We allow the appellant’s appeal in relation to CP18/01 and in relation to the finding of liability to the second respondent in CP17/01.
We allow the appellant’s appeal in relation to liability to the first respondents in CP17/01 in part: his liability to the first respondents is reduced to $5,000.

We order that the appellant have no liability for costs and disbursements in the High Court in CP18/01.

We seek further submissions on the appellant’s liability for costs and disbursements in the High Court in CP17/01 in accordance with the timetable noted at [108] below.
We order that the first respondents in CP18/01 pay costs to Mr Newport of $1,500 plus 50% of the usual disbursements incurred in connection with the appeal, and that costs should lie where they fall in relation to the appeal against the decision in CP17/01.

REASONS

(Given by O’Regan J)

Introduction

[1] This is an appeal from a judgment of Durie J delivered in the High Court at Wellington: Coburn v Newport; Leeming v Newport HC WN CP17/01, CP18/01 6 August 2004. The trial was lengthy, comprising more than 20 hearing days spread over almost a year. Many parts of Durie J’s judgment and of the evidence are not relevant to the issues raised in the present appeal. They are summarised below only to the extent necessary to provide the requisite context for the consideration of the issues arising on appeal.

Facts

[2] Installer Services Limited (ISL) was incorporated at Christchurch in July 1997 to franchise, nationwide, a business of installing and repairing electronic accessories in cars. Dean Corry and Selwyn Jackson were directors and shareholders.
[3] Subsequently, a number of franchises were sold. The first franchise, for the Auckland district, was sold almost immediately and Installer Services Auckland Limited (IS Auckland) was duly incorporated. The franchisee was Mr David Johnson.
[4] These proceedings arise from the sale of two of the franchises, those servicing the Wellington and Manawatu districts. The proceedings are separate, but were heard together in the High Court for convenience. We will set out the facts of each proceeding separately.

The Leemings and the Wellington franchise

[5] The second franchise to be sold was for the Wellington district. The franchisees were Geoffrey and Sharon Leeming. Installer Services Wellington Limited (IS Wellington) was incorporated on 10 December 1996. Mr Corry and Mr Jackson were initially directors and shareholders of IS Wellington. The Leemings took a transfer of the shares in IS Wellington for consideration, payable to Mr Corry and Mr Jackson as transferees, on 23 December 1997. Mr Corry and Mr Jackson resigned as directors of IS Wellington and the Leemings became directors in their place.
[6] A component of the arrangement was a licensing agreement between IS Wellington and ISL. ISL contracted to provide ongoing business support. IS Wellington covenanted not to compete with ISL for one year following termination. The Leemings also entered into separate restraint of trade covenants with IS Wellington and ISL.
[7] The Leemings had first become interested in acquiring the Wellington franchise after seeing an advertisement in the Business Listing Bureau on or about 28 October 1997. That advertisement described the franchise as follows:

INSTALLER SERVICES

CAR STEREO INSTALLATION FRANCHISE

Sensational franchise opportunity.

Become a member of a nationwide car accessories installation company.

Guaranteed installation work in place with major suppliers, and on sellers. Exceptional turnover.

Charging out at $75.00 per hour.

Must see opportunity.

Phone Dave Newport

(09) 377 2190

[8] Mr Newport, the advertisement’s contact point, was at all material times the Sales Manager of ISL. There is an issue, to which we will return later, as to whether he was an employee of ISL, or an independent agent.
[9] Mr Leeming and his young family were living in Palmerston North, but were willing to relocate. He and his wife were interested in forming a new business. Mr Leeming rang Mr Newport. The content of their conversation was in dispute at trial, but Durie J found that Mr Newport represented that there was a heavy demand for a potential Wellington franchise. Mr Newport represented that customers were waiting. Mr Newport conceded that he heralded the possibility of obtaining the franchise as a ‘sensational opportunity’.
[10] Mr Leeming next phoned Mr Corry. Durie J found that in this conversation Mr Corry represented that there was a heavy demand for an installer in the Wellington area. Mr Newport and Mr Corry agreed to supply further information conditional upon Mr Leeming’s completion of a confidentiality agreement. Mr Newport faxed the agreement to Mr Dennis Portch, Mr Leeming’s accountant. It was signed and returned.
[11] On 4 November, Mr Newport faxed an overview of ISL’s operations to Mr Portch for Mr Leeming. This represented that ISL provided a nationwide installation network and that ISL was “currently” doing installation work for a number of large, well-known electronics firms, and that it was in negotiation with others.
[12] Soon afterward, Mr Leeming received further material by post from Mr Corry. One of the pages in this material, ‘document 3.22’, featured turnover figures for the Christchurch franchise for 1996. Mr Corry had fabricated the document. Indeed, the independent Christchurch franchise was not incorporated until December 1997 and did not begin trading until January 1998. On 14 November, the Leemings met Mr Corry at a café in Wellington, at which point Mr Corry again represented the existence of customers and the need for a franchisee to be in place to service their demands.
[13] The franchise operations commenced in late January or early February 1998. The intention was that Mr Corry would visit Wellington on 10 February 1998 to introduce the Leemings to customers. The Judge found that Mr Corry did not turn up. He found that Mr Corry’s absence amounted to a representation by omission to the effect that the customers existed. The inference the Leemings would have drawn from Mr Corry’s absence was that they simply needed to introduce themselves to the customers. The Leemings therefore pursued the customers and work, thereby incurring costs as a result of engaging employees to do the work
[14] Much of what happened next is irrelevant to the present appeal. It can be summarised briefly. The Leemings borrowed to support the new business. However the relationship between the Leemings and Mr Corry began to deteriorate. Mrs Leeming complained of the lack of support from ISL. A disagreement arose concerning the Hutt franchise, which Mr Corry proposed to divide with Mr Leeming holding it in equal partnership with a purchaser. Mr Corry apparently did not act in accordance with this promise. Eventually the Leemings decided to sell the business. The proposed sale was conducted through Mr Newport to present a veneer of unity to purchasers. The sale failed. Around the same time, the Leemings were also considering other business opportunities. The result was the incorporation of Audio and Security Specialists Ltd (ASSL) in July 2000.
[15] ISL discovered the existence of ASSL and threatened legal action under the licensing agreement. ISL then purported to terminate the licensing agreement and commenced proceedings on 24 October 2000. The Leemings commenced the present proceedings three days later. They had advised earlier of their intention to do so. A month later, ISL put IS Wellington into liquidation with debts owing to ISL.

The Coburns and the Manawatu franchise

[16] The Manawatu district franchise had been incorporated on 24 December 1998. It was called Installer Services Manawatu Ltd (IS Manawatu). The franchisees were Alan and Dale Coburn. Their acquisition of the franchise followed a similar pattern to that of the Leemings.
[17] Like the Leemings, the Coburns were introduced to ISL by an advertisement. This proclaimed the franchise opportunity as follows:

INSTALLER SERVICES LIMITED

CAR AUDIO & CELLULAR PHONE

INSTALLATION BUSINESS

Income in excess of $100,000

An established car audio and cellular phone installation company is seeking a partner for the Manawatu Region. This is an ideal business opportunity for a person who wishes to become self employed in the Car Audio Industry within the security of an established nationwide group of companies who service an existing client base.

Full training will be given to the successful application and their staff.

Total Investment $50,000

For an appointment Phone Dave (021) 304-414

[18] “Dave” was Mr Newport. Mr Coburn telephoned him. Shortly afterward, Mr Coburn received a letter from Mr Jackson. Attached to this was a 15-page overview of ISL. On 18 November 1998, Mr Newport and Mr Corry met with Mr Coburn at Mr Coburn’s house in Palmerston North. At trial the Court did not make a specific finding that any false representations were made at this meeting, although it was found that Messrs Corry and Newport reinforced and endorsed the contents of the overview. However, the Judge said he would have found that representations as to the existence of exclusive contracts with customers were made if it had been necessary to do so. We will return to the matters discussed at the meeting later.
[19] At this meeting, Mr Coburn was offered the franchise, but he cautiously requested ‘start-up figures’ for a territory similar to the Manawatu. On 21 November, Mr Corry emailed Mr Coburn figures for the first six weeks of operations for the Tauranga franchise. These figures were fabricated.
[20] Mr Coburn made further investigations. He travelled to Christchurch to scrutinise the franchise there and consulted with his accountant and other franchisees.
[21] Eventually IS Manawatu was incorporated. A licensing agreement, broadly comparable to that entered into by the Leemings with ISL, was also concluded. However the covenant for restraint of trade required by the agreement was never completed. Additionally, the licensing agreement between IS Manawatu and ISL was concluded after the Coburns had become IS Manawatu’s directors.
[22] Mr Coburn opened for business on 23 February 1999. Things immediately started to go wrong. ISL was not delivering the work it had promised. Only a fraction of Mr Coburn’s revenue derived from ISL sources. Mr Coburn’s complaints either fell on deaf ears, or were met with ineffectual responses from ISL. At a meeting of franchisees Mr Coburn discovered the extent of other franchises’ difficulties. Mr Coburn decided he had no option but to leave.
[23] On 9 October 2000 Mr Coburn, through his solicitors, advised ISL that IS Manawatu would cease operations and that legal proceedings would follow. Mr Coburn also advised that he did not consider himself bound by restraint of trade obligations.

The various claims and the disposal of claims not relevant to the present appeal

[24] The Leemings, the Coburns, IS Wellington and IS Manawatu all brought proceedings in the High Court. As discussed above, the proceedings, although separate, were heard together for convenience.
[25] The various claims were brought under the Contractual Remedies Act 1979, the Fair Trading Act 1986 and in negligence (Coburn proceedings only). ISL counter-claimed against the Leemings for breach of the restraint of trade covenant and sought injunctive relief. ISL also counter-claimed against IS Manawatu for account of turnover and breach of a restraint of trade covenant.
[26] IS Wellington’s claim under the Contractual Remedies Act failed, but its claim under the Fair Trading Act was partially successful. It was permitted to recover trading losses, but not lost profits.
[27] The Leemings’ and the Coburns’ claims under the Contractual Remedies Act succeeded against Messrs Corry and Jackson.
[28] Although it was open to IS Manawatu to claim under the Contractual Remedies and Fair Trading Acts, it was considered that there was no need for a separate claim to be made by IS Manawatu. This was because any profit, trading or capital losses could be assessed under the Coburns’ claim (given IS Manawatu, unlike IS Wellington, had no debts outstanding to ISL).
[29] The Court considered that since the Coburns were able to claim from Mr Newport under the Fair Trading Act, there was no need to consider the Coburns’ separate claim in negligence for capital loss against Mr Newport.
[30] Claims for exemplary damages by both the Leemings and the Coburns failed.
[31] Both counter-claims failed.

The claims relevant to this appeal: Mr Newport’s liability and the trial Judge’s findings

[32] Durie J held Messrs Corry, Jackson and Newport liable pursuant to the Fair Trading Act to the Coburns, the Leemings and IS Wellington. The relevant misrepresentations with respect to both the Leemings and the Coburns were, broadly:

(a) ISL would provide support to its franchisees, in particular by connecting franchisees to existing customers; and

(b) ISL had contracted with parties who would provide the new franchisees with business – i.e. there were customers in place; other extant ISL franchisees had experienced profitable trading.

[33] Durie J considered that Messrs Corry and Jackson were ‘in trade’, for the purposes of the Fair Trading Act insofar as they were directors of ISL. In this regard, His Honour referred to Kinsman v Cornfields Ltd (2001) 10 TCLR 342 and Gloken Holdings Ltd v The CDE Co Ltd (1997) 6 NZBLC 102,272. Durie J considered that Mr Newport was in trade as a commissioned agent and sales-person for ISL.
[34] Durie J found that in many respects, Mr Newport’s evidence was not credible. For example, contrary to Mr Newport’s testimony, Durie J found that Mr Newport had faxed the misleading Christchurch figures contained in document 3.22, having obtained them from Mr Corry, to Mr Craig Wilson, a potential purchaser of the Hamilton franchise in 1998. This evidence was admitted as similar fact evidence to demonstrate Mr Corry’s habitual supply of false information to lure franchisees with promises of a good turnover.
[35] With respect to the Leemings and IS Wellington, Durie J found that Mr Newport placed the advertisement, rang Mr Leeming and dispatched the information to Mr Portch. His Honour found that Mr Newport had been of a ‘positive disposition’ when dealing with Mr Leeming, and that he had assiduously represented a heavy demand for customers. He had justified his assertion that the Wellington franchise presented a ‘sensational opportunity’ by reference to ‘successful franchises in Christchurch and Auckland’. Durie J said Mr Newport knew, or ought to have known, that the success of the Auckland franchise was far from proven and the Christchurch franchise was, at that point, ‘at best in an embryonic stage’. Durie J said Mr Newport ought to have known this because he lived with Mr Johnson, the Auckland franchisee, and had travelled to Christchurch. Durie J referred to Mr Johnson as Mr Newport’s ‘friend and flatmate’, but did not say when the two men lived together.
[36] Durie J considered the issue determining Mr Newport’s liability was whether Mr Newport was a mere conduit, who purported to do nothing more than pass on information from his principal, or whether he adopted the representations made to the Leemings as his own. In this regard, Durie J considered the applicable law was this Court’s decision in Goldsbro v Walker [1993] 1 NZLR 394.
[37] Of Mr Newport’s role, Durie J said:

[212] ... It was Mr Newport who approached ISL. This followed the advertisement for the first franchise sale in Auckland in a trade magazine for which he worked. He travelled to Christchurch and was impressed with the possibilities arising from the ISL proposal. His keenness was acknowledged in his evidence. His self-identification with ISL and its plans was apparent in subsequent emails. However, I place no weight on evidence that his role was more than that of a salesperson on the basis of his operational support to other, subsequent franchisees. The Leeming franchise sale was only the second and Mr Newport’s role appears to have developed or progressed over time.

[213] To say that Mr Newport was in the bowels of ISL, as put by [counsel for the plaintiffs], is to put the matter too strongly for his answers in examination belied that he was more keen than knowledgeable on ISL methods. More compelling is his own evidence of his conversations with Mr Leeming. While denying having said that which Mr Leeming claimed, Mr Newport admitted to an extensive conversation on many matters, and not without some sales pitch, as he agreed. He conceded that he probably advised Mr Leeming that the purchase was a “sensation opportunity”. But to add as he did, that the Christchurch and Auckland operations were evidence of that was at best an exaggeration. Of the Auckland situation he especially knew full well as he flatted with the franchisee.

[214] My conclusion is that the effect of the conduct in which Mr Newport engaged would have been to mislead a reasonable person in the shoes of Mr Leeming to consider that there were major contracts in place with customers awaiting his transfer from Palmerston North to Wellington. In relaying that view Mr Newport was no mere conduit. He adopted as his own such views as has [sic] been conveyed by Mr Corry and in his own way, he embellished them. That conduct was one that ought to have been seen as fraught with deleterious consequences for the Leemings who were considering the purchase. I therefore find him liable. In exercising the discretion provided for under the Fair Trading Act I also allow no discount in respect of his role. Although it was a great deal less than that of Mr Corry, the comparison does not assist for the focus for the present can be only on the conduct of Mr Newport.

[38] With respect to the Coburns, Mr Newport was held liable despite Durie J’s acceptance that his role in the transaction was ‘limited’. Durie J thought Mr Newport’s participation in the meeting with Mr Coburn and Mr Corry of 18 November 1998 amounted to Mr Newport’s endorsement and reinforcement of the misleading contents of the ISL overview. Durie J noted that Mr Newport had confirmed in evidence that Mr Coburn had the overview in front of him at the meeting.
[39] Accordingly, in the Leeming proceedings Durie J made an order under s 43(2)(b) [sic: s 43(2)(d)] of the Fair Trading Act for the payment by all the defendants of $14,000 (with interest) to the Leemings and $12,000 (with interest) to IS Wellington (in receivership).
[40] In the Coburn proceedings, Durie J made an order under s 43 of the Fair Trading Act for the payment by all the defendants of $25,000 (with interest) to the Coburns, representing trading losses and capital loss.
[41] The defendants (including Mr Newport) were ordered to pay costs on a 2B basis, as well as disbursements. The costs relating to each of the Coburns’ and the Leemings’ claims amounted to $60,255, i.e. $120,510 in total. In addition, there were substantial disbursements in each case: $29,667 in relation to the Leemings, and $31,868.25, in relation to the Coburns.
[42] Mr Newport alone appeals to this Court.

The appellant’s case

[43] On behalf of Mr Newport, Mr Latton submitted that Durie J was wrong to have found Mr Newport liable for the breaches of the Fair Trading Act which occurred. He said Mr Newport accepted that the material provided to both the Leemings and the Coburns was misleading in certain respects, but:

(a) Mr Newport was an employee of ISL, not an independent contractor to ISL; and

(b) He did no more than pass on information provided to him by his employer, ISL, and therefore was a “mere conduit”; and

(c) He did not know that the information he passed on to the Leemings was misleading at the time that he passed the information on; and

(d) He was not involved in any way in the provision of misleading information to IS Wellington, and should not therefore have been found liable to IS Wellington; and

(e) In relation to the Coburns, he did no more than repeat at a meeting which he attended with Mr Corry information contained in the document prepared by ISL, and did not know this information was misleading.

[44] As an alternative submission, Mr Latton argued that if Mr Newport was liable to either the Leemings or the Coburns, he should not have to pay the same damages as Mr Corry and Mr Jackson because of his limited involvement in the provision of misleading information to the Leemings and the Coburns.

Issues on appeal

[45] We propose to consider first the factual issues raised on Mr Newport’s behalf, namely whether he was an employee of ISL and whether he had knowledge that the information he provided to the Leemings and the Coburns was misleading. Having dealt with those factual issues, we will then apply the law to those facts, and in that context consider the “mere conduit” test and whether it is applicable in the present circumstances.

Was Mr Newport an employee?

[46] Mr Latton submitted that Mr Newport was an employee of ISL, and that his liability under the Fair Trading Act ought to have been determined in the light of that fact. However, Mr Newport’s status does not appear to have been a significant issue at the trial, and was not the subject of a specific finding by Durie J. It is thus necessary for us to consider the pleadings and the evidence on the issue and form our own view.
[47] In his judgment at [206], Durie J stated:

Mr Newport was in trade as a commissioned agent and sales-person for ISL.

[48] That comment was made in the context of the Judge’s finding that all of the defendants were acting “in trade” at the time of the conduct complained of. Elsewhere in the judgment, the Judge referred to Mr Newport as “the sales manager...of the franchisor [ISL]” (at [1]) and as being “engaged by ISL as sales manager” (at [12]).
[49] In the statements of claim for both the Leemings’ and the Coburns’ claims there is a pleading that Mr Newport “was at all material times the National Sales Manager for ISL and an agent of ISL”, and in the statements of defence in both actions, that pleading is admitted. But that does not establish that Mr Newport was an employee as opposed to an independent agent.
[50] In his evidence in chief, Mr Newport, stated that he was “employed by [ISL] as its sales manager at the time the transaction [sic] in issue in this case were undertaken”. Later, he said that ISL provided him with business cards and paid his expenses, including travel. He was initially paid on a commission basis, but from 1999 onwards was paid a retainer in addition to a commission. He said that he acted at all times as the agent of ISL and had no independent role in the matter. He added “ I was not in business on my own account. I was the servant on a commission form of payment”. He was not cross-examined on that evidence.
[51] Mr Corry’s evidence was that Mr Newport was the sales manager of ISL, working part time. He put it this way:

David Newport as our sales manager was working part time for us. He was working in the area of selling franchises on his own account and worked for us on a pure commission basis on an as needed basis. At all times he was working as our agent on all matters relevant to this transaction and within the bounds of his authority from us to promote the sale of this franchise.

[52] He said that Mr Newport was a “member of the executive” of ISL. In cross-examination, Mr Corry referred to Mr Newport as an employee of ISL on a number of occasions, without challenge.
[53] There was no evidence before the Court as to payments made by ISL to Mr Newport for his services, such as whether PAYE was deducted, and/or whether any employment contract was entered into. No discovery was provided by Mr Newport on those issues. On behalf of the respondents, Mr Finnigan argued that having provided no discovery, and not having made an issue of his employment status at trial, Mr Newport should not be permitted to raise the matter on appeal. He said the High Court Judge was entitled to find that Mr Newport was a commissioned agent and that the respondents relied on that factual finding by the Judge.
[54] We are not satisfied that the Judge did, in fact, make a finding that Mr Newport was a commissioned agent: as the extracts set out above demonstrate, the issue was not resolved in the High Court. We are satisfied that it was, albeit obliquely, raised in submissions in the High Court and is therefore an issue validly before this Court. If the plaintiffs in the High Court relied on Mr Newport’s status as an agent, as opposed to an employee, the burden of proof was on them. Having considered the pleadings and the unchallenged evidence of Mr Newport and Mr Corry, we conclude that the plaintiffs have not established that Mr Newport was an agent. He asserted his status as an employee, he was not challenged in that regard, and in those circumstances we find that the question of Mr Newport’s liability in this case must be determined on the basis that he was an employee of ISL at the relevant time.
[55] In the light of that finding, it is at least arguable that Mr Newport was not acting “in trade”, and therefore could be liable only as a secondary party to the contravention by Mr Corry and Mr Jackson under s 43(1)(b)–(e). However, this point was not taken at trial and was raised in the appeal only in response to questions from the bench. Such a finding would be contrary to the decisions of this Court in Kinsman v Cornfields Ltd (at [27]) and Specialised Livestock Imports Limited v Borrie CA72/01 28 March 2002 (at [27]) and a number of High Court decisions, in particular Megavitamin Laboratories (NZ) Limited v Commerce Commission (1995) 5 NZBLC 99-353.
[56] We note that at least one academic commentator, Professor Peter Watts, has suggested that the decisions of this Court in Kinsman and Specialised Livestock should be overruled: P Watts, ‘Directors’ and Employees’ Liability Under the Fair Trading Act 1986 – The Scope of “Trading”’ (2002) 8 Company and Securities Law Bulletin 77. Our preliminary view is that the points made by Professor Watts may have some validity. But we consider that, if a change is to be made to the law in this regard, it should occur only after the point has been fully argued either in this Court or the Supreme Court. We will therefore proceed on the basis that an employee can be liable under s 43(1)(a) on the basis that he or she is “in trade”, subject to the “mere conduit” defence to which we will refer below.

Knowledge of misleading conduct: the Leeming case

[57] The misleading conduct which related to the Leeming transaction is summarised in paragraphs [7]-[12] above. In essence, there are three components to this misleading conduct, namely:

(a) The initial advertisement;

(b) The telephone conversation between Mr Newport and Mr Leeming;

[58] There were subsequent communications and correspondence between Mr Leeming and Mr Corry, which included Mr Corry providing a fabricated document to Mr Leeming. But there was no evidence that Mr Newport had any involvement in that correspondence or those communications.
[59] We will consider Mr Newport’s knowledge in relation to the three categories in misleading conduct outlined above separately. We will then consider the position of IS Wellington.
[60] There was no dispute that much of the information in those three categories of communications was misleading. In particular, the Judge found that the written material falsely represented that guaranteed installation work was in place within the Wellington franchise area, such as would provide an exceptional turnover, and that “work in place” would flow from contracts which ISL had with nationwide customers (at [106]). Similarly the Judge found that the verbal representations made by Mr Newport in his telephone conversation with Mr Leeming were to the effect that there was a heavy demand in Wellington and that customers were waiting. Mr Newport himself accepted that he described the Wellington franchise as a “sensational opportunity”. As those findings are not contested, the focus of our analysis is on whether Mr Newport knew that those representations were false at the time they were made.
[61] In the High Court, Durie J commented on Mr Newport’s knowledge as follows (at [108]):

Indeed, in evidence, he justified the advertised statements of “sensational opportunity” by reference to there being at that time “successful franchises in Christchurch and in Auckland” when he knew, or ought to have known, since he lived with the Auckland franchisee and had been to Christchurch, that the success of Auckland was then far from proven and Christchurch was at best in an embryonic stage. But for the reasons given, I cannot attribute to him, in describing the existing work capacity, anything more than that to which I have alluded.

[62] Later, in his finding that Mr Newport was liable to the Leemings, the Judge described Mr Newport as “more keen than knowledgeable on ISL methods” (at [213]). He repeated the observation about Mr Newport’s knowledge of the Auckland situation because he had flatted with the Auckland franchisee. Later, he said (at [214]):

In relaying that view [that there were major contracts in place with customers awaiting the establishment of the Wellington franchise], Mr Newport was no mere conduit. He adopted as his own such views as had been conveyed by Mr Corry and in his own way, he embellished them. That conduct was one that ought to have been seen as fraught with deleterious consequences for the Leemings who were considering the purchase. I therefore find him liable.

[63] Mr Latton argued that the Judge’s finding of knowledge was predicated on two incorrect factual bases, namely that Mr Newport flatted with the Auckland franchisee and had visited the Christchurch franchise. Both were incorrect. We accept that the evidence establishes that Mr Newport did not flat with the Auckland franchisee until some time after the relevant representations were made, and that his visit to the Christchurch franchise was also after the representations were made to the Leemings (but before the Coburn transaction took place). Thus neither can support the Judge’s finding of knowledge on the part of Mr Newport in relation to the Leeming transaction. The Judge does not give any other reason for the finding, and in those circumstances Mr Latton said that this Court should find that Mr Newport did not know the information which he provided to the Leemings, but which had been prepared for him by Mr Corry (as Mr Corry accepted in cross-examination), was misleading at the time he provided it.
[64] Mr Finnigan accepted that the bases for the Judge’s finding were wrong, but said the evidence still provided a proper basis for an inference that Mr Newport was aware that the representations were false. He said Mr Newport knew there was no nationwide installation network in New Zealand at the time of the Leeming transaction, that there was no exclusive arrangements with nationwide sellers of car audio and car telephone products, and therefore that there was no proper basis for representing that exceptional turnover would be achieved.
[65] In evidence, both Mr Corry and Mr Newport said that information provided by Mr Newport to the Leemings did not go beyond the information provided to Mr Newport by Mr Corry. Mr Newport was cross-examined extensively. He denied having indicated that there was guaranteed business from national suppliers of electronic equipment for cars. But he accepted he had said that ISL undertook work for a number of such resellers when he had not verified that or indicated that he was relying on what he thought the position was in the only existing franchise in Auckland. He said that his view was that there would be significant demand for installation services generally and that, if an operation was established along the lines proposed for IS Wellington, the business would come. But that was a hope or faith which did not provide a proper basis for claiming that there were nationwide arrangements in place that would secure that outcome.
[66] The Judge found that Mr Newport was an unreliable witness and that his answers in cross-examination justifying his conduct were unconvincing in many respects. But ultimately it is for the plaintiffs to prove knowledge on his part. The Judge’s finding of knowledge was based on two factual findings which were incorrect. Without those factual findings it seems to us that there is no proper basis for concluding that the Leemings discharged the onus of proving knowledge on Mr Newport’s part that the information provided by him to the Leemings was false.
[67] We accept Mr Finnigan’s submission that he must have known that there was no nationwide network at that time and that there were no guaranteed installation contracts, but we do not see these factors as decisive. The fact that there was not a nationwide network in place must have been obvious to the Leemings, because they were being asked to establish a branch in Wellington: it was clear that this was part of the establishment of the nationwide network. The reference to guaranteed work was contained in the advertisement which was published by ISL listing Mr Newport as the contact person. But he did not make the representation in the advertisements himself, and there was nothing in the overview material which he provided that repeated it.
[68] Mr Finnigan argued that the document provided to the Leemings by Mr Newport referred to “we”, which he said referred to both Mr Newport himself and ISL. We reject that submission: as an employee it was unexceptional for Mr Newport to use the pronoun “we” to refer to ISL.
[69] We conclude, therefore, that on the evidence before the Court it was not established that Mr Newport knew that the representations which he made to the Leemings were false.
[70] The Judge found that Mr Newport was also liable to IS Wellington, and Mr Latton challenged this on the basis that the liability to IS Wellington arose from conduct on the part of Mr Corry which the Judge found amounted to a misrepresentation by omission. He said Mr Newport had no part in that conduct. As we have discussed, the Judge’s finding was that the misrepresentation was Mr Corry’s failure to attend the proposed meeting with customers. It is also clear that Mr Newport had no part in that. We therefore accept Mr Latton’s submission that Mr Newport ought not to have been found liable to IS Wellington.

Knowledge of misrepresentations: Coburn case

[71] As indicated at [18] above, Mr Newport’s role in the misleading conduct relating to the Coburn transaction was limited to his participation at a meeting with Messrs Corry and Coburn on 18 November 1998. Durie J did not make any specific finding that false representations were made verbally at that meeting: however he found that Mr Corry and Mr Newport reinforced and endorsed the contents of the 15 page overview of ISL which had been sent to Mr Coburn by Mr Jackson earlier, and which contained a number of misleading statements.
[72] Mr Latton argued that the Judge did not properly recognise Mr Newport’s limited role, and its contrast with the much more extensive role of Mr Corry and of Mr Jackson. It was Mr Jackson who prepared the 15 page overview which was discussed at the 18 November meeting.
[73] In particular, Mr Latton emphasised that none of the written material provided to Mr Coburn originated from Mr Newport. Mr Newport said in cross-examination that he had not seen the advertisement referred to at [17] above before it was placed in the newspaper, and had not been involved in drafting the overview. The Judge did not directly address the question as to whether Mr Newport knew or ought to have known that the material in the overview discussed at the 18 November meeting was false or inaccurate. Mr Latton said that on the basis of the High Court findings all that could be said about Mr Newport’s role was that he had taken part in the 18 November meeting at which information prepared by his employer, ISL, was discussed and reinforced.
[74] While the Judge did not make findings about what was said at the 18 November meeting, he did say at [290] that, if it had been necessary for him to do so, he would have found that Mr Newport and Mr Corry claimed that there were “exclusive” arrangements with customers during the 18 November meeting. He accepted that the written material discussed at that meeting did not refer to the term “exclusive”. But he did accept Mr Coburn’s evidence that Mr Newport and Mr Corry had told Mr Coburn at the meeting that there were exclusive arrangements in place with nationwide suppliers, which was, in fact, not true.
[75] The only finding made by the Judge in relation to Mr Newport’s knowledge was at [343] where he noted that Mr Newport’s role had increased within ISL at the time of the Coburn transaction ‘so that he was more intimately involved in both sales and support’. But that gives little, if any, indication of the state of Mr Newport’s knowledge as to the accuracy of the representations made in material prepared by others.
[76] Mr Finnigan emphasised aspects of the advertisement and overview which he said Mr Newport must have known were incorrect. In particular he submitted:

(a) The reference in the advertisement to an established nationwide group of companies and existing client base implied there was guaranteed work, and this would have been reinforced by the use of the term “exclusive” during the 18 November meeting. Mr Newport accepted in evidence that there was no guaranteed work or exclusive arrangements in place, but denied ever claiming that there were. However, in the light of the Judge’s finding that the term “exclusive” was used at the 18 November meeting, it can be deduced that this representation was made by, or in the presence of, Mr Newport when he knew that it was incorrect;

(b) Similarly there was a reference in the overview to a list of companies currently sending work to ISL followed by the following sentence:

All of these nationwide companies will send you work and Dean Corry will personally introduce your [sic] to each shop manager in your area.

This was also reinforced by the exclusivity reference at the meeting and, to Mr Newport’s knowledge, was similarly misleading.

[77] Mr Finnigan pointed out that Mr Newport was aware that some franchises had failed in other areas by the time the Coburn transaction took place, which meant that he must have been aware that the predictions of substantial income were dubious at best.
[78] The Judge found that a claim that there were exclusive contracts with suppliers was made at the 18 November meeting. More correctly, he said he would have made such a finding if it had been necessary to do so. The Judge saw no such necessity, apparently because he considered Mr Newport was liable whether he knew of the falsity of the representations or not. We have approached the case differently, and we do need to make a finding relating to Mr Newport’s knowledge. We therefore rely on the finding which the Judge said he would have been prepared to make.
[79] Mr Newport acknowledged that he knew there were no exclusive contracts with suppliers and that there was no guaranteed work for franchisees. In the light of those matters, we conclude that, at least to that extent, Mr Newport had knowledge that the representation made to Mr Coburn was incorrect. That representation was very significant in the overall scheme of things because it led Mr Coburn to believe that, as franchisee, his business would be substantially made up of clients made available to him by arrangements in place between the clients and the franchisor. This was not true.

Application of law to facts

[80] Having reached those factual conclusions, we now turn to apply the law to the facts of this case. It is convenient to deal with the Coburn case first, because it is relatively simple, before turning to the Leeming case.

Coburn case

[81] In the light of our finding that Mr Newport knew that the representations about exclusive contracts that he and Mr Corry made at the 18 November meeting were misleading, we are satisfied that Mr Newport was “directly or indirectly knowingly concerned in” the contravention of s 9 of the Fair Trading Act by ISL. So he was liable to the Coburns by virtue of s 43(1)(d) of the Fair Trading Act. The claim made by the Coburns is for damages under s 43(2)(d), which empowers the Court to order a payment of damages by any person who has engaged in conduct referred to in s 43(1). Mr Newport has done so and, in our view, is therefore liable.
[82] We note that there was no specific pleading that Mr Newport was liable by virtue of s 43(1)(d), but in our view this is not a barrier to the imposition of liability. The pleading was a breach of s 9, and the finding is a breach of that section by ISL in which Mr Newport was knowingly concerned or a party. We do not think that it necessary to plead separately that damages are claimed on the basis of the secondary party status of an employee, though for clarity this is probably preferable: T & P Developments Ltd v Yu HC AK CP18-SD99 11 April 2001 Glazebrook J at [198].
[83] We uphold the Judge’s finding of liability on the part of Mr Newport to the Coburns, though for different reasons.
[84] Mr Latton argued that, if Mr Newport was liable to the Coburns, the amount of the liability should be lower than that of Messrs Corry and Jackson because of Mr Newport’s comparatively minor role in the misleading conduct. The Judge declined to discount Mr Newport’s liability. He said that, although Mr Newport’s role was a great deal less than that of Mr Corry, the comparison did not assist because the focus was only on the conduct of Mr Newport (at [214]). Mr Latton said this was an error on the Judge’s part, and contrary to the observations made by this Court in Goldsbro at 399, 404 and 406 respectively.
[85] As we have approached the issue of liability on a different basis from that of the Judge, we need to consider afresh the question of a discount. There is no doubt that the role of Mr Newport was considerably less significant than that of Mr Jackson and Mr Corry. In particular, Mr Corry provided fabricated figures relating to the Tauranga franchise, which involves much more serious misconduct than that of Mr Newport. And Mr Jackson drafted the overview which was discussed at the meeting of 18 November 1998.
[86] We accept that Mr Newport’s role, which was limited to the representations as to exclusivity at the 18 November meeting, is much less than serious than that of Mr Corry, in particular, and Mr Jackson. In our view, it is appropriate that the liability of Mr Newport be discounted to reflect this lesser wrong. The trial Judge ordered that the $25,000 compensation awarded for the breach of the Fair Trading Act be paid jointly and severally by Messrs Corry, Jackson and Newport. (Messrs Corry and Jackson were also liable for damages of $30,000 under the Contractual Remedies Act). In our view it is appropriate to discount Mr Newport’s liability to $5,000, with the remaining $20,000 being payable jointly and severally by Messrs Corry and Jackson.

The Leeming case

[87] As we have found that Mr Newport did not know that the information provided to the Leemings was misleading at the time it was provided, he cannot be secondarily liable (that is, liable as a party under s 43(1)(d)). The question to be determined, therefore, is whether he is primarily liable under s 43(1)(a) for a breach of s 9.
[88] The question of the concurrent primary liability of the officers of the company and the company itself is a matter of some controversy. As we indicated earlier, we consider ourselves bound by the decisions of this Court in Kinsman and Specialised Livestock, both of which decided that a director of a company can be primarily liable along with the company itself on the basis that the director is independently engaged “in trade”. That conclusion is based on a particular interpretation of s 45(2), which relevantly provides:

(2) Any conduct engaged in on behalf of a body corporate –

(a) By a director, servant, or agent of the body corporate, acting within the scope of that person’s actual or apparent authority;

...

shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate.

[89] As this Court noted in Kinsman at [19], the use of the word “also” suggests liability under the Fair Trading Act for both the director and company where the director is acting within his or her actual or apparent authority. Issue can be taken with that conclusion for the reasons given by Professor Watts, but we proceed on the basis that it correctly states the law.
[90] Both Kinsman and Specialised Livestock were cases involving directors who were intimately involved in the running of a company, as were a number of the High Court decisions relied on in those cases such as Gloken Holdings Limited v The CDE Co Limited (where the director was described as the ‘alter ego’ of the company), Megavitamin Laboratories (NZ) Limited v Commerce Commission and T & P Developments Limited v Yu.
[91] Mr Newport is, of course, in a different position. While we have found he was an employee, and as sales manager he must be seen as a senior employee, he was not a director or shareholder of ISL and could certainly not be described as its “alter ego”. But that raises the question as to whether we should impose a different rule for persons who are mere employees as opposed to directors. We can see no basis for doing so, given that the decisions in Kinsman and Specialised Livestock involved an applications of s 45(2), which refers to “a director, servant, or agent of the body corporate”, without distinguishing between them in any way.
[92] Therefore, following Kinsman and Specialised Livestock, we conclude that Mr Newport was acting in trade when he made representations to the Leemings. That means he would be liable for any breach of s 9 which resulted from the representations he made to the Leemings, unless he was a mere conduit.
[93] The “mere conduit” defence was first articulated by this Court in Goldsbro v Walker [1993] 1 NZLR 394. Cooke P put it this way (at 398):

There is no difficulty in accepting that an innocent agent who acts merely as a conduit and purports to do no more than pass on instructions from his principal does not thereby become responsible for anything misleading in the information so passed on. (Emphasis in original.)

[94] Richardson J expressed it in these terms (at 402):

It is not sufficient to attract liability that the communication simply purports to pass on information ostensibly provided by a third party. In such a case any misleading conduct is that of the third party not of the intermediary.

...

The test under s 9 is objective and on which side of the line a particular case falls turns on an assessment of what was conveyed. Was it a representation by the person charged or was it the passing on of information for what it was worth to the receiver without any inference that the person charged was vouching for it?

[95] Hardie Boys J suggested the following test (at 405):

...[F]or the conduit to avoid liability it must be apparent that he is not the source of the information, that he expressly or implicitly disclaims any belief in its truth or falsity, and is merely passing it on for what it is worth.

[96] All of the Judges referred to, and relied on, the dicta of the majority judgment in Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 at 666, where it was stated:

That does not, however, mean that a corporation which purports to do no more than pass on information supplied by another must nevertheless be engaging in misleading or deceptive conduct if the information turns out to be false. If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive.

[97] Both Goldsbro and Yorke were cases involving independent agents: in Goldsbro, solicitors acting for a purchaser in a property transaction, and in Yorke a land agent acting for the vendor of a business.
[98] The application of the “mere conduit” defence to an employee raises some particular difficulties not faced in cases involving independent agents. Mr Latton said that Goldsbro, and decisions which have followed it such as Hammer Auctions NZ Limited v William HC AK HC148-96 10 April 1997 and Hall v Warwick Todd Limited (2000) 9 TCLR 448 were cases involving independent agents and the test applied in those cases does not easily translate to the present situation of an employee.
[99] Mr Latton said that it was quite reasonable to require that an independent agent make it clear that he or she is simply passing on information from the principal at the time the information is provided: in the case of the lawyers in Goldsbro, for example, it could have been expected that they would say “We have been instructed that the contract is now signed” rather than making a clear statement that it had been signed which was relied upon by the recipient as an assurance from the law firm itself.
[100] However, he argued it was simply not appropriate to require employees to state, when repeating information provided by their employer, that the information was not verified by the employee or to preface the provision of the information with introductory words such as “my employer tells me that...”. He said a different approach was justified in relation to employees because, unlike independent agents, they have no independent status and would not be reasonably considered by a person with whom they are communicating as having any separate status from their employer. There would be no basis for the recipient of information from an employee to rely on the independence or expertise of the employee, and unlike independent agents who will often have insurance to protect them against liability, employees could not be expected to do so.
[101] Mr Latton suggested that, in order to be liable, it was necessary to establish that Mr Newport:

(a) Actively adopted the representations made to the Leemings themselves; or

(b) Was aware that the representations were misleading; or

[102] We accept Mr Latton’s submission that there are some difficulties in applying to employees a test that was devised to deal with the situation involving independent agents such as solicitors, land agents, auctioneers and the like.
[103] Mr Finnigan referred us to a New South Wales decision in which the mere conduit test had been applied in relation to an employee: Wong v Citibank Limited; Wong v ABN Amro Bank NV (2004) ATPR 42-037. However, as the Court pointed out in that case, the question as to whether a person is merely a conduit and does not adopt the information as his or her own is a question of fact (at [21]). The Court found in that case that there was sufficient evidence to establish that Mr Wong had made the representation personally and not as a cipher.
[104] We think that the best approach is not to pronounce a new test for “mere conduit” in the case of employees, but simply to apply the test to the facts of the case. The reality is that there are many situations, particularly where information has been conveyed by a relatively junior employee, in which will be obvious to the recipient that the representation is made by the body corporate which employs the employee, rather than independently by the employee himself or herself. We do not think that there is anything in the Goldsbro test which requires that an employee specifically distances himself or herself from the information in order to satisfy the mere conduit test. Rather, if, on the facts, it should be apparent to the recipient of the information that the employee is not personally the source of the information, then in the absence of any other factor indicating to the contrary, the mere conduit test should be satisfied.
[105] The position of a mere employee can be contrasted with the cases of a director who is the alter ego of a company: the contrast is obvious.
[106] The position of Mr Newport is somewhere in the middle of these two extremes. As the sales manager he was likely to be regarded as a senior employee, but he was, to the knowledge of the Leemings, subordinate to Mr Corry. Mr Corry was, in effect, the alter ego of the company. On the facts as we have found them, it cannot be said that Mr Newport did more than convey the information prepared for ISL by Mr Corry to the Leemings, in circumstances where he did not know it was false, and he did not add a personal embellishment or confer on it any personal imprimatur. In those circumstances, he is, in our view, entitled to the benefit of the mere conduit defence in the case of the Leemings.

Result

[107] The result therefore is that we allow Mr Newport’s appeal in relation to the Leeming proceedings and in relation to the finding of liability to IS Manawatu, and allow his appeal in relation to liability to the Coburns in part: we reduce the amount for which he is liable to $5,000.

Costs in the High Court

[108] As Mr Newport has been successful in relation to the Leemings, he should not be liable for payment of the costs and disbursements of the Leemings in the High Court. We therefore quash the costs order against him in relation to the Leemings. We do not however believe the Leemings should be required to pay his costs in the High Court in the circumstances of the case. The award of costs in the High Court in relation to the Coburn/IS Manawatu case will need to be altered to reflect the outcome of this appeal. We did not hear argument on that issue, and it is appropriate that we give counsel an opportunity to make submissions if they are unable to agree on the required adjustment. Submissions should be filed and served by the appellant within three weeks after the delivery of this judgment, by the respondent with two further weeks and by the appellant in reply within one further week.

Costs in this Court

[109] In this Court, Mr Newport has been successful against the Leemings, but only partly successful against the Coburns. In those circumstances we consider it appropriate that the Leemings pay costs to Mr Newport of $1,500 plus 50% of the usual disbursements incurred in connection with the appeal, and that costs should lie where they fall in relation to the Coburn/IS Manawatu appeal.

Solicitors:
Lowndes Associates for Appellant
Rory MacDonald Law for Respondents

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