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McGettigan, Joshua --- "Personal Liability of Company Directors : Trevor Ivory Not “The Last Word”" [2009] NZLawStuJl 8; (2009) 2 NZLSJ 153

Last Updated: 14 January 2013





The personal liability of company directors for torts committed in their capacity as directors is one of the most important and vexed issues of company law. It is important because attaching liability to a person behind a company can negate the effect of incorporation, by bypassing the principle of separate corporate personality. The person behind the company will have to cover any losses suffered by involuntary creditors of the company in tort – and so the notion that a director’s personal assets are always safe so long as the company is incorporated is rendered a misconception. The issue is vexed because it resides in a place where three different areas of law legitimately overlap: company law, tort law, and now the Fair Trading Act 1986 (FTA).1 As is usually the case with areas of law serving different functions, their policy bases are different. Thus, where they overlap, they lead to inconsistent outcomes.

This article will describe and analyse the effect that the August 2008

New Zealand Court of Appeal case Body Corporate 202254 v Taylor [2008] NZCA 317 has had on the personal liability of company directors, and consider how one issue it leaves unresolved ought to be addressed. The article’s body is broken into four parts. The first will describe the old approach under Trevor Ivory Ltd v Anderson [1992] 2

NZLR 517, which prioritised company law principles in determining directors' personal liability in tort. The second will describe how Taylor not only limits the scope of Trevor Ivory's application, but discredits Trevor Ivory's rationale and formulation where it does apply. The third

* Candidate for LLB (Hons)/BSc, University of Otago. The author is grateful to Professor Peter Watts, Don Holborow, Ilya Skaler and William Chisholm for their comments on various drafts of this article.

1 The FTA 1986 applies since the majority in Body Corporate 202254 v Taylor [2008] NZCA

317 at para 78 favoured a broad interpretation of "in trade" from section 9 of the FTA

1986. This means that liability under section 9 can attach to agents of companies as


154 The New Zealand Law Students’ Journal (2009) 2 NZLSJ

will describe how liability can attach to directors as principals under the FTA, and compares this with their liability under tort. Finally, the most appropriate way of dealing with the incongruity between FTA and tort liability will be considered.

A. The Trevor Ivory Approach to Tortious Liability: Company Law to the Fore

Company law points away from personal liability in tort for directors acting for their company. Company law is founded on principles of limited liability and separate corporate personality, which broadly have the effect of attaching liability for debts to the company rather than the agent acting for the company.2 The approach to personal liability espoused in Trevor Ivory, particularly by Cooke P, favours such principles. As a result, the situations in which a director would be held personally liable under Trevor Ivory are limited.

Trevor Ivory concerned a one-man agricultural and horticultural company, whose sole director advised a raspberry orchard owner that

‘Roundup’ should be used to combat a couch-weed problem. Despite the fact that the plaintiff followed the defendant’s instructions, the Roundup killed the raspberries as well as the weeds. The client unsuccessfully sued Mr Ivory personally for negligence. In giving his judgment, Cooke P noted that it “behoves the court” to avoid imposing personal liability because it would erode the principles of limited liability and separate identity.3 The Court was unanimous on the notion that the imposition of liability on a director for a negligent misstatement requires an “assumption of responsibility” by the director. Hardie Boys J went so far as to state that the general rule would be not to enforce personal liability and that “clear evidence” is needed to decide otherwise.4 Although McGechan J’s reasoning was effectively just an application of general agency principles, even he considered the involvement of a company to be important. In determining whether Mr Ivory had personally assumed responsibility, McGechan J repeatedly pointed to the “insulating corporate structure”

2 See John Farrar (gen ed.) Company and Securities Law in New Zealand (Brookers Ltd, 2008)

at 84-87.

3 See Trevor Ivory v Anderson [1992] 2 NZLR 517 at 523, line 50.

4 Trevor Ivory, see n3 above at 527, line 17.

Personal Liability of Company Directors 155

that Mr Ivory implemented, which counted against a finding of personal liability.5

The liability threshold set by Cooke P and Hardie Boys J in this case is uniquely high. Even when a director is essentially acting as an agent of the company in proffering his advice to a client which the client relies on to the client’s detriment, the negligent advice of that director results in only his principal (the company) being liable. The director's liability in this context is imposed in a manner different to any other agent of any other principal – an observation that has led some commentators to describe directors' tortious liability as “directors’ immunity”.6

Generally, agents who have committed torts are liable for them independently of their principal.7 The vicarious liability of their principal attaches separately from, and as well as, their own liability. An assumption of responsibility requirement also cuts against the very foundations of tort law, which functions by imposing accountability where a tort has been committed, rather than waiting for actors to personally assume it.8 However, it should be acknowledged that Justice McGechan’s reasoning, which reached the same result, was not peculiar to employees of incorporated companies. Regardless, the majority in Trevor Ivory demonstrate the Court's preference for the application of company law principles.

There is another point to take out of the case, the importance of which will become more obvious when Body Corporate v Taylor is analysed below. The Court suggested that personal liability would possibly attach if Mr Ivory had carried out the spraying himself.9 Although the Court does not make it clear, this can be explained on the basis that an “assumption of responsibility” requirement will apply only when the cause of action is negligent misstatement, and not negligence.10 Thus, because it was only Mr Ivory's words being relied on here, and not his

5 Trevor Ivory, see n3 above at 532.

6 See for example Stephen Todd (gen ed)The Law of Torts in New Zealand (4th ed, Brookers

Ltd, 2005) at 290.

7 Todd, see n6 above at 294-295.

8 Todd, see n6 above at 294.

9 Trevor Ivory, See n3 above at 527, line 40.

10 Todd, see n6 above at 173-4 for a discussion about why negligent misstatement

receives this special treatment.

actions or omissions, a duty of care would attach only if there had been a personal assumption of responsibility.

B. Body Corporate v Taylor:

Questioning the Contemporary Relevance of Trevor Ivory

This part of the paper looks at three important consequences of Body Corporate v Taylor. The first is the specific restriction it places on the scope of Trevor Ivory’s application. The second is its discrediting of the rationale and particular formulation of the assumption of responsibility test from Trevor Ivory. This is not to be confused with a discrediting of the test per se. The third is its implication that an assumption of responsibility will be required for torts other than negligent misstatement. It will be argued that this third consequence renders the first one of little significance.

Taylor concerned another one-person company, in which Mr Taylor, the director of a building development company, put out a promotional brochure to prospective purchasers regarding buildings to be constructed. The brochure emphasised Mr Taylor's professionalism, experience, and the (future) quality of the workmanship and design of the buildings. The buildings (once built) suffered from leaky building syndrome,11 and the owners sued Mr Taylor personally for negligence and for breach of the FTA. Mr Taylor applied to have the claims struck out in the High Court, and for summary judgment. The High Court struck out the negligence claim, but not the FTA claim, and declined to give summary judgment.12 These decisions were appealed to the Court of Appeal, which is the decision here under consideration. In strike out applications, the facts as alleged are assumed to be true, and claims will only be struck out if they are “so clearly untenable that they cannot possibly succeed”.13 The Court’s findings in Taylor are therefore not absolute; rather they only determine whether or not the claims against Mr Taylor were “clearly untenable”.

11 For a discussion of ‘leaky building syndrome’ see May, P J, “Performance-based regulation and regulatory regimes: the saga of leaky buildings” Law and Policy (2003), vol.

25, 381 at 393-4.

12 Body Corporate 202254 v Approved Building Certifiers Ltd (HC, Auckland CIV 2003-404-

003116, 13 April 2005, Keane J); Body Corporate 202254 v Approved Building Certifiers Ltd (in liquidation) (No 2) (HC, Auckland CIV-2003-404-3116, 29 August 2006, Keane J).

13 See Attorney-General v Prince [1998] 1 NZLR 262 at 267-268.

The leading judgment in Taylor emphatically restricts the ambit of Trevor Ivory to situations where assumption of responsibility is an element of the tort, stating that Trevor Ivory has “no application at all” outside this area.14 As authority for this, the judgment refers to Standard Chartered Bank v Pakistan National Shipping Corp.15 This case concerned the director of a transport company who fraudulently backdated a bill of lading to obtain a bank payment. The House of Lords found him liable in deceit, holding that a personal assumption of responsibility was not required for liability under that tort. All that was needed was proof of the requisite elements of deceit.

The immediate implication of this restriction is clear enough: in general, tort law will apply to company directors as it does to other agents. The fact that the principal is a company is of no significance. Hence, for intentional torts such as deceit, or where damage to property is involved,16 company directors have the same scope for personal liability as a person who is not acting for a company.

Secondly, Taylor discredits much of the rationale used to justify the approach taken in Trevor Ivory. The following rationales are discredited:17

(a) the idea of “disattribution” – that is the identification of a director (or other employee) with a company meaning that her tortious actions are no longer her own;18

(b) the concern that attaching personal liability to directors would be erosive of the concept of limited liability; and

(c) a sense that allowing a claim in tort would be inconsistent with the contractual distribution of liabilities.

However, the “elements of the tort” reasoning, most evident in

McGechan J's judgment from Trevor Ivory, is upheld.19

14 Body Corporate 202254 v Taylor [2008] NZCA 317 at para 34 part (b).

15 [2002] UKHL 43; [2003] 1 AC 959.

16 Body Corporate v Taylor, see n14 above at para 34, part (c).

17 Body Corporate v Taylor, see n14 above at paras 29 – 34. The rationale stated in (c) primarily comes from Williams v Natural Life Health Foods Ltd [1998] UKHL 17; [1998] 2 All ER 577 rather than Trevor Ivory, but Williams stands for the same principles.

18 Todd, see n6 above at 294 for a compelling discussion about why this rationale is


Later on in Taylor, the Court again refers to the requirement of assumption of responsibility, stating that its formulation may need to be reconsidered20 and that Trevor Ivory is not necessarily “the last word on this topic in New Zealand”.21 Such comments, when accompanied with such a major discrediting of the reasoning Trevor Ivory uses, must surely be harbingers of an overhaul of the Trevor Ivory approach to personal liability. The degree to which the approach is overhauled may not be great: the Court states that “considerable caution” will still be needed before imposing personal liability,22 which suggests that liability will still not be imposed lightly. However, the dissonant situation of the current law, with FTA liability (which will be discussed in Part D of this paper) being inconsistent with Trevor Ivory, obviously makes the Court uncomfortable.

Thirdly, the majority in Taylor lend credence to the idea that assumption of responsibility is an element of torts other than negligent misstatement, at least for company directors. This view conflicts with respected authorities. Professor Todd (as can be seen in his commentary about the special treatment that negligent misstatement receives),23 Chambers J (as seen in his judgment in Taylor)24 and negligent building construction cases generally25 are examples. The Court arrives at this decision by conflating elements of negligence with negligent misstatement, which appears to confuse the law if Taylor is an orthodox negligence case.

However, the basis of liability in leaky building cases can be seen as an implied misstatement regarding the quality of the product, rather than a negligent act or omission.26 The loss a plaintiff suffers is not receiving the quality of house he was promised. Liability is thus quasi- contractual; it spawns from the defendant’s consent in assuming

19 Body Corporate v Taylor, see n14 above at para 33.

20 Body Corporate v Taylor, see n14 above at para 96.

21 Body Corporate v Taylor, see n14 above at para 44.

22 Body Corporate v Taylor, see n14 above at para 33.

23 Todd, see n6 above at 173-4 and 176-8 for a discussion of why negligent misstatement

receives this special treatment.

24 Body Corporate v Taylor, see n14 above at para 144.

25 See Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC) and Morton v Douglas Homes

Ltd [1984] 2 NZLR 548 for examples.

26 Professor Watts, personal communication, 5/8/2009.

responsibility for the accuracy of an implied statement as to the house’s quality.27 On this view, it is a misapprehension to view leaky building cases where a director is sued by a third party as governed by the Donaghue v Stevenson28 principles of negligence. The basis of liability is not an imposed duty. If this argument is correct, then the court in Taylor expressly requiring an assumption of responsibility for negligence liability is not surprising, seeing as liability is actually grounded in an implied misstatement. However, this explanation is implausible for two main reasons.

Firstly, as already pointed out above, Taylor concerned an action in negligence, for constructing a defective dwelling. It did not concern negligent misstatement, and certainly not negligent implied misstatement as to quality. In such cases, the courts have required the director to have “actual control” over the development to be made personally liable.29 In some more recent cases, an assumption of responsibility test has been used in its place. But it has been seen (rather confusingly) as neither essential nor sufficient for liability.30 Its use has also been the subject of academic criticism.31 Regardless, in Taylor, the action brought was founded on Invercargill City Council v Hamlin32 (the pre-eminent negligence case for defective dwelling liability) – not Hedley Byrne33 (the pre-eminent precedent for negligent misstatement).34 The Court did not try to infer an implied misstatement into the facts in order to ground negligence liability. If the courts have in fact been deciding leaky building cases according to the doctrine of implied misstatement as to quality, then they have been astonishingly misleading when describing it.

27 Examples of academics espousing this view can be found in Grantham and Rickett, “Directors’ ‘Tortious’ Liability: Contract, Tort or Company Law?” 1999 MLR 133 at 136-

7, and Brian Coote, “Assumption of Responsibility and Pure Economic Loss in New

Zealand” [2005] NZ Law Review 1 at 2 and 22.

28 [1932] AC 562.

29 See Samuel Carpenter, “Directors’ liability and leaky buildings” [2006] NZLJ 117.

30 Drillien v Tubberty (HC, Auckland CIV 2004-404-2873, 15 February 2005, Associate

Judge Faire) at para 42-45.

31 Carpenter, see n29 above; Campbell, “Leaking Homes, Leaking Companies?” [2002]

CSLB 101.

32 [1996] 1 NZLR 513 (PC).

33 [1963] UKHL 4; [1964] AC 465 (HL).

34 Professor Todd also makes this point. See Stephen Todd (gen ed) The Law of Torts in

New Zealand (5th ed, Brookers Ltd, 2009) at 346.

Secondly, it is submitted that reading an “implied misstatement” into leaky building cases is to obscure the actual basis of liability. Liability can arise in any or all of a series of negligently performed acts: supervision of the development, design of a building, the building process itself, or inspection and certification. To describe the basis of liability as an implied misstatement as to quality is to conflate the distinction between negligence and negligent misstatement. This distinction is made clear in Trevor Ivory. The basis of Mr Ivory’s liability was his negligent advice regarding the application of Roundup to his client’s raspberry crop. His misstatement is what caused the loss. If he had sprayed the crop himself, there would have been no question of liability: not because he would have personally assumed responsibility for his implied misstatement as to the quality of his work, but because he had negligently performed a duty of care.

The negligent implied misstatement as to quality notion is neither plausible, nor helpful, as an alternative way of conceptualising Taylor. The action was brought in, and described as, one in negligence. Its requiring of an assumption of responsibility was therefore inappropriate. If this logic is accepted, the problems with the Court’s reasoning become clear. The Court suggests two separate grounds as the most plausible “basis” for a negligence suit:35

(a) Mr Taylor's promotion of himself and his professionalism (assuming that this is the right way to construe the brochure) implied an assumption of responsibility to supervise the development.

(b) Errors in the way in which the project proceeded, which would not have occurred had there been such supervision or competent supervision, are evidence of negligence.

The Court in (a) has looked to the statement as the means by which responsibility could be assumed, and in (b) has looked to the action (or omission) for the evidence of negligence. This reinforces the argument made above that the Court was not looking to ground negligence liability in Mr Taylor’s words. His promotion of himself and his professionalism was not negligent. These were (assumed) statements of fact. Such statements are to be contrasted with Trevor Ivory, a true negligent misstatement case, where the advice given was causative of loss.

35 Body Corporate v Taylor, see n14 above at para 43.

It is possible to explain this on the basis that the Court made its decision according to the framework by which the case was argued. Because the case was framed in a way that deliberately tried to align with Trevor Ivory and negligent misstatement, the assumption of responsibility element the Court outlines in (a) above was awkward but necessary and not indicative of a change in the way tort liability should be conceived. However, if this was the case, one would expect the Court to have pointed it out. Furthermore, a closer analysis indicates that the Court has actually gone further than this.

As described above, courts looking at the personal liability of a director in negligent housing construction cases have used what has been coined an “actual control” test to ground liability.36 The actual control test requires the director to have some actual influence and involvement in the building process for a duty of care to attach.37 This could happen quite independently of any misleading or negligent statements or representations – liability is rather grounded in actions or omissions. In Trevor Ivory, both Cooke P and Hardie Boys J distinguish Morton v Douglas Homes on the basis that there was an (albeit unmentioned) assumption of responsibility in that case – with Hardie Boys J even commenting that assumption of responsibility may well arise where control exists.38 These comments are cited with approval in Taylor.39 This shows that the Court in both Taylor and Trevor Ivory, at least in retrospect, saw assumption of responsibility as an important element of liability in Morton v Douglas Homes, a standard case of negligence.

But what is most surprising about the most plausible “basis” the Court identifies for liability is that it does not fit into either of the conflicting views regarding the requirements of a director’s tortious personal liability. The Court hedges its bets by choosing both. The ground specified in (a) looks to the assumption of responsibility by a statement. The ground specified in (b) connotes that Mr Taylor's actions or omissions would have to be causative of the defect in order for liability to attach. This would require an investigation into whether he had

36 Morton v Douglas Homes Ltd, see n25 above; Callaghan v Robert Ronayne Ltd (1979) 1

NZCPR 98 at 109.

37 Morton v Douglas Homes Ltd, see n25 above at 593.

38 Trevor Ivory, see n3 above at 527, lines 29-40; and at 523, line 43.

39 Body Corporate v Taylor, see n14 above at para 41-42.

actual control over the building project. Proof of actual control is effectively just an element of causation, and so it should not be necessary to establish any wider assumption of responsibility. All that should be required is proof of causation between the director's actions or omissions (that is, “actual control” over the project) and the loss suffered. Yet the Court appears to see these two distinct routes to liability (by assuming responsibility for a statement, or by negligently supervising a building project one had control over), as interdependent. The line between what is required for liability in negligence and negligent misstatement is thus thoroughly blurred, and the situation in which an assumption of responsibility will be required is rendered uncertain. For these reasons, the judgment of Chambers J, who does not consider Trevor Ivory to be relevant, is preferable.40

This interpretation perhaps explains the odd wording used to describe the restriction made on Trevor Ivory's scope. The only way in which Trevor Ivory is literally restricted is that it, as a case concerning a tort that had assumption of responsibility as an element, is only relevant to other tortious actions sharing this element. It is odd that this wording was chosen, rather than limiting Trevor Ivory to the tort that it concerned: negligent misstatement. Furthermore, the exact scope of actions for which an assumption of responsibility is required has been the topic of much controversy. An assumption of responsibility has been seen as required for all tortious actions of directors,41 as an element of liability for negligent misstatements and “services”,42 as part of the torts of negligent misstatement and omission to act,43 and some academics appear to claim it is a separate tort in its own right.44 From this perspective, the Court has been spectacularly cryptic in saying that Trevor Ivory is only relevant to torts “where assumption of responsibility is an element”, without giving any clues as to what those torts are. It is submitted that this peculiar wording was chosen because the Court must see assumption of responsibility as a requirement for other torts as well – but it is indecisive about which and why.

40 I note that Professor Todd’s recent commentary supports this contention. See Todd, n34 above at 346.

41 Drillien, see n30 above at para 42.

42 Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd [2004] NZCA 97; [2005] 1 NZLR 324 at para 98.

43 Todd, see n34 above, at para 5.6.07, 5.6.08 and 5.8.04.

44 Grantham and Rickett, see n27 above at 137-9.

This is significant because it means that the scope of a director's (or an employee’s) liability, at least in leaky building cases, is more restricted than would appear on first impression. The statements in Taylor about Trevor Ivory's irrelevance to the general tortious liability of directors are not unqualified. The Court has shown a tendency to infer an unheralded assumption of responsibility requirement in negligence, and given no clues as to what other torts might be subject to the same type of reformulation. There is possibly an unmentioned assumption of responsibility element to many torts. The first consequence of Taylor considered in this part (that Trevor Ivory will be irrelevant to general tortious liability) is thus rendered less wide-reaching, and the basis of a director's tortious liability is rendered less clear.

C. Personal Liability under the FTA 1986

The Court in Taylor held that a company employee can be held personally liable under section 9 of the FTA for misleading conduct in trade, despite acting only in the course of their employment. For liability to attach, the Court in Taylor notes four hurdles for Mr Taylor's liability under section 9.45 This part will briefly describe the first three before analysing the fourth in greater depth. The word “employee” is often used here because the Court in Taylor states that liability could apply to employees generally – but it obviously includes directors.

The first hurdle is whether there has been a misleading or deceptive representation. This requires the usual care in identifying the exact representation made in the statement. The distinction between representing an opinion and a fact is important.46 The second hurdle is whether exclusion clauses absolve Mr Taylor of liability. In this regard the Court decides that the prohibition on misleading conduct provided by section 9 cannot be contracted out of, and that the clauses could not directly affect Mr Taylor's liability in any event.47 The third is whether there is a causal link between the misleading and deceptive statement and the loss accrued.

45 Body Corporate v Taylor, see n14 above at para 49.

46 See Premium Real Estate Ltd v Stevens [2008] NZCA 82 for a discussion of these concepts.

The fourth hurdle, whether the employee is responsible for the misleading or deceptive statement, is the greatest point of difference between liability in tort and the FTA. It is broken into two parts. The first is whether the employee should be considered “in trade” under the FTA. The second is whether the employee's conduct associated with the representation is misleading or deceptive.

In relation to the first part, the majority in Taylor favours a broad interpretation of “in trade”, which includes more than just those who are in business on their own account. The Court cites the congruity of this approach with the words of the statute, the most recent Australian decision on similar legislation and the pattern of New Zealand authority in making this decision.48 Glazebrook and Ellen France JJ give a strong dissent on this aspect of the majority's decision. They instead favour the “narrow” interpretation, which would restrict “in trade” to entities on business in their own account. It is understandable that such a determination would be the subject of a dissent. From a bystander's position, the company would seem to be in trade with the purchasers of the buildings, not Mr Taylor. This position is implied even by the leading judgment itself, when it determines that the liability disclaimer on the brochure could not cover Mr Taylor personally because he was not in contract with the building owners.49

Perhaps this is why the second part is also required for liability to attach. In respect of this part, the Court considers two alternative tests. The first comes from Megavitamin Laboratories (NZ) v Commerce Commission (1995) 6 TCLR 231. It requires a level of personal association with the employee – for example releasing a brochure containing a photograph of a director, and statements saying that the brochure was “researched and compiled by” the director, could suffice as conduct on the part of the director.50 The second is a lower threshold test from Specialised Livestock Imports Ltd v Borrie CA 72/01 20

September 2002, in which “the drift of the judgment” supports the

requirement of actual responsibility for the statement.51 This implies that even if there was no personal endorsement, a representation could still be considered conduct on the director's part. The Court decided it

48 Body Corporate v Taylor, see n14 above at para 78.

49 Body Corporate v Taylor, see n14 above at para 63.

50 Body Corporate v Taylor, see n14 above at para 81.

was arguable that the brochure could be regarded as being endorsed by Mr Taylor and, having done so, saw no need to make a conclusion on the appropriateness of the less strict test implicit in Borrie.

It is this element of liability under the FTA which makes it most distinct from liability for negligence or negligent misstatement. Some academic commentary has pointed out that the FTA would sometimes (even if the broad approach to “in trade” is correct) impose liability in equivalent situations to the common law.52 These articles compare the facts of cases where a breach of section 9 has been found with common law liability for negligent misstatement. They point out that, generally, the FTA cases are not wrongly decided on their facts, because the employees would have been liable under the common law anyway (as well as section 45, but that is unimportant for present purposes). Although this is not disputed, the articles do not consider how cases where negligent misstatement was the cause of action would be decided under the FTA. It is submitted that this inquiry is a pertinent one because it illuminates differences in the scope of each head of liability.

A director who makes a false representation which is relied on by a client to the client's detriment would satisfy most elements of both FTA and negligent misstatement liability. Proximity and causation would be present. However, the conduct test discussed in the above paragraph essentially plays the same role for FTA liability as the “assumption of responsibility” requirement plays for negligent misstatement liability, only it sets the threshold much lower. A director who has face-to-face contact with a client, for example, would almost certainly have made a personal endorsement under the favoured Megavitamins test. However, Mr Ivory (who had face-to-face contact) was not considered personally liable in tort due to a lack of assumed responsibility.53 The difference would be even more stark if the less strict test implicit in Borrie is considered to be the law. In that case, an employee would be liable merely if she was responsible for the statement having been made – even without personal endorsement.

52 Peter Watts, “Directors’ and Employees’ Liability Under the Fair Trading Act 1986 – The Scope of “Trading”” [2002] CSLB 77 at 80; Andrew Beck, “Misleading Business Sales: Who Foots the Bill?” [2002] CSLB 81 at 82.

53 Trevor Ivory, see n3 above.

Given that the FTA imposes strict liability, it is understandable that this would make the Court uncomfortable.54 Imposing personal liability on all employees even for reasonable misstatements is a draconian measure. This lack of congruity between the two different forms of liability is one of the reasons the Court cites in Taylor in favour of a reformulation of the “assumption of responsibility” requirement in tort liability.55 Although, as discussed above, the Court makes some comments to suggest that a reformulation may not be drastic, the message is that the reign of Trevor Ivory as the leading authority is in jeopardy.

The last thing the leading judgment in Taylor notes about FTA liability relates to the measure of damages. Under section 43(2)(d) of the FTA, damages for breaches of the Act may only be awarded on the “reliance” measure, so the Court advises that the home owners should be careful about how they word their claims.56 However, in a comparison of FTA liability with tort liability, this is not a pertinent observation. In assessing damages, the Court of Appeal has treated a claim under the Act in the same way as a claim in tort.57 This is also the result that appeals to logic. Paying for a structurally sound house and receiving one with leaky building syndrome involves relying on the vendor to one's detriment.58 It is therefore submitted that a similar quantum of damages will be recoverable for claims under either torts or the FTA.

D. Should the FTA or the Common Law Budge?

The identified discrepancies between the common law and the FTA (as the majority in Taylor interprets it) will need to be addressed by a court of high authority in the near future. This part of the paper considers how this should be done. The Court is hyper-aware of avoiding rash decisions, due to the lack of available facts. Testament to this is

54 The FTA 1986 has been held to impose strict liability in Smythe v Bayleys Real Estate Ltd (1993) 5 TCLR 454, 464; Goldsboro v Walker [1993] 1 NZLR 394, 406; Megavitamin Laboratories (NZ) Ltd v Commerce Commission (1995) 5 NZBLC 103,834, 103,846, 103,849.

55 Body Corporate v Taylor, see n14 above at para 96.

56 Body Corporate v Taylor, see n14 above at para 92.

57 Todd, see n6 above at p193; Cox & Coxon Ltd v Leipst [1998] NZCA 202; [1999] 2 NZLR 15.

58 See Joblin Insurance Brokers v ME Joblin Insurances Ltd [2001] 1 NZLR 753 for an example of a case where, in a FTA claim, the reliance damage was quantified as the difference between the price paid and the actual value of a business.

paragraph 96, in which the Court identifies a number of possible ways that future courts could deal with discrepancies between the two forms of liability, without actually indicating a preference for any of them. This means that a future court hearing a case with similar facts still has significant interpretive freedom.

The Court in Taylor sees the assumption of responsibility requirement as a possible point of change.59 If the Court’s fears are to do with the inconsistency of outcomes between the FTA and the common law, then a reformulation would most likely lead to a softening of the assumption of responsibility requirement. This would bring the common law in line with the FTA, which, as argued above, has a lower threshold for imposing personal liability. It is submitted that this would be an undesirable development, and that the court should rather “hold the line” with respect to the formulation of the responsibility test in Trevor Ivory. It ought not to be the focus of judicial creativity. Rather, the focus should be the restriction of the FTA’s scope, by favouring the dissenting judgment’s interpretation of “in trade” from section 9, for three main reasons.

Firstly, imposing strict personal liability on company employees is unjustifiably austere. In situations where they are acting on behalf of their employer and make reasonable, innocent misstatements (for example, if they misinterpret a client’s question and so give a misleading answer), it would be unfair to impose liability on them personally. Not only are they likely to be in a poor position to bear the loss, but unless they own the business or have assumed responsibility beyond their employment, their liability is unwarranted.60 The leading judgment in Taylor dismisses this argument by claiming that it is overstated – pointing to the invariable seniority of the employees who have been made liable so far under the provision.61 The requirement that the relevant conduct be in itself misleading and deceptive is also pointed out as a potential safeguard.62 These are not good counter-

59 Body Corporate v Taylor, see n14 above at para 96. The Court suggests that “reconsideration of what is required to justify imputation of an assumption of responsibility” may be warranted.

60 Professor Watts, “Employee Liability Under the Fair Trading Regime: A Lost

Opportunity in the High Court of Australia”, 2007 NZBLQ 152 at 154.

61 Body Corporate v Taylor, see n14 above at para 77, part (b).

62 Body Corporate v Taylor, see n14 above at para 77, part (b).

arguments. Effectively, the court has stated that thus far there has been no test case for this argument, so therefore it is overstated. Not only is this speculative and illogical, but it does not actually contradict the possibility that junior employees could inappropriately be made personally liable under the broad approach.

Secondly, the Act was intended to apply to traders, not to the agents or employees of traders.63 This can be seen in parliamentary speeches at various stages of the Bill’s passage to enactment in New Zealand64 and the equivalent legislation in Australia.65 Bizarrely, this extremely relevant piece of information is not expressly considered by the leading judgment. The Court notes that the FTA is based on the Australian Trade Practices Act 1974, and that the provisions of that Act (generally) only apply directly to corporations.66 Parliamentary speeches are not referred to in determining what the legislators intended. The dissent, however, does consider them.67

Thirdly, adopting the dissent’s narrow approach would make more sense in terms of the scheme of the FTA, particularly with regard to the secondary liability provisions. For example, section 43(1)(b) imposes secondary liability for “aiding, abetting, counselling or procuring” a breach of section 9. If any person representing a company can generally be liable as a principal anyway, then these provisions are made almost redundant. They would apply only to third parties assisting corporate agents – which would be a rare occurrence indeed. This point is made by the dissenting judgment.68 A similar argument is acknowledged, but not evaluated or contradicted, by the majority.69

Overall, the majority has not sufficiently weighted several counter- arguments against their finding that a broad interpretation of “in trade” is to be favoured. The majority is right to point out that section 9 has

63 Campbell, n29 above; Watts, n60 above at 153.

64 See 467 NZPD 7884, where Hon Margaret Shields states, regarding the Bill, that it

“represents a significant step in...consolidat[ing] and revis[ing] the law relating to trading.”

65 See the Minister’s second reading speech to the Victorian Parliament in introducing the FTA (Vic), in which it is stated that the purpose of the Act is to expand application to “non-corporate traders”.

66 Body Corporate v Taylor, see n14 above at para 73.

67 See paras 111-115.

68 See paras 106-109.

69 See para 73.

undercut policy bases of the common law to some degree, in that the FTA is more heavily consumer-protection focussed.70 However, creating the capacity for employees to be held personally liable for innocent misstatements is an extremely serious legal reform. This is particularly so given that the available quantum of damages is likely to be equivalent under tort and the FTA.71 When sheeting home liability to innocent employees also cuts against the intention of legislators and the scheme of the Act, just accepting anomalous differences between the common law and the FTA is not appropriate. Therefore future courts should take the “retreat away from how the FTA has been applied” option to reconcile the incongruities.72 The dissent’s narrow approach to “in trade” would achieve this.


The judgment in Taylor leaves the personal liability of company directors in an uncertain position. It states that Trevor Ivory is relevant only insofar as it relates to torts that have assumption of responsibility as an element. For torts that clearly do not have this element –such as deceit, conversion, trespass, and other intentional torts – this means that a director's liability will be assessed according to normal agency principles. However, the Court's suggestion about plausible grounds on which an action in negligence could be based against Mr Taylor, and past willingness to infer assumption of responsibility as an unmentioned element of negligence liability suggests uncertainty. It appears that an assumption of responsibility will be required at least for negligence liability, but the curious wording of the restriction Taylor places on Trevor Ivory means that it is unclear exactly when else the element will be required as a precondition to liability.

The Court in Taylor also decides that there is scope for claims against directors under section 9 of the FTA. The threshold for this type of liability is set much lower than the assumption of responsibility requirement. The two different forms of liability are thus in conflict, which makes the Court uncomfortable. This is one of the key reasons the Court cites for a reformulation of what “assumption of

70 Body Corporate v Taylor, see n14 above, para 77 part (d).

71 See Part D above, where this argument is made.

72 Body Corporate v Taylor, see n14 above, para 96.

responsibility” means according to Trevor Ivory. The Court identifies a number of possible ways that future courts could deal with the inconsistencies, without giving a preference. Due to its draconian consequences, inconsistency with the intention of legislators, and inconsistency with the scheme of the FTA, the broad approach to “in trade” should be retreated from in the future.

In the meantime, directors looking to limit their liability under the FTA would be wise to take steps beyond merely trading through a limited liability company. Avoiding making any reference to themselves in promotional brochures or engaging in face-to-face contact with clients would be one step. Taking out insurance to protect themselves (and their employees) against FTA claims would be another. How to protect against liability in tort is less clear due to the uncertain nature of when assumption of responsibility will be an element of liability and what the requirement will entail. The circumstances in Taylor were not apt for making a decision as to the appropriate formulation of an assumption of responsibility, but the opportunity will inevitably present itself soon. When this occurs, one can only hope that the court will clarify what is now an issue of law that has its importance rivalled only by its indeterminacy.

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