Commerce Commission v Carter Holt Harvey Ltd HC Auckland CIV 2006-404-6595
[2007] NZHC 1799
•7 June 2007
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2006-404-6595
BETWEEN COMMERCE COMMISSION Plaintiff
AND CARTER HOLT HARVEY LIMITED Defendant
Hearing: 17, 18 April 2007
Appearances: A Galbraith QC, JCL Dixon and M Gatland for Plaintiff
R Simpson and J Cooper for Defendant
Judgment: 7 June 2007 at 3:30 pm
JUDGMENT OF ASHER J
This judgment was delivered by me on 7 June, 2007 at 3:30 pm pursuant to Rule 540(4) of the High Court Rules
………………………………………..
Registrar/Deputy Registrar
………………………………………..
Date
Solicitors:
Meredith Connell, PO Box 2213 Auckland (D Marshall) Bell Gully, PO Box 4199 Auckland (R Simpson/J Cooper) Copy:
AR Galbraith QC, PO Box 4338 Shortland Street Auckland
COMMERCE COMMISSION V CARTER HOLT HARVEY LTD HC AK CIV 2006-404-6595 7 June 2007
Table of Contents
Paragraph Number
Introduction [1]
The claim [4]
The nature of proceedings under s 43 of the Fair Trading
Act
[7]
Principles applicable to a strike out application [12]
The ground that the proceeding was wrongly brought as a class action
[17]
The words of s 43(1) [18] Parliamentary debates [23] Other class action provisions [28] Relevant cases [31] Res judicata [40]
New Zealand Bill of Rights Act [41]
Conclusion as to whether the Fair Trading Act permits class actions
Application of conclusion to the CHH request for a strike out order
[43]
[46]
General conclusion [53]
The ground that the proceedings were filed outside the limitation period
[56]
When did time stop running? [60]
The meaning of “likelihood” [64]
Whose knowledge is relevant? [66]
Meaning of “ought reasonably to have been discovered”
[78]
Application of the test to this case [92] Summary [100] Costs [101] Assignment of Judge [102]
Introduction
[1] Carter Holt Harvey Limited (“CHH”) applies to strike out a claim brought by the Commerce Commission (“the Commission”) under s 43 of the Fair Trading Act 1986. The Commission alleges that CHH misled the public in marketing timber under the quality specification of “MGP-10” when the timber was not in fact of MGP-10 quality.
[2] On 12 October 2006 CHH pleaded guilty in the Auckland District Court to twenty charges laid under s 10 of the Fair Trading Act relating to the marketing of that timber. It was fined $900,000. These proceedings were filed shortly afterwards, on 27 October 2006.
[3] In these proceedings CHH does not dispute that the timber failed to meet the standards required for MGP-10 timber. However, it applies to strike out the statement of claim on two grounds. First, it claims that the Commission’s claim for the period of 3 May 1998 to 29 October 2003, save for the last three days, is time barred. It relies specifically on s 43(5) of the Fair Trading Act, which sets a three- year time limit on orders sought pursuant to that section. Second, it claims that the proceedings are prejudicial and an abuse of process because they involve a class action in which:
a) the identities of the members of the class are not disclosed;
b) the members of the class have not consented to the Commission bringing claims on their behalf;
c) there is no safeguard to prevent a defendant facing further claims by individual members of the class; and
d)the issues of law and fact which are not common to all members of the class will overwhelm the common issues.
The claim
[4] The Commission’s statement of claim sets out the background to the marketing of the MGP-10 timber in detail. It asserts that end users paid more than they otherwise would have if they had been correctly informed about the actual quality and characteristics of the timber, and that competitors unable to compete on price with the wrongly labelled MGP-10 timber suffered loss from reduced prices and market share foregone.
[5] The causes of action themselves are set out briefly. The first cause of action pleads misleading and deceptive conduct in contravention of s 10 of the Fair Trading Act. The second cause of action pleads false or misleading representations in contravention of s 13(a) of the Fair Trading Act. To prove the claim, the Commission pleads and relies on the CHH guilty pleas in the Auckland District Court to the twenty charges. Under s 46 of the Fair Trading Act, the finding of any fact made in proceedings under s 40 for engaging in misleading and deceptive conduct is prima facie evidence of that fact.
[6] The prayers for relief seek orders refunding to end users the difference in price between what each end user paid for CHH’s MGP-10 timber and the fair market value of such timber, and an order that CHH pay to its competitors the amount of the lost profit suffered by each.
The nature of proceedings under s 43 of the Fair Trading Act
[7] Part 1 of the Act contains the provisions proscribing misleading and deceptive conduct, false representations and unfair practices. Part 5 deals with enforcement and remedies and includes a sub-section headed “Civil Proceedings”. Section 43, the section under which these proceedings are brought, is under that heading. Section 43(1) reads as follows:
43 Other orders
(1) Where, in any proceedings under this Part of this Act, or on the application of any person, the Court finds that a person, whether or not that person is a party to the proceedings, has suffered, or is likely
to suffer, loss or damage by conduct of any other person that constitutes or would constitute—
(a) A contravention of any of the provisions of Parts 1 to 4 of this Act; or
(b) Aiding, abetting, counselling, or procuring the contravention of such a provision; or
(c) Inducing by threats, promises, or otherwise the contravention of such a provision; or
(d) Being in any way directly or indirectly knowingly concerned in, or party to, the contravention of such a provision; or
(e) Conspiring with any other person in the contravention of such a provision—
the Court may (whether or not it grants an injunction or makes any other order under this Part of this Act) make all or any of the orders referred to in subsection (2) of this section.
The purpose of s 43 is therefore to provide remedies for persons who have suffered loss as a consequence of breaches of the Fair Trading Act.
[8] In approaching any issues of interpretation of the Act, and in particular s 43, it will be necessary to bear in mind the fact that this is consumer protection legislation, whose provisions must be construed in a manner which enables that purpose to be achieved. In Goldsbro v Walker [1993] 1 NZLR 394 Richardson J said at 403-404:
But it is not to be expected in policy terms that, when exercising its statutory powers under s 43 and in deciding what, if any, remedy is appropriate in the circumstances, the Court should apply conventional common law rules relating to traditional causes of action.
…
The Fair Trading Act is important economic and social legislation. In exercising the powers under the statute it is a matter of doing justice to the parties in the circumstances of the particular case and in terms of the policy of the Act.
[9] The issue of the grant of discretionary remedies under s 43 commonly arises at the conclusion of the criminal proceedings, without there being a separate claim based on s 43. A s 43 claim may arise as part of the criminal proceedings, following the determination of criminal liability. Alternatively, s 43 can arise in civil
proceedings as part of a Fair Trading Act claim, as the basis on which damages are sought, as in Goldsbro v Walker.
[10] Section 43 does not provide any automatic entitlement to damages for those who have suffered loss as a consequence of misleading and deceptive conduct. Rather, the section creates a discretion whereby the Court under s 43(2) may make a number of orders, including an order under s 43(2)(d) directing the person who engaged in the prohibited conduct to pay to the person who suffered the loss or damage the amount of the loss or damage.
[11] Section 43(3) states that the District Court limit of $200,000 applies to any order made under s 43(2). This has created the unusual feature of these proceedings, which is that they are not, as is usual, an ancillary claim brought as part of substantive criminal or civil proceedings where guilt or liability is the first issue to be determined. Rather, because the claims are in excess of the $200,000 limit, the Commerce Commission has brought a separate claim in the High Court following CHH’s guilty plea in the District Court for losses suffered from the misleading and deceptive conduct.
Principles applicable to a strike out application
[12] Rule 186 of the High Court Rules provides:
186 Striking out pleading
Without prejudice to the inherent jurisdiction of the Court in that regard, where a pleading—
(a) Discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; or
(b) Is likely to cause prejudice, embarrassment, or delay in the proceeding; or
(c) Is otherwise an abuse of the process of the Court.
the Court may at any stage of the proceeding, on such terms as it thinks fit, order that the whole or any part of the pleading be struck out.
[13] CHH’s application to strike out the Commission’s claim relies on the second and third limbs of r 186. The first ground, that the proceeding is time barred, is put
forward on the basis that the proceeding is an abuse of the process of the Court. The second ground, objecting to the class action nature of the proceedings, is put forward on the basis that the proceeding is an abuse of the process of the Court, and also that it is likely to cause prejudice, embarrassment or delay in the proceeding.
[14] The categories of abuse of process are not closed. They include uses of Court processes which are manifestly unfair, or which would bring the administration of justice into disrepute: Hunter v Chief Constable of the West Midlands Police [1982] AC 529, quoted in Lai v Chamberlains [2007] 2 NZLR 7 (SC) at [61]. If a strike out order can be made early in the proceedings because the matter is very clear, unnecessary loss of time and resources is avoided.
[15] Applications under the first limb of r 186 are seldom assisted by affidavit evidence, as the issue of whether there is a cause of action is approached on the basis that the pleaded allegations are correct. When applications are brought under the second and third limbs of r 186, however, it is acceptable to support the applications by affidavit evidence, if it is uncontroversial, as it may be necessary to establish facts to prove the basis of the claim of prejudice or abuse: Murray v Morel & Co. Ltd [2006] 2 NZLR 366 (CA) at [62]. However, contested affidavit evidence will be of little assistance where there is a credible dispute, as a strike out application does not provide any opportunity to test disputed matters of fact. In the end the Court must be entirely satisfied that on the basis of one of the three limbs, the cause of action is so clearly untenable that it cannot possibly succeed. The fact that extensive argument is required to determine the application is not a reason for not considering and granting an application to strike out a pleading: Hetherington v Faudet [1989] 2 NZLR 224 at
227; Attorney General v Body Corporate 200200 [2007] 1 NZLR 95 at 109.
[16] In this application, it is more logical to deal with the objection to the class action nature of the proceeding first, as this involves the more general overview of the nature and purpose of s 43.
The ground that the proceeding was wrongly brought as a class action
[17] CHH submits that true class actions are not permitted by s 43, and for that reason the claim is an abuse of process or likely to cause prejudice or embarrassment and should be struck out. The Commerce Commission has in response not sought to justify the claim as a true class action, but submits that it is permissible for it to issue the proceedings with the individual claimants unnamed. It says it will supply the names later in the proceedings after an initial preliminary hearing that it will seek under r 418 of the High Court Rules. That hearing would relate to whether, as a general proposition, losses have been suffered in relation to a price difference between the market price of the products and what purchasers would have paid.
The words of s 43(1)
[18] Section 43 specifically contemplates a proceeding being brought by “any person” even where that person has not suffered, or is not likely to suffer, loss or damage from the breach. That it was the intention of the legislation to allow the Court to consider such claims for relief by persons who had not suffered the actual loss was made clear by the speech of the chairman of the select committee to consider the Fair Trading Bill and amend 38 of the Bill (which became s 43), to which I will later refer. The point is not contested by CHH. The Commerce Commission, and indeed any party including a private individual, may bring an action on behalf of others under s 43.
[19] It is the essential submission by CHH on this aspect of the application that while actions on behalf of named and consenting third parties are permitted, true class actions in the sense of actions brought by a third party on behalf of a general unspecified group of persons identified only by class, are not permitted.
[20] Regrettably s 43 itself is worded very generally, and offers little specific guidance on the type of action that is contemplated. The requirements of the section are:
a) a proceeding under Part 5, or an application by any person;
b) a person who has suffered or is likely to suffer loss or damage
(whether or not a party); and
c) damage caused by the conduct of any other person as defined.
There is no statement as to how the persons who have suffered or are likely to suffer the loss, are to be identified, if at all.
[21] However, the mechanics set out in s 43 give some indication. The order under s 43(1) can only arise when the Court finds that a person “has suffered or is likely to suffer loss”. Section 43(2) refers to refunding money or paying money to “the person who has suffered the loss or damage” in s 43(2)(c), (d) and (e). The Court will not be able to order that the sum be paid to the person who has suffered the loss or damage without knowing specifically who that person is. This language is therefore inconsistent with true class actions, where the members of the class are, when the case is heard, unidentified and potentially indeterminate. The fact that the word “person” includes the plural “persons” under s 33 of the Interpretation Act 1999 cannot affect the plain meaning of the section.
[22] Further, there is nothing in the words of s 43 to indicate that identification only by class would be sufficient. It could be expected as a matter of common sense that if true class actions were contemplated, that this might have been stated specifically. Indeed, it could be expected that if true class actions were contemplated, there would be some detailed provision as to the basis upon which such actions could be brought. Further, it is highly unlikely that Parliament intended to give “any person” and thus any individual, even if disaffected or obsessive, the right to bring a class action. If class actions were envisaged, it could be expected that the right to bring them would be limited to the Commission or some other body that had a particular public status.
Parliamentary debates
[23] I have not been referred to any New Zealand decision that is determinative of the issue of whether the Commission can bring true class actions under s 43. Given
the absence of any explicit reference to class actions in the statute, and the open nature of the wording of s 43(1), it is appropriate to consider the parliamentary debates (Hansard).
[24] When the Fair Trading Bill was initially introduced to the House on
1 July 1986, it was stated by the chair of the Commerce and Marketing Committee at (1 July 1986) 472 NZPD 2499-2750 that clause 38 (which became s 43) constituted a significant and important advance in bringing remedies to consumers in cases where those remedies would not otherwise be realistically available. It would not just be the Commerce Commission, but also other groups, who could seek redress on behalf of others.
[25] When the Bill came back before the House on its second reading, it was stated by the chair of the Commerce and Marketing Committee at (31 July 1986) 473
NZPD 3289:
The Government has made a relatively straightforward change to the legislation. Even though a person may not have been party to the upset or the offence he will be able to take an action on behalf of the named people who were affected. The people with a $100 or $200 upset caused to them will be able to be joined by others, and have all their names presented before a court, and have a case taken on their behalf. Because it will be a collective action, the evidence will be collected once to provide evidence of the case. It will ensure that those people will get redress for their grievance. That is an importance change, which the member for Whangarei did not mention. There will always be people who will go to their graves feeling that an injustice has been done to them, even though the matter may have concerned only several hundred dollars. The Bill will give them right of redress.
[emphasis added]
[26] It was also stated in the same debate by the Minister of Consumer Affairs at
(31 July 1986) 473 NZPD 3285:
Clause 38 provides a list of orders that the courts or small claims tribunals can make in favour of a person affected by conduct that infringes the Bill. The select committee has made an important amendment to the clause, which will have tremendous benefits when several consumers are affected by similar actions of one trader. The clause now provides that the court can make orders in favour of any person affected, whether or not that person is a party to the proceedings before it, provided the person is named. That important improvement in the provision will result in a reduction of
individual litigation, and will bring the Bill’s remedies within the reach of many more consumers.
[emphasis added]
[27] These statements indicate a clear legislative intention that s 43 should only be used to provide remedies to persons who are actually named. This would preclude true class actions, where the persons are not named but are rather identified by category or class name. Thus the commentaries in the Hansard debates indicate an intention to provide in s 43(1) only for claims by named persons, and not true class actions.
Other class action provisions
[28] Section 92B(2) of the Human Rights Act 1993 expressly allows the Human Rights Commission to bring proceedings “on behalf of the class of persons” affected by a discriminatory practice. However, this is explicitly stated in the section. Section 92B also imposed three conditions that must be satisfied in order to bring a class action, which provide a constraint on and give a form to the process. The class is limited by the fact that s 92B(2)(b) requires the Human Rights Commission to obtain the agreement of the person on whose behalf a claim is brought.
[29] Another example of a statutory right to bring a class action is s 50(3) of the Health and Disability Commissioner Act 1994. It permits the Director of Proceedings to “bring proceedings on behalf of a class of persons” and seek a remedy. Again, it is stated that there is a power to bring proceedings on behalf of the class. Surprisingly there are no detailed provisions relating to this type of class action.
[30] These sections specifically refer to the right to bring “class actions.” It is likely that the Legislature would have used the same sort of words if true class actions were to be permitted under s 43(1).
Relevant cases
[31] It is necessary to consider the relevant case law, although I have not been referred to any case determinative of the issue. In Commerce Commission v Alpha Club New Zealand Ltd & Ors HC AK M 404/2216/99 11 October 2002, O’Regan J ordered relief in favour of a class of unidentified persons. This order was made in relation to members of a club who were not at the time of the Judgment identified. However, at [56] O’Regan J stated that he did not consider it appropriate to make final orders in respect of unidentified claimants. He invited the Commission to make a further application for orders under s 43 explaining what steps should be taken to identify members who joined the club, and how any disputed claims would be determined. The issue of whether s 43 permitted class actions was not addressed.
[32] In Commerce Commission v Martini Ltd (no file number) DC North Shore
8 November 2005, Judge Wilson made an order for a refund to purchasers who had bought the “worthless” product. The fund was to be administered by a firm of accountants, which would advertise for purchasers to come forward to claim the refund. These orders were made following the entry of pleas of guilty by the defendants to charges laid under the Fair Trading Act. Despite opposition, orders were made that the fund be set up and administered by a firm of accountants. Consumers who could establish that they had purchased the product could receive refunds from that fund.
[33] Although the orders made in the District Court were contested on appeal in the High Court in O’Neill v Commerce Commission HC AK CRI-2005-404-411 and
-413 24 November 2006, Clifford J, no broad issue was taken in relation to the availability of class actions. It was, however, asserted that refund orders ought not to have been made in respect of customers who had made no complaint or in respect of whom no evidence of actual loss had been represented. That submission was rejected. It was held at [70]:
To the extent that the appellants’ records do not provide that information, the scheme of the order sets out a method by which it may be obtained. Beyond that, and at the time of the application for the orders, I do not think that s 43 envisages that the Commission must produce evidence of an actual complaint or of actual loss by particular complainants.
[emphasis added]
[34] It is also to be noted that the decision in O’Neill v Commerce Commission was made without argument as to the general proposition as to whether class actions were permissible. The High Court statement that no evidence of actual complaints is required was limited to the time of the application for the orders, as distinct from the time of the making of the orders. It appears to have been envisaged that at some stage, actual identification must occur. I am informed that leave to appeal has been obtained in O’Neill v Commerce Commission but the appeal is not as yet determined.
[35] The High Court relied on the Court of Appeal decision of Pepi Holdings Ltd v BMW NZ Ltd CA22/97 25 August 1997. In that case an order for an inquiry into the damage suffered by named purchasers of 13 BMWs was upheld. That was not a true class action case, as the transactions involving the 13 vehicles were each separately pleaded and the purchaser of each was identified. Pepi Holdings is not authority then for the proposition that true class actions can be brought under the Fair Trading Act on behalf of persons identified by a definition rather than individually.
[36] In PC Brixton Autos Ltd v Commerce Commission (1990) 3 TCLR 558, it was held at 566:
If an order is sought under s 43 of the Act, then the prosecuting authority must produce evidence before the Court which will enable the Court reasonably accurately to assess the loss or damage suffered by the injured person.
This necessarily involved identification of the relevant person. In that case, following criminal proceedings, a specific s 43 order was made in favour of a named person who had suffered loss.
[37] I also note that in Commerce Commission v Ecoworld NZ Ltd [2005] DCR
921, where the Commission obtained orders under s 43(2)(c) for refunds made to the purchasers of a water treatment unit, the individual consumers on behalf of whom refunds were sought gave evidence of their entitlement to refunds and had consented to the Commission bringing applications on their behalf.
[38] These cases on overview might be seen as giving some support to the proposition that class actions for unidentified persons can be initiated by the Commerce Commission. However, none involves a detailed consideration of the issue. Apart from the District Court decision in Commerce Commission v Martini Ltd, they appear to assume the need for individual claimants to be identified, at least before the conclusion of the proceedings. This is not surprising given that s 43(2) contemplates orders in favour of specific persons who have suffered loss or damage.
[39] As a further point, Mr Simpson suggested that r 78 of the High Court Rules applies to this action. That is the rule which governs representative actions, and if it applied, would exclude class actions. However, as Mr Simpson himself pointed out, r 78 is concerned with persons who have the “same interest in the subject matter” of the action. Here the Commission does not have the same interest as those who have suffered loss. Its interest is as a regulator, with a government-imposed function. I do not consider that r 78 applies, and it is not of assistance by analogy, as it deals with an entirely different circumstance.
Res judicata
[40] It is submitted for CHH that the doctrine of res judicata could operate unfairly to CHH if proceedings were allowed where the persons suffering loss were not specified. This is because there would be uncertainty as to who in the class was bound by any final decision. I do not, however, consider res judicata to give rise to any particular considerations in favour of the application to strike out. If the person suffering loss must be specified by the plaintiff before the proceedings are heard, the position as to res judicata is no different from that which arises when any claim is brought on behalf of specified plaintiffs. Res judicata would apply in respect of those named. The doctrine does not assist in resolving the issue before this Court.
New Zealand Bill of Rights Act
[41] Natural justice issues would arise if a person could be sued by indeterminate persons for indeterminate amounts. Section 27 of the New Zealand Bill of Rights Act 1990 (“the Bill of Rights”) provides that all New Zealand persons have a right to
natural justice. This extends to legal as well as natural persons: s 29. A person has the right to know the case against him or her and to have the proper opportunity to answer it. Consistent with this, if a claim is made, a defendant is normally entitled to the full particulars of that claim pursuant to the High Court Rules.
[42] Here the statement of claim asserts that end users and competitors have suffered losses. It would normally follow that particulars of those losses could be obtained by a defendant. If the potential claimants are unnamed throughout, such particulars would be obtained. By virtue of s 6 of the Bill of Rights I must construe s 43 in a manner consistent with the right to natural justice in s 27. A true class action where the claimants are unidentified at the time of trial may defeat the right to particulars of the claim and thus to natural justice.
Conclusion as to whether the Fair Trading Act permits class actions
[43] The starting point is the actual words of s 43(1) and (2), which indicate that the claims must be for specific persons who have suffered specific losses. The parliamentary debates reveal a clear legislative intention not to create in s 43 a right to bring true class actions. The specific emphasis on the persons being named is entirely contrary to the concept of a class action, which involves a case being brought by a third party on behalf of persons who are not named, but rather identified by class. The lack of any reference in s 43 to a class action (in contrast to the class action provisions in the Human Rights Act 1993 and the Health and Disability Commissioner Act 1994) supports an interpretation that the absence of words authorising class actions is significant. Further, s 5 of the Bill of Rights supports such a construction.
[44] I therefore conclude that true class actions, where a third can party bring a claim and obtain orders for the benefit of an indeterminate group of persons identified only by class, are not permitted by s 43(1).
[45] In doing so I uphold a CHH submission to this effect, which is part of its broader submission in support of the strike out application, that in the Commerce
Commission statement of claim all possible claimants should have been identified at the outset of proceedings and must consent to the claim.
Application of conclusion to the CHH request for a strike out order
[46] However, there is good reason for the Commerce Commission or another person prosecuting an action against an alleged infringer of the Fair Trading Act litigation to not be required at the outset of proceedings to list all possible persons who have suffered loss. It would impose an impossible burden and waste considerable resources if the Commerce Commission or other person had to name all possible claimants at the outset of proceedings. The exercise in cases such as this could be complex and expensive, and if the substantive proceedings fail, it will have been all in vain. It may make more sense for that exercise to be carried out following a conclusion being reached on whether there are any losses resulting from a price differential in a r 418 hearing, but nevertheless prior to the final hearing. However, that is a matter for another hearing.
[47] In the successful prosecution brought against CHH in the District Court proceeding it would have been impractical to name those who might have suffered loss at the outset given the level of investigation that will be required. As I have stated, this case is different, and somewhat unusual, because the s 43 claim has not been dealt with in the District Court at the conclusion of the criminal proceedings because of the jurisdictional restriction of the District Court to claims of $200,000. Rather, new proceedings had to be issued in the High Court by way of a statement of claim. Thus, instead of the loss claims being raised in the months following the conviction in the District Court, they were raised by way of a filing of a statement of claim in this Court.
[48] That procedural difference should not disguise the true nature of the proceedings. They are for loss claims on behalf of others who now, following the convictions, will have to be ascertained. That is a natural and legitimate step which will have to take place. It did not need to occur before the convictions. That would have been impracticable and possibly premature. Nor does it have to occur before High Court proceedings are issued claiming for losses. It was appropriate to initiate
that s 43 claim promptly following the convictions. For the Commerce Commission to have at that point endeavoured to ascertain all those that would suffer loss and the quantum of that loss, could have greatly delayed the issue of the proceedings, and was not in my view necessary. It was sensible for the Commerce Commission to initiate its s 43 claim without delay following the convictions, despite the fact that the persons who had suffered loss were not ascertained.
[49] I do not consider that s 43(1) imposes any procedural requirement on the Commerce Commission or any party bringing proceedings on behalf of others to list at the outset all persons on whose behalf a claim would be made and the amount of that claim, or, for that matter, to obtain the consent of such possible claimants. The section, as noted, does not specify any such requirement. The speakers in the parliamentary debates, while clearly envisaging that the claims in the end would have to be on behalf of specific named persons, did not indicate that such persons had to be named at the commencement of proceedings. Such a requirement would not appear to be in accord with the remedial nature of s 43(1). The Fair Trading Act is consumer protection litigation with an important economic and social function. Such a rigid procedural requirement would be inconsistent with a purposive interpretation of the section. It would also be inconsistent with the approach the Courts adopted in the Alpha and Martini/O’Neill litigation, where identification at the second stage of the proceedings rather than at the outset was contemplated.
[50] I accept, however, Mr Simpson’s submission on behalf of CHH that the Court’s procedure must be fair to a defendant. As stated earlier, a defendant to Fair Trading Act proceedings, as much as any proceedings, has a right to the application of the principles of natural justice in terms of s 27(1) of the New Zealand Bill of Rights Act 1990. CHH must be able to know the case or cases against it, even if they involve claims of only a few hundred dollars by many individual members of a large group of claimants. Such individual claimants need to be fairly identified and their claims quantified to give the defendant the appropriate opportunity to explore the claims. Only thus will a party’s right to know the case against it be met. It may be that in this case, the product while being wrongly labelled, had real value, and there were in the end no losses suffered. There may be issues as to whether there has been any loss at all in respect of certain users. CHH must be able to explore these
matters, and it can only do so fairly if it knows the individual claimants and the amounts claimed.
[51] Therefore, at a certain stage the Commission will have to provide particulars of the persons on whose behalf it is claiming, and the amounts of those claims. That will be an onerous task, but in proceedings like this it cannot be avoided. There is no point in bringing a claim for a person who cannot be identified after reasonable enquiry, as there could be no basis for a Court under s 43 to order a payment to a notional unidentified person. At the very least, fairness dictates that CHH should know such details of the claims it faces in comfortable time before the hearing.
[52] These are all issues that can be raised within a reasonable timeframe leading up to the hearing. Obviously indefinite delay in naming the persons on whose behalf a claim is made would not be acceptable. It will all come down to the particular circumstances and what is reasonable in those circumstances. It is not necessary to rule at this stage on whether proof that those persons consent to the claims on their behalf has to be provided before trial. However, I am by no means certain that this matter will require a Court resolution, as the persons ultimately identified will have to provide details of loss, and co-operate with the Commission, so it is likely that all the parties identified will have consented to being involved before the claim is determined.
General conclusion
[53] I conclude that the Commerce Commission has not abused procedure or acted in a way likely to cause prejudice, embarrassment or delay in the proceeding by issuing the proceedings without yet naming the persons on whose behalf the claim is made or specifying the amounts claimed. I note in particular that Mr Galbraith QC for the Commission appeared to accept that in due course the individual parties on whose behalf a claim was made would have to be named and the amounts claimed would have to be specified. He has indicated that the Commission may well seek an order under r 418 of the High Court Rules for a preliminary decision on the initial question of whether there was a difference between the market price for the MGP-10 timber as sold by CHH, and the price
purchasers would have paid had they known the true quality and characteristics of the timber. He has indicated that only if there is a determination in the Commission’s favour of this issue would the Commission wish to carry on with the proceeding and thus provide the specific information. In that circumstance it would provide the details in the lead-up to the second hearing.
[54] I do not propose making any comment on this suggestion. No r 418 application has been brought at this stage (although a draft application was provided during submissions). If an r 418 application is made it will have to be heard on its own merits. I also express no view on whether if there is such a r 418 hearing, it is fair to CHH to leave the naming of the individual persons on whose behalf a claim is made and the specification of the amount of their claims until after that first stage.
[55] I do, however, decline to make an order striking out the proceedings on the basis of non-disclosure of the identities of the persons on whose behalf a claim is made, and the absence of any consents on their behalf. CHH fails on this aspect of its claim. CHH is however free to make interlocutory applications seeking orders to clarify the deficiencies it perceives in the existing proceeding, although I would hope that the Commission would act promptly to meet its concerns without the need for further formal steps.
The ground that the proceedings were filed outside the limitation period
[56] CHH submits that the Commission discovered or should reasonably have discovered the loss or damage before 27 October 2003 when the charges were laid, which was over three years before these proceedings were issued, so the Commission’s proceedings are therefore out of time.
[57] Section 43 of the Fair Trading Act specifically provides for a limitation period. Section 43(5) provides:
An application under subsection (1) may be made at any time within 3 years after the date on which the loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered.
The limitation period is, then, three years, computed from the time when the loss or damage or likelihood of loss or damage was actually discovered, or alternatively from when it ought reasonably to have been discovered.
[58] This section as it presently reads was amended by the Fair Trading
Amendment Act 2001. The original s 43(5) read:
An application under sub-section (1) of this section may be made at any time within 3 years from the time when the matter giving rise to the application occurred.
[59] I approach the limitation issue from the perspective that s 43 is a remedial section. It aims to give relief to members of the public who have suffered loss. By setting a time limit, the limitation provision seeks to strike a balance between giving a person who has suffered loss under the Act a reasonable period of time to seek redress, and giving a defendant freedom to move on from wrong doing and not suffer exposure to claims for unfairly long periods: Murray v Eliza Jane Holdings Limited (1993) 5 TCLR 272, 279-280.
When did time stop running?
[60] The Commission submitted that the relevant date for stopping time running is the date of filing offence proceedings, so that when those proceedings were filed time stopped running, rather than the date being when these proceedings were filed in the High Court over a year later. If the filing of the offence proceedings stopped time running, then that was within three years of the complaint being received by the Commission, and therefore no limitation issue could arise.
[61] It is clear that it is perfectly permissible for the Court to make s 43 orders at the conclusion of the offence proceedings: Direen v Commerce Commission (1998) 8
TCLR 444. Under s 40(3), those offence proceedings must have been issued within the three year period of the Commission’s discovery of the “matter”, and therefore the Commission’s discovery of any loss. The issue of timing arises starkly here because, unusually, separate proceedings in a different Court have been issued under s 43. Normally the issue of s 43 relief arises at the conclusion of offence proceedings as a part of that proceeding.
[62] I am not, however, ready to accept the Commerce Commission’s argument that the filing of offence proceedings in the District Court stops time running. There are no words in s 43(5) to support such a conclusion. To the contrary, on the plain words of s 43(5) time runs from when the application under s 43(1) is “made.” It was made in this case when these proceedings were issued.
[63] I consider that if the Commission chooses to issue proceedings in the High Court which are entirely separate from the earlier criminal proceedings, the relevant time for determining whether the proceeding is within the three year time limit is the time of the filing of those separate proceedings.
The meaning of “likelihood”
[64] CHH submitted that the phrase “likelihood of loss” in s 43(5) is not limited to meaning the probability of loss in the future. It argued that s 43(5) should be interpreted as stating that the limitation period starts running if the discoverable facts suggest that a breach of the Act was “likely” to have taken place.
[65] I do not consider that the phrase “likelihood of loss” should be given this extended meaning. In its context in s 43(5) the phrase is referring to the knowledge of losses that are “likely” to arise in the future. It makes it clear that s 43(5) applies to those future losses, as well as present losses. It is not intended to set a test as to when potential discoverability starts the time limit. It does not mean “probability” of loss in the present tense, but rather the “probability” of loss in the future. The concept of the present likelihood or probability of loss is covered by another phrase in s 43(5) where it is said that times runs from when the loss or damage was discovered “or ought reasonably to have been discovered”, which is dealt with later in this Judgment.
Whose knowledge is relevant?
[66] Section 43(5) does not state who must discover the loss or damage for the time to start running. The sentence stops at the word “discovered,” and does not indicate by whom. CHH argues that it is the Commission’s knowledge which is
relevant. The Commission argues that it is rather the knowledge of the person for whom a claim is ultimately made, considered on a person by person basis.
[67] The new s 43(5) discovery test appears to have been introduced to provide for some consistency between the common law approach to the commencement of limitation periods and that in the Fair Trading Act. It was stated without demur in the parliament debates by a member of the coalition government, at (4 April 2001)
591 NZPD 8758:
This provision now aligns the consumer protection with general law, as it now stands. The Limitation Act provides that the standard limitation period is 6 years from the date on which the cause of a legal action occurred. The Courts have interpreted that to mean that the standard limitation period is
6 years from the date on which a person discovered the loss or damage, or
should have reasonably have discovered the loss or damage. The Courts have not interpreted the Fair Trading Act to have the same meaning, and, therefore, the Bill now specifies that.
[68] The leading common law case on the initiation of limitation periods is Invercargill City Council v Hamlin [1996] 1 NZLR 513. The discovery which triggered the running of the limitation period, in that case of cracks in a building, was assumed to be that of the “reasonable home owner”. Indeed, unsurprisingly the common law cases all deal with discovery by the person who actually suffers the loss, and not by a third party bringing the action on behalf of others. Usually in such cases, the plaintiff is the person who has suffered the loss so the issue of discovery by others does not arise. It is where there is a statutory regulatory regime as under the Fair Trading Act that ‘on behalf’ actions by regulators occur, and the issue of
‘whose discovery’ arises.
[69] There are formidable arguments for each of the alternative submissions. The words of s 43(5) give no clue as to whose knowledge is the relevant knowledge. CHH argues that the relevant discovery is by the regulator or other person bringing the proceedings even if they are on behalf. The Commerce Commission argues that it can only be the discovery of the person who has actually suffered the loss, and if there are a number of persons on whose behalf the claim is made, then in respect of each individual person who has suffered loss.
[70] On the one hand, it is difficult to contemplate a limitation regime where the start of the limitation period does not focus on the knowledge and actions of the plaintiff. If the focus were on the knowledge or actions of persons who are not the plaintiff but rather on whose behalf the plaintiff is bringing the claim, then the relevant knowledge belongs to a person who has had no direct role in or control over the proceedings. It could mean that the Commission could, outside of the three-year period, decide to start its investigation and advertise so as to alert loss sufferers and prompt their discovery of their losses, and as a consequence initiate proceedings very many years beyond a three-year period. This on its face would appear to be unfair to a defendant. It could be asked, what is the point of a limitation period if a dilatory regulator can ignore it?
[71] On the other hand, if it were only the regulator’s knowledge that was relevant, a person who had suffered loss might have to stand by helplessly while a time limit was allowed to expire, if the control of the issue of proceedings was in the hands of the third party. Section 43 is designed to promote the recovery of losses for those who have suffered as a consequence of breaches of the Act, either by their initiating their own proceedings or having the benefit of proceedings effectively brought on their behalf by a third party, normally a regulator. The emphasis is on the person suffering loss, as I have concluded in the previous section of this judgment. It would appear to somewhat defeat the purpose of s 43 if a person who has suffered loss but does not know it until three years after the regulator knew of it, finds that it is too late for the regulator to bring proceedings because the regulator has done nothing despite its knowledge. The person who has suffered loss will lose the ability to recover it as part of a group through no fault of its own.
[72] It can be observed that there is a distinction in the wording of the limitation provisions in s 40(3) and s 43(5). Both sections now adopt the reasonable discoverability test, but in s 40(3) commencement is from discovery of “the matter” while in s 43(5) time runs from discovery of the “loss or damage”. Section 40 being an offence section can be construed as making time run from the prosecutor’s discovery of the offence, rather than that of a person who may have suffered loss, as it is the prosecutor who has the sole carriage of and responsibility for seeking a conviction and penalty. Section 43, which focuses on civil remedies, is more
personal. It focuses throughout on the loss suffered by the competitor or consumer. The loss suffered, as opposed to the fact an offence was committed, will be a matter known generally by the individual who has suffered the loss rather than the regulator or a third party. The difference in the wording of the two sections signals that it is the discovery by the particular loss sufferer that is relevant in s 43, rather than discovery by the third party.
[73] It can also be observed that if the relevant discovery were the discovery of the third party bringing the particular proceedings, any third parties who had no previous knowledge of the loss could be used as a convenient plaintiff to bring the claim on behalf of the loss sufferers. Indeed this could take place many years after the loss sufferers had suffered their loss, as long as the third party plaintiff had only learned of the loss within three years of the claim. This possibility demonstrates the artificiality of linking discovery to the mind and actions of the third party, who has not actually suffered the loss. It could lead to the patently absurd result of using a nominal plaintiff chosen for its lack of knowledge as a means of circumventing the limitation period. Given that it is the person who has suffered loss who will benefit from the proceedings, it follows that it is that person’s knowledge which should trigger the start of the limitation period, and not that of some third party.
[74] It is only because the $200,000 jurisdictional threshold has required the issue of the separate proceedings that this issue has arisen in this case. If the claims had been less than $200,000 they would have been dealt with in the District Court. Time would have stopped when the informations were laid and there would now be no limitation issue. Consistent with this being legislation with the social and economic purpose of providing the public with fair redress if they are subjected to unfair and misleading conduct, s 43(5) should be interpreted in a manner that is not mechanical or technical, and focuses on the knowledge of the persons whom s 43 is intended to benefit.
[75] Thus, I conclude that the person whose knowledge is to be examined under s
43(5) is the person who has suffered the loss. In the event of the proceedings being issued by a third party on behalf of the loss sufferers as here, time is not measured from the third party’s discovery, but rather from the loss sufferer’s discovery.
[76] The result of this conclusion is that it is simply premature to rule on any limitation issues. Some of those who may have suffered loss could well be out of time, but this cannot be ruled upon until details of the persons for whom a claim is made are known. For this reason the second ground for strike out cannot succeed.
[77] I will, however, go on to consider whether, if I am wrong in this conclusion and it is discovery by the Commerce Commission that is relevant, these proceedings are out of time.
Meaning of “ought reasonably to have been discovered”
[78] Counsel for the Commerce Commission and CHH disagreed on what was meant by reasonable discovery of loss or damage in s 43(5). Mr Simpson for CHH argued that the correct approach was that time starts to run under the doctrine of reasonable discoverability when a reasonable plaintiff would begin to make investigations which, if properly carried out, would reveal the cause of action. The Commission, in contrast, submitted that the appropriate trigger is not knowledge of circumstances that would lead to a chain of inquiry. More is required. It must be sufficient information that would lead the person to reasonably discover the actual loss or likely future loss.
[79] Mr Simpson in a wide ranging submission relied in particular on three cases. He referred to the approach adopted by the Privy Council in Invercargill City Council v Hamlin. In that case the Board quoted with approval the statement by Templeman LJ in Dennis v Charnwood Borough Council [1983] QB 409 at 420 that time would begin to run if:
[T]he building suffers damage or an event occurs which reveals the breach of duty by the local authority or which would cause a prudent owner/occupier to make investigations which, if properly carried out, would reveal the breach of duty by that local authority.
[emphasis added]
Accordingly, Mr Simpson submitted that time began to run when a reasonable plaintiff began or should have begun to make investigations which, if properly carried out, would have revealed the cause of action. He also relied on Spargo v
North Essex District Health Authority [1997] PIQR 235 at 242 where Brooke LJ
delivering the Judgment of the English Court of Appeal stated:
The plaintiff has the requisite knowledge when she knows enough to make it reasonable for her to begin to investigate whether or not she has a case against the defendant.
He accepted, however, that that statement was made in the context of a different detailed legislative regime.
[80] Mr Simpson also relied on the decision in BP Oil New Zealand Ltd v Ports of Auckland Ltd [2004] 2 NZLR 208. In that case Ports of Auckland had discovered that land had been contaminated. The doctrine applied by Rodney Hansen J in that case was one of “reasonable discoverability”: at [105]. He did not seek to define “reasonable discoverability”. However, he appeared to consider that the required knowledge related to the existence of liability, rather than to the extent of loss: at [112]. He held at [113]:
I am satisfied that until that point arrived, POAL (and the Auckland Harbour Board) had known of the main causes of contamination, had accepted contamination as an inevitable incident of the activities being carried out by the oil companies and were concerned only to ensure that statutory and regulatory standards and safeguards were observed.
[81] CHH also relied on the decision of Allan J in Hook v Gulf Harbour Town Centre Ltd (In Liquidation) HC AK CIV 2002-404-1931 2 March 2007. That was a case that concerned the discovery of the “matter” under the previous incarnation of s 43(5), which in that case was the alleged anti-competitive arrangement. It was held that the discovery of a letter indicating the existence of the agreement which constituted the arrangement was sufficient to trigger the start of the time limit.
[82] The Commission in answer placed particular weight on the decision of S v G [1995] 3 NZLR 681 where it was held that it was the discoverability or reasonable discoverability of psychological damage from which time would run.
[83] I have not found any of these cases of particular assistance. In Hamlin, as was pointed out for the Commerce Commission, the Privy Council stated in the context of a claim in tort that time ran either from the time the home owner actually
became subjectively aware of the damage to the building, or when the Court could infer objective knowledge in the sense of reasonable discoverability because it was so obvious. If anything, the reference to the need for the discovery of the relevant facts to be “obvious” at 526 helps the Commission.
[84] In BP Oil, the issue of discoverability was discoverability of liability rather than discoverability of loss, and in the context of civil claims. This is not a case concerning discovery of liability. In Hook the section in question was s 43(5) in its earlier incarnation prior to the 2000 amendment, where it was discovery of the “matter” that was in issue, rather than discovery of the loss or damage. In S v G there was no indication of a claim before the psychological problems and the causes of it at a much earlier time could be linked, and it was on the discovery of that linking of the two that the Court focussed.
[85] In support of the Commission’s approach, I consider that the wording of s 43(5) in its context, and the history of its 2001 amendment, indicate that it is more that just facts which could lead to a chain of enquiry that is required. The Legislature in 2001 abandoned the wording of “the matter” and replaced it with a reference to “the loss or damage.” Knowledge of the “matter” in the sense of the fact of a contravention of the Act will, as a matter of common sense, generally lead to a chain of enquiry as to possible loss or damage. The knowledge by the Commerce Commission that a defendant has misled the public will always alert it to the possibility of damage, and the possibility that enquiries will ultimately establish that members of the public have suffered loss. The change of the wording from “matter” to “loss or damage” would have been pointless if the test remained unchanged. The new section must mean that something more is required than knowledge of a contravention and a logical chain of enquiry into possible loss. I must interpret the amendment as being for a purpose, and in doing so I conclude that mere knowledge of a matter sufficient to trigger an investigation into likely loss, does not amount to reasonable discovery of loss.
[86] Rather, the Legislature when it referred to loss or damage that ought reasonably to have been discovered in the amended s 43(5), was referring to the knowledge of facts that would indicate loss without significant further investigation
being necessary. A ground for suspicion, even if enough to warrant an investigation, is not enough. In BP Oil Hansen J referred to time not beginning to run until the plaintiff knows “the facts which constituted the cause of action”: at [101]. In s 43(5) the “cause of action” is not the contravention of the Act, but the loss or damage, and there has to be specific knowledge of facts relating to that loss or damage. It is more than the mere knowledge of wrongdoing.
[87] To adapt the words used in a different context in Hamlin at 526, in s 43(5) the question as to reasonable discoverability is whether the facts available were so obvious that the relevant party could conclude without significant further investigation that loss had been suffered.
[88] In this respect the section is to be contrasted with the limitation section relating to offences, at s 40(3) of the Act where it is discovery of “the matter” which is the trigger for time to start running. This is the same as the previous wording of s 43(5), now changed to discovery of “the loss or damage”. The difference between the two tests in the two different sections is for a reason. It is to establish that it is knowledge of facts actually relating to loss, rather than knowledge of an infringement or liability, that is required.
[89] The fact is that there is often a need for a time-consuming and detailed investigation before any reasonable conclusions can be drawn as to the existence of loss. Such investigations in a complex case such as this could take a number of years. This is another reason why I do not think that the mere fact that a chain of enquiry could be initiated should trigger the start of the limitation period. If CHH is right then time could be argued to run for the purposes of s 43 right from the receipt of the first complaint by the Commerce Commission. It could place a very difficult burden on the regulator. The balance that must be struck between protection and compensation of the public and protecting the trader from unreasonably lengthy exposure, would not be achieved by such a conclusion.
[90] Therefore, on the assumption that the relevant knowledge is that of the Commerce Commission, I approach the question of discoverability of loss from the perspective that “ought reasonably to have been discovered” means knowledge of
facts that without significant further investigation would lead the relevant party to the conclusion that loss had been suffered.
[91] I record that I would apply the same approach to the issue of discoverability of the loss by the loss sufferer, which I have previously concluded is the correct interpretation of s 43(5) (see [66]-[76]). However, it is not necessary to take that step and apply the test to the facts in this judgment, as there is no identification of the individual persons who have suffered loss, and no information as to when they suffered loss. That exercise will be for a later day.
Application of the test to this case
[92] I now apply this test, assuming that it is the Commerce Commission’s knowledge that is relevant.
[93] In a strike out application based on a limitation claim, the Court must be satisfied that the only tenable conclusion is that the limitation period has expired. It will be only in the very clearest of cases that a Court will determine limitation questions involving the evaluation of matters of fact: Wardley Australia Ltd v State of Western Australia (1992) 109 ALR 247, 259. I approach the facts from that point of view.
[94] A considerable body of evidence has been put forward as to the state of the Commission’s knowledge through 2002 and 2003 up to the start of the s 43(5) period on 27 October 2003, three years before proceedings issued. On the basis of this evidence, CHH asserts that there was sufficient knowledge to trigger the start of the limitation period on a date early enough to render these proceedings out of time. The Commission resists this proposition and says that its knowledge was insufficient.
[95] I consider there is no doubt at all that there was, by a date before
27 October 2003, sufficient knowledge on the part of the Commission, on the approach of Spargo, to warrant an investigation. Indeed, the Commission was spurred to an investigation by the material it received, that investigation commencing in October 2002.
[96] The state of the Commission’s knowledge is to an extent demonstrated by an affidavit of Mr Theobold, an investigator with the Commission, prepared in mid- October 2003 in support of an application for the issue of a warrant to search CHH’s sawmills. This provides a window into the Commission’s knowledge at the relevant time, three years before the issue of proceedings. Mr Theobold made a number of statements in that affidavit indicating that the Commission had substantial concerns about CHH’s activities. He set out the Commission’s concerns, and gave evidence of advice from a competitor that CHH timber was being marketed as of MGP-10 quality when it was not. He also stated in relation to financial gain, that the Commission’s inquiries had established that there was a substantial financial benefit to be gained by selling timber of an inferior quality as if it was of a higher grade. He set out certain specific differences in the prices that could be obtained. He stated that there was a reasonable suspicion “that a breach of the Act had occurred or is occurring”, and at [42] that he believed that CHH had engaged or was engaging in conduct that “constitutes or may constitute” a contravention of the Act.
[97] However, he also stated (at [45]):
The Commission requires further information to ascertain:
•whether Carter Holt Harvey is in fact engaging in conduct that constitutes or may constitute a contravention of the Act; and if so,
• the nature and extent of any such contravention.
The Commission also seeks independent information that would corroborate information that it has received from informants on a confidential basis and support their FRL test results.
He stated that he believed that documents that could be discovered from searches might prove or would be relevant in establishing breaches of the Act and economic detriment. Indeed, the Commerce Commission asserts that it is still not established whether substantial losses have been suffered, and that is why it seeks the r 418 hearing.
[98] I am unable to conclude from the information produced that the only tenable conclusion is that the Commission had discovered loss or damage, or ought reasonably to have discovered loss or damage, sufficient to warrant the issue of
proceedings, by 27 October 2003. Indeed, I note that CHH denies that there was any loss. That is not to say that such discovery, or a situation where discovery should have reasonably occurred, might not be proven at the trial. Undoubtedly the matter could be explored further by cross-examination of the Commission’s witnesses. However, the high threshold used in strike out proceedings has not been crossed at this point.
[99] Thus, if the relevant test is what the Commission knew, then I am unable to conclude at this stage that it had the requisite knowledge over three years before it issued these proceedings. Therefore, even on that approach, I would not strike out the proceedings. The issue can be pursued by CHH further at trial if it wishes to do so.
Summary
[100] CHH’s application to strike out the Commission’s claim does not succeed. I
decline to make the orders sought.
Costs
[101] The defendant has not succeeded in this application, and in the ordinary event the plaintiff would be entitled to costs, although I have some sympathy for the defendant’s concern about the lack of specificity in the claim, and the difficulty the defendant faces at this stage in meaningful preparation. It may be that costs should be reserved. I do not predetermine the issue, but I hope counsel can reach agreement. If they cannot, the plaintiff is to file written submissions within seven days, and the defendant’s submissions in reply are to be filed within a further seven days. If the parties wish to discuss the issue of the timetable with me, they may arrange a telephone conference.
Assignment of Judge
[102] Counsel have asked that a Judge be assigned to this case. I have referred their request to the List Judge, who makes the decisions on such matters. Counsel
should file memoranda or a consent memorandum setting out the reasons for the request.
…………………………… Asher J
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