New Zealand Law Students Journal
Last Updated: 14 January 2013
PERSONAL LIABILITY OF COMPANY DIRECTORS:
TREVOR IVORY NOT “THE LAST WORD”
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
by involuntary creditors of the company in tort – and so
the notion that a director’s personal assets are always safe
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,
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  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  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  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
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
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
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
of responsibility” by the director. Hardie Boys J
went so far as to state that the general rule would be not to enforce
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
of a company to be important. In determining whether Mr Ivory had
personally assumed responsibility, McGechan J repeatedly pointed
“insulating corporate structure”
2 See John Farrar (gen ed.) Company and Securities Law in New Zealand (Brookers Ltd, 2008)
3 See Trevor Ivory v Anderson  2 NZLR 517 at 523, line 50.
4 Trevor Ivory, see n3 above at 527, line
Personal Liability of Company Directors 155
that Mr Ivory implemented, which counted against a finding of
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
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
incorporated companies. Regardless, the majority in Trevor Ivory
demonstrate the Court's preference for the application of company law
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
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
will be required for torts other than negligent misstatement. It
will be argued that this third consequence renders the first one
Taylor concerned another one-person company, in which Mr Taylor, the
director of a building development company, put out a promotional brochure
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
give summary judgment.12 These decisions were appealed to the Court
of Appeal, which is the decision here under consideration. In strike out
the facts as alleged are assumed to be true, and claims will only
be struck out if they are “so clearly untenable that they
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  1 NZLR 262 at
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.
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
(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
14 Body Corporate 202254 v Taylor  NZCA 317 at para 34 part (b).
15  UKHL 43;  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  UKHL 17;  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
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
at least for company directors. This view conflicts with
respected authorities. Professor Todd (as can be seen in
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
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
it spawns from the defendant’s consent in
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  1 NZLR 513 (PC) and Morton v Douglas Homes
Ltd  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
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)
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”  NZ Law Review 1 at 2 and 22.
28  AC 562.
29 See Samuel Carpenter, “Directors’ liability and leaky buildings”  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?” 
32  1 NZLR 513 (PC).
33  UKHL 4;  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
The negligent implied misstatement as to quality notion is neither
plausible, nor helpful, as an alternative way of conceptualising
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,
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
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
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
in (b) connotes that Mr Taylor's actions or omissions would
have to be causative of the defect in order for liability to attach.
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
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.
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
is rendered uncertain. For these reasons, the judgment of Chambers J,
who does not consider Trevor Ivory to be relevant, is
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
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
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
for other torts as well – but it is indecisive about which and
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  NZCA 97;  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
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,
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
used here because the Court in Taylor states that liability could
apply to employees generally – but it obviously includes
The first hurdle is whether there has been a misleading or deceptive
representation. This requires the usual care in identifying the
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
45 Body Corporate v Taylor, see n14 above at para 49.
46 See Premium Real Estate Ltd v Stevens  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
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
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
interpretation, which would restrict “in trade”
to entities on business in their own account. It is understandable that
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
the liability disclaimer on the brochure could not cover
Mr Taylor personally because he was not in contract with the building
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
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
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.
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
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”
plays for negligent misstatement liability, only it sets the
threshold much lower. A director who has face-to-face contact with a
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
52 Peter Watts, “Directors’ and Employees’ Liability Under the Fair Trading Act 1986 – The Scope of “Trading””  CSLB 77 at 80; Andrew Beck, “Misleading Business Sales: Who Foots the Bill?”  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
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  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  NZCA 202;  2 NZLR 15.
58 See Joblin Insurance Brokers v ME Joblin Insurances Ltd
 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
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
most likely lead to a softening of the assumption of
responsibility requirement. This would bring the common law in
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
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
be in a poor position to bear the loss, but unless they own the
business or have assumed responsibility beyond their employment,
is unwarranted.60 The leading judgment in Taylor dismisses this
argument by claiming that it is overstated – pointing to the invariable
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
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
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
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
Overall, the majority has not sufficiently weighted several counter-
arguments against their finding that a broad interpretation
trade” is to be favoured. The majority is right to point out that section
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
accepting anomalous differences between the common law and the FTA is
not appropriate. Therefore future courts should take the “retreat
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
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
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
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.