecast figure. In our view,however, this does not answer Mr Houghton's point, which is that it wasunrealistic, in light of the history of the company and in particular the badresults in January, February, April and May, to consider that Feltex couldachieve the level of sales projected for FY05.[264] There are a number of points that support Mr Houghton's submission.The first is that Feltex's strategy had been to concentrate on margin rather thanvolume and in particular to concentrate on the middle and premium marketsin residential. There does not appear to have been a decision to abandon thisstrategy. Rather, the increase in volume was projected to occur in those highermargin products and not in the mass market. This would make it harder toachieve the one percent increase in market share, which was measured byvolume, because the mass market made up the greater proportion of themarket. We also accept the submission that a 4.7 per cent increase in revenuewas ambitious and that this was even more so after the results in April andMay. We also note that the results in the first six months of FY05 wouldsuggest in hindsight that the sales projection was in fact unrealistic.10 At [333].11 At [333].12 At [334].13 At [337].14 Court of Appeal decision, above n 6, at [122].15 Supreme Court decision, above n 5, at [373] and [384].[265] As pointed out in the Courts below, however, the evidence called byMr Houghton did not challenge the reasons given for assuming an increase inrevenue. We are thus not in a position to examine their validity or otherwise.While the sales revenue shortfall against projection began immediately in Julyand worsened over the next months, there are dangers in judging by hindsight.The due diligence committee and the directors did have information beforethem which suggested the market in FY05 would be buoyant.[266] We are therefore not able to hold it proved that, at the time of theallocation of shares, the FY05 sales revenue projection was not reasonablyassessed as within the range of possible outcomes and thus an untruestatement.(Footnotes omitted.)Mr Houston's instructions[8] At the November hearing the claimants wish to rely on a report by Mr Houstondated 19 July 2019 (the initial report) and a supplementary report dated 5 August 2019(the supplementary report) as evidence of the loss suffered by reason of the untruestatement.[9] The instructions to Mr Houston of 2 July 2019 in respect of his initial reportwere as follows:Please provide an expert estimate as at 2 June 2004 as to whether and if so towhat extent the Feltex IPO price would have been lower than the actual priceat which shares were allotted to investors had Feltex announced that:• In relation to its FY04 revenue forecast:>the FY04 revenue forecast was no longer a probable outcome;>the assumptions on which the FY04 revenue forecast were based wereno longer reasonable;>the sales revenue in January 2004, February 2004, April 2004 and May2004 were bad; and>total sales for FY04 year were likely to be between $7.5 million and $9million below the forecast annual total;• in relation to its FY05 revenue projection:>it was unrealistic to consider that Feltex could achieve the level of salesprojected for FY05;>a 4.7 per cent increase for FY05 revenue was ambitious, and 'even moreso' after the results in April 2004 and May 2004; and>the FY05 sales revenue projection was reasonably within the range ofpossible outcomes.[10] In the initial report the content of the postulated announcements in relation tothe FY04 revenue forecast and the FY05 revenue projection were describedrespectively as "the FY04 revenue information" and "the FY05 revenue information".The content of the assumed announcement relating to the FY04 revenue forecastderived from the Supreme Court's finding that it was an untrue statement. In the caseof the assumed announcement concerning the FY05 revenue projection, it wasacknowledged by the appellant that the source was [263]–[264] of theSupreme Court's judgment.16[11] Section 5 of the initial report addressed the price effect of the FY04 revenueinformation while section 6 addressed the price effect of the FY05 revenueinformation. Section 7 was directed to the "total value of the FY04 and FY05 revenueinformation". No admissibility objection was taken to section 5 of the report althoughwe were informed that the conclusions will be contested. However the respondentsobjected to the admissibility of section 6 and that part of section 7 which addressedthe FY05 revenue information.[12] The instructions to Mr Houston of 1 August 2019 to provide a supplementaryreport stated:Please provide a supplementary expert report addressing as at 2 June 2004 thefollowing three questions in relation to the analysis that you presented in yourearlier report, ie:1. How would the values presented in table 7.1 of the First HoustonReport change if you were to apply the estimated market response tothe change in FY05 revenue announced on 1 April 2005, as derived atparagraphs 211 to 212 of the First Houston Report?2. What is your estimate of the value of the FY04 and FY05 revenueinformation under an assumption that Feltex's FY05 revenue was tobe less than its FY04 revenue by either 2 per cent or 3.8 per cent?3. How would the values presented in tables A.1 and A.2 of the FirstHouston Report change if Feltex was assumed to cease to be a goingconcern from FY06, with a terminal value of either:16 At [7] above.a. zero; orb. 49.136 million — ie, the net tangible asset value forecastas at June 2004 as presented at page 87 of Feltex'sprospectus.The respondents' interlocutory application[13] The respondents sought a ruling on the admissibility of section 6 ofMr Houston's initial report together with that part of section 7 that addressed the FY05revenue information. They also challenged the entirety of his supplementary report.In addition they sought orders for particulars of the individual claims for claimantswhose cases were to be determined at the second stage of the trial, orders consequenton non-compliance with previous discovery orders and further directions consequentupon non-compliance with prior orders for security for costs in respect of the stagetwo trial.The High Court judgmentThe admissibility of the Houston reports[14] The respondents argued that the instructions to Mr Houston in respect of theFY05 revenue information were misconceived. Mr Houghton had failed to establishthe FY05 projection constituted an untrue statement. An opinion on the financialimpact of the FY05 revenue information would require revisiting that stage one finaldetermination. On grounds of issue estoppel and res judicata the respondentssubmitted it was not open to the claimants to raise arguments that had thatconsequence.[15] Mr Carruthers QC countered that Mr Houston's analysis of the FY05 revenueinformation did no more than assess the impact on the Feltex share price of the knock-on effect on the FY05 revenue projection which was necessarily rendered less reliableby the acknowledgement required of the directors that their FY04 revenue forecastwas materially overstated.[16] The difficulty which Dobson J saw with that submission was that it treated theabsence of disclosure by the directors on 2 June 2004 of the FY05 revenue informationas non-compliant disclosure, such categorisation being contrary to the findings of allcourts that the FY05 revenue projection did not contain any untrue statement.He stated:[71] I am unable to accept Mr Carruthers' characterisation that[Mr Houston's valuation exercise in response to the instruction concerning theFY05 revenue information] is a component of calculating the impact of theFY04 revenue information by factoring in some knock-on effect on themarket's assessment of other aspects of the prospectus. The outcome ofMr Houston's analysis of the FY05 revenue information reflects the separateimpact on the market price for Feltex shares on 2 June 2004 that is said to arisefrom the market not knowing the FY05 revenue information.[17] Consequently the Judge concluded that the FY05 revenue projectioncomponent of Mr Houston's initial report was not relevant, nor in terms of s 25 of theEvidence Act 2006 was it likely to be substantially helpful in determining the loss thatthe claimants could establish as arising from the untrue statement in the prospectus.17[18] Similarly the Judge accepted the respondents' objection that the supplementaryinstruction to Mr Houston depended on a factual premise for which there was norelevant basis. It followed that his opinions on the additional propositions could notbe substantially helpful in resolving the stage two issues.18Discovery[19] The Judge recorded that all the stage two claimants will contend that, had theyknown of the untrue statement in the prospectus at the time they committed to purchasetheir shares, they would have reversed their investment decision.19 Consequently theindividual circumstances in which they proceeded with the purchases and thenretained the shares would be relevant. The respondents' complaint was that thenumber of documents disclosed was improbably small with inadequate details of theextent of searches undertaken to locate documents. In a number of cases it was saidthat the only open document disclosed was the opt in form completed by shareholdersto join the representative action.17 High Court decision, above n 1, at [73]–[74].18 At [80].19 At [8].[20] After reviewing in some detail the extent of discovery provided by severalclaimants, the Judge directed each stage two claimant to file a supplementarydiscovery affidavit by 28 August 2019 addressing the following matters:20(i) particulars of the steps taken to search for relevant documents,including identification of the categories of documentssearched for;(ii) parts 4 and 5 as prescribed in the form in the High Court Rules2016; and(iii) discovery of categories of documents that had been requestedin a letter from Gilbert Walker to the claimants' solicitorsdated 13 April 2019, the relevant component of which isannexed to this judgment as schedule A.21Security for costs[21] In a judgment of 14 June 2019 Dobson J directed that security for costs for thestage two hearing of $1.65 million was to be provided by 12 July 2019 in the form ofeither cash lodged in Court or a solicitor's trust account or, by agreement between theparties, a bond or a bank guarantee.22 There was no appeal from that order.[22] Security not having been provided, the respondents at the hearing on 8 August2019 proposed the provision of alternative forms of security, either by the larger of thestage two claimants or by means of an order attributing personal liability toMr Gavigan as the alter-ego of the litigation funder.[23] After canvassing the options with counsel during the hearing, Dobson J issueda minute on 9 August 2019 setting out the provisional form of an order for alternativemodes of security in the following terms:23[1] The claimants have until 16 August 2019 to provide security in termsof my costs judgment for the sum of $1.65 million in relation to stage two.I do not discount the possibility that an ATE policy covering adverse costsorders against the claimants in a sum of not less than $1.65 million, providedby an underwriter whose obligations are enforceable in New Zealand and whois deemed reputable and solvent, would be a sufficient form for the securitythat has been ordered.20 At [37] and [4(b)].21 Schedule A listed six categories of documents which applied to investors in all sub-groups andtwo additional categories for sub-group B investors.22 Houghton v Saunders [2019] NZHC 1362.23 Houghton v Saunders HC Wellington CIV-2008-409-348, 9 August 2019.[2] If the security as contemplated is not provided by 16 August 2019,then by 23 August 2019 the following alternative to the security previouslyordered is to be provided. A number of the largest claimants, being betweenthree and six of them at the claimants' option, are to provide security severallyfor the respective portion that each represents of the total of the claims of thosecontributing, for a total of $1.65 million. Such security is to be provided incash or by way of bank bond.[3] In the event that this alternative becomes necessary, then thedefendants are also to have the benefit of a guarantee in their favour fromMr Anthony Gavigan, payable on the default by any of the claimants of theirseveral liabilities of the total of $1.65 million.[4] If the substitute forms of security described in [2] and [3] abovebecome necessary, then the claimants may at any point thereafter, apply to bereleased from that form of security on provision of the security in favour ofthe defendants for the sum of $1.65 million in the form originallycontemplated or such alternative form as may be reasonably acceptable to thedefendants.[5] In the event that the stage two security is not resolved by 23 August2019 by one of the specified alternatives, then the defendants will be at libertyto apply at short notice for a stay of the proceedings on whatever terms arecontended as appropriate. As discussed with counsel, given the length of thehistory of this matter and the extent of steps taken since the Supreme Courtjudgment in August 2018, once a stay is in contemplation, I am unlikely to bepersuaded to grant a temporary stay on any open-ended basis.[24] The judgment under appeal recorded that on 13 August 2019 counsel for theclaimants advised that they did not seek amendment to the proposed terms whileforeshadowing that arrangements were still in train to provide security as previouslyindicated. The memorandum materially stated:2. In terms of paragraph [2] of the Minute, the plaintiff has no commenton the terms of the orders which Your Honour proposes. As far as theplaintiff is concerned, they will achieve their intended effect.3. The plaintiff intends to provide security in terms of paragraph [1] ofthe proposed orders by 16 August 2019.In a memorandum of 14 August 2019 the respondents proposed an additionalparagraph which the Judge adopted in the orders ultimately made.Issues on appeal[25] Although the judgment also contained a direction requiring further particularsof a claim which was challenged in the notice of appeal, that aspect of the appeal wasabandoned. Hence the agreed issues on appeal were:(a) whether section 6 and that part of section 7 of Mr Houston's initialreport that addressed the FY05 projection and the entirety of hissupplementary report were admissible;(b) whether the Judge erred in deciding that the discovery provided by theclaimants whose claims are proposed to be determined at stage two ofthe proceeding was insufficient; and(c) whether the Judge was entitled to make the orders for security for coststo be provided in the alternative forms at [2]–[4] in [23] above.The admissibility of Mr Houston's reportsAppellant's submission[26] Mr Carruthers disavowed any attempt to rely on the FY05 projection as beingan untrue statement. Rather it was the appellant's case that the untrue statement inrespect of the FY04 forecast had a repercussion or "knock-on" effect on the otherfinancial information in the prospectus and in the marketplace as at 2 June 2004,particularly the FY05 projection and broker commentary on the expectations for futurecash flows of Feltex from 2 June 2004 onwards.[27] Mr Carruthers explained the chain of causation from the untrue statement inrelation to the FY04 revenue information to losses by shareholders in this manner:• the untrue FY04 revenue forecast caused a direct loss as valued byMr Houston;• however, in addition, the FY04 revenue information (being the extent ofthe untruth) caused the reasonableness of the FY05 revenue projections tochange in terms expressed by the Supreme Court at [264]; and• the change in the reasonableness or reliability of those projections wasnegative and established a further source of loss to Feltex shareholders.[28] As Mr Carruthers put it in his written submissions:29. Without wanting to tangle with what was or was not a compliantdisclosure in relation to the FY05 revenue information, the simple point is thatthe FY04 revenue information — had it been disclosed — would havechanged investors' assessment of the FY05 revenue projection (irrespective ofwhat may or may not have been disclosed about those projections). TheSupreme Court's findings in relation to those projections (which formed thebasis for the FY05 revenue information) are stated in terms of how investorswould likely have interpreted those projections.Respondents' submission[29] Mr Galbraith QC for the first respondents argued that section 6 (and relatedlysection 7) of Mr Houston's initial report were based on a mistaken interpretation ofobservations made by the Supreme Court. The words relied on by the appellant at[263]–[264] were not findings or even steps in the Court's reasoning but simply anarticulation of Mr Houghton's arguments. The supplementary report was inadmissiblebecause it responded to three additional questions each of which necessarily assumedthe disclosure at 2 June 2004 of additional corrective disclosure for which there wasno evidential foundation and no relevant finding of an untrue statement.Opinion evidence as to loss said to arise from undisclosed information about the FY05projection was therefore irrelevant to the issue of loss to be determined at stage two.[30] Consequently he submitted Dobson J was correct to conclude that a Courtcould not therefore obtain "substantial help" from opinion evidence prepared inreliance on the assumptions the subject of Mr Houston's instructions. In particular itwas submitted that the phrase "change in reasonableness" in the second step ofMr Carruthers's chain of causation24 was not only a clear and impermissible attemptto resurrect the unsuccessful challenge to the FY05 projection but also it did notaccurately describe Mr Houston's proposed evidence. Indeed Mr Galbraith submittedthat the appellant's core submission, that "no part of [Mr Houston's] analysis turns onan implied obligation to disclose the FY05 revenue information", asserted nothing lessthan the very opposite of what Mr Houston did and was instructed to do.24 At [27] above.[31] For the second and third respondents Mr Smith QC made the point that thehypothetical FY05 corrective disclosure not only contained a different set ofinformation to the FY04 disclosure but aimed to "correct" a different part of theprospectus, that is the true FY05 projection. Its value impact was estimated as adistinct valuation exercise, using different valuation methods. The only changes inthe supplementary report were to the estimated price impact of the hypothetical FY05corrective disclosure but, as Dobson J noted, the price impact of the FY04 correctivedisclosure was held constant from the initial report.[32] Mr Smith observed that the words "knock-on" or similar did not appear inMr Houston's evidence which was unsurprising given the instructions. He reiteratedthe point that those instructions cherry-picked observations (not findings) from theSupreme Court's judgment. He cautioned that split trials are fundamental to theoperation of representative proceedings but unless the courts are vigilant to avoidcollateral retrospective attacks on liability findings the procedural value of split trialswill be compromised.Discussion[33] The Supreme Court held that, judged at the time of the due diligence committeemeeting on 2 June 2004, the extent of the likely revenue shortfall for FY04 meant thatthe FY04 revenue forecast was no longer the probable outcome and the assumptionson which the forecast was based were no longer reasonable.25 In order to avoid theFY04 revenue forecast in the prospectus being untrue, the directors would have had todisclose that information (described by Mr Houston as the FY04 revenue information).Mr Carruthers' argument is that, had that been disclosed, it would have changed theinvestors' assessment of the FY05 revenue projection.[34] The respondents did not challenge the proposition that there may be arepercussion or knock-on effect from the disclosure of the FY04 revenue shortfall,describing the proposition as in itself neither controversial nor disputed.They accepted the observation of Dobson J that the knock-on effect on the market'sview of the reliability of the FY05 revenue projection may well be a component of the25 Supreme Court decision, above n 5, at [231].market's reaction to disclosure of the untruth of the FY04 revenue forecast.26 Theycontended that an event study such as that undertaken by Mr Houston in section 5 ofhis initial report necessarily incorporates and captures any investor perceptionsconcerning the reliability of the FY05 projection.[35] However the respondents' complaint is that in section 6 Mr Houston assessesnot the knock-on effect of the FY04 revenue information but rather an additional"loss" arising from additional "corrective disclosure" for FY05 for which there is nofoundation. They say his instruction to do so was misconceived. The Judge'sacceptance of that proposition27 was attacked by Mr Carruthers asa mischaracterisation of Mr Houston's analysis. He submitted that no part of thatanalysis turned on an implied obligation to disclose the FY05 revenue information.[36] That submission is not consistent with Mr Houston's stated understanding ofhis instruction. In his initial report he said:136 The FY05 revenue information amounts to a disclosure that, althoughit was possible that Feltex could achieve its FY05 sales revenueprojection, this was unrealistic, ambitious and "even more so" afterthe sales results for April 2004 and May 2004.28 He proceeded to explain his instruction in this way:137 I have been asked to estimate the price effect of the FY04 and FY05revenue information, under the assumption that Feltex disclosed all ofthis information to the market on 2 June 2004. In my opinion, in lightof the FY04 revenue information conveying a shortfall in FY04revenue, an announcement that Feltex's FY05 revenue projection wasambitious and "even more so" after the results in April 2004 and May2004 would have caused market participants to revise their estimatesof FY05 revenue downwards.29 [37] When it was put to Mr Carruthers that the analysis by Mr Houston flowed fromthe premise of an announcement in June 2004 about the FY05 revenue projection, heresponded that the three components of the assumed announcement in Mr Houston'sinstruction were distilled from the Supreme Court's judgment. He contended that26 High Court decision, above n 1, at [72].27 At [71], set out at [16] above.28 Referencing [264] of the Supreme Court's decision, above n 5.29 Again referencing [264].Mr Galbraith and Mr Smith had attacked the significance of the Supreme Court'sfindings, particularly in relation to the FY05 projection.[38] In his comments in reply he advanced the proposition that, while theSupreme Court had ruled that the FY05 projection did not qualify as an untruestatement, the Court had in fact upheld the criticisms of the projection. As he put it:[The FY05 projection] has not been proved to be an untrue statement.Now that is a very significantly different position from saying that theSupreme Court didn't criticise the underlying basis on which the FY05projection was made because the Supreme Court deliberately did that byupholding Mr Houghton's evidence.[39] However we agree with the respondents that the Supreme Court's commentsat [263] and [264] were not "findings". They were observations made in the course ofa discussion which led to the rejection of the appellant's claim that the FY05 revenueprojection contained an untrue statement.[40] The point is most clearly demonstrated by reference to the first of the threeassumed FY05 disclosures in Mr Houston's initial instructions, namely that it wasunrealistic to consider that Feltex could achieve the level of sales projected for FY05.30While recognising Mr Houghton's contention, it is plain that the Supreme Court didnot conclude that the FY05 sales revenue projection was unrealistic as at 2 June 2004.Had it done so it could not also have found that the FY05 sales revenue projection wasreasonably within the range of possible outcomes, namely the third assumed item ofFY05 disclosure. We accept Mr Galbraith's submission that an unrealistic projectionwould necessarily be unreasonable and hence untrue.[41] Hence we accept the respondents' submission that it follows from theprinciples of issue estoppel and res judicata that the appellant cannot advance a claimfor loss at the stage two trial that relies on facts which are inconsistent with the findingsmade at stage one. As the England and Wales High Court remarked in ImperialChemical Industries Ltd v Merit Merrell Technology Ltd:3130 While the third assumption is not in itself precluded by res judicata (in fact it is the Court's finding)and the second may not be, the first is clearly the overriding basis for Mr Houston's section 6analysis.31 Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd [2018] EWHC 1577 at [8].There are other instances in which [the claimant's] case at this quantum trialwholly ignored earlier findings of the High Court that did not suit it, not leastthe approach of its accountancy expert It goes without saying — or rather,it should — that quantum trials that follow detailed liability findings by thecourt ought to treat those findings as what they are, namely the final resolutionof that particular component of the litigation between the parties.[42] Consequently we affirm the Judge's finding that section 6 and section 7 (to theextent it addresses the FY05 revenue information) of Mr Houston's initial report areinadmissible and do not satisfy the requirement of substantial helpfulness in s 25 ofthe Evidence Act. The supplementary report is similarly inadmissible for the reasonsearlier noted.32[43] From time to time objections to admissibility will be held over to trial, whetheron account of benevolence, caution or some other reason. That is not an appropriateavenue here where there has been a ruling below with which we find no error andwhere the costs associated with obtaining evidence in response may not be recoverablegiven the uncertainties in relation to security for costs.Further discoveryAppellant's submissions[44] The appellant contended that discovery orders in respect of categories 1, 2 and3 in Schedule A to the judgment under appeal were unnecessary because discoveryhad been made in compliance with the High Court Rules 2016 by those claimantswhose claims were scheduled to be heard at the stage two hearing. However categories4, 5 and 6 were said not to be matters in respect of which discovery was relevant.Hence direction (iii)33 was unnecessary.[45] With reference to items (i) and (ii) it was argued that cls 10 and 11 of thestandard form of discovery affidavit were inapplicable; in the case of cl 10, theclaimants do not consider that there are "persons" now in control of documents whichhave ceased to be in the claimants' control; so far as cl 11 is concerned, the claimants32 At [29] and [31] above.33 At [20] above.do not know of documents which would be discoverable if the claimants had controlof such documents.Respondents' submissions[46] The burden of the argument in support of the discovery order was borne byMr Olney. He reviewed the adequacy of discovery by a number of the stage twoclaimants, reiterating the Judge's analysis and pointing out that the appellant's writtensubmissions did not address the concerns identified. He emphasised that the ordersmade should properly be viewed as an appropriate exercise of case management by anexperienced Judge highly familiar with the case.[47] The first respondents supported that submission, observing that the pursuit ofthis aspect of the appeal was puzzling given the abandonment of the appeal against thedirection that the claimants should provide specific pleadings.Discussion[48] In Ashmore v Corp of Lloyd's Lord Templeman observed:34 the appellate court should be reluctant to entertain complaints about a judgewho controls the conduct of proceedings and limits the time and scope ofevidence and argument. So too, where a judge, for reasons which are notplainly wrong makes an interlocutory decision or makes a decision in thecourse of a trial the decision should be respected by the parties and if notrespected should be upheld by an appellate court unless the judge was plainlywrong.[49] Ashmore was cited by this Court in Knauf Insulation Ltd v Tasman InsulationNew Zealand Ltd where it was said:35[10] Third, both interlocutory judgments relate to matters of casemanagement which are appropriately resolved by the trial court and nothingraised before us suggests the Judge has adopted the wrong approach.Appellate courts should be, and traditionally have been, reluctant to interferewith an interlocutory decision unless it is such as to effectively resolve thecase or has such a substantial impact on the trial that it would be unfair torequire the appellant to wait until after the trial to pursue it. That is not thecase here.34 Ashmore v Corp of Lloyd's [1992] 1 WLR 446 (HL) at [453]–[454].35 Knauf Insulation Ltd v Tasman New Zealand Ltd [2013] NZCA 427, (2013) 21 PRNZ 535.[50] Particularly given the context of the challenged discovery orders, having beencrafted in the interval between the two trial phases and by a Judge who has beeninvolved throughout the litigation, we consider it proper to address this aspect of theappeal with the traditional restraint applicable to the trial court's case managementfunction.[51] We do not perceive any error in the nature and scope of the discovery orders.They appear designed to facilitate the resolution of the stage two issues. At least tosome extent the discovery task would appear to have a connection with the furtherparticulars of the claims which the Judge directed, the provision of which is no longerresisted. And if it transpires there are no documents of the nature specified in theorder, then there will be nothing to discover.Security for costsAppellant's submissions[52] The appellant contended that the security for costs orders were inappropriateto the extent that they required stage two claimants and Mr Gavigan, as the director ofJoint Action Funding Ltd, to provide security for costs. Citing Jupiter Air Ltd (in liq)v Australian Aviation Underwriting Pool Pty Ltd Ms Mills submitted that security forcosts may not be ordered against a non-party, even though costs orders can be made.36[53] Ms Mills also invoked Oxygen Air Ltd v LG Electronics Australia Pty Ltd asauthority for the proposition that, although a director of a litigant company mayvoluntarily undertake to provide personal security on the company's behalf, an orderfor security cannot be made against the director.37 Reference was made to a decisionof French J delivered on 8 June 2011 at a much earlier stage in this litigation in whichit was said that she ruled that security for costs may not be ordered against Joint ActionFunding Ltd or a qualifying shareholder which is a non-party.3836 Jupiter Air Ltd (in liq) v Australian Aviation Underwriting Pool Pty Ltd (2002) 16 PRNZ702 (HC).37 Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2018] NZHC 2504, [2018] NZAR 1699.38 Houghton v Saunders (2011) 20 PRNZ 509 (HC).Respondents' submissions[54] Mr Cooper assumed the burden of the security for costs argument, making fivepoints:• the terms of an order for security for costs is a trial management issue;• in substance the order challenged gave the appellant an opportunity tosatisfy the security obligation in an alternative way;39• the issue is now moot as the appellant chose not to take up the optionavailable. No sanction followed from the appellant's choice and there isno longer a live issue between the parties;• contrary to the appellant's argument, there was jurisdiction to make theorder; and• the order which the Judge proposed was in effect consented to.Discussion[55] Save to the extent to which the issues raise a question of jurisdiction, we viewthis matter as also one of trial management. We do not propose to prolong thisjudgment and delay the release of our reasons by exploring the jurisdiction debate.Suffice to say that in our view the appeal on this issue is answered by the second, thirdand fifth points advanced by Mr Cooper.Result[56] The appeal is dismissed.[57] The first respondents sought costs for each separately represented firstrespondent together with certification for second counsel. We consider such an orderis excessive on an interlocutory appeal. The appellant is to pay one set of costs to the39 Mr Cooper expressly accepted that the alternative security orders were not made against theclaimants or against Mr Gavigan and could not be enforced against them.first respondents and one set of costs to the second and third respondents, in bothinstances for a standard appeal on a band A basis with usual disbursements. We certifyfor two counsel in both instances.Solicitors:Antony Hamel, Dunedin for AppellantGilbert Walker, Auckland for First to Sixth Named First RespondentsWilson Harle, Auckland for Seventh Named First RespondentRussell McVeagh, Wellington for Second and Third Respondents