GPE Holdings Ltd v BASF New Zealand Ltd HC Auckland CIV 2010-485-183

[2010] NZHC 1382

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2010-485-000183

BETWEENGPE HOLDINGS LIMITED Appellant

ANDBASF NEW ZEALAND LIMITED Respondent

Hearing:         5 May 2010

Counsel:         A R Davie for Appellant

J E McLennan for Respondent

Judgment:      12 May 2010

In accordance with r 11.5 I direct the Registrar to endorse this judgment with the delivery time of 10.00am on the 12th day of May 2010.

RESERVED JUDGMENT OF GENDALL J

[1]      GPE Holdings Limited (GPE) is a property developer which succeeded in a claim  under  the  Fair  Trading  Act  1986  against  the  respondent  (BASF),  in proceedings  brought  in  the  District  Court  at  Wellington.     These  related  to “leaky home” defects in the construction of 90 apartments at Greta Point, Evans Bay, Wellington.  GPE also succeeded in those proceedings as against a contractor who performed the work, namely Tile ‘N Style Limited (TNS).   The appeal does not concern the findings against that company.  The success of GPE as against BASF is based upon the latter being found to have made misleading and deceptive representations regarding the application of a product, produced by BASF, by TNS.

[2]      The  District  Court  judgment  was  that  TNS  as  the  contractor  bore  a

15 per cent share of the liability for damage arising out of the defects.   GPE’s

GPE HOLDINGS LIMITED V BASF NEW ZEALAND LIMITED HC WN CIV-2010-485-000183 [12 May

2010]

responsibility (because of its contributory negligence) was fixed at 45 per cent.  The responsibility of BASF was fixed as a contribution to the damage at 40 per cent, but the judgment reduced it to 10 per cent.  Chief District Court Judge R J Johnson said that was because GPE only pleaded against BASF’s breach of the Fair Trading Act and not other causes of action, whether in contract or negligence, alleging that BASF persuaded GPE that its product was suitable for the task and the consequences of directing TNS to apply the product in the way it did.

[3]      GPE therefore appeals against the decision as to the quantum of the award of damages against BASF.

Background

[4]      GPE  is  a  developer  which  constructed  more  than  90  apartments  at Greta Point, Evans Bay, Wellington.  Each of those apartments was designed by an architect, and had a small deck.  To make it waterproof decks required a membrane to be applied to them.  The specified product was called Butynol.  The respondent BASF  manufactures  an  alternative  product  being  a  spray-on  membrane  called HLM 5000.  It is also designed to create a waterproof barrier.  It is a cheaper product than  Butynol.    An  employee  of  BASF  represented  to  GPE  that  his  company’s product,  namely  HLM 5000  was  used  successfully  overseas  and  was  a  suitable product.   That employee introduced GPE to TNS as the local applicator of the product.  He represented TNS as an approved applicator with high professional work standards.  After a test of HLM 5000 was undertaken, GPE agreed to use the product of BASF.   GPE engaged the applicator TNS to perform the work.   That company applied the membrane, as supplied by BASF, to all decks of the 90 apartments.

[5]      The total cost of all remedial work was said to be $266,396.29, although the actual claim of GPE was fixed at $163,000 on the basis of its expert opinion assessment  of  the  percentage  of  liability  attributable  to  GPE  for  the  resulting damage.

[6]      So  GPE  brought  proceedings  in  the  District  Court  against  both  TNS  as applicator of the membrane intended to waterproof the decks, and against BASF

which supplied the product.   But more significantly, GPE alleged that BASF had wrongly recommended TNS as a skilled trained applicator of its product.   It was alleged against TNS that they were negligent in applying the membrane;  that they had breached an express or implied term of the contract with GPE;  that the product that they applied would be fit for the purpose for which they supplied it;   and in addition, they were in breach of the Fair Trading Act.  As I have said, they were held to be liable in certain respects to the extent of 15 per cent of the damage incurred (representing $39,959.45) and there is no appeal either by them or by GPE in respect of that finding.

[7]      As against BASF, GPE pleaded one cause of action, being a breach of the Fair Trading Act.   It alleged that BASF had engaged in misleading and deceptive conduct by making representations that it had provided TNS with full training as to the application of the waterproofing membrane.  GPE alleged that this representation led to GPE being induced to enter the contracts with TNS and accordingly was responsible for the loss arising from the sub-standard work on the part of TNS.

[8]      There were cross-claims between BASF and TNS, heard together with the claim by GPE, relating to the TNS’ claim against BASF for replacement work and a counter-claim by BASF for unpaid accounts for the value of the membrane supplied. Those separate actions fall by the wayside in consideration of this appeal.

The judgment of the District Court

[9]      GPE succeeded against BASF under ss 9-13 of the Fair Trading Act 1986 (the Act) for misleading and deceptive conduct in making the representations regarding to the qualification and competence of TNS as applicators of the product of  BASF.    Chief Judge  Johnson  found  that  cause  of  action  or  allegation  to  be established.    He  set  out  the  background  facts,  expert  evidence  and  observed, correctly, that leaky homes cases such as this were:

about  determining  what  contribution  the  various  players  made  to  the detected faults.  The way this case was presented was that it was strong on fault finding and alleged causes but very low on assistance to the Court in determining proportionality or percentage contribution on the basis of the pleaded causes.

[10]     On liability the Chief Judge found, in summary, that TNS as applicator was negligent  in three  respects,  through failing to apply  the  membrane  to  sufficient thickness, to flood test the decks, and to seek advice before applying the membrane directly over the joists.   There was no finding against TNS in respect of misrepresentation whether in contract or under the Fair Trading Act.

[11]     Having found the Fair Trading Act cause of action established against BASF for making deceptive representations that TNS had received training as an “approved applicator”, the issue therefore was what award of damages under the Act should be made in favour of GPE.

[12]     In the first part of Chief Judge Johnson’s findings, headed “Discussion on apportionment of responsibility in causes of damage”, his Honour said at [70]:

... in the immediately following discussion the Court identifies on a common sense basis what it sees as the major contributing causes to the damage, free from the constraints of the case as pleaded.

[13]     The Chief Judge said that there was an identifiable responsibility on the part of BASF in that it initiated the chain of events which led to the damage.  It did so recommending to GPE the use of its product for the development in lieu of the design but more expensive Butynol.   He then recorded that BASF also was responsible for advising TNS in the manner in which the product was to be applied. His Honour said at [81]:

The Court has received no assistance in this case as to what proportion BASF should bear in terms of responsibility.  The argument has been an all or nothing one and which GPE and TNS argue the product was unsuitable.

[14]     The Chief Judge went on to say at [86]:

While in this case the Court sees an available finding as being that the product was unsuitable for the task it was given, the evidence goes nowhere near establishing that the product was per se inadequate.  That depends on purpose, situation and application.

[15]     Having  then  considered  the  “case  as  pleaded”,  and  finding  that  BASF

misrepresented  TNS’  qualifications  and  competence  to  GPE  in  breach  of  the

Fair Trading Act, Chief Judge Johnson then turned his mind to the issue of causation from [157]. Earlier in his discussion he had said at [90]-[93]:

[90]     A tortuous/contractual duty to take reasonable care in some respect was not alleged to exist between BASF and GPE at the same stage, although the facts tend to suggest that there was or should be such.   Instead GPE alleges that BASF breached the Fair Trading Act by representing that TNS had been trained, was an applicator of reasonable skill and that its method of application was in accordance with the relevant specifications. It is said that these  representations caused  GPE  to  contract  with  TNS,  which  in  turn caused it to suffer loss.  As pointed out by BASF in its closing submissions, GPE has not claimed that BASF misrepresented that its product would be suitable for the particular use at Greta Point, despite the clear evidence that it was Mr Turner who represented that a single layer would be sufficient.

[91]      GPE has therefore not alleged that BASF directly caused some of the damage, instead claiming that by introducing them to TNS, who in turn caused damage, BASF caused damage to GPE.   That claim is therefore dependent on the Court finding that TNS caused damage.

[92]     The effect of all this is that even if BASF was negligent in some respect during the application phase and that negligence was causative of damage (such as by advising not to use the high build system), GPE cannot recover directly from BASF. Similarly, if the Court finds that BASF and not TNS misrepresented the product as fit for purpose and that was a primary cause of the loss, no recovery from BASF is permitted.

[93]     The most sensible approach in this case is to find whether there is liability on each of the alleged grounds, and consider whether any such liability was causative, before considering overall the contribution of each party to the overall remedial cost and the indemnity claims.

[16]     So in considering the issue of “causation”, which the Chief Judge clearly identified as being relevant, he concluded at [167]:

Did BASF representation cause damage?  Yes, the representations that TNS were applicators of reasonable standard who were experienced in applying BASF products was clearly an important reason behind GPE contracting with TNS, which then caused the damages to the decks.

[17]     Although it appears from that passage at [167] that Chief Judge Johnson concluded that the inducement made to GPE, which led it to contract with TNS, was causative of the damage to the decks generally, the Chief Judge’s later discussion of quantum of damages leaves this issue somewhat uncertain.

[18]     Having found BASF to be liable the Chief Judge turned to the question of causation.  Referring to the well known authority, the approach to be applied in this case was that identified in Bank of New Zealand v New Zealand Guardian Trust Co:[1]

[1] Bank of New Zealand v New Zealand Guardian Trust Co [1999] 1 NZLR 664 (CA) at 688 per

Tipping J. 

The approach of the law to the linked questions of causation and remoteness is influenced by the nature of the wrong which the defendant has committed. If it is a wrong engaging the conscience of the wrongdoer, what has sometimes been called fraud in equity, a stricter approach is justified.  That corresponds with the position when there is fraud in the common law sense, at least as far as some of the more recent authorities are concerned.  In such cases the greater moral turpitude of the wrongdoer supports a restitutionary “but for” approach, at least on a prima facie basis.   But where the wrong amounts in substance to carelessness or breach of contract, the policy considerations underpinning the stricter approach are absent.   Hence, whatever the classification of the relationship, the law approaches the questions of causation and remoteness on a  different and generally less onerous basis;  namely whether there is a sufficient causal nexus and also foreseeability or reasonable contemplation of loss or damage of the kind in suit.

[19]     The  Chief  Judge  found  that  the  failures  on  the  part  of  TNS  caused  the damage but, also, so did the representations of BASF.   The latter was more responsible but entitled to a degree of contribution or indemnity from TNS for its failure to exercise reasonable care and skill.  The Chief Judge fixed the portion of responsibility of GPE for the cost of remedial work at 45 per cent, on the basis that a prudent developer should not have decided to depart from the manufacturer’s specifications without seeking another opinion (beside that of BASF) as to whether the  product  was  a  suitable  membrane.    The  liability  for  BASF  was  fixed  at

40 per cent and that of TNS’, for its negligent application, at 15 per cent.   The Chief Judge described the liability of BASF for responsibility as being “major”. However, the issue at the heart of this appeal is his further findings, at [184]:

But not all of the 40 percent is recoverable because the way the case is pleaded  does  not  allow  it.[2]      What  GPE  cannot  recover  from  BASF  is damages for BASF’s actual major contribution in its part in persuading GPE that HLM 5000 was suitable for the task, and the consequences of directing TNS to apply the membrane in the way it did ....  That unrecoverable amount is 30 percent of the total damage.  BASF is responsible to GPE only for the breach of the Fair Trading Act established, and I fix that figure at 10 percent.

[2] The Judge said at [142] that GPE had not pleaded that BASF represented its product was fit for the intended purpose.

Discussion

[20]It is not entirely clear from the Chief Judge’s decision whether he found that: (a)     The 40 per cent responsibility of BASF for the overall damage arose

from a misrepresentation of the competence of TNS which induced GPE to engage them and to use BASF’s product, together with a misrepresentation as to the suitability of the product as well as negligent advice to the applicator on how to apply the product, but because GPE did not plead those two matters (suitability of product and negligent advice to TNS) – said to be causes of action – the quantum of damages was therefore reduced to 10 per cent;

or

(b)The  misrepresentation  by  BASF  as  to  the  competence  of  TNS, inducing GPE to engage the latter and purchase BASF’s product was a substantial and operative cause of only 10 per cent of the overall damage, so that the two matters of suitability of the product and the negligent advice to TNS were the substantial and operative causes of the other 30 per cent of the overall damage.

[21]     At [184] the Chief Judge states the “unrecoverable amount is 30 per cent of the total damage”.  Therefore, I think the only proper interpretation of his Honour’s decision was that liability on the part of BASF for the damage that arose was

40 per cent but was reduced to 10 per cent because the factors contributing to the damage  were  unpleaded features  of  the suitability  of  the  product  and negligent advice given to TNS (but not to GPE) on matters of application.

[22]     At this point, I am not at all clear how GPE could have had a cause of action in contract against BASF.  GPE had no such relationship with BASF.  The contract for supply of the product was between TNS and BASF.  No doubt that is why GPE did not base a claim in contract against BASF.  And whether GPE could only sue BASF in the tort of negligence if a duty of care existed may be debatable.  Perhaps

BASF  might  have  had  a  further  cause  of  action  based  upon  its  negligent advice/breach of contract to TNS because, in the context of it having persuaded GPE to use that applicator, a duty arose to ensure that TNS was properly supplied and supervised.  But this would be no more than a further pleaded particular of a cause of action under the Act.  That is, the cause of action was pleaded, and the additional BASF/TNS factors were but further particulars.

[23]     What I think the Chief Judge must be taken to mean is that the particular representation of fitness for purpose (although obviously made on the evidence) was not alleged in the pleadings.  Does that matter?  His Honour had earlier held at [132] that GPE had not shown “that the product was defective on the balance of probabilities”, and the established wrongful act was to induce GPE to change its specifications and contract with TNS.

[24]     Much of counsel’s argument in this appeal has related to whether the Court should have invoked r 121 of the District Courts Rules 1992 which enables the Court to achieve what counsel says would be a “fair result between the parties”.   That provides:

121      Unnecessary to ask for general relief

The relief claimed shall be stated specifically, either simply or in the alternative, and it shall not be necessary to ask for general or other relief; but the Court may, if it thinks just, grant any other relief to which the plaintiff may be entitled, notwithstanding that the relief has not been specifically claimed and there is no claim for general or other relief.

[25]     Of  course,  the  relief  claimed,  namely  damages,  was  pleaded.    What  the Chief Judge  was  saying  was  that  if  a  “cause  of  action”  had  not  been  pleaded, notwithstanding evidence supporting it (or at least one part of it), damages could not be awarded.  The cause of action was of course pleaded – breach of the Fair Trading Act through the making of misrepresentations.  Naturally, it is correct that the full particulars of the representations made, or separate causes of action and tort in contract were not pleaded.

[26]     Nevertheless, the case as pleaded succeeded.   Namely, that because of the representations wrongly made by BASF, GPE entered into the contract with the

applicator.   For its part BASF contend that the findings that the representations which caused damage were in terms of those pleaded by GPE.  BASF says that it was those pleadings that it went to Court to answer and it would be unjust and prejudicial for the Court to allow GPE to overcome pleading deficiencies now.  But over the lengthy hearing, it seemed that the allegation relating to the two other particulars was fully on the table, discussed, and sought to be met.  It could not be said that BASF is prejudiced in not knowing what was generally alleged.  Counsel contends that in terms of the judgment the Chief Judge could only find liability against BASF for breaches of the Fair Trading Act established – although, as I will come to later, the issue is really one of causation of damage.  Counsel says that the claim was based under the Fair Trading Act and the Court could not add causes of action in contract or tort.  As I have said these, at least to my mind, would in any event have faced significant conceptual difficulties.

[27]     Despite the emphasis both counsel put upon applying (or not) r 121, and the resistance by BASF to that step because of its claimed prejudice, this appeal can properly be dealt with on the substantive basis.  Resort to r 121 is unnecessary.  So I put that rule to one side.

[28]     The real issue is whether the proper measure of damages awarded to GPE under  s  43  of  the  Fair Trading  Act  should  have  been  fixed  and  based  by  the Chief Judge on his assessed responsibility of BASF for the damage, said to be “major”, at a level of 40 per cent;  and whether he erred by reducing it to 10 per cent for the reasons he gave.  Counsel for BASF says that:

Whilst the Judge may have found 40 percent overall contribution as to damage by BASF, it does not automatically follow from that that BASF was really liable for 40 percent of the overall damage in the absence of pleadings against [it] .... .

So  consideration  of  s  43  of  the  Fair  Trading  Act  1986  and  decided  relevant authorities in New Zealand and elsewhere is required.  So too is consideration of the issue of causation and whether, in this case, questions of “causation” and “contribution” were properly applied in fixing the remedy of damages to be granted for the breach by BASF of the Fair Trading Act.

Fair Trading Act, s 43

[29]     Section 43 of the Fair Trading Act provides a range of civil remedies.  They are available where a person has suffered loss or damage by a defendant’s contravention of any of the provisions of Parts 1 to 4 of that Act.[3]    Relevantly, s 43(2)(d) provides for an order that the defendant pay to the person who suffered the loss or damage the amount of the loss or damage incurred.

[3] s 43(1)(a).

[30]     The Fair Trading Act 1986 was enacted to protect consumers.  Its aim is to ensure  a  consumer  receives  adequate  and  accurate  information.     Before  its enactment, misleading conduct or false misrepresentations in trade had to be dealt with by the common law or the Contractual Remedies Act 1979.   Common law actions that may have been relevant to misleading conduct and included actions such as deceit, injurious falsehood, misrepresentation, negligent misstatement, or passing off.   For there to be an action of negligent mistake there had to be a relationship giving rise to a duty of care and a statement made negligently by a defendant.  The difference under the Fair Trading Act is that it does not require proof of a duty of care or intention or even negligence and it is s 9 that generally creates civil liability.

[31]     In this case there is now no contest that misleading representations were made by BASF “in trade”.   Nor is it now contested that those statements were misleading, deceptive, or perhaps negligently, made.  Nor that GPE acted upon them. Nor that it suffered loss or damage.

[32]     The  critical  issue  is,  was  Chief  Judge  Johnson  right  in  concluding  that because  causes  of  action  in  the  tort  of  negligence  or  contract  had  not  been specifically pleaded (for other particularised acts of BASF), that damages his Honour awarded under the Fair Trading Act cause of action must be reduced?  Having found that BASF’s misrepresentations as to the competency of TNS were in breach of the Fair Trading Act, as they were “clearly an important reason behind GPE contracting with TNS” which ultimately led to the damage to the decks, did BASF’s established breach of the Fair Trading Act have a causative nexus for the loss GPE suffered?

Whilst BASF was identified as being responsible (40 per cent) for that loss should that responsibility have been reduced to 10 per cent?

[33]     The issue had come down to two questions relating to causation.  First, did the wrongful act of BASF in making misrepresentations, which induced GPE to contract with TNS to be its applicator of the product supplied by BASF, cause the loss which occurred to GPE?  Second, if so, what award of damages was required to do justice between GPE and BASF?

[34]     Recent authoritative guidance on causation, and s 43, is provided in the Supreme Court’s decision in Red Eagle Corporation Ltd v Ellis.[4]    There the Court was concerned with a short-term loan, provided by Red Eagle (primarily Mr F) to Ms  B.    That  loan  was  induced  by  a  fraudulent  statement  as  to  the  assets  and liabilities, provided by Ms B, and earlier (honest but mistaken) advice about the same from her business partner (Mr E).  Red Eagle sued Mr E claiming that it was his advice to Mr F that was misleading and deceptive conduct in breach of s 9 of the Fair Trading Act.  Red Eagle sought an order under s 43 for payment of the amount of its loss plus interest.  That claim was successful in the High Court, albeit subject to a finding of 50 per cent contributory negligence.  The High Court decision was overturned on appeal, on the basis that the fraudulent statement from Ms B was the

crucial event for causation purposes, rather than Mr E’s advice.

[4] Red Eagle Corporation Ltd v Ellis [2010] NZSC 20.

[35]     The Supreme Court differed.  It held that, in “relatively simple cases”,[5]  the approach to s 43 should be to first, establish a relevant breach of the Fair Trading Act.[6]   Then, s 43 requires that the Court consider whether the claimant has suffered

[5] At [27] the Court noted that the methodology that it employs commends itself “in a relatively simple case like the present where there is no doubt about what was said or about its meaning and all of the loss arose from the same event, namely the advancing of the money.  The loss did not have different components.”  The Court earlier concluded that a prescriptive methodology is not desirable, and the “approach to be taken in a particular case will depend upon the type of situation under scrutiny;   for example, whether there is a claimant alleging an injurious consequence already suffered, whether the claimant instead fears future loss for itself or others, or whether the claim is brought by the Commerce Commission or another party which is acting in the interests of those who may be affected by the defendant’s conduct.”

[6] At [28].

loss or damage “by” the conduct of the defendant.  As to that requirement, the Court held that:[7]

The language of s 43 has been said to require a “common law practical or common-sense  concept  of  causation”.[8]     The  court  must  first  ask  itself 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. Put another way, was the defendant’s breach the effective cause or an effective cause? Richardson J  in  Goldsboro spoke of  the  need for, or, as  he put it,  the sufficiency of, a “clear nexus” between the conduct and the loss or damage.[9]

The impugned conduct, in breach of s 9, does not have to be the sole cause, but it must be an effective cause, not merely something which was, in the end, immaterial to the suffering of the loss or damage.  The claimant may, for instance, have been materially influenced exclusively by   some   other   matter,   such   as   advice   from   a   third   party. (emphasis added)

[7] At [29].

[8] Citing Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 at 525 per

Mason CJ, Dawson, Gaudron and McHugh JJ, speaking of the equivalent Australian section, s 82 of the Trade Practices Act 1974.

[9] At 401.  In Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15 at 38 Tipping J said that “there must be a sufficient relationship between the impugned conduct and the loss or damage to make it reasonable to say that the loss or damage is the consequence of the conduct.”

[36]     The  issue  of  measure  of  damages  is  discussed  in  Civil Remedies  in New Zealand.[10] It is clear that when deciding whether to grant relief under s 43(2) of the Fair Trading Act, a significant discretion is vested in the Court as to how it applies traditional rules, which include causation, apportionment and contribution. The section is generally to be regarded as providing a wide range of discretionary power, but nevertheless a “principled” approach was to be adopted.

[10] Peter Blanchard and others Civil Remedies in New Zealand (Brookers, Wellington, 2003) at [10.4.4]. 

[37]     The authors further state:[11]

[11] Ibid.

The  provisions  of  the  Fair  Trading  Act  impose  a  stricter  standard  of behaviour than that required in contract or tort at common law.  However, if a defendant is found liable in tort, that defendant is responsible for the whole of the damage caused to the plaintiff, subject to arguments of contributory negligence and claims against joint tort feasors.  The position under the Fair Trading Act is different and more flexible.   Section 43 gives the Court a discretion to award less than the full damages against the wrongdoer. Therefore, although a stricter standard is imposed, the Court can take into account  all  factors  contributing  to  losses  in  the  actions  of  any  parties

involved (including the  plaintiff) in  order to  arrive at  a  “fair” damages award.[12]

The Court therefore can take a very flexible approach when considering issues of apportionment and contribution.  It can also take into account all factors contributing to the loss, including the actions of third parties who are not wrongdoers in the actions of the plaintiff that do not amount to contributory negligence or default.

[12] Foseco New Zealand Ltd v Cumberland Contracting Ltd (1997) 6 NZBLC 102,033 (CA).

[38]     In Goldsbro v Walker the Court of Appeal made it clear that it was implicit that the power to award the full amount of the loss or damage carried with it the implicit power to award part of the full amount, to ensure that the Act worked in accordance with its true intent, meaning and spirit.[13]    The Court emphasised that it should not lightly be the case that an award of less than full damages should be made because the policy of the Act related to standards of conduct by those in trade and the possibility of full amount of damages provided a “self-policing control”.  In the case of Quick Snax Ltd v Uncle’s Group NZ Ltd Thorp J said that unless a plaintiff

had been grossly careless or had otherwise contributed to any losses or the defendant’s contribution had been relatively minor, then fuller damages would be an appropriate award.[14]

[13] Goldsbro v Walker [1993] 1 NZLR 394 (CA).

[14] Quick Snax Ltd v Uncle’s Group NZ Ltd HC Auckland CP 1137/92, 19 June 1998.

[39]     Other examples can be seen in Lindsay v Milloy where the Court of Appeal said that s 43 was not to be construed so inflexibly as to require payment of the full amount of loss or damage if there had been contravening conduct which played only a minor part in the loss.[15]   There exists a discretionary power to reduce full damages that would otherwise have been rewarded.  In Cornfields Ltd v Gourmet Burger Co Ltd in light of a plaintiff’s own conduct a reduction, akin to a deduction for contributory negligence, was made although the Court repeated that it “is not done lightly”.[16]   It is clear from the authorities that the Court is not bound, when awarding damages under the Fair Trading Act, by an “all or nothing” approach.  This is to be contrasted with the common law rule that a tortfeasor whose wrongful conduct contributed to causing damage was liable for the whole damage to the plaintiff, and rights of contributions existed against a jointfeasor.

[15] Lindsay v Milloy CA246/99, 28 June 2000.

[16] Cornfields v Gourmet Burger Co Ltd (2009) TCLR 698 at [41].

[40] Considerable assistance can be derived from the leading High Court of Australia decision on causation for the purposes of the comparable s 82 of the Trade Practices Act 1974 (Commonwealth) of Henville   v   Walker,[17]cited   by   the Supreme Court in Red Eagle Corporation Ltd v Ellis.   In Henville a real estate agent’s misrepresentations induced a purchaser to buy land for the purpose of undertaking a project.  The issue was whether this was causative of the loss resulting from the failure of that product and, if so, how damages should be quantified, given

[17] Henville v Walker [2001] HCA 52.

that the costs had been carelessly underestimated and the project suffered reverses for other reasons.  The decision of the majority of the High Court is of assistance. Some of the conclusions of McHugh J, in the majority are recorded below and in some detail because they are apt.   Reference is made to the well known dicta of Lord Hoffmann in Environment Agency v Empress Car Co (Arbertillery) Ltd where his Honour said that common sense answers to questions of causation will differ

according to the purpose for which the question is asked.[18]    The corollary of the

[18] Environment Agency v Empress Car Co (Arbertillery) Ltd [1992] AC 22 (HL) at 29.

common sense approach was, in the judgment of McHugh J:[19]

not reducible to a “test” that can be applied across the spectrum of factual situations that arise from case to case.  Nevertheless, the course of judicial reasoning in this area has produced certain principles that assist tribunals of fact in deciding causation issues.

[19] At [105].

[41]     Those principles included:[20]

[20] At [106]-[109].

If  the  defendant’s  breaches  has  “materially  contributed”  to  the  loss  or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage.  As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage.   In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional.

....

[There] is the long-standing recognition of the possibility that two or more causes may jointly influence a person to undertake a course of conduct.

....

This principle has been applied in cases where a complicating factor is the intervention of some act or decision of the plaintiff or a third party that allegedly constitutes a more immediate cause of the loss or damage. Thus, in Medlin v State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1, at 6-7

Deane, Dawson, Toohey and Gaudron JJ said:

“The ultimate question must, however, always be whether, notwithstanding the intervention of the subsequent decision, the defendant’s wrongful act or omission is, as between the plaintiff and the defendant and as a matter of commonsense and experience, properly to be seen as having caused the relevant loss or damage.   Indeed, in some cases, it  may be potentially misleading to pose the question of causation in terms of whether an intervening act or decision has interrupted or broken a chain of causation which would otherwise have existed.  An example of such a case is where the negligent act or omission was itself a direct or indirect contributing cause of the intervening act or decision.” (emphasis added)

Similarly, in respect of claims under s 82, courts have accepted that loss or damage is causally connected to a contravention of the Act if a misrepresentation was one of the causes of the loss or damage sustained by the claimant.

[42]     In  applying  those  principles  in  Henville,  McHugh  J  concluded  that  the plaintiff’s belief that the purchase and the project would make a profit was a product of two errors, namely miscalculation of the costs of the development and secondly, he being induced by the agent’s misrepresentation in relation to the profit to be obtained from sale of the units.  The errors were both fundamental to the plaintiff’s belief,  and  that  the  agent’s  misrepresentations  directly  induced  the  plaintiff  to proceed with the project and its resultant loss.  McHugh J said that the fact that the plaintiff made an error in choosing a design that was ultimately too expensive did not neutralise the operative effect of the misrepresentations of the agent which remained operative at all times.

[43]     When it came to assessing quantum of damages, McHugh J observed that the central issue was to establish a causal connection between the loss claimed and the action which contravened the Act.  McHugh J said that although analogies could be drawn with contract tort or equitable remedies and could be of great assistance, those general principles:[21]

may have to give way altogether in particular cases to solutions best adapted to give the injured claimant an amount which will most fairly compensate for the wrong suffered.

[21] At [130].

[44]     His Honour said the plaintiff suffered prejudice through altering his position by reason of the breach of the Act.  So the measure of loss was not determined by what the plaintiff would have received had the representations of the agent been true, but by what was in fact lost (in excess of $300,000) by entering into the project which would not have occurred had not the representations in breach of the Act been made.  The loss suffered was therefore directly attributable to a contravention of the Act even though other factors played a part in bringing about that loss.  In a general way the loss was a reasonably foreseeable consequence of the misrepresentation.

McHugh J went on to say:[22]

Nor do I see any reason why the principles applicable in an action for deceit at common law should not be applied in the present case.  The purposes of the Act include promoting fair trading and protecting consumers from contraventions of the Act.   Those purposes are more readily achieved by ensuring that consumers recover the actual losses they have suffered as the result of contraventions of the Act.  Where a person contravenes the Act and induces a person to enter upon a course of conduct that results in loss or damage,  an  award  of  damages  that  compensates  for  the  actual  losses incurred in embarking on that course of conduct best serves the purposes of the Act and should ordinarily be awarded.

[22] At [150].

[45]     Gummow and Hayne JJ, others in the majority, agreed that the appellants were entitled to recover the whole of the amount of loss.

[46]     The approach of the majority in Henville has not expressly been affirmed by New Zealand  Courts,  but  is  consistent  with  approaches  in  this  country.    In  my judgment the approach taken in Henville should be applied to the facts of this case. As Goldsbro v Walker made it clear:[23]

It is sufficient that there is a clear nexus between the conduct and the loss or damage suffered. ... the representation need not be the sole factor influencing the person affected by the conduct.

[23] At 401.

[47]     And, further, although there is always a discretion as to whether or not any order should be made, and if so what orders would be appropriate, if the Court has found a contravention of s 9 resulting in loss or damage to another person then:[24]

[24] At 403-404.

As with other statutory powers the discretions under the section are to be exercised so as to give effect to the policy of the Act.  In broad terms the underlying policy is that consumers should receive accurate information on which they can make rational economic decisions.   If there is a clear infringement of the statute resulting in loss to any other person it would ordinarily accord with the policy under the Act to grant a remedy.

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. ... It is not necessary to impose a liability under s 43(2)(d) as if the direction were to pay common law damages, leaving it to the infringer to seek contribution from someone else. [Although this has occurred in this case].  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.  In many cases there may be no reason why the plaintiff should not obtain full recovery in respect of his or her loss but in others the culpability of third parties, the gross carelessness of the consumer, the minor role of the contravener of s 9, may lead to the conclusion that the justice of the case does not require that the full loss sustained by the consumer be visited on the contravener.

[48]     Naturally,   where   there   are   multiple   operative   causes   the   award   of compensation may be reduced to reflect causes for which a defendant is not responsible.   That has occurred in this case through the essential contributory negligence finding as against GPE, and the contribution assessed as against TNS. But Chief Judge Johnson in this case purported to exercise his discretion to further reduce damages to 10 per cent, as opposed to 40 per cent for which he found BASF responsible.   His Honour gave his reasons, but did not go on to explain why that reduction resulted in doing justice to the parties.

[49]     As a matter of causation and common sense, it is apparent from the evidence and the Chief Judge’s findings that GPE would not have entered into the contract with TNS for TNS to apply BASF’s sealing membrane to the decks but for the wrongful representations by BASF as to the ability and qualifications of TNS to perform that task.  If those misleading representations had not been made, and acted upon by GPE, BASF would not have secured the benefit of its product being used and been paid for it.  TNS would not have had the application contract, and so would not have purchased the product from BASF.   The continuing relationship and activities involving BASF and TNS arose only because GPE were induced to use the latter.  The joint action of BASF and TNS led to the damage – not entirely – but in

significant proportion (55 per cent).   There remained a clear nexus between the original misconduct of BASF and the loss of damage that GPE suffered.

[50]     The  fact  that  BASF  and  TNS  had  proportionate  liability  as  between themselves only led to different contributions to the total loss.  It did not break the chain  of  causation  first  created  by  BASF’s  breach  of  the  Fair  Trading  Act  in inducing GPE to change its position and specifications.  BASF’s misrepresentations remained as a causative nexus to GPE’s loss, which happened because of the deceptive representation made to GPE.  If other misleading representations had been made and pleaded by GPE, it would have made no difference to the decision made by GPE to change its position – it had already made the decision to engage TNS on the basis of what was pleaded.

[51]     The consumer protection policy underpinning the Fair Trading Act requires that where the misleading conduct occurs to benefit the wrongdoer (as it usually does), and another is induced to change his position to his detriment, damages to reflect losses flowing from such a change in position should normally be awarded. That is except in cases where some exceptional intervening act by another person or force halts the causative link or nexus and thus requires reduction for contributory negligence.

[52]     Apart from the assessment of GPE’s contributory negligence responsibility of

45 per cent, no other actions on the part of GPE are pointed to as bearing upon its responsibility for the damage or loss – apart from the Chief Judge saying that GPE had not pleaded certain factual particulars relating to BASF’s other “major contributions” (at [184]).

[53]     While   the   assessment   of   quantum  of   damage   in   this   field   requires discretionary exercise, and appellate courts even on general appeals are cautious about overturning discretionary decisions of first instance tribunals, as the Supreme Court has made it clear in Austin, Nichols & Co Inc v Stichting Lodestar:[25]

[25] Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [5]

per Elias J.

The  appeal  court  may  or  may  not  find  the  reasoning  of  the  tribunal persuasive in its own terms.   The tribunal may have had a particular advantage (such as technical expertise or the opportunity to assess the credibility of witnesses, where such assessment is important). In such a case the appeal court may rightly hesitate to conclude that findings of fact or fact and degree are wrong.[26]     It May take the view that it has no basis for rejecting the reasoning of the tribunal appealed from and that its decision should stand.  But the extent of the consideration an appeal court exercising a general power of appeal gives to the decision appealed from is a matter for its judgment.  An appeal court makes no error in approach simply because it pays little explicit attention to the reasons of the court or tribunal appealed from, if it comes to a different reasoned result.   On general appeal, the appeal court has the responsibility of arriving at its own assessment of the merits of the case.

[26] The authorities are numerous.   They include Shotover Gorge Jet Boats Ltd v Jamieson and

Rangatira Ltd v Commissioner of Inland Revenue [1997] 1 NZLR 129 (PC).

[54]     The power to order a payment under s 43 is a matter of doing justice to the parties in the circumstances of the case and in terms of the policy of the Act.[27]

[27] Goldsbro v Walker [1993] 1 NZLR 394 (CA) at 403.

[55]     I have come to the conclusion that the Chief Judge was wrong to reduce the

40 per cent damage for which BASF had been identified as being responsible to reflect the fact that damage arose through other operative acts, only one of which was  pleaded  by  the  plaintiffs.     It  was  established  that  BASF  breached  the Fair Trading Act.  The misrepresentation as to TNS’ competency was not required to be the sole cause of their loss.  The fact that it was a cause, and an effective cause, established liability for the total amount of the loss.   The Court’s discretion was properly exercised to adjust the award of damages against BASF to reflect the contributory negligence of GPE, and the responsibility of TNS.   That exercise of discretion was an order to reflect the policy of the Act so as to be “a matter of doing justice to the parties”.  But it was not “justice” to the parties as between GPE and BASF, to have GPE’s entitlement to damages for its loss (after taking into account contributory negligence) to be further reduced simply by reference to other alleged misconduct by BASF – whether towards TNS or GPE – simply because Chief Judge Johnson said had not been pleaded by GPE.   I do not have to decide on whether r 121 should, or could have been invoked.  The appeal is allowed on the basis I have discussed.

[56]     Based upon the total cost of repairs being $266,396.29 and the plaintiff’s responsibility fixed by Chief Judge Johnson at 45 per cent with TNS’ responsibility at 15 per cent, it follows that there will be judgment for the appellant GPE, against the respondent BASF, to the extent of 40 per cent for the total cost of repairs, namely

$106,558.51.  This finding enables attribution of the responsibility of 100 per cent between the parties so that the total damages are properly and justly fixed.   The appellant is entitled to costs on this appeal fixed on a Category 2B basis and if agreement cannot be reached as to quantum the parties may file memoranda.

[57]     Costs in the District Court are to be fixed by that Court in light of the findings on this appeal as to the awards of damages and contribution determined as between all parties.  The proceedings are remitted to the District Court to determine that issue of costs.

J W Gendall J

Solicitors:
Treadwells, Solicitors, P O Box 859, Wellington for Appellant
Holmden Horrocks, Solicitors, P O Box 1108, Auckland for Respondent