Body Corporate 90315 v Redican Allwood Ltd
[2014] NZHC 1212
•30 May 2014
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2011-485-011 [2014] NZHC 1212
BETWEEN BODY CORPORATE 90315 AND
OTHERS Plaintiffs
AND
REDICAN ALLWOOD LIMITED First Defendant
CALUM ANGUS FINLAYSON Second Defendant
WGW PROJECTS LIMITED Third Defendant
APARTMENTS LIMITED Fourth Defendant
WELLINGTON CITY COUNCIL Fifth Defendant
ARCHAUS ARCHITECTS LIMITED Sixth Defendant
AND
REALSURE LIMITED First Third Party
MARTIN HIGGINS Second Third Party
Hearing: 12 February 2014
Further submissions: 3 March 2014
Counsel:
P A Robertson for Fifth Defendant
S A Shortall with A E Gordon for Third PartiesJudgment:
30 May 2014
JUDGMENT OF THE HON JUSTICE KÓS
BODY CORPORATE 90315 & ORS v REDICAN ALLWOOD LIMITED [2014] NZHC 1212 [30 May 2014]
[1] An apartment building in Wellington leaks. The owners have sued those responsible for its construction, and the city council. The owners have not sued any building inspectors who gave pre-purchase reports. But the Council now seeks to advance such a claim. It is a third party claim, in effect making a case on behalf of the owner of one unit which was the subject of such a report. The Council says the inspectors concerned should contribute to any damages the Council has to pay that owner.
[2] The inspectors say they simply cannot be liable to the owner. They point to a number of things in particular. First, the owner suing the Council is not the person they prepared the report for. And the terms of engagement agreed by that person say in clear terms the report is confidential to her and may not be relied upon by any third party, such as the new owner. Secondly, the report expressly excludes responsibility for weathertightness issues. These would only be evaluated if a further “specialist report” was commissioned. None was. Thirdly, they say that despite that exclusion the report still raised a number of concerns about weathertightness issues, and recommended further evaluation. No such further evaluation occurred.
[3] The inspectors now apply, ahead of trial, to strike the Council’s third party
claim out. Alternatively, for summary judgment without trial.
Background
[4] Between 2000 and 2001 an apartment complex was built at 19-21 Drummond St, Mt Cook, Wellington. The units are mostly rented to students at the nearby Massey University campus. On 24 December 2010 the 24 owners of those units, along with their body corporate, filed a negligence claim against the builder, developers and architect involved in constructing the apartments, along with the Council. The plaintiffs allege that the units suffer from serious weathertightness defects. They estimate these will cost between $1.5 million and $2 million to remedy. That primary claim has yet to be heard.
[5] The Council denies it breached its statutory duties or was negligent when it inspected the units and issued a code of compliance certificate. In addition, to deflect liability, on 11 June 2013 the Council filed a statement of claim against two third parties: RealSure Ltd and Mr Martin Higgins. In this judgment I call them “the inspectors”. The plaintiffs had not claimed against the inspectors. But the Council says the inspectors are liable to the fifteenth plaintiff, Rastros Ltd, on two bases: negligence and breach of the Fair Trading Act 1986.
[6] The incontestable facts are these.
[7] On 3 April 2008 Ms Jessica Patchett1 entered a sale and purchase agreement for unit 18 of the Drummond Street complex. The purchaser in the contract was stated to be “Jessica Patchett or Nominee”. Clause 18 of the agreement was a special condition:
This offer is subject to the purchaser obtaining a report from a registered builder and being satisfied with the report within five (5) working days of acceptance.
[8] On 7 April 2008 Ms Patchett contacted RealSure. It appears she did so by telephone. She was then referred to RealSure’s website. That website is interactive. RealSure’s services may be engaged by filling in a form electronically. At 11.10 am on 7 April 2008 Ms Patchett filled that form in. In doing so she expressly confirmed acceptance of RealSure’s terms and conditions.
[9] RealSure immediately sent Ms Patchett a letter of engagement. Relevantly, the letter sets out the following:
The scope of the report is as set out in the RealSure terms and conditions and is limited to a visual pre-purchase or pre-sale inspection, carried out in accordance with NZS4306: 2005.
You have not engaged us to carry out any additional services or special purpose property inspection items.
…
1 She now goes by her married name of Astridge. She and her husband own and direct Rastros
Ltd, the owner of unit 18 – and the 15th plaintiff.
Limitations and Conditions are as set out in the RealSure terms and conditions, which you have accepted.
[10] RealSure’s terms and conditions are set out on the website. They were (as already noted) formally accepted by Ms Patchett at 11.10 am on 7 April 2008, and cross-referenced in the letter of engagement. They include the following:
2aFor the purpose of pre-sale or pre-purchase inspections, the inspection process will be carried out in accordance with the Standards. You agree to be bound by the Standards.
…
2cWe will have a qualified person with a relevant technical qualification and building inspection experience carry out the inspection in accordance with the Standards (“the inspection”).
…
2eWe will consider Weather Tightness, regardless of age, however it will not be measured against appendix A of the Standards or to E2/AS1 of the Building Code, Matrix and Evaluation, as this would be subject to a specialist report.
3aUnder the Standards, the scope of the Inspection is limited to a visual inspection of the components of a building, which the inspector has reasonable access to and being in their clear line of sight. A non-intrusive moisture meter will be used around accessible joinery or identified risk areas, however these are an aid only and their results are not conclusive.
…
6aThe Inspection and report is intended only as a general guide to help you make your own evaluation of the overall conditions of the home, and is not intended to reflect the value of the premises, nor make any representation as to the advisability of purchase.
6bThe report expresses the opinions of the inspector, based upon his or her visual impressions of the conditions that existed at the time of the inspection only.
6cThe Inspection and report are not intended to be technically exhaustive, or to imply that every component was inspected, or that every possible defect was discovered.
…
6j The Inspection and report should not be construed as a compliance inspection of any building, legal or territory authority standards, codes or regulations. The report is not intended to be a warranty or guarantee of the present or future weather tightness, adequacy or performance of this structure, its systems, or their component parts.
The report does not constitute any express or implied warranty of merchantability or fitness for use regarding the condition of the property and it should not be relied upon as such. Any opinions expressed regarding adequacy, capacity, or expected life of components are general statements based on information about similar components and occasional variations are to be expected between such estimates and actual experience.
…
9aSubject to any statutory provisions, if we become liable to you, for any reason, for any loss, damage, harm or injury in any way connected with the completion of the Inspection and/or report, our liability shall be limited to a sum not exceeding the cost of the Inspection and report. We will not be liable to you for any consequential loss of whatever nature suffered by you or any other person injured and indemnify us in respect of any claims concerning any such loss.
10aThis is a report of a visual only, non-invasive inspection of the areas of the building which are readily visible at the time of inspection. The inspection did not include any areas or components which were concealed or closed in behind finished surfaces (such as plumbing, drainage, heating, framing, ventilation, insulation or wiring) or which required the moving of anything which impeded access or limited visibility (such as floor coverings, furniture, appliances, personal property, vehicles, vegetation, debris or soil).
10bThe inspection did not assess compliance with the NZ Building Code including the Code’s weathertightness requirements, or structural aspects. On request specialist inspections can be arranged of weathertightness or structure or of any systems including electrical, plumbing, gas or heating.
10cAs the purpose of this inspection was to assess the general condition of the building based on the limited visual inspection described in (a), this report may not identify all past, present or future defects. Descriptions in this report of systems or appliances relate to existence only and not adequacy or life expectancy. Any area or component of the building or any item or system not specifically identified in this report as having been inspected was excluded from the scope of the inspection.
…
11e We have no responsibility or liability for any cost, loss or damage arising from:
i. any errors or omissions from information, data or documents not prepared by us, our employees, or other persons under the direct control of us;
ii. any act or omission, lack of performance, negligent or fraudulent act by you;
iii. any act or omission, lack of performance, negligence or fraud by any consultant, contractor or supplier to you, or any of your employees or agents.
…
11g The contents of the report, or any other work prepared by us is confidential and has been prepared solely for you and shall not be relied upon by any third parties. We accept no responsibility for anything done or not done by any third party in reliance, whether wholly or partially, on any of the contents of the report.
[11] The same day, 7 April 2008, Mr Higgins, an employee of RealSure, attended the unit and inspected it.
[12] The following day, 8 April 2008, RealSure’s report was sent to Ms Patchett. The following are important features of that report:
(a) On the front cover it states, in large letters, “This report has been exclusively conducted and prepared for Jessica Patchett”.
(b) On page 1 it states:
This report cannot give any waterproofing guarantee as it is not readily possible nor required to create simulated conditions to induce moisture ingress. However, signs of moisture ingress were looked for and spot checking was carried out predominantly around the windows, doors and identified risk areas with a non-destructive moisture meter. The condition and treatment type of any internal timbers is not known.
On pages 2 and 3 the report said the following in relation to weathertightness:
The design, being a multi storey building with frame fixed monolithic cladding, would in our opinion put it at a higher risk for weathertightness.
Part of the cladding on this building is a texture cladding and part of its maintenance is to periodically monitor the exterior for any signs of cracking, discolouration, fungus and mould. It should be kept clean and clear of any surface and vegetation, and well-sealed, depending on the manufacturers specification. It is not recommended this product is water- blasted.
We have identified some weathertightness areas of risk with the exterior of the home, as identified by BRANZ
Weathertightness, Identification of Risk. These are identified in the Photo Gallery, Exterior Sections and listed below. These may also be identified in Blue type in the body of the report.
The moisture meter did not indicate any high moisture readings in the Apartment, however the moisture meter did indicate high moisture readings in the common area and slightly high readings under the Lounge window. We recommend these areas be further investigated and all areas identified modified, although expert advice should be sought before any modification is undertaken. The condition and treatment type of any internal timbers is not known.
1. Weather tightness risks.
2. Multi storey building.
3. Frame fixed monolithic cladding.
4. Cracking and peeling texture. Incorrect cladding to ground clearances.
(c) Also on page 2, under the heading “Common Area”, the report noted:
The skirting is swelling to the external wall of the common area by the entry door, and higher than normal moisture readings were indicated. This needs to be further investigated to determine the source of the moisture and the best method of repair.
Similar observations appear on pages 1 and 6 of the schedule to the report.
(d)Photos contained in the schedule identify cracks and deficiencies in the exterior cladding, and the metal trim. One photograph is subject to the observation that “[i]t is possible that penetrating dampness is accessing the wall to the common area and working its way down causing dampness by the doors, this would have to be further investigated.”
(e) Another section of the schedule notes:
This property was furnished at the time of inspection which can obstruct the view of some areas. We strongly recommend that when the property is vacant, a final inspection be carried out prior to settlement, and areas
hidden by furnishings, stored items and appliances be checked for any defects or moisture ingress.
No further inspection was in fact requested.
(f) On the subject of the apartment exterior, in a section in red print (which is stated to be indicative of items requiring “further evaluation and repair by suitably qualified tradespeople”) the damaged cladding is referred to, together with the prospect of cracks allowing moisture in behind the cladding and into the internal framing. The cladding is said to need “to be further investigated by a registered texture coating applicator to determine the cause of the defects and to obtain a quote for the necessary repair”. In another place, also in red print, it is again noted that, “[s]lightly higher than normal levels of moisture were indicated below the lounge windows, this needs to be further investigated.” Noted in blue type (relating to weathertightness) is the observation: “[t]he flashing for the canopy is insufficient and needs to be modified to stop moisture ingress”.
(g)Finally, page 5 of the schedule contains a box called “Report Limitations”. It says that “The report limitations are as set out in the RealSure terms and conditions, and NZS4306:2005, which you have agreed to abide by.”
[13] Following receipt of the report, on 10 April 2008 Ms Patchett contacted her solicitor, directing him to confirm the condition in the sale and purchase agreement. It appears that was done that day. At that point, then, Ms Patchett became liable to purchase – and the die was cast.
[14] Approximately four weeks later, on 6 May 2008, Ms Patchett incorporated Rastros Ltd. Ms Patchett became a director of that company, along with her husband, Mr Astridge. Rastros was incorporated, it appears, solely for the purpose of purchasing the apartment, as Ms Patchett’s nominee.
[15] On 30 June 2008 the sale of unit 18 was settled. It then became the property of Rastros. Rastros is now one of the plaintiffs in this proceeding. Ms Patchett is not.
The Council’s claim
[16] The Council advances two causes of action.
[17] First, the Council alleges that RealSure’s report amounts to misleading or deceptive conduct in trade. RealSure trades as a provider of pre-purchase building inspection reports for prospective purchasers. Unit 18 has a number of weathertightness defects. Those defects would have been observable in the course of the inspection conducted by RealSure’s employee Mr Higgins on 7 April 2008. Those defects were not identified or identified in a misleading way in the report. In
particular the report does not warn of the need for significant remedial work.2 In
reliance upon the report, Rastros purchased Unit 18. Rastros has suffered loss as a consequence of that reliance.
[18] Second, the Council alleges that RealSure’s report on Unit 18 contained negligent misstatements. RealSure has expertise in preparing pre-purchase reports. The report on Unit 18 identified some parts of the unit as having high moisture readings but characterised the property as being in average condition overall. It did not identify the need for significant remedial work. The Council says those statements were negligent. RealSure knew or ought to have known Rastros would rely upon the statements in the report when deciding whether or not to complete the purchase of Unit 18. Rastros has suffered loss as a consequence of that reliance.
[19] In addition, the Council repeats those two claims, in much the same terms, against Mr Higgins personally.
2 The Council places particular reliance on the statements: that “overall the property is in average condition for its age”; that “minor defects” such as “cracking” and “physical damage to materials” are common to most properties; and that the majority of repairs were “the result of normal wear and tear and can be addressed as redecoration or annual maintenance”.
Strike-out and summary judgment application
[20] On 9 September 2013 the inspectors made the current application to strike out the Council’s claim entirely. If that application is declined, they apply for strike out of the claim at least against Mr Higgins. In the alternative, the inspectors apply for summary judgment against the Council.
[21] The inspectors submit that the Council’s third party claim is untenable and has no prospect of success. Much of the dispute turns on the effect of clause 11(g), which is set out at [7] above.
[22] The inspectors submit that the Council’s claim is untenable and has no
prospects of success. Or that they have a complete defence to it. For these reasons:
(a) RealSure was engaged by Ms Patchett personally, and not by Rastros.
Rastros was not incorporated until one month after the inspectors completed their report for Ms Patchett. Rastros has no contractual relationship directly or indirectly with the inspectors.
(b)RealSure’s terms and conditions (accepted by Ms Patchett) clearly state that Rastros is not entitled to rely on the report. It would follow that it could not reasonably rely on the report for the purposes either of the Fair Trading Act or for the tort of negligent misstatement.
(c) The report in fact is not misleading in any material respect, and contains no negligent misstatement. It was a limited inspection, conducted in accordance with RealSure’s terms and conditions (accepted by Ms Patchett). A visual inspection only, the purpose of which was to make a reasonable attempt to identify any significant fault or defect visible at the time of inspection. Defects now alleged by the plaintiffs in their claim were either not visible at the time of inspection, or did not form part of the scope of RealSure’s inspection.
(d) The Fair Trading Act claim is time barred, and should be struck out.
(e) There is no basis for the Council to pursue a claim against Mr Higgins in his personal capacity. He was a mere employee of RealSure. He did not assume any personal responsibility for the report.
(f) The claim is a frivolous one given the express limitation of liability in cl 9(a).3
Strike-out and summary judgment principles
[23] The parties do not dispute the applicable principles. As to strike-out, Winkelmann J’s summary in Financial Markets Authority v Hotchin says it almost all:4
(a) Pleaded facts, whether or not admitted, are assumed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation.
(b) The jurisdiction to strike out is to be exercised sparingly and only in clear cases. This reflects the Court's reluctance to terminate a claim or defence short of the trial.
(c) The cause of action or defence must be clearly untenable, and it may be appropriate to give the opportunity to amend where a claim can be saved.
(d) The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.
(e) The Court should be particularly slow to strike out a claim in any developing area of the law, perhaps particularly where a duty of care is alleged in new situations. In Couch v Attorney-General Elias CJ put the matter as follows:
It is often not easy to decide whether a duty of care not previously recognised by authority is owed to the plaintiff, as Woodhouse J in Takaro acknowledged and as is amply demonstrated on the authorities. It may be unrealistic to expect that the pleadings and arguments to support a claim will always be adequate at an early stage of the proceedings. Caution in disposing of such cases on a summary basis is necessary both to prevent injustice to claimants and to avoid skewing the law with
3 See [7] above.
4 Financial Markets Authority v Hotchin [2013] NZHC 1611 at [16] citing Attorney-General v
Prince [1998] 1 NZLR 262 (CA) at 267 and Couch v Attorney-General [2008] NZSC 45, [2008]
3 NZLR 725 at [33].
confident propositions of legal principle or assumptions about policy considerations, undisciplined by facts.
Nevertheless as observed by William Young J in Attorney-General v
Body Corporate 200200:
On the one hand, the Court should not lightly deny the plaintiffs the opportunity to proceed to trial on novel issues of law. Moreover, a trial will present a more favourable forum to assess the issues involved in establishing a duty of care. On the other hand, however, defendants ought not to be subjected to the substantial costs, much of which is usually unrecoverable, in defending untenable claims.
[24] Summary judgment, on the other hand, confers somewhat greater factual analytical leeway. But only to the extent the Court can form a clear view on the papers, without the need to hear oral evidence. The relevant principles, again uncontested, were these:
(a) In the case of summary judgment for the defence, the applicant must show on the balance on probabilities that none of the plaintiff’s causes of action can succeed.5
(b)The Court may take a robust and realistic approach to the evidence, but it must also be fair. The applicant must show that there is no real counter-argument requiring trial evidence to be taken.6 It follows that material and contestable conflicts of evidence or credibility cannot be resolved on a summary judgment application.7
(c) The respondent may not merely rest upon its oars. It must file an affidavit providing evidential support for its case. If it fails to do so, the application will be treated as unchallenged, and granted unless
“patently wrong”.8
5 Jones v Attorney-General [2004] 1 NZLR 433 (PC) at [5].
6 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.
7 Krukziener v Hanover Finance Ltd [2008] NZCA 187; [2010] NZAR 307 at [26].
8 Australian Guarantee Corporation (NZ) Ltd v McBeth [1992] 3 NZLR 54 (CA) at 59.
(d) Summary judgment will not be appropriate where defects identified
by the applicant may be remedied by pleading amendment.9
Issues
[25] To resolve this application, five issues require consideration:
(a) Issue 1: Does Rastros have a contractual relationship with RealSure? (b) Issue 2: Is the negligent misstatement cause of action against
RealSure tenable?
(c) Issue 3: Is the Fair Trading Act cause of action against RealSure tenable?
(d) Issue 4: Is the negligent misstatement cause of action against
Mr Higgins personally, tenable?
(e) Issue 5: Is the Fair Trading Act cause of action against Mr Higgins personally, tenable?
[26] Given the conclusions I reach on these issues, it is unnecessary for me to consider other submissions made by Ms Shortall. In particular, those concerning limitation and absence of fault. They would have required a factual dissection unsuited to strike-out and summary judgment.
Issue 1: Does Rastros have a contractual relationship with RealSure?
[27] This is a preliminary question, necessary to orient the remaining issues. It is at least relevant to the scope of any tortious duty of care to consider, first, the underlying relationship between the contesting parties. As the Court of Appeal said
in McKinlay Hendry Ltd v Tonkin & Taylor Ltd, the contractual arrangements
9 Westpac Banking Corporation v M M Kembla NZ Ltd [2001] 2 NZLR 298 (CA).
between the parties are relevant to the existence of the broader question of whether it is fair, just and reasonable to impose a duty of care in tort.10
[28] In McKinlay the Court of Appeal cited a passage from the Court’s decision in
RM Turton & Co Ltd (In Liquidation) v Kerslake & Partners:11
The question is not simply whether there is an established contractual chain of rights, but whether the contractual chain shows or supports intentions regarding the assumption or allocation of risk and responsibility inconsistent with the claimed tort duty.
In Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd, for instance, the detailed
contractual structure there pointed “strongly against a finding of proximity”.12
[29] Rastros was not incorporated as a company until 6 May 2008. That was almost one month after the inspection and report were completed. The Council accepts that it was Ms Patchett who contracted with RealSure for the report. But it is Rastros that purchased unit 18 and is the fifteenth plaintiff in these proceedings. Although Rastros does not sue in contract, the Council contended that Rastros and RealSure enjoyed contractual privity.
[30] Was Rastros in a contractual relationship with RealSure? Such a relationship might arise on any one of three bases: agency, pre-incorporation contract or assignment. Supplementary submissions addressing this issue were filed.
Agency
[31] The inspectors submitted that Ms Patchett could not have acted as Rastros’
express agent. At the time she contracted with RealSure, Rastros did not exist. Therefore she could not have authority from Rastros to act as its agent. Nor could
10 McKinlay Hendry Ltd v Tonkin & Taylor Ltd CA81/04, 9 December 2005 at [38].
11 RM Turton & Co Ltd (In Liquidation) v Kerslake & Partners [2000] 3 NZLR 407 at [9].
12 Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [117]–
[124].
she have been Rastros’ undisclosed agent because “the authority of the agent to bind the undisclosed principal must exist at the time when the agent made the contract”.13
Nor could Rastros ratify her agency because it was not in existence at the time the act to be ratified was performed.14
[32] In its further submissions the Council appeared to concede that agency could not apply. For the reasons given in the preceding paragraph, I agree.
Pre-incorporation contract
[33] The applicants argued that Rastros could not ratify the contract as a pre- incorporation contract under s 182 of the Companies Act 1993. Section 182(1)(b) allows a company to ratify “a contract made by a person on behalf of a company before and in contemplation of its incorporation”. In Taylor v Todd Panckhurst J held that for ratification under s 182, the person entering into the contract must have a “specific or ascertainable company” in mind which “upon its incorporation ratifies the contract within a reasonable time”, although “the company to be formed need not
be named”.15
[34] Ms Patchett has provided no evidence that she had a specific company in mind when she entered into the contract with RealSure. In Taylor a solicitor signed an agreement for sale of purchase of land “as agent for a company/ies and/or trust(s) to be formed”. Panckhurst J held that phrasing showed that no decision had been made as to the specific purchasing at entity at the time the agreement was entered into.16 It was not necessarily going to be a company. Here Ms Patchett’s intentions were even less specific. On 3 April 2008 when she signed the agreement to purchase Unit 18 the purchaser was listed as “Jessica Patchett or Nominee”. On the facts as
pleaded there is no evidence that on 7 April 2008, when Ms Patchett signed a
13 Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270 (CA) at 277; Keighley, Maxstead & Co v Durant [1901] AC 240 (HL) at 251. See also Stokes v Insight Legal Trustee Co Ltd [2012] NZHC 1822 at [58]. That judgment was set aside on appeal, but on different grounds: Insight Legal Trustee Co Ltd v Stokes [2013] NZCA 148, (2013) 14 NZCPR 118 at [20].
14 Walker v Carter (1993) 6 NZCLC 68,376 (CA); Firth v Staines [1897] 2 QB 70 (QB) at 75.
15 Taylor v Todd [2004] 3 NZLR 76 (HC) at [45].
16 At [43].
contract with RealSure, she had developed her intentions and decided to enter into contractual dealings relating to Unit 18 on behalf of a specific inchoate company.
[35] Furthermore, ratification must occur within a reasonable time after incorporation.17 There is no evidence of ratification by Rastros. To the contrary, Mr Robertson’s submissions (for the Council) referred to the prospect of the contract being assigned to Rastros. That rather seems to presuppose that the ratification has not yet occurred. Even if it did, ratification more than six years after the fact, with no explanation given for the delay, would clearly be unreasonable delay.
[36] I am satisfied that a pre-incorporation contract argument is not available to the Council. That leaves the third possibility: assignment.
Assignment
[37] Clause 11(g) of Realsure’s terms and conditions purports to exclude liability to third parties who act in reliance upon its report. The Council argues that Rastros would not be a third party if Ms Patchett assigned the benefit of the contract to Rastros (although she has not in fact done so). The applicants submit that Ms Patchett cannot assign her contractual rights to Rastros.
[38] The applicants base their submission on Tipping J’s statement in Rattrays Wholesale Ltd v Meredyth-Young Ltd that for a nominee to enforce an agreement, the parties to contract must have had “an intention to create an obligation enforceable at the suit of the nominee”.18 That submission is I think misplaced. Tipping J was restating the proviso in s 4 of the Contracts (Privity) Act 1982. That section is concerned with contracts that purport to confer benefits on third parties. The Council, as I understand its submission, does not argue that the contract between RealSure and Ms Patchett purported to confer benefits on a third party. If that was the Council’s argument, as a matter of construction it must fail. Nothing in the
contract or evidence could support it.
17 Companies Act 1993, s 182(2).
18 Rattrays Wholesale Ltd v Meredyth Young & A'Court Ltd [1997] 2 NZLR 363 (HC) at 383.
[39] Rather, the Council’s argument is that Ms Patchett has the right to assign the benefit of the contract to Rastros.19 The inspectors however say that the contract, properly construed, prohibits assignment. Both parties accept that a non-assignment clause is generally effective. As the Court of Appeal has said: 20
… An agreement, express or implied, not to assign contractual or other rights in personam, or not to assign them without consent, should generally be specifically enforced as between the immediate parties, unless there is some strong reason why that course should not be adopted… A non-assignability clause has a clear commercial purpose. The parties do not wish, without consent, to be obliged to deal with a party not of their own choosing… if the law did not enforce such an agreement the legitimate commercial reason for agreeing not to assign would be defeated. Similarly the legitimate commercial expectations of the parties would be defeated.
[40] The dispute focuses on the construction of cl 11(g). It is set out at [7] above. The Council says that clause does not prohibit assignment. I disagree.
[41] First, cl 11(g) has a clear commercial purpose: RealSure did not want to be obliged to deal with a party other than Ms Patchett. Ms Patchett’s primary right under the contract was to receive a pre-purchase inspection report. Clause 11(g) said the report was “prepared exclusively for” Ms Patchett. Those terms were repeated in large type on the front of the report itself: “[t]his report has been exclusively conducted and prepared for Jessica Patchett”. It was also confidential. The report, therefore, could not be prepared and given to anyone other than Ms Patchett. While the clause does not say so explicitly, its effect is to exclude assignment, in the sense of the conveyance of enforceable rights to Rastros.
[42] Further I do not accept the Council’s argument that would be anomalous for the law to allow a nominee to enforce an agreement for sale and purchase where the purchaser was described as “X and/or nominee”,21 but not allow that nominee to claim against a party that provided advice prior to purchase. The terms and disclaimers in the contract between Ms Patchett and RealSure are independent of those between the vendor and Ms Patchett. The fact that they allow for different
types of liability is a matter for the contracting parties who agreed to them.
19 See Elders Pastoral Ltd v Bank of New Zealand [1991] 1 NZLR 385 (PC) at 387.
20 New Zealand Payroll Software Systems Ltd v Advanced Management Systems Ltd [2003] 3
NZLR 1 (CA) at [26].
21 See Laidlaw v Parsonage [2009] NZSC 98, [2010] 1 NZLR 286.
[43] Ms Patchett cannot assign the rights under her contract with RealSure to
Rastros.
[44] And nor is there any evidence that she has in fact done so.
Conclusion
[45] The answer to Issue 1 is “no”. Rastros has no contractual relationship of any kind with RealSure.
[46] Having reached that conclusion, I move on to consider the specific questions
arising from the inspectors’ strike-out application
Issue 2: Is the negligent misstatement cause of action against RealSure tenable?
[47] Proximity, on which a duty of care might be based, depends on two things. First, an assumption of responsibility by the defendant. Secondly, that the plaintiff’s reliance on the misstatement was reasonable.22 The Council would need to establish that Realsure foresaw, or ought to have foreseen, that Rastros would reasonably rely on the report.23
[48] A disclaimer of liability can make reliance unreasonable and therefore give “immunity to a negligent answer”.24 In Hedley Byrne & Co Ltd v Heller & Partners Ltd the House of Lords held the disclaimer “CONFIDENTIAL … For your private use and without responsibility on the part of this bank or its officials” prefacing a letter meant the plaintiffs could not reasonably rely on statements contained within it, and was thus effective in excluding liability.25 In general “a disclaimer will be determinative in cases where the cause of action is negligent misstatement”.26
[49] That point was made also by Tipping J in Attorney-General v Carter:27
22 Attorney-General v Carter [2003] 2 NZLR 160 (CA) at [22].
23 At [26].
24 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL) at 540 per Lord Pearce.
25 It is a common misconception that the plaintiff in Hedley Byrne succeeded. In fact it failed.
26 Deeming v EIG-Ansvar Ltd [2013] NZHC 955 at [63].
27 Attorney-General v Carter [2003] 2 NZLR 160 (CA) at [26].
[26] In most cases, however, there will be no voluntary assumption of responsibility. The law will, however, deem the defendant to have assumed responsibility and find proximity accordingly if, when making the statement in question, the defendant foresees or ought to foresee that the plaintiff will reasonably place reliance on what is said. Whether it is reasonable for the plaintiff to place reliance on what the defendant says will depend on the purpose for which the statement is made and the purpose for which the plaintiff relies on it. If a statement is made for a particular purpose, it will not usually be reasonable for the plaintiff to rely on it for another purpose. Similarly, if the statement is made to and for the benefit of a particular person or class of persons, and the plaintiff is not that person or within that class, it will not usually be reasonable for the plaintiff to place reliance on it so as to oblige the defendant to assume responsibility for carelessness in its making.
[50] In McKinlay Hendry Ltd v Tonkin & Taylor Ltd a firm of engineers was negligent in writing a geotechnical report.28 The negligent report was produced pursuant to a contract with McKinlay Hendry, a merchant bank. The report was, however, addressed to an associated company called Centreport Coolstores Ltd. It was the intended owner of the proposed coolstore building McKinlay Hendry was promoting. But at the time the report it did not exist. It was incorporated later in
time, and there was no ratification of the engineer’s engagement by it. The building owner, ultimately, was a different company entirely, Kings Wharf Holdings Limited. In a passage the Court of Appeal described as “critical”, the report said:
This report has been prepared solely for the benefit of you [i.e. Centreport Coolstores] as our client with respect to the particular brief given to us, and data or opinions contained in it may not be used in other contexts or for any other purpose without our prior review and agreement.
[51] Kings Wharf eventually entered into a fixed price contract for the construction of the coolstore building. The price included provision for the cost of compaction recommended by the engineers. It turned out that was not needed. Kings Wharf and McKinlay Hendry sued the building contractor and the engineers to recover the unnecessary compaction costs allowed for in the price.
[52] In the High Court, Miller J found that the engineers knew that their report would be relied on by Centreport Coolstores in negotiating a construction contract.
But he held that it did not assume responsibility to Kings Wharf or any future owner. In particular he relied on the stipulation quoted above. Miller J said:29
I also consider that considerations of policy militate against a relationship of proximity between Tonkin & Taylor and Kings Wharf Holdings in these circumstances. The parties chose to regulate their relationships through contract. Tonkin & Taylor was careful to limit its liability by providing that only Centreport Coolstores Limited could rely on its advice. A building of this kind has an economic life of at least 25 years, and may be owned by any number of investors throughout that period. The engineer has no way of charging subsequent investors for the work on which they may claim to rely. It is unsurprising that an engineer would specify that it accepts responsibility only to the client with which it has entered a contract. The opportunity exists for any party seeking to rely on the engineer’s work to obtain an acknowledgment that the work may be relied upon, or to seek its own advice should the engineer refuse to provide the acknowledgement. Appropriate limits to liability can then be negotiated. Mr Millar explained that it is common to seek such acknowledgements as parties change over the life of a project.
[53] In the Court of Appeal, the building owner’s appeal was dismissed. The Court of Appeal said that the opening words of the stipulation were unambiguous, and could not be read down. The report could not be relied on by other persons, or for other purposes, unless the engineers had agreed to that course. Or at least, by their conduct assumed responsibility to such a class contrary to the terms of the stipulation. In either case there might then be assumption of responsibility, as well as foreseeable reliance.
[54] On the face of things, McKinlay is directly applicable here, unless it can be distinguished. There are essentially five points of difference on the facts. The question is whether, collectively, they are sufficient to displace the application of McKinlay. The five differences are:
(a) the context here is less “commercial” than in McKinlay;
(b)Rastros is in effect the alter ego of Ms Patchett. It was her nominee, and it remains in her joint control;
29 McKinlay Hendry Ltd v Tonkin & Taylor Ltd HC Wellington CIV-1999-485-78, 22 March 2004 at [88].
(c) the exclusion clause in this case preceded the commissioning of the report itself, and is then in effect repeated on the face of the report;
(d)the exclusion clause in this case is even clearer in excluding third party liability than its counterpoint in McKinlay; and
(e) RealSure had even less appreciation of the existence of Rastros than the engineers in McKinlay did.
[55] As to the last point, in McKinlay the engineers had ongoing involvement in the project beyond the point at which the identity of Kings Wharf became apparent. In this case, RealSure’s involvement with Ms Patchett was over and done within two days, long before Rastros was identified and incorporated. There is no evidence here that RealSure had any knowledge of Ms Patchett’s intent to nominate, let alone whom that nominee might be.
[56] The first two points of distinction arguably assist the Council. But in my view they have limited impact. Taken together with the other considerations, which favour the inspectors, I find they cannot displace the application of McKinlay.
[57] The first consideration really cuts either way. Although this is a consumer transaction it can also be said that an assumption of responsibility to a third party may more readily be inferred where all entities have an essentially corporate character. Here Ms Patchett did not, and the inspectors had no reason to imagine they were dealing with her as a substitutable customer. The rather fervent terms of the disclaimer, and its repetition in the report, suggests that the inspectors were eager to preclude substitution, and to confine responsibility to the immediate customer. That customer, of course, purchased their services at a price reflecting the agreed constraints on liability, including the inability to assign and the limits on damages
payable in the event of breach.30
[58] The second consideration, that Rastros is in effect the alter ego of
Ms Patchett, is more significant. But it is also double-edged for the Council. It is
true that the report was used for the very purpose for which it was commissioned: to ascertain whether the unit should, in April 2008, be purchased. But that is about as far as the matter goes. Rastros is not Ms Patchett. It might or might not ever have had any connection with her. Let alone a continuing connection. But the fact that it did have that connection, and was her alter ego, means that it was abundantly aware of the limits in the contract she had entered with RealSure. Mr Robertson properly acknowledged that must be so. And he accepted that cl 11(g) must have the effect of excluding liability to an assignee from Ms Patchett who was a complete stranger. One difficulty with that is that so far as RealSure was concerned, anyone but Ms Patchett was a complete stranger. Another is the position that would apply if the ownership of Rastros was diversified beyond Ms Patchett and her husband. But there is a greater problem still.
[59] The unhappy implication of the argument advanced by the Council is this. First, contractual duties to Ms Patchett alone are carefully defined and constrained by the contract. The report is to be confidential to her, and reliance by third parties is prohibited. Secondly, she is precluded from assigning the contract to third parties. Thirdly, any extrinsic duty of care in tort to Ms Patchett is effectively excluded by the contract. Fourthly, however, by the mere expedient of nominating a corporate purchaser (which did not exist at the time the report was issued, of which the inspectors had never heard, whose involvement they had no cause to foresee, but which was itself abundantly aware of the limits expressed in the contract with Ms Patchett), such a duty is instead owed to Ms Patchett’s corporate alter ego. Unsurprisingly counsel for the Council was unable to point to any authority in support of that challenging proposition.
[60] The approach contended for involves an unattractive marshalling of benefit and duty. No policy consideration, argued or apparent, seems to justify it. Indeed, given the necessary awareness by the alter ego of the limits of the original commission, it is hard to see why the Courts should give their blessing to an arrangement that would avert the disclaimer, avert the non-assignment condition, and avert the limit on quantum. The very fact that Rastros is Ms Patchett’s alter ego gives every reason not to find a distinct (and more expansive) duty of care is owed to it. Ms Patchett made her bargain, and for the price she paid it contained those three
limits. She could have negotiated for an enlargement of responsibility. She could have asked for the contract to extend to her intended nominee, had there been one at the time. Or she could have sought (presumably at a discounted price) a second report for the benefit of Rastros. In any of these cases, however, she will be met with the limitation on quantum in cl 9(a). I am inclined to repeat what the Court of Appeal said in McKinlay:
[44] The [plaintiffs] were content to define their rights and obligations by contract. The way in which they chose to allocate the risk… turned out to be to their disadvantage. It was a risk they voluntarily assumed. In the circumstances, they must live with the consequences.
[61] No compelling policy argument has been shown, on the basis either that Ms Patchett is a consumer, or that Rastros is her alter ego, to displace the straightforward application of McKinlay.
Conclusion
[62] The answer to issue 2 is “no”. The inspectors expressly excluded responsibility to persons other than Mr Patchett. The disclaimer excludes liability to Rastros. Rastros had reasonable notice of the disclaimer. Nothing else done by the inspectors could constitute an assumption of responsibility to Rastros. Reliance upon the report by Rastros in these circumstances was unreasonable. No proximate relationship existed. Policy considerations are insufficient to find a duty of care in its absence. The putative claim by Rastros in negligent misstatement is untenable.
[63] I note, however, that even if there were such a duty, it is unclear quite how the report in fact caused Rastros loss. As I note at [13], the die was cast once Ms Patchett – not Rastros – confirmed the contract of purchase on 10 April 2008. Rastros, controlled by Ms Patchett and her husband, subsequently assumed this extant liability on her behalf. It is unclear just what impact the report had on its decision to assume her liability. It is unnecessary, however, to explore that question further at this point.
Issue 3: Is the Fair Trading Act cause of action against RealSure tenable?
[64] If no duty of care is owed in tort to Rastros, may it rely instead on the Fair
Trading Act 1986?
[65] The Council’s statement of claim alleges that “the report was misleading and deceptive in one or more respects”. It is not suggested that any conduct apart from the content of the report is in breach of the Act. The particulars given are three: the report “does not warn of the need for significant remedial work”; the apartment contains the weathertightness defects alleged by the plaintiffs; and those defects “would have been observable” during Mr Higgins’ inspection on 7 April 2008.
[66] In Red Eagle Corporation Ltd v Ellis the Supreme Court held that in relatively simple cases, “where there is no doubt about what was said or about its meaning and all of the loss arose from the same event”, a two step test is to be applied.31 Those steps were summarised by Court of Appeal in Poplawski v Pryde thus:32
(a) Has the claimant proved breach of s 9 by the defendant?
(b) Was the defendant's conduct the effective cause, or an effective cause, of the complainant's loss or damage?
[67] The first step requires asking whether it was “objectively reasonable for the claimant to be misled in all the circumstances”.33 The Supreme Court framed the question as:34
…whether a reasonable person in the claimant's situation — that is, with the characteristics known to the defendant or of which the defendant ought to have been aware — would likely have been misled or deceived. If so, a breach of s 9 has been established. It is not necessary under s 9 to prove that the defendant's conduct actually misled or deceived the particular plaintiff or anyone else. If the conduct objectively had the capacity to mislead or deceive the hypothetical reasonable person, there has been a breach of s 9. If it is likely to do so, it has the capacity to do so. Of course the fact that
31 Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [27].
32 Poplawski v Pryde [2013] NZCA 229; (2013) 14 NZCPR 528 at [44].
33 At [45].
34 Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].
someone was actually misled or deceived may well be enough to show that the requisite capacity existed.
[68] If a breach of s 9 is demonstrated, attention turns to s 43 and the second question, which must be addressed by asking:35
…whether the particular claimant was actually misled or deceived by the defendant's conduct… If the Court takes the view, usually by drawing an inference from the evidence as a whole, that the claimant was indeed misled or deceived, it needs then to ask whether the defendant's conduct in breach of s 9 was an operating cause of the claimant's loss or damage.
[69] Disclaimer clauses are less effective against liability under the Act than they are in the cases of claims in contract and tort. Because of its consumer protection nature, suppliers cannot simply contract out of liability, as they can in contract.36
But it may still displace liability despite the more invasive reach of the Act. In David v TFAC Ltd the Court of Appeal affirmed a passage from the Federal Court of Australia’s decision in Kewside Pty Ltd v Warman International Ltd.37 That recognises that a disclaimer clause may affect statutory liability under either or both of the Red Eagle steps:38
A disclaimer or exclusion clause will affect liability for misleading or deceptive conduct only if it deprives the conduct of that quality or breaks the causal connection between conduct and loss. Whether it has that effect in a given case is a question of evidence and not a question of law.
[70] It follows that I do not accept the submission for the Council that the effect of Red Eagle is that disclaimer clauses should only be considered under the second question (causation).
[71] It will, however, be a fairly rare case where the Court could form a definite view on liability on a strike-out or summary judgment application. In my view that
is entirely dependent on both the content of the disclaimer, and its context.
35 At [29].
36 Smythe v Bayleys Real Estate Ltd (1993) 5 TCLR 454 (HC) at 472.
37 David v TFAC Ltd [2009] NZCA 44, [2009] 3 NZLR 239 at [63], affirming Kewside Pty Ltd v Warman International Ltd (1990) ATPR (Digest) 46-059 (FCA) at 53,222. See also Phyllis Gale Ltd v Ellicott (1997) 8 TCLR 57 (HC) at 65-66.
[72] As to content, the Court of Appeal noted in David that the disclaimer clauses considered in this context typically concern the scope of reliance:39
Drafters have attempted to circumvent the restriction on contracting out through various mechanisms. For example, there may be a requirement that parties take their own independent advice; or a clause which states that the parties (or one of them) have entered into the transaction on the basis of their own judgment and not on the basis of anything said or done by the other; or an “entire agreement” clause; or a clause which states that any information that one party has provided to the other was supplied in good faith on the basis of information provided by an identified third party.
As that passage notes also, such disclaimers are often overwhelmed by inconsistent, express assurances.40
[73] Other disclaimer clauses attempt to water down the impact of representations made elsewhere. In Body Corporate 202254 v Taylor the Court of Appeal had to consider a brochure given to purchasers of leaky apartments.41 In one part were a number of representations said to be misleading and deceptive. In another was the disclaimer that the vendor did not “warrant the correctness of such information” it had provided. Similarly, the agreement for sale and purchase provided that “no
representation or warranty on the part of the Vendor will be implied in this Agreement”.42 The Court declined to strike out a claim against the vendor under the Act:43
The reality is that the brochure did make representations and that reality is not necessarily undone by a broadly expressed disclaimer of the kind which appears in the brochure or special condition 34. Whether the key representations were misleading and deceptive and, if so, whether they were causative in terms of the losses suffered by the owners must be determined at trial.
[74] The situation in the present case is very different, however.
[75] For a start, no extrinsic assurances whatever are pleaded. The pleading of misleading and deceptive conduct is confined to RealSure’s report. No separate
39 At [62].
40 See, e.g., Cornfields Ltd v Gourmet Burger Co Ltd (2000) 9 TCLR 698 (HC).
41 Body Corporate 202254 v Taylor [2008] NZCA 317, [2009] 2 NZLR 17.
42 At [60].
representation to Ms Patchett is pleaded. Rastros of course did not exist at the relevant time.
[76] Furthermore, the content of the disclaimer provisions here is different from the “scope of reliance” or ”entire agreement” clauses referred to in David. And from the denial of warranty provisions in Taylor.
[77] The first aspect of the disclaimer – in cl 11(g) - is the one we have looked at already under Issue 2: its limitation of persons entitled to rely on the report. On the face of the report (and in the referenced preceding terms and conditions), that was confined to Ms Patchett. It is difficult to see why as a matter of policy, that limitation should not be given its due effect. Rastros, through Ms Patchett, must be taken to have known of cl 11(g). What it says is this. Be very careful about what you do with this report. If your name is not on the front, do not read it. If you do read it, then we do not stand by anything we have written.
[78] The second distinctive aspect (of both the terms and conditions and of the report) is the exclusion of responsibility for reporting on weathertightness. And that is because, as both make clear, a separate specialist report must be commissioned on that subject matter. For, no doubt, a separate fee. The report identified some weathertightness issues, and recommended further investigation. Neither further investigation nor a separate specialist report was commissioned.
[79] It would, I think, be utterly unjust for the inspectors here to bear liability to Rastros (or, indeed, to Ms Patchett) for not identifying the weathertightness defects listed in the statement of claim. I turn to the enquiries mandated by Red Eagle. A reasonable person in Rastros’s position must be aware of the limits imposed in the terms and conditions and the report. No extrinsic representations were made, diluting those limits. Such a person could not be misled into thinking that the report gave them any enforceable assurance about weathertightness. Rather, it made clear that they were not entitled to rely on the report at all. And in any case, to gain assurance on weathertightness a specialist report would need to be commissioned.
[80] On the second enquiry, my clear view is that the disclaimer provisions here – unquestionably brought to Rastros’s attention and not displaced by any extrinsic representation – preclude Rastros from being able to assert reliance. And therefore, causation of loss. I disregard for these purposes the unanswered conundrum noted at [63].
[81] No good policy reason was advanced as to why building inspectors should not be entitled to limit expressly the scope of persons entitled to rely on their reports. Or the range of matters reported on which those entitled could rely on. Rather, I can see every good reason why such limits should be respected. There is no suggestion
that the use of the disclaimer provisions here was anything other than bona fide.44
[82] I find, therefore, that this is a rare instance where it necessary to find, without recourse to trial, that a claim made under the Fair Trading Act 1986 is altogether untenable.
Conclusion
[83] The answer to Issue 3 is, “no”. Rastros’s claim against RealSure under s 9 of
the Fair Trading Act is untenable.
Issue 4: Is the negligent misstatement cause of action against Mr Higgins personally, tenable?
[84] I need write briefly only on this issue.
[85] First, it must I think follow from my conclusions under Issue 2, in relation to RealSure, that no tenable cause of action for negligent misstatement lies against Mr Higgins either. If Rastros is not entitled to rely on the report as against RealSure, nor may it do so against the employee, Mr Higgins.
[86] Secondly, in any event, an employee can only be liable for negligent misstatement where he or she personally assumes responsibility to the recipient of
44 Cf Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 79 ALR 83 (FCA) at
99.
the statement.45 In his written submissions, Mr Robertson submitted that there was, “so far”, no evidence of specific reliance upon Mr Higgins. Given that this is a summary judgment application also, if there were such evidence (or the prospect of it), the Council would need either to have adduced it or raised the reasonable prospect of it being found at trial.46
[87] There is no evidence to suggest either specific reliance on Mr Higgins, or personal assumption of responsibility by him. The evidence, rather, is all to the contrary. Ms Patchett commissioned the report entirely through RealSure, accepting its terms and conditions. RealSure’s name was on every page of the report. Mr Higgins compiled and signed the report, but only on behalf of RealSure, in the following terms:
Martin Higgins ABSNZ IHBC DipBldgCons(RICS) FRICS BOINZ Accredited Building Surveyor No 20075013
Realsure Ltd
Conclusion
[88] The answer to Issue 4 is, “no”. The cause of action against Mr Higgins will be struck out for the first reason stated. Had it not been, then summary judgment instead would have been granted for the second reason.
Issue 5: Is the Fair Trading Act cause of action against Mr Higgins personally, tenable?
[89] I can be brief here also.
[90] First, it again follows that if the claim under the Fair Trading Act against RealSure is struck out, so it must be against Mr Higgins also. This is not a case where it is (or can be) alleged that Mr Higgins made any representation apart from
the report. No extrinsic representation of any kind is pleaded. The observations
45 Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 (CA) at 523 and 528; Body Corporate 202254 v Taylor [2008] NZCA 317, [2009] 2 NZLR 17 at [33].
46 See [24(c)] above.
made at [87] apply here also. There is identity of conduct, and identity of reliance. There must also be identity of outcome.
[91] Secondly, even if that were not the case, I would have followed the approach taken in North Shore City Council v Wightman.47 In that case MacKenzie J considered the position of a building inspector named Beazley, employed by a pre- purchase inspection company. MacKenzie J held that Mr Beazley was not personally liable:
[34] Adopting the broad approach described in Taylor, I do not consider that there is a sufficiently arguable case that Mr Beazley was himself acting “in trade”, as distinct from performing actions in the course of his employer's trade, to justify restoring him to the Tribunal proceedings. For the reasons I have given in considering the negligent misstatement cause of action, I consider that there is no clear indication of an intention that the report should be read as coming from Mr Beazley personally, such as to justify the conclusion that he was himself proffering that report to the recipients as an element of a trade in which he personally was engaged. As the majority in Taylor noted, the only cases in which the broad approach has been applied have involved senior employees, by which it appears that they mean those who have a controlling or senior management function in the company. There is no evidence to suggest that Mr Beazley should properly be regarded as a senior employee. He described himself, in signing the report, as a building surveyor, but did so for and on behalf of the company, his employer. Expertise as a surveyor is not sufficient to indicate such a degree of involvement in the governance or management of the company to render Mr Beazley a senior employee in the sense in which that term is used, in the light of the cases discussed in Taylor. There is nothing in the report that indicates that Mr Beazley was making personal representations as distinct from representations on behalf of the company which had undertaken the responsibility.
[92] The Council says that Wightman was wrongly decided, and inconsistent with the decision of the majority in Body Corporate 202254 v Taylor.48 I disagree. Mr Taylor, the employee to whom s 9 liability might attach, was in fact the owner and director of a number of now-defunct development companies. As William Young P and Arnold J made clear at [71] and [74] of their judgment (forming the majority of the majority, so to speak; Chambers J agreed with this aspect of their reasoning), it was Mr Taylor’s occupation as a “director or senior employee” of the companies that drew attribution of the promotional material complained of to him.
The approach taken in Wightman was also taken by McGechan J in Cornfields Ltd v
47 North Shore City Council v Wightman HC Auckland CIV-2010-404-3942, 30 November 2010.
48 Body Corporate 202254 v Taylor [2008] NZCA 317, [2009] 2 NZLR 17.
Gourmet Burger Co Ltd.49 The minority in Taylor (Glazebrook and Ellen France J) seemingly approved that approach, albeit with some reservations.50 For the majority, on the facts, it simply did not arise.
[93] Although the matter was not fully argued before me, there appear to be very few decisions in this country in which s 9 liability is imposed on relatively junior employees. Smythe v Bayleys Real Estate Ltd appears to be a rare instance, involving a misrepresentation made by a mid-level real estate agent.51 Liability there was indirect, based on her knowing participation in her employer’s breach, under s 43(1)(d). In the present case, Mr Higgins is said to be directly liable under s 9.
[94] The approach taken in Wightman and Cornfields appeals to me as a means of ensuring that s 9 is not used to unnecessarily embroil employees in litigation where responsibility properly lies only on their employers. There will be, perhaps, difficult cases at the margin, although the absence of such cases suggests perhaps that the problem will seldom arise. Most times, when the employee should share the employer’s responsibility will probably be easier to identify than describe. However, given my conclusion already at [90], and the absence of fuller argument on the issue, it is unnecessary for me to express a concluded view.
Conclusion
[95] The answer to issue 5 is, “no”. The claim against Mr Higgins under the Fair
Trading Act will also be struck out.
Summary
[96] I have held as follows:
(a) Ms Patchett’s nominated purchaser, Rastros, did not enter a contractual relationship with the building inspector, RealSure.
49 Cornfields Ltd v Gourmet Burger Co Ltd (2000) 9 TCLR 698 (HC).
50 At [117]–[118].
51 Smythe v Bayleys Real Estate Ltd (1993) 5 TCLR 454 (HC). In Australia two mid-level web developers were held liable under the equivalent of s 9: Houghton v Arms (2006) 225 CLR 553 (HCA). It does not seem to have produced a rash of like cases, however. Probably for obvious, economic reasons.
(b)RealSure did not owe Rastros a duty of care in tort. That is because the limits in RealSure’s contract with Ms Patchett were known to Rastros. They made the pre-purchase report confidential to Ms Patchett, and precluded any reliance by third parties – including Rastros. It follows, first, that RealSure assumed no responsibility for Rastros if it ignored those prohibitions. Secondly, that reliance by Rastros on the report was not reasonable.
(c) The disclaimer clauses in the contract, referenced and repeated in the report, also meant that a reasonable person in Rastros’s position could not have been misled by the report into concluding that the property was satisfactorily weathertight. An additional condition of the contract – and report – made clear that a further specialist report would be required for any such assurance to be inferred. Rastros could not, therefore, reasonably rely on the report therefor. Nor could it found a claim under s 9 of the Fair Trading Act 1986 based on alleged failure to identify weathertightness defects.
(d)The same conclusions applied also to the materially identical claims brought personally against RealSure’s employee, Mr Higgins. In addition there was no evidence of personal (as opposed to corporate) assumption of responsibility by Mr Higgins to Rastros, and he made no representations to anyone beyond the highly qualified terms of the
report itself.
Result
[97] The third party claims are struck out.
[98] The third parties are entitled to costs on their application, on a category 2 band B basis.
Solicitors:
Minter Ellison Rudd Watts, Wellington for Third Parties
Heaney & Partners, Auckland for Fifth Defendant
Stephen Kós J
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