ROSEMARY PHYLIS FILLBRIDGE HAYLOCK AND STUART HAMILTON CAIRNS V JAMES WARREN PATEK AND SHELL EXPLORATION NZ LIMITED CA591/2008

ROSEMARY PHYLIS FILLBRIDGE HAYLOCK AND STUART HAMILTON CAIRNS V JAMES WARREN PATEK AND SHELL EXPLORATION NZ LIMITED CA591/2008 6 July 2010IN THE COURT OF APPEAL OF NEW ZEALAND CA591/2008 [2010] NZCA 289BETWEEN ROSEMARY PHYLIS FILLBRIDGE HAYLOCK AND STUART HAMILTON CAIRNS Appellants AND JAMES WARREN PATEK AND SHELL EXPLORATION NZ LIMITED RespondentsCA382/2009AND BETWEEN ROSEMARY PHYLIS FILLBRIDGE HAYLOCK AND STUART HAMILTON CAIRNS Appellants AND SOUTHERN PETROLEUM NO LIABILITY, JAMES WARREN PATEK AND SHELL EXPLORATION NZ LIMITED Respondents Hearing: 10 March 2010 Court: William Young P, Glazebrook and Chambers JJ Counsel: G J Judd QC and P A B Mills for Appellants S J Katz and T S Glasgow for Respondents Judgment: 6 July 2010 at 4.30 pmJUDGMENT OF THE COURT A The appeal (CA 382/2009) is allowed. B The appeal (CA591/2008) has been properly brought.C The questions in the application for directions are answered as follows: (a) If the leave granted to the appellants to exercise the public issuer's right of action would but for the enactment of the Securities Markets Amendment Act 2006 extend to and include the right to bring this appeal, is that right preserved by s 16 of the Securities Markets Amendment Act 2006? Yes. (b) Does the leave to exercise the public issuer's right of action extend to and include the right to bring this appeal? Yes. (c) Is Southern required to pay the appellants' costs of the appeal and, if costs are awarded against the appellants, also to pay those costs. Yes. D If there is any question as to a costs order in CA382/2009 between Southern on the one hand and Mr Patek and Shell on the other then memoranda can be filed on or before 29 July 2010. E The respondents in CA591/2008 are to pay the appellants costs for a standard application on a Band A basis plus usual disbursements. We certify for second counsel. F Southern must pay to the appellants their reasonable indemnity costs relating to the appeal in CA382/2009 (and also their reasonable indemnity costs in the High Court). G Southern must pay to the appellants any additional reasonable indemnity costs incurred with regard to the application for directions in CA591/2008. H The costs payable by the respondents under Order E are to be deducted from the costs orders in F and G.____________________________________________________________________REASONS OF THE COURT(Given by Glazebrook J)Table of ContentsPara NoIntroduction [1]The legislation 0Terms of the s 18(1)(b) order made in this case [8]Hugh Williams J's judgment [9]Issues in the appeal (CA382/2009) [14]Did the High Court have jurisdiction? [15]Was the question in the High Court correctly framed? [17]Does the grant of leave extend to any appeal? [19]The appellants' submissions [19]The respondents' submissions [21]Our assessment [23]Can leave be revisited? [36]Application for directions (CA591/2008) [42]Result and costs [46]Introduction[1] Haylock and Mr Cairns, along with two other plaintiffs, were given leave under s 18(1)(b) of the Securities Markets Act 1988 (SMA) to exercise Southern Petroleum NL's (Southern) right of action with regard to allegations of insider trading against Mr Patek and Shell Exploration NZ Ltd (Shell), 1 in the course of a takeover of Southern by Petrocorp Industries Ltd. 2 As a result of the plaintiffs being granted leave, Southern was required to meet the plaintiffs' costs in that action.3[2] On 1 September 2008 a judgment in the action was delivered, which dismissed all the plaintiffs' claims. 4 On 26 September 2008, Ms Haylock and Mr Cairns appealed to this Court against that judgment. 5 The respondents cross appealed.1 Previously Petrocorp Exploration Ltd.2 Haylock v Southern Petroleum NL [2002] 3 NZLR 518 (HC), confirmed on appeal in Haylock v Southern Petroleum NL [2003] 2 NZLR 175 (CA). Later consequential orders as to costs were made in Haylock v Southern Petroleum NL (No.2) [2002] 3 NZLR 819 (HC).3 Pursuant to s 18(5) of the SMA.4 Haylock v Patek [2009] 1 NZLR 351 (HC).5 CA 591/2008.[3] On 24 March 2009 Hugh Williams J granted the application of Mr Patek, Shell and Southern for a declaration that the order for Southern to pay the plaintiffs' costs ended on the delivery of the High Court judgment in the substantive insider trading proceedings of 1 September and did not extend to any appeal.6[4] Ms Haylock and Mr Cairns appeal 7 against Hugh Williams J's judgment of 24 March 2009. They say that the High Court did not have jurisdiction to determine the issue and that in any event the question was incorrectly framed. Further, they say that the grant of leave extended to any appeal, subject to the conditions imposed in the original grant of leave. They also seek certain directions seeking the determination of preliminary questions in relation to the appeal against the substantive judgment. [5] Southern, Mr Patek and Shell support Hugh Williams J's judgment but also say that the leave granted to the plaintiffs to bring Southern's right of action is subject to the ongoing supervisory role of the Court. This includes the ability to revisit the question of leave if this is required in the interests of justice.The legislation[6] At the relevant time, s 18 of the SMA read: 818. Shareholders may exercise public issuer's right of action(1) The right of action of a public issuer against an insider may, with the leave of the court, be exercised by – (a) a holder of securities of the public issuer; or (b) a person who was a holder of securities of the public issuer at the time the securities in the public issuer, or any other public issuer, were sold or purchased. (2) The court shall give leave to bring an action unless it is satisfied that –6 Haylock v Patek [2009] 3 NZLR 559 (HC).7 CA382/2009.8 This section was repealed by section 5 of the Securities Markets Amendment Act 2006 as from 29 February 2008.(a) the public issuer does not have an arguable case against the insider; or (b) there is good reason for not bringing the action. (3) In any case where a proceeding has been commenced by a public issuer against an insider – (a) a holder of securities of the public issuer; or (b) a person who was a holder of securities of the public issuer at the time the securities in the public issuer, or other public issuer, were bought or sold, - may, with the leave of the court, take over the conduct of the proceeding. (4) The court shall give leave to take over the conduct of a proceeding unless it is satisfied that – (a) the public issuer is conducting the proceeding in a proper manner; or (b) there is good reason for not continuing the proceeding. (5) The public issuer shall pay the costs of a person to whom leave is given under this section in bringing or continuing a proceeding against an insider irrespective of the result, and, if costs are awarded against that person, shall also pay those costs.[7] "Court" is defined by s 2 of the SMA as meaning "in relation to any matter, the Court before which the matter is to be determined".Terms of the s 18(1)(b) order made in this case[8] When Fisher J granted the plaintiffs leave to bring Southern's right of action under s 18(1)(b) of the SMA and made consequential orders as to costs, he made the following directions: 9[17] The respondent and intended defendants also seek controls over the plaintiffs' costs and representation. A condition of leave will be that the applicants exercising Southern's rights pursuant to s 18 in their dealings with the Court, the intended defendants, and the respondent, must be represented by no more than one senior counsel, one junior counsel and one firm of solicitors, all of whom will be paid pursuant to s 18(5). Whether the applicants choose to have additional legal advisers behind the scenes is not the concern of the Court or other parties.9 Haylock v Southern Petroleum NL (No 2) at 823-824.[18] Leave will be reserved to the respondent to: (a) apply for a stay on the ground that a continuation of the proceeding would constitute an abuse of process; and (b) from time to time apply for a declaration that the costs incurred or intended to be incurred, for which it would otherwise be liable under s 18(5) of the Act, are or would be unreasonable.Hugh Williams J's judgment[9] We first summarise Hugh Williams J's judgment referred to at [3] above. Hugh Williams J framed the question for determination as being whether a "proceeding" in a court includes the filing and determination of an appeal from that court or whether an appeal is a separate proceeding. The Judge said that, in light of the importance of context, it was helpful to consider the context provided by basic principle and then by such precedent as there is in New Zealand and overseas, however bearing in mind that this application revolved around s 18(5) of the SMA. He said that the fact that an appeal or an application for leave to appeal is a right given to an affected litigant at each stage of the litigation is not the equivalent of saying that the appeal is part of the proceedings itself. He accepted that a right of action is not the equivalent of a proceeding because a right of action may not mature into a proceeding. Further, even if it does so mature, then it may never become an appeal proceeding. [10] In the Judge's view, Attorney-General v Sillem10 enunciated the applicable principle in this case: that the right of appeal is not in itself a necessary part of procedure in an action. In Hugh Williams J's view the New South Wales Supreme Court judgment of Carpenter v Pioneer Park Pty Ltd11 was a detailed application of the principle in Sillem. The Judge set out the facts of Carpenter12 and quoted a number of key paragraphs, the most relevant of which include:[15] An appeal is a proceeding distinct from that in which the judgment or order challenged on appeal was given or made. The judgment or order at first instance is the "foundation of an appeal": Australian10 Attorney-General v Sillem (1864) 10 HL Cas. 704; 11 ER 1200.11 Carpenter v Pioneer Park Pty Ltd (2008) 66 ACSR 564.12 The respondents point out that the principles espoused in Carpenter have subsequently been cited with approval in Australian Securities and Investments Commission v Knightsbridge Managed Funds Ltd (No 3) [2008] WASC 231.Securities Commission v Ampolex Ltd13 per Kirby P. And as was there observed, the person who initiates an appeal may not have been a party at first instance, and a person who was a party at first instance will not necessarily be a party to the appeal ... [17] As a matter of policy and common sense, an appeal must, for present purposes, be regarded as a new and separate proceeding in the particular context before me ... [18] The leave granted to Mr Carpenter on 1 November 2004 does not extend to allow him to initiate and prosecute on behalf of Pioneer Park the appeal initiated by the notice of appeal dated 2 March 2007.[11] The Judge also pointed to the fact that under r 31(1) of the Court of Appeal (Civil) Rules 2005 an appeal is not brought until the appellant files a notice of appeal. In his view, this indicates that the filing of the notice of appeal is the commencement of a new and separate proceeding, although this may not be the case in all contexts. [12] In addition, the Judge considered it significant that neither the High Court nor this Court can take any step which affects the other except as empowered by statute. He also considered it of significance that Court is defined by s 2 of the Judicature Act 1908 as meaning the High Court. The Judge also relied on the definition of "Court" in the SMA. 14 The Judge considered that, as Southern's right of action had been determined in the High Court, this would indicate that the court which was to determine the appeal (and cross-appeal) should be the court to decide whether s 18(5) of the SMA should apply to the appeal. [13] The Judge therefore held that a "proceeding" as the term is used in s 18(5) relates only to the initiation, conduct and determination of this claim in the High Court. He accepted that this left some questions unanswered, including what the position would be if the defendants had appealed but considered that the simpler and better view was that any right of action or right to defend any civil proceeding carries with it the right to appeal (except to the Supreme Court) or to defend an appeal but that all such proceedings are separate proceedings.13 Australian Securities Commission v Ampolex Ltd (1995) 38 NSWLR 504 at 511, 18 ACSR 735 at 741.14 Above at [5].Issues in the appeal (CA 382/2009)[14] The following issues arise: (b) Did the High Court have jurisdiction? (c) Was the question in the High Court correctly framed? (d) Does the grant of leave extend to any appeal? (e) Can leave be revisited?Did the High Court have jurisdiction?[15] Mr Judd QC's first submission is that the High Court had no jurisdiction to entertain the application by the respondents for a declaration that the order for Southern to pay the costs of the plaintiffs in the insider trading litigation does not extend to any appeal. He submits that the question whether the leave granted pursuant to s 18 extended to the right to bring the appeal can only be determined by this Court. [16] We consider that the High Court was entitled to entertain an application that asked it to define the limits of its own leave judgment.Was the question in the High Court correctly framed?[17] Mr Judd submits that in any event the question to the High Court was wrongly framed. The High Court when granting leave did not order Southern to be responsible for the payment of the costs of the plaintiffs in the insider trading action. That followed automatically upon leave being granted for the plaintiffs to pursue Southern's right of action - see s 18(5) of the SMA, which is in mandatory terms. [18] We accept that submission. The question that should have been asked is whether the leave extended to any appeal. Nothing, however, turns on this. Ineffect, if the grant of leave does not extend to any appeal, then there is no liability on Southern to pay the costs of any appeal, subject to any further grant of leave.Does the grant of leave extend to any appeal?The appellants' submissions[19] In Mr Judd's submission, s 66 of the Judicature Act 1908 covers all High Court determinations in civil cases and thus gives an automatic right of appeal against the substantive judgment of 1 September 2008. 15 He submits that the SMA imposes no limitation on the right. The leave given under s 18(1)(b) of the SMA was to exercise Southern's "right of action". 16 In his submission, the term is wider than the term proceeding and means a right to bring an action for an actionable wrong. He submits that the cases referred to by Hugh Williams J are not relevant. The context is different and the cases deal with the question of whether the term "proceedings" encompasses an appeal. They do not apply to the term "right of action" which is found in s 18(1). [20] Mr Judd submits that, when the appellants were given leave to bring the action under s 18(1) of the SMA, they gained the statutory right to bring the case to court. Once that had occurred, the case was governed by the general legislation, including s 66 of the Judicature Act. A "right of action" automatically encompasses any appeal to this Court, subject to the conditions of leave imposed by Fisher J. In context, Mr Judd submits that the term "proceeding" in s 18(5) necessarily encompasses any appeal as that forms part of the right of action under s 18(1). Mr Judd accepts, however, that any appeal to the Supreme Court would be by leave of that Court only. 1715 Haylock v Patek [2009] 1 NZLR 351 (HC).16 See, for example, Schoeffler v Drake Hunting Club 919 So 2d 822 (3 Cir 2006); Pacific Coilcoaters Ltd v Interpress Associates Ltd [1998] 2 NZLR 19 (CA).17 Supreme Court Act 2003, ss 12 and 13. The Supreme Court did not exist at the time s 18 was enacted, although it was established while s 18 was still in force, which was until 28 February 2008.The respondents' submissions[21] Ms Katz, for the respondents, submits that the scope of leave granted to the appellants was limited to the exercise of Southern's "right of action". She submits that appeals are creatures of statute and a right of action is distinct from a right of appeal. She relies in particular on Carpenter18 and supports the Judge's reasoning in this regard. [22] In Ms Katz's submission, the "proceeding" for which Southern is to provide a costs indemnity under s 18(5) of the SMA is limited to a proceeding which exercises Southern's "right of action" only. Section 18 makes no mention of an ability to exercise rights of appeal or to bring corresponding appeal proceedings (at the expense of a public issuer). In her submission, fresh leave is required.Our assessment[23] It would of course have been better if the issue of appeal rights had been dealt with explicitly in s 18 of the SMA. Unfortunately it was not. The question of whether leave given under s 18(1) of the SMA extends to any appeal will therefore depend on the interpretation of s18 of the SMA as seen in the context of the Act. [24] We accept Mr Judd's submission that generally the term "right of action" has a wider meaning than the term "proceeding". We also accept his submission that the cases relied on by the Judge dealt with the latter term and were in a different context. [25] We do not, however, accept Mr Judd's submission that the use of the term "right of action" in s 18(1) is decisive. One explanation for the use of the term "right of action" in s 18(1) may simply be because, at the stage where leave is sought, no proceeding has been commenced. Once the right to bring the action is given, then a proceeding will normally follow but this is not necessarily the case. For example, there could be a settlement or a change of mind.18 See summary at [10] above.[26] The term "proceeding" is used in s 18(3) as that relates to the taking over of a proceeding which is already in existence. It is also used in s 18(5) as a generic term to cover both s 18(1) and s 18(3). We do not consider that the term "proceeding" is used in s 18(3) to differentiate the types of proceedings covered by s 18(3) from any brought under s 18(1). There seems no particular reason why there should potentially be a difference in the appeal position, depending on whether the conduct of existing proceedings has been taken over under s 18(3) or whether new proceedings have been brought under s 18(1). [27] Having said that, we do accept Mr Judd's submission that the use of the term "right of action" in s 18(1) colours the interpretation of the remainder of the section and in particular the issue of appeal rights. In that regard, we accept the submission that a right of action includes any inchoate appeal rights, subject to the relevant statutory provisions relating to such appeals. In this case, s 66 of the Judicature Act gives a right of appeal to this Court. [28] In our view leave decisions under s 18 implicitly allow a party to take steps on behalf of the public issuer that are in pursuance of "bringing the action". Bringing an appeal or defending a decision on appeal is a step in pursuance of or in respect of the same cause of action that is the subject of the initial grant of leave. In other words, an appeal step is not a separate right of action; it is merely another step in prosecuting the "action" which was the subject of the original leave decision. [29] On the approach proposed by the respondents, a potential appellant would need to apply for fresh leave to bring an appeal. Such a leave application would presumably be under s 18(1). However, the Court can only grant leave to bring a public issuer's "right of action", provided the conditions set out in s 18(2) are met. The term "right of action" is not apt to describe a "right of appeal", which, after all arises under the Judicature Act and not the SMA. [30] It necessarily follows from the respondents' argument that a plaintiff who succeeds at first instance would need to apply for fresh leave under s 18(1) to defend an appeal. As noted, the subject of a s 18(1) leave decision is "a right of action of a public issuer against an insider". Section 18(2) and s 18(2)(b) refer to "bringing anaction". This terminology is even less apt to describe defending an appeal than it is to bringing an appeal. Even the first criteria in s 18(2)(a), against which leave has to be assessed ("arguable case against the insider") does not apply easily to a party who wishes to defend a substantive decision. [31] We thus consider that Hugh Williams J was wrong to hold that leave given under s 18(1) to exercise a right of action by the High Court encompasses only the action in that Court and not an appeal. [32] Our conclusion that leave under s 18(1) of the SMA extends to appeals also makes sense in terms of policy. Section 18 was intended to allow shareholders to bring claims against insiders in cases where a public issuer fails to do so. Such claims are at the expense of the public issuer in recognition of the fact that individual shareholders may not have a sufficiently large financial interest to make it worthwhile for any of them to take action individually. The section is intended to be liberating and generous towards small shareholders. The hurdle they have to leap is not a high one: merely "an arguable case". [33] Secondly, the fact that a case against an insider does not succeed at first instance does not mean that any appeal is hopeless. It may well remain extremely arguable and there seems no reason why those who have been permitted to bring the action (on the basis it was arguable) should be denied the right every other unsuccessful plaintiff has of testing the judgment on appeal. [34] Thirdly, the cost of an appeal is relatively slight compared with the cost of a defended insider trading civil claim. Parliament may thus not have been too concerned about making a public issuer pay the shareholders' costs on appeal (whether the shareholders are bringing an appeal or defending a judgment in their favour). The Supreme Court has its own mechanism for stopping a further appeal. If that Court think there is nothing in any second appeal, a proposed appellant will not get leave. [35] Finally, it would be very odd (in the context of the policy of this legislation) if there were no automatic right to defend an appeal brought by the other party.Can leave be revisited?[36] We do not consider that the original leave decision of Fisher J implicitly included a condition requiring a reassessment of leave (or the conditions of leave) after the substantive first instance judgment. The conditions imposed by Fisher J thus did not prevent the appeal from being filed. [37] We do not, however, consider that any control over any appeal (including as to the reasonableness of any costs) depends on the conditions attached by Fisher J to the original grant of leave. If that were this case, it would mean that the High Court would in effect be controlling the costs that could be incurred before this Court on appeal. This would be a strange result. If Mr Judd's argument is correct, then the position of the Supreme Court is even more anomalous. [38] In our view there is an implied limitation in s 18(5) that any costs to be paid by the public issuer must be reasonable. Costs on appeal would be controlled by this Court, given that the definition of Court in s 2 of the SMA relates to the Court before which the matter is to be determined. [39] Parliament, in enacting s 18, must be taken to have been aware of the High Court's inherent jurisdiction to review procedural orders which have continuing effect in circumstances where those orders have become unjust.19 A leave decision under s 18 is of continuing effect because of the public issuer's continuing liability to pay the plaintiff's legal costs by virtue of s 18(5). Parliament did not purport to negate that inherent jurisdiction in this case and accordingly any leave decision is implicitly subject to review at any time by the Court on the grounds that it has become unjust. Given the definition of Court in s 2 of the SMA, once a proceeding has reached this Court, this ultimate supervisory jurisdiction would be exercised by this Court. [40] While we consider that an application for revocation of leave can be made, it must be remembered that the standard of an arguable case is very low. Further, it is19 Foodtown Supermarkets Limited v Tse (1987) 2 PRNZ 545 (HC), Meates v Taylor CA208/89, 30 July 1990, and Ryde Holdings Limited v Sorenson (1995) 8 PRNZ 339 (HC).often counterproductive to have a separate hearing on whether an appeal is hopeless, as parties will often present the full argument on the appeal, meaning it saves little in the way of costs. Extreme caution in bringing an application for revocation of leave is particularly important where, as in this case, the public issuer has effectively aligned itself in the litigation with the alleged insiders. [41] We tentatively expressed our concern at the hearing that Southern (whose action it is) is being represented by the same firm of solicitors as the alleged insiders. This means that Southern will only have had advice on the merits of the appeal from the solicitors acting for Shell and Mr Patek, who have a clear interest in trying to stop the appeal from proceeding. We understand that separate counsel were instructed to act for Southern on the original leave application and that separate counsel also reviews the appellants' bills of costs. However, issues may well remain even with this solution as the firm of solicitors instructing separate counsel also represents Shell and Mr Patek.Application for directions (CA591/2008)[42] The application for directions relates to the appeal against the substantive judgment (CA591/2008). The questions are: (f) If the leave granted to the appellants to exercise the public issuer's right of action would but for the enactment of the Securities Markets Amendment Act 2006 extend to and include the right to bring this appeal, is that right preserved by s 16 of the Securities Markets Amendment Act 2006? (g) Does the leave to exercise the public issuer's right of action extend to and include the right to bring this appeal?(h) Is Southern required to pay the appellants' costs of the appeal and, if costs are awarded against the appellants, also to pay those costs? [43] The first question is answered in the affirmative. Section 5 of the Securities Markets Amendment Act 2006 (the Amendment Act) repealed and substituted Part 1 of the SMA (including s 18) as from 29 February 2009. The Amendment Act contains transitional provisions providing for the continuance of the Act:16 Transitional provision for existing offences and contravention(1) This section applies to an offence committed under, or a contravention of,— (a) subpart 3 of Part 2 of the principal Act, or the Securities (Substantial Security Holders) Regulations 1997, before the commencement of section 11; and (b) the Investment Advisers (Disclosure) Act 1996 before the commencement of section 12(2); and (c) the rest of the principal Act and any other regulations in force under it, (other than the subpart and regulations specified in paragraph (a)) before the commencement of this section. (2) The enactments referred to in subsection (1) continue to have effect as if they had not been amended, repealed, or revoked by this subpart for the purpose of— (a) investigating an offence or contravention to which this section applies: (b) commencing or completing proceedings for an offence or contravention to which this section applies: (c) imposing a penalty or other remedy, or making an order, in relation to an offence or contravention to which this section applies.[44] Section 16(1)(c) covers offences committed under or contraventions of the SMA before the commencement of this section, being 29 February 2008. The alleged contraventions with which the present appeal is concerned are covered in this respect. The expression "completing proceedings" as it appears in s 16(2)(b) must therefore extend to the appeal. 2020 The same result would also be reached under ss 17 – 19 of the Interpretation Act 1999.[45] The second and third questions are also answered in the affirmative. This follows from our decision that the original leave covers an appeal (but is of course subject to what we say in the previous section as to reasonableness of costs and the ability to apply for revocation of leave).Result and costs[46] The appeal (CA 382/2009) is allowed. [47] The appeal (CA591/2008) has been properly brought. [48] If there is any question as to a costs order in CA382/2009 between Southern on the one hand and Mr Patek and Shell on the other then memoranda can be filed on or before 29 July 2010. [49] The respondents in CA591/2008 are to pay the appellants costs for a standard application on a Band A basis plus usual disbursements. We certify for second counsel. [50] Southern must pay to the appellants their reasonable indemnity costs relating to the appeal in CA382/2009 (and also their reasonable indemnity costs in the High Court). [51] Southern must pay to the appellants any additional reasonable indemnity costs incurred with regard to the application for directions in CA591/2008. [52] The costs payable by the respondents under Order E are to be deducted from the costs orders in F and G.Solicitors: Fraser Powrie, Auckland for Appellants Russell McVeagh, Auckland for Respondents