A New Framework for Assessing the Personal Liability of Directors and Employees Under S 9 of the Fair Trading Act 1986

Abstract

Section 9 of Fair Trading Act 1986 (“FTA”) imposes strict liability on persons who “in trade” engage in misleading conduct. In the majority of cases the “person” who will be sued under this legislation is a trading corporation. But what happens when the corporation is insolvent or financially unstable? Can the aggrieved person successfully sue the individual responsible for the misleading conduct? Is this person (usually a director or employee) acting “in trade”? The literature and case law to date refer to two dominant approaches to answering this question. There is the broad approach, adopted by the Court of Appeal in Body Corporate 202254 v Taylor [2008] NZCA 317, [2009] 2 NZLR 17. In that case it was held that although directors and employees are not themselves trading on their own account, they can be considered as acting “in trade” because they are acting on behalf of a trading entity that is itself “in trade’. This can be contrasted with the “narrow approach”, which maintains that a person cannot be said to be acting “in trade” unless they are themselves “in trade” on their own account. Under this approach directors and employees can never be held liable as principals under s 9 for conduct engaged in on behalf of a company. Despite this standard two-option view, a close analysis of recent case law reveals that courts are, without full articulation, applying neither of these approaches, but are in fact moving toward a middle-ground approach. This article constructs a conceptual framework for this middle-ground approach which allows for employees and directors to be categorised as acting “in trade” only where their role is so intimately connected to the company business that they are effectively engaged in their own trading activity. This approach is both a reasonable interpretation of the phrase “in trade” and accords more closely with the policy objectives and underlying philosophical foundations of s 9 of the FTA than either the broad or the narrow approach.

Keywords: consumer, fair trading, employee liability, director liability, misleading conduct

JEL Classification: K2