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Misleading and deceptive conduct under the Fair Trading Act -distinguishing between liability of a principal and of an accessory, by Eugene Duhovnikoff BA/LLB

The recent Ng v Harkness Law Ltd[1] illustrates this matter. This case involved a claim against a law practice that acted for the property developments companies. These companies’ advice lead to its clients losing money and claiming against them for misleading or deceptive conduct in trade under the Fair Trading Act 1986, section 9. Since the companies were in insolvent liquidation the plaintiffs claimed against the law practice as being accessories to it under the Fair Trading Act 1986, section 43. Associate Judge Bell has provided a very useful summary of the law relating to distinction between liability as a principal and as an accessory[2]:

“[30] The Fair Trading Act deals with participation in misleading and deceptive conduct by distinguishing between liability as a principal and as an accessory. The distinction is found in s 43(1): “This section applies if, in proceedings under this Part or on the application of any person, a comt or a Disputes Tribunal finds that a person (person A) has suffered, or is likely to suffer, loss or damage by conduct of another person (person B) that does or may constitute any of the following:

(a) a contravention of a provision of Parts 1 to 4A (a relevant provision):

(b) aiding, abetting, counselling, or procuring a contravention of a relevant provision:

( c) inducing by threats, promises, or otherwise a contravention of a relevant provision:

( d) being in any way directly or indirectly knowingly concerned in, or pmty to, a contravention of a relevant provision:

( e) conspiring with any other person in the contravention of a relevant provision.

Section 43(l)(a) applies to principal infringers, s 43(l)(b)-(e) to accessories. The distinction is important because the courts have applied a mens rea requirement to establish liability against accessories, but not against principals. This requirement of mens rea for accessories is a test for criminal liability applied in a civil context. The High Court of Australia first drew the distinction in Yorke v Lucas. It has been applied in New Zealand.

In Specialised Livestock Imports Ltd v Barrie the Court of Appeal said: The equivalent language to that of s 43(1)(b) and (d) in the Trade Practices Act 1974 (Cth) was considered by the High Comt in Australia in Yorke & Another v Lucas (1985) 158 CLR 661. The joint judgment of Mason ACJ, Wilson, Deane and Dawson JJ observed that "the words ... 'aiding, abetting, counselling or procuring' are taken from the criminal law where they designate participation in a crime as a principal in the second degree or as an accessory before the fact" (p 667). In New Zealand the principal parties provisions [sic] in the criminal law is s 66(1) of the Crimes Act 1961 which uses each of the 4 terms. In R v Samuels [1985] 1NZLR350, 356 this Court said of s 66(1): "The essence of aiding and abetting is intentional help." As s 43(1 )(b) and ( d) import the requirements of the criminal law, it follows that the Bendall parents will only be liable under that provision for their "intentional help" to Philip Bendall in his contravening acts - that is they must know of their son's contraventions and intentionally participate in them.

That knowledge must extend to all the essential facts which made Philip Bendall's acts in relation to the 5 respondents contraventions of s 9. Although it was a prosecution for a breach of s 13 of the Fair Trading Act, not a civil proceeding, Megav Uamin Laboratories (NZ) Ltd v Commerce Commission gives helpful guidance on the test for an accessory's knowledge and intent.9 Tipping J said: I think it would be wrong in principle if a mere junior employee could be held strictly liable for helping to draft some publicity material which turned out to be misleading without any knowledge that this was so. Another case might be an adve1iising agent who in good faith assists in the production of material which contains a false representation. It hardly seems right that such a person should be found criminally liable without knowledge of falsity.

He held: Therefore even if the offence in question is one of strict liability, a secondary party must have mens rea. To establish mens rea the prosecutor must show that the secondary party:

(i) Performed the actus reus ( eg gave the assistance) deliberately;

(ii) Had knowledge of the essential factual features of the offence (eg the falsity of the representation), whether or not he knew they constituted the offence;

(iii) Intended the conduct constituting the actus reus to assist the principal to perform the conduct constituting the offence. Step (ii) is a necessary precondition to step (iii) because unless the secondary party has the required knowledge he could hardly intend his conduct to amount to qualifying assistance.”

On the facts of this case it was found this Fair Trading Act claim could not stand. However this summary of the law is very useful to understand the legal distinction between the principle and an accessory and reminds that in cases involving misleading conduct every parity’s liability may have to be proven against different legal thresholds. Consequently it might not be easy to claim against a secondary party even when it does not go insolvent after the failed property development project, which again highlights the importance of carefully considering ones decision to invest in a particular project.

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[1] (2014] NZHC 850.

[2] Ibid at [30].

 

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