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DCD08

Deception in Commercial Dealings

NZ $65.00
incl GST
Justice Arnold David Goddard QC
The Hon Justice Terence Arnold
Wellington
David Goddard QC
Wellington

Published: 25 August, 2008 
Pages: 150

Introduction

In this seminar we discuss deception in commercial dealings. We use the word “deception” expansively, to cover situations where one party to a commercial transaction (we exclude ordinary retail consumers) believes that he or she has been misled or deceived by the other party to the transaction – or someone else  about some aspect of the transaction. The questions which we consider concern the nature and extent of the claims which the disappointed party may bring in such circumstances, whether against the other party to the transaction or against a third party (such as a person who has benefited from the transaction or an adviser).

Plainly, the topic is a broad one. We will not attempt to cover all aspects of it in detail. Rather, we will attempt to provide an overview of the most commonly available options, to identify their advantages and disadvantages from a plaintiff’s perspective and to discuss in more detail certain aspects that seem to us to be of particular interest. Our intention is to take a practical approach to the topic.

We might be criticised for using the word “deception” in such a broad sense, and also because our starting point is the perspective of the disappointed party. By that we mean a party who believes that he or she has been deceived and seeks a remedy  whether or not the potential defendant set out to deceive him or her is relevant only to the extent that it affects the causes of action available. We have adopted that perspective because it is a convenient analytical tool, which encourages a focus on some critical questions:

  • What does the plaintiff say the defendant did (or omitted) that he or she should not have done (or should not have neglected to do)?
  • Was the defendant innocent? Careless? Reckless? Deliberately deceitful?
  • What relief does the plaintiff want? (Compensation for losses? Disgorgement of the defendant’s gain? Return of property? etc.)
  • How long ago did all this happen?
  • Does the plaintiff wish to pursue the principal wrongdoer? Or is the principal wrongdoer insolvent or otherwise not worth suing? If the intended defendant is not the principal wrongdoer, what is the connection between that wrong and the proposed defendant?

The plaintiff’s lawyer must consider these questions as he or she seeks to determine which causes of action may be available, and which will deliver the desired outcome. There is no point in suing an insolvent defendant in tort, for example, however negligent he or she may have been; but a claim that property received in breach of a fiduciary obligation (for example, to disclose an interest in a transaction) is held on trust for the plaintiff may, if open, be worthwhile. So might a claim against third parties who facilitated the transfer, as “dishonest accessories”. On the other hand, if the defendant is solvent, the simplest route to success may be the Fair Trading Act – provided the loss or damage was discovered (or was reasonably discoverable) less than three years ago, and provided the defendant cannot point to some other person whose responsibility for the loss is greater.

The claims which we focus on are those seeking relief under the Fair Trading Act 1986, the Contractual Remedies Act 1979, the Contractual Mistakes Act 1977 (but only insofar as it relates to unilateral mistakes known to the other party), the Illegal Contracts Act 1970, claims in tort (in particular, claims for negligent misstatement, for conversion, and in deceit), equitable claims based on dishonest assistance and knowing receipt and the common law claim for money had and received. There are, of course, other possibilities. But, in our view, the claims mentioned are likely to be the most important in practice.

Words like “deception” and “fraud” are not terms of art as far as the law is concerned. Rather, they have different meanings in different contexts. This point was made by Baragwanath J in Reed v Wrightson Bloodstock Ltd (unreported, HC AK, CP552/97, 7 May 1996) where he discussed the fraud exception in Article 26(4) of the Warsaw Convention for International Carriage by Air. His Honour said:

“Fraud” is not a term of art with a single defined meaning in the common law and in the statute law of the parties to the Convention. It is always a strong term. But the particular sense alters according to the context as appears in New Zealand domestic law from the spectrum running from Land Transfer Act fraud (Waimiha Saw Milling Co Ltd. (In Liquidation) v Waione Timber Co Ltd. [1926] AC 101, 106) via the tort of deceit through the concept of objective fraud as a test of knowing assistance in restitution (Royal Brunei Airlines Sdu. Bud v Tan [1995] 2 AC 378) to s 28 of the Limitation Act where the statutory concept of “fraud” is not necessarily confined to deceit and may involve no moral turpitude (Beaman v ARTS Ltd. [1949] 1 KB 550).

This means that what is said about knowledge, for example, in one context may not necessarily be directly applicable in another.

The structure of the booklet is as follows. First we deal with the defendant’s conduct: express statements are easy, but what of opinions, promises, statements of intention or non-verbal conduct? We consider the defendant’s state of mind, and its significance for the defendant’s liability and the plaintiff’s ultimate recovery. Chapter 4 outlines the key elements of the causes of action which are commonly invoked by deceived plaintiffs, for ease of reference. Chapter 5 considers the extent to which liability for deception can be excluded or limited by an agreement or disclaimer. Chapter 6 takes the desired relief as its starting point (what does the plaintiff want?) and asks how one might get there, examining the state of play in the “basket of remedies” or “appropriateness of remedies” debate. Chapter 7 looks at limitation issues – often a critical barrier to pursuing certain types of relief. Finally, in Chapter 8, we touch on apportioning fault – and loss – between plaintiff and defendant, and as between the defendant and others.

We emphasise that, although this is a revision and updating of an earlier seminar booklet which we prepared, it remains a “work in progress”. At points the law lacks coherence and consistency. Undoubtedly, there is further development to occur. Despite this, we hope that the booklet is useful.

Finally we wish to acknowledge the assistance which we have received from Sarah Cahill (judge’s clerk to Arnold J) in the revision of the booklet. Her careful research and insightful comments have made our task much easier than otherwise it would have been. If we could blame her for any errors, we would. Unfortunately we must accept responsibility for those.

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