Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, 12 March 2010
- Court
- Supreme Court
- Judgment
- 12 March 2010
- Neutral
- [2010] NZSC 20
Areas of law
Judgment analysis
AI-generated summary
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Facts
In July 2005, Mr Ellis approached Mr Falkenstein seeking a short-term loan for his business partner, Ms Annette Black, to provide bridging finance for a project. In an email, Mr Ellis represented that Ms Black had net property assets in Sydney of approximately $2 million. Mr Falkenstein expressed willingness to make the loan, and after Mr Ellis requested an increase in the amount, agreed to lend $250,000. Ms Black then provided Mr Falkenstein with a 'Personal Statement of Financial Position' that appeared to confirm her ownership of the Sydney properties. Red Eagle advanced the $250,000 to Ms Black. It was later discovered that Ms Black was fraudulent, did not own the properties, and was unable to repay any of the loan. Red Eagle sued Mr Ellis, claiming his representation was misleading or deceptive conduct in breach of s 9 of the Fair Trading Act 1986, seeking compensation for its loss under s 43 of the Act.
Held
- A representation of fact made in trade, such as a statement about a third party's assets to induce a loan, can constitute misleading conduct under s 9 of the Fair Trading Act 1986 even when made to a sophisticated investor, particularly where there is a pre-existing relationship of trust.
- For the purpose of establishing causation under s 43 of the Fair Trading Act 1986, an initial misleading representation can remain an effective cause of loss, even where the claimant subsequently receives and relies on confirmatory (but also false) information from a third party before finalising the transaction. The subsequent information does not necessarily displace the causal potency of the initial representation.
- A person who conveys information from a third party without expressly disclaiming personal knowledge of its accuracy does so at their own risk and cannot be treated as a 'mere conduit'.
- Where a claimant's carelessness has contributed to their loss, a court has the discretion under s 43 to apportion liability and order the defendant to pay only part of the amount of the loss.
The appeal is allowed and the judgment of the High Court is restored.
Key passages7
To establish a breach of s 9 of the Fair Trading Act 1986, the conduct must be examined objectively to determine if it is deceptive or misleading in the particular circumstances, depending on the context and characteristics of the person or persons affected.
“The question to be answered in relation to s 9 in a case of this kind is accordingly whether a reasonable person in the claimant’s situation – that is, with the characteristics known to the defendant or of which the defendant ought to have been aware – would likely have been misled or deceived. If so, a breach of s 9 has been established.”
It is not necessary under s 9 to prove that the defendant’s conduct actually misled or deceived the particular plaintiff or anyone else; it is sufficient that the conduct objectively had the capacity to mislead or deceive.
“If the conduct objectively had the capacity to mislead or deceive the hypothetical reasonable person, there has been a breach of s 9. If it is likely to do so, it has the capacity to do so.”
Causation under s 43 of the Fair Trading Act 1986 requires a 'common law practical or common-sense concept of causation'.
“The language of s 43 has been said to require a 'common law practical or common-sense concept of causation'.”
To establish causation for a remedy under s 43, the court must be satisfied that the claimant was actually misled or deceived, and that the defendant's conduct was an operating or effective cause of the claimant's loss or damage.
“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. 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.”
A claimant's carelessness contributing to their own loss does not disqualify a claim under s 43 unless it breaks the causal connection, but it may be a factor for the court to consider in exercising its discretion to award only part of the loss.
“Negligence on the part of the victim of a contravention is not a bar to an action under [the Australian equivalent of s 43] unless the conduct of the victim is such as to destroy the causal connection between contravention and loss or damage.”
The exercise of the power to make an order for payment under s 43 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.
“The exercise of the power to make an order for payment under s 43 is, in the end, as Richardson J also said Goldsboro, a matter of doing justice to the parties in the circumstances of the particular case and in terms of the policy of the Act.”
To be considered a 'mere conduit', the conveyor of misleading information must make it plain to the recipient that they are merely passing on information from another source, without adopting it or giving it their own imprimatur.
“In order to be seen to be a mere conduit, the conveyor of misleading or deceptive information must have made it plain to the recipient that he or she is merely passing on information received from another, without giving it his or her own imprimatur – that is, making it appear to be information of which the conveyer has first-hand knowledge.”
Cases mentioned in judgment
Legislation mentioned
- Fair Trading Act 1986, s 9, s 43, s 43(1), s 43(2)(d)
- Judicature Act 1908
- Trade Practices Act 1974 (Australia), s 82