On 15 September 2021, the Court of Appeal issued its judgment in Shabor Ltd v Graham [2021]NZCA 448, allowing the appeal in part. Kelly Quinn and Carter Pearce appeared as counsel for the Appellants.  The judgment resolves an important question regarding causation, and the effect of no-reliance or entire agreement clauses, under the Fair Trading Act (FTA).

The case concerned the sale and purchase of a farm marketed as having a particular stock carrying capacity.  The purchaser (Appellant) calculated its tender price in reliance on the advertised carrying capacity.  However, the sale and purchase agreement contained a “no-reliance” clause recording that the purchaser had not relied on any representations or warranties by the vendor.  At the time of the transaction in 2014, it was not possible to contract out of the FTA.

The farm’s actual capacity was substantially less than represented.  The Appellant brought proceedings alleging it was misled into purchasing the farm and had suffered loss as a result.  The vendor’s primary defence was that the capacity representation was accurate.  However, the High Court found on the facts that the advertised capacity was materially overstated.  The representations as to capacity were thus misrepresentations and also amounted to misleading and deceptive conduct under the FTA. Nevertheless, the judge held that the no-reliance clause in the sale and purchase agreement defeated the Appellant’s claims for pre-contractual misrepresentation and for breach of the FTA.

On appeal, the Court of Appeal held that the defendants were liable under the FTA despite the no-reliance clause. Alleged breaches of the FTA require a two-stage inquiry into (1) whether there has been misleading conduct; and (2) causation and loss.  If misleading conduct is shown to have occurred, the causation inquiry involves asking whether that conduct was relied upon and, if so, whether that reliance caused loss.

The Court of Appeal confirmed that the question of causation under the FTA is one of fact, not of law.  If a contract contains a clause purporting to record that a party did not rely on any misleading conduct, that clause forms part of the body of evidence relevant to causation but is not determinative.

In this case, the weight of evidence showed that, notwithstanding the acknowledgement in the non-reliance clause, the Appellant’s directors did in fact rely on the carrying capacity representation.  On that basis, the Court of Appeal held that the High Court erred in treating the non-reliance clause as “breaking the chain of causation” between the misleading conduct and loss under the FTA.  The appeal was therefore allowed, and judgment entered for the Appellant on the FTA cause of action.

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