A solicitor who made inaccurate representations on behalf of his client to the counter-parties to a transaction has been found not liable for breaches of the Fair Trading Act 1986 (FTA). The decision reflects that in order for a claim to be successful, it is not enough for the defendant to have made a misleading statement. The plaintiff must also prove that it was reasonable for it to have been misled by that statement.

In Poplawski v Pryde & Others [2012] NZHC 2011, the defendant solicitor had sent an email to the lawyer for a counter-party to a transaction in which his client was involved. The email described a related transaction as "unconditional". Following receipt of the email, the plaintiff paid over $350,000, which it lost when the transaction in question failed to complete.

The plaintiff sued the solicitor on the basis that the email amounted to misleading conduct for the purposes of the FTA in that it omitted key information about the transaction, including that the defendant's client had already failed to settle on several occasions, that he would need to come up with an additional $1.5 million in order to settle and that he had failed to secure finance to do so.

Justice Whata approached the issue of whether the email breached the FTA in three stages:

  • Was the email capable of being misleading?
  • If so, would a reasonable person in the plaintiffs' position have been likely to have been misled?
  • If so, was the defendants' breach an effective cause of the plaintiffs' loss?

His Honour held that the email was capable of being misleading in that it gave the impression that there was no reason to suspect that settlement would not be achieved. However, the second limb of the above test was not satisfied. In this regard, it was relevant that the email was sent to the plaintiffs' lawyer and it was reasonable to assume that he would recommend that the plaintiffs undertake appropriate due diligence. Moreover, there was clear objective evidence that both the plaintiffs and their lawyer were aware of the defendant's client's financial position and the need for security before transferring the sum of $350,000.

Justice Whata went on to consider whether, if he was wrong in his analysis of breach, the email had caused loss to the plaintiffs. He held that it had been an effective cause of the decision to transfer the $350,000. However, the nexus between the misleading email and the loss was substantially broken because:

  • The plaintiffs should have pursued the transaction with more care, particularly given the nature of the independent legal advice they received
  • The plaintiffs assumed a significant risk of failure notwithstanding any false hope generated by the email.

In addition, the Judge found that the main contributor to the plaintiffs' loss was not the email but their failure to secure their investment properly. Therefore, had he found an actionable breach, damages would have been reduced by 50%.

The decision emphasises the danger for parties to commercial transactions in assuming that they are entitled blindly to rely on statements by others, in circumstances where they know, or should know, that those statements are incorrect.