Managing director liable under the Fair Trading Act 1986


This appeal concerned a leaky home built in early 2000 by Kingdom Residential Housing Ltd. The owners had sued the council who, in turn, sued the parties involved in the original construction, including the managing director of Kingdom, Mr Dallas.

The council settled with the plaintiffs for $670,000 and involved a number of the third parties in this settlement. Mr Dallas was not part of the settlement, and he was pursued by the council in the High Court.

The council brought a claim as against Mr Dallas in the High Court for the sum of $546,000. It was unsuccessful in this proceeding for all the reasons more fully set out in my May 2014 article.

Of particular relevance to the appeal was the finding by the High Court that the cause of action brought on the basis of section 9 of the Fair Trading Act 1986, failed. It was on this particular finding that the council brought its appeal.

There were two particular statements the council contended were misleading. The first statement related to a statement in a letter from Mr Dallas on Kingdom letterhead that “KRH Plumber” had attended to kick out flashings.

The second statement was contained in a further letter to the effect “we have complied with the Building Act”.

The council contended that this second statement was not limited to the parapets of the building, but was a representation relating to the whole structure.

The statement about the kick outs

The Court of Appeal considered whether a reasonable person in the council’s situation would likely have been misled or deceived by the statement.

It ruled that the statement about kick outs from Mr Dallas was clear and unambiguous when one reads the Kingdom letter with the letter from council to which it responds.

It could only be sensibly construed as a statement that the requested kick outs at the end of the apron flashings had been completed by KRH Plumbers. The fact that this representation was made when, in fact, the kick outs had not been installed (sealant having been used instead) was, in fact, a misstatement, and amounted to a breach of section 9 of the Fair Trading Act 1986.

The statement as to compliance with the Building Act

The Court of Appeal followed the High Court ruling and said that this statement was confined to the parapets and, thus, did not constitute misleading and deceptive conduct.

However, based upon the misstatement as to the kick outs, it ruled that a breach of section 9 had been committed. The court then considered whether this entitled the council to relief.

The first essential finding made by the Court of Appeal in this regard was that the council did rely upon Mr Dallas’ statement as to the kick outs prior to issuing the Code Compliance Certificate. In particular, it relied upon evidence of a council officer which was clear and unchallenged, that he had relied upon this assurance.

The Court of Appeal had little difficulty in concluding that the council had relied upon this statement.

In response to the court addressing the issue of whether, in fact, the council had suffered loss as a result of the misstatement as to the kick outs, Mr Dallas argued that the council had a clear duty to inspect the kick outs, and its failure to do so was the operative cause of the loss.

However, the Court of Appeal construed the council’s failure to inspect the kick outs as evidence of the council’s own negligence, but still considered the statement of Mr Dallas to the council as a contributing cause of the loss. The appeal succeeded on this aspect.

I should note that the court formed the provisional view that Mr Dallas and the council ought to be found equally responsible for the kick out defect, but chose not to express a view on what the overall apportionment of loss ought to be as between council and Mr Dallas (factoring in other operating defects), instead, seeking submissions on this point.

The outcome on appeal shows the implications of the Fair Trading Act 1986 to all those trading in the construction industry. It also shows the determination of the council to seek compensation from those it believes have contributed to the losses suffered by leaky home owners.

Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision or Building Today to anyone who relies on the information contained in this article.

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