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Commerce Commission v Carter Holt Harvey Ltd [2009] NZCA 40; [2009] 3 NZLR 573; (2009) 9 NZBLC 102,499; (2009) 12 TCLR 321; [2009] NZCCLR 24 (27 February 2009)

Last Updated: 2 February 2018

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA316/2007
[2009] NZCA 40


BETWEEN CARTER HOLT HARVEY LIMITED
Appellant

AND THE COMMERCE COMMISSION
Respondent

Hearing: 8 & 9 July 2008

Court: Hammond, Chambers and Baragwanath JJ

Counsel: R G Simpson and J S Cooper for Appellant
A R Galbraith QC and J C L Dixon for Respondent

Judgment: 27 February 2009 at 4 pm

JUDGMENT OF THE COURT
  1. The appeal is allowed.
  2. The respondent’s proceeding in the High Court is struck out, on the ground that it is timebarred.
  1. With respect to costs in this Court, the respondent must pay the appellant costs for a complex appeal on a band A basis and usual disbursements. We certify for second counsel.
  1. Costs in the High Court are to be fixed in that Court in light of this judgment and the reasons thereof.

____________________________________________________________________

REASONS

Baragwanath J [1]
Hammond J [124]
Chambers J [155]

BARAGWANATH J


Table of Contents
Para No

The appeal [1]
Legal setting [2]
The decision of the High Court [6]
Whose knowledge is relevant? [11]
What was the loss or damage? [29]
Pleadings as to loss [36]
What did the Commission know and when? [41]
What do “discovered” and “ought reasonably to have
discovered” mean? [69]
(a) Application of the analysis [76]
(b) The parties’ approaches [85]
(c) Haward v Fawcetts [94]
(d) Ought reasonably to have discovered [119]
Conclusion [123]

The appeal

[1] Carter Holt Harvey Ltd (CHH) appeals against a decision of the High Court which declined its application for an order striking out as statute-barred a civil proceeding brought against it by the Commerce Commission: Commerce Commission v Carter Holt Harvey Limited [2007] NZHC 1799; [2008] 1 NZLR 387. The proceeding, under s 43(1) of the Fair Trading Act 1986 (“the Act”), was filed on 27 October 2006. By s 43(5) it was required to be filed within three years of:

the date on which the loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered.

So if the loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered before 27 October 2003 (“the limitation date”), the proceeding is out of time and must be struck out.

Legal setting

[2] If a defendant satisfies the Court that a claim is statute-barred it will be struck out as an abuse of process under r 186(3) of the High Court Rules: Murray v Morel & Co Ltd [2005] NZCA 432; [2006] 2 NZLR 366 at [59] and [60] (CA) and [2007] NZSC 27; [2007] 3 NZLR 721 at [33] (SC). But limitation questions will not be decided in interlocutory proceedings in advance of the hearing except in the clearest of cases: Wardley Australia Ltd v State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 at [31].
[3] On 12 October 2006 CHH pleaded guilty to 20 charges under s 10 of the Act, which prohibits persons in trade from engaging in conduct that is liable to mislead the public as to the nature, manufacturing process, characteristics, suitability for a purpose, or quantity of goods. It was fined $900,000.
[4] The Commission’s civil proceeding claimed that, during the period from 3 May 1998 to 29 October 2003, CHH had caused damage to others by contravention of the Act, and sought relief under s 43(2). CHH applied unsuccessfully before Asher J for an order that the proceeding be struck out as disclosing no cause of action and as an abuse of the process of the Court.
[5] Since the three year limitation period did not stop running until the civil proceeding was filed on 27 October 2006, the issue is whether “the date on which loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered” was before or after 27 October 2003. CHH contends the Commission’s discovery was on or about 14 October 2002, when the complaint was made, or at latest when the Commission received information contained in an affidavit by the Commission’s investigator, Mr Theobald, which led to the issue of search warrants on 24 October 2003, and so the claim is barred. The Commission contends that time has never started running; and alternatively that it did not start until, at earliest, the Commission’s search of CHH premises on 29 October 2003 which produced essential information, so the proceedings were filed with at least two days to spare.

The decision of the High Court

[6] Asher J recounted the history of s 43(5). In its original form it read:

(5) An application under subsection (1) of this section may be made at any time within 3 years from the time when the matter giving rise to the application occurred.

In Murray v Eliza Jane Holdings Ltd (1993) 5 TCLR 272 at 278, this Court held that, although relief cannot be given unless loss or damage has been suffered or is likely to be suffered as a result of the defendant’s conduct, such loss or damage was not an ingredient of “the matter giving rise to the application”. It was the defendant’s conduct alone that set time running. The amended form which governs this case focuses on the actual or imputed knowledge of the plaintiff.

[7] Asher J pointed to the three year time limit for criminal proceedings set by s 40(3):

(3) Despite section 14 of the Summary Proceedings Act 1957, proceedings under this section may be commenced at any time within 3 years after the matter giving rise to the contravention was discovered or ought reasonably to have been discovered.

[8] He cited Direen v Commerce Commission (1998) 8 TCLR 444 (HC) which held that orders under s 43 can be made at the conclusion of criminal proceedings commenced within time. But he did not accept that the filing of offence proceedings in the District Court stopped time running for separate civil proceedings in the High Court. The Commission did not cross-appeal against that decision.
[9] The Judge made three important determinations, each of which is challenged by CHH.
[10] Each of these conclusions was challenged by CHH and I consider them in the following order:

(c) What was the Commission’s knowledge?

(d) What do “discovered” and “ought reasonably to have been discovered” mean? (Asher J’s second issue.)

Whose knowledge is relevant?

[11] Section 43(1) allows an application to be made by “any person”, which must include the Commission. The Judge accepted the Commission’s submission it is the person who, in terms of s 43(1), has suffered loss whose knowledge should be relevant for purposes of limitation under subs (5) of the same section. It follows, Mr Galbraith QC contended, that there is no reason to bar the Commission until the loss sufferer is barred.
[12] That argument has a certain attraction. In the definition section, s 2, the Act defines and thereby recognises the role under the Act of the Commission, as it does that of the Minister of Consumer Affairs. Section 6 gives the Commission functions in relation to the dissemination of information. Under s 42 the Commission may apply for a Court order for disclosure and publication of information by a person who has infringed the Act. The Commission has explicit functions under Part 6 to require the supply of information (s 47G), to inspect documents and goods (s 47E) and to participate in the process of search of places under Court warrant (s 47). The Act undoubtedly contemplates that the Commission will play a significant and indeed leading role in the criminal and civil proceedings which it authorises.
[13] It is however less evident that the Commission is personally free from limitation. Subsection (5) of s 43 is one of three limitation periods stipulated by the Act. Subsection (3) of s 40 ([7] above) sets a three year limit on criminal proceedings which may give rise to a fine of $200,000 and also a s 43 civil penalty within the $200,000 limit of the District Courts Act 1947.
[14] Further, subs (3) of s 47J sets a six month limit for proceedings under s 47J in respect of failure to comply with a notice under s 47G:

(3) Proceedings for an offence against subsection (2) may be commenced within 6 months after the matter giving rise to the contravention was discovered or ought reasonably to have been discovered.

The latter subsection is plainly applicable to the Commission, which alone has power to give the s 47G notice for which s 47J provides the sanction.

[15] Section 43(1) refers to three different kinds of person: the maker of the application; the injured person; and the person who has caused the loss (with emphasis added):

Where, in any proceedings under this Part [5], or on the application of any person, the Court finds that a person, whether or not that person is a party to the proceedings, has suffered, or is likely to suffer loss or damage by conduct [of the proscribed kind] of any other person the Court may ... make all or any of the orders referred to in subsection (2).

The clear intention is that a person who is not the injured person may make the application. The Act’s explicit references to the Commission make it an obvious potential applicant “person ”. The injured person or persons need not be a party to the application. But it is plain from subs (2) that, to lead to relief, the proceedings must sooner or later raise the loss or damage of the injured person or persons . That follows from the specific language of subs (2), which lists the orders that can be made:

(2) For the purposes of subsection (1) of this section, the Court may make the following orders—

(a) An order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct referred to in subsection (1) of this section or of a collateral arrangement relating to such a contract, to be void and, if the Court thinks fit, to have been void ab initio or at all times on and after such date, before the date on which the order is made, as is specified in the order:

(b) An order varying such a contract or arrangement [as between and ] in such manner as is specified in the order and, if the Court thinks fit, declaring the contract or arrangement to have had effect as so varied on and after such date, before the date on which the order is made, as is so specified:

(c) An order directing the person who engaged in the conduct, referred to in subsection (1) of this section to refund money or return property to the person who suffered the loss or damage:

(d) An order directing the person who engaged in the conduct, referred to in subsection (1) of this section to pay to the person who suffered the loss or damage the amount of the loss or damage:

(e) An order directing the person who engaged in the conduct, referred to in subsection (1) of this section at that person's own expense, to repair, or provide parts for, goods that had been supplied by the person who engaged in the conduct to the person who suffered, or is likely to suffer, the loss or damage:

(f) An order directing the person who engaged in the conduct, referred to in subsection (1) of this section at that person's own expense, to supply specified services to the person who suffered, or is likely to suffer, the loss or damage.

[16] It can be seen that each of the subs (2) orders is specifically linked, either expressly (or in the case of para (b)) by necessary implication, to the relationship between the injured person and the contravening person .
[17] It is reasonable to infer that when person has discovered or ought reasonably have discovered the loss or damage more than three years earlier, the claim against person should be barred under subs (5). Otherwise person could avoid the bar forever simply by persuading someone who possess that knowledge for less than three years to become the applicant, person .
[18] But what of the present case, where there are likely to be numerous persons , who will as yet have no knowledge that the timber they bought was of the infringing kind?
[19] Since the subs (5) bar to “[a]n application under subsection (1)” means a bar to that application, whoever brings it, I consider that the bar must relate to both an applicant, person , which may be the Commission, and the person who has suffered loss or damage, at the latest when it becomes the subject of a pleaded claim. Time for bringing a claim by or on behalf of an injured party, person , will start running when that person ought to have discovered the likelihood of loss or damage. And if the applicant, person , has actually discovered the likelihood of loss or damage, or ought reasonably to have done so, again time should start running.
[20] Asher J considered that to bar an application by the Commission (as person ) three years after it ought reasonably have discovered the likelihood of loss or damage to an injured party (person ) would be unfair. His concern was that knowledge of the Commission of person ’s loss would bar a claim by person who might never have known of the claim. He took the prospect of such injustice as a pointer to time beginning to run only when such party, rather than the Commission, discovered or ought reasonably to have discovered its loss. So there should be no bar against the Commission until the injured party was barred.
[21] But there is nothing in subs (5) to set time running against such a person . The Act does not create any agency which would have the Commission’s knowledge attributed to person . If the Commission has such knowledge of conduct by person as itself to become barred, person , if personally lacking such knowledge, can make a personal application. If on the other hand person knows or ought to know the facts so as personally to become barred, the Commission, if itself lacking knowledge which would bar it, may bring a claim, although only in respect of the losses of affected persons other than person . In such a case no relief would be available in relation to person ’s losses.
[22] The disadvantage of such a conclusion is that a person without knowledge cannot take the benefit of having proceedings brought by a Commission which does have knowledge. That is a factor emphasised by Mr Galbraith in support of the Judge’s conclusion.
[23] But the consequence of that conclusion is that time might never start running against the Commission, despite its having substantial knowledge of all relevant facts, if there happened to be a single person who lacked the relevant information. An example might be a single one of many thousands affected by a defendant’s breach (say the purchaser of a piece of timber who had left New Zealand and did not keep up with legal developments here).
[24] Where Parliament has used general language, and thus delegated to the Court the task of making it specific, the Court will seek to discern both the broad policy of the Act and that of the general law. Sections 40(3), 47J(3) and 43(5) all reveal more or less precisely a policy of relieving person of liability three years after either the contravention or the likelihood of loss or damage.
[25] The general law contained in the Limitation Act 1950 contains a general limit of six years, in the absence of fraud or mistake. While laches in equity may not impose a bar until after a much longer period (see Eastern Services Ltd v No 68 Ltd [2006] NZSC 42; [2006] 3 NZLR 335 (SC)), that is an exception to the general policy of the law. In the Ampthill Peerage Case [1977] AC 547 Lord Wilberforce stated at 569:

Th[e] principle of finality of determination in the matter of legitimacy is, of course, but one strand in a more general fabric. English law, and it is safe to say, all comparable legal systems, place high in the category of essential principles that which requires that limits be placed upon the right of citizens to open or to reopen disputes. The principle [is] ... that which requires judgments in the courts to be binding, and that which prohibits litigation after the expiry of limitation periods. Any determination of disputable fact may, the law recognises, be imperfect: the law aims at providing the best and safest solution compatible with human fallibility and having reached that solution it closes the book. The law knows, and we all know, that sometimes fresh material may be found, which perhaps might lead to a different result, but, in the interest of peace, certainty and security it prevents further inquiry. It is said that in doing this, the law is preferring justice to truth. That may be so: these values cannot always coincide. The law does its best to reduce the gap. But there are cases where the certainty of justice prevails over the possibility of truth ..., and these are cases where the law insists on finality. For a policy of closure to be compatible with justice, it must be attended with safeguards: so the law allows appeals: so the law, exceptionally, allows appeals out of time: so the law still more exceptionally allows judgments to be attacked on the ground of fraud: so limitation periods may, exceptionally, be extended. But these are exceptions to a general rule of high public importance ...

[26] Parliament has not expressly exempted applications by the Commission from the general bar in subs (5) of late applications. In terms of s 5(1) of the Interpretation Act 1999, its broad language tells against the Commission’s submission. In terms of the policy to which that provision also refers, I am not persuaded that the Commission’s important function of implementing the Act may be assumed to override the important competing policy of limitation expressed in subs (5). It may be noted that, in the case of civil pecuniary penalties under s 80(5) of the Commerce Act 1986, Parliament has imposed on the Commission a limit of three years “after the matter giving rise to the contravention ... ought reasonably to have been discovered”, as well as the general similar limit in actions for contravention under s 82(2). The Commerce Act is to be construed in accordance with sensible business standards. The business tenet, that traders are entitled to close their books after a reasonable period for resolving disputes, does not permit the kind of indefinite delay that the alternative argument entails. In the absence of clear language to the contrary, I decline to attribute to Parliament any acceptance of such delay.
[27] There is in addition the constitutional dimension. During the last century there has been increasing recognition that the Crown should not be preferred in litigation unless there are very powerful public interests warranting that course. The Crown Proceedings Act 1950 exemplifies that recognition and it is discussed in the New Zealand Law Commission Mandatory Orders Against the Crown and Tidying Judicial Review (NZLC PP 10, Wellington, 2001):

[17] The rule of law requires the State and its officials to be subject to the law. It follows that (except where there are specific public policy reasons for exemption) the continuing exceptions to that principle have no current justification and should be removed.

...

[19] Such notion of a general Crown immunity is an anachronism which should not have survived the development of Parliamentary democracy.

Here there are no such policy reasons.

[28] I accept Mr Simpson’s submission that it is the knowledge of the Commission (or, as the case may be, and conceivably at the point of assessing remedy that of the loss sufferer) which is here to be considered.

What was the loss or damage?

[29] Section 43(1) identifies the loss or damage that can form the basis for a s 43(2) order. Here the relevant provision is s 43(1)(a):

Where ... a person ... has suffered, or is likely to suffer, loss or damage by conduct of any other person that constitutes or would constitute—

(a) A contravention of any of the provisions of Parts 1 to 4 of this Act; ...
[30] The Commission’s application alleged contravention of two provisions in Part 1 of the Act: ss 10 and 13(a). Section 10 provides:

10 Misleading conduct in relation to goods

No person shall, in trade, engage in conduct that is liable to mislead the public as to the nature, manufacturing process, characteristics, suitability for a purpose, or quantity of goods.

[31] Section 13(a) provides:

13 False or misleading representations

No person shall, in trade, in connection with the supply or possible supply of goods or services or with the promotion by any means of the supply or use of goods or services,—

(a) make a false or misleading representation that goods are of a particular kind, standard, quality, grade, quantity, composition, style, or model, or have had a particular history or particular previous use; ...

[32] In essence, the loss or damage that the Commission had to discover was loss or damage arising from a misrepresentation or misleading conduct on the part of CHH. The loss or damage claimed in the Commission’s statement of claim is two-fold: (1) the loss to end-users of the timber of the difference in price between what they paid for CHH’s MGP10 timber and the fair market value of the timber CHH supplied, and (2) the loss of profit suffered by each competitor (no doubt from sales it would have made had CHH labelled its product accurately as being of lower quality than MGP10).
[33] Mr Galbraith for the Commission identified several elements as giving rise to the loss, which I would express as follows:
[34] This analysis was not challenged by CHH, and seems to arise inevitably from the legislation: the existence of a price premium for CHH’s products cannot be a relevant loss if it arises from legitimate market operation; it can only be a loss if it is the result of misrepresentation.
[35] I refer to “endemic breach” because, as is later explained, for all proceedings against CHH in respect of the whole of the MGP10 product to be statute-barred, the Commission must have discovered that the conduct in breach of the Act was habitually present.

Pleadings as to loss

[36] For the purposes of striking out a claim, the facts are in general assumed to be as asserted in the statement of claim. Some background is necessary to understand the pleadings. CHH operated sawmills producing structural timber in Putararu, at Kopu on the Coromandel Peninsula and in Nelson. Among the products it marketed was lumber known as “Laserframe”, which it represented and sold as complying with grading requirement MGP1 defined by Australian and New Zealand Standards: AS/NZS 1748:1997. “MGP” means “machine graded pine”. The standards provide for stiffness, measured in Gigapascals (“GPa”), with higher numbers indicating greater stiffness and higher grade, and strength, measured in Megapascals (“MPa”), with higher numbers indicating stronger lumber and higher grade. For timber to qualify as MGP10 it must come from a population (that is a forest) with a characteristic Modulus of Elasticity (“MoE”) of no less than 10 GPa; but any individual piece of timber may qualify if its average minimum Modulus of Elasticity exceeds 9.4 GPa.
[37] The industry graded timber in two main ways: visual grading, the product of which was sold as “No 1 Framing”, and machine stress grading. The former method was less precise than the latter and CHH represented to the market that:
[38] The Commission pleaded that between 3 May 1998 and 29 October 2003 the thresholds of CHH’s machine stress graders were not set at a sufficiently high level to ensure that what it described as “the population of product” graded and sold as MGP10 complied with the relevant standards. CHH admitted that from time to time the timber sold as MGP10 failed to meet the relevant standards consistently. While its pleading otherwise denied the Commission’s allegation, CHH also admitted that in the criminal proceeding it had entered guilty pleas relating to such conduct.
[39] The Commission further pleaded that CHH’s timber sold as MGP10 was of lower or no better quality than visually graded No 1 Framing timber, yet its average selling price was higher than the average price charged by competitor mills for No 1 Framing timber; as a result of misgrading and misrepresentation of the specification of its product, CHH was able to sell larger volumes of timber than if it had correctly graded and represented its product; its sawmills were more profitable; and that it secured greater market share; so competitors suffered equivalent loss. CHH denied such allegations.
[40] For present purposes it is to be assumed that the losses are as pleaded.

What did the Commission know and when?

[41] Asher J found that there was sufficient knowledge on the part of the Commission prior to 27 October 2003 to warrant an investigation. CHH asserts and the Commission denies that was sufficient to set time running. The nature of the test is considered below at [69] and following.
[42] I have noted that the point by which, to secure strike out, CHH must establish relevant knowledge, is three years before the proceedings were commenced, namely 27 October 2003.
[43] The possibility of a breach of the Act was first raised in May 2002, when an article in Sawmilling magazine showed results of test on timber from three suppliers and stated that:

Analysis of the data from the three suppliers indicates that some suppliers of structural grade timber are not ensuring that the machine-graded timber produced meets code specifications.

None of the suppliers was mentioned by name.

[44] Six months later, on 14 October 2002, the New Zealand Timber Industry Federation (NZTIF) made a complaint by telephone to the Commission about CHH’s representation of its Laserframe timber as MGP10. The complaint, which was confidential, was recorded by the Commission:

The evidence gathered by Forest Research [(“FRI”)] indicates that CHH timber which was represented as MGP10 was actually only MGP8. In fact 72% of the timber failed (when checked in a laboratory) to meet the grade MGP10. ... [T]hey suspect tens of millions of dollars of MGP timber which does not meet the grade represented is now out in the market.

[45] The following day a written complaint along the same lines was sent to the Commission by the executive director of NZTIF, Wayne Coffey. The FRI report and the Sawmilling article were attached to the written complaint. The report regarded testing of one packet of CHH Laserframe timber, purchased in Rotorua and understood to be from Kopu Mill, and one packet of Fletcher Challenge Forests Origin timber. Both were graded as MGP10. The FRI testing found the “true” grade for the CHH timber should have been MGP8 and MGP6. Seventy-two per cent of the timber failed to meet the grade MGP10. The report discussed how representative the findings were as follows:

Without access to the quality assurance records for each supplier this question is difficult to answer. However one of the advertised benefits of machine stress grading is that between packet variation is meant to be a minimum. In terms of the average stiffness we would expect this to be similar between packets.

The primary reason why there would be a difference in stiffness would be a change in the grade thresholds. Changing the grade thresholds is normally done to ensure the grade stresses are achieved. Differences in strength can be due to the visual override limit and the effectiveness of its application.

[46] Mr Coffey asserted:

It is likely this is not an isolated example. In fact, we suspect tens of millions of dollars of MSG timber, which did not meet the grade it represented, is now out on the market.

[47] On that day three emails were also sent from NZTIF to the Commission explaining the specifications of, and difference in price between, MGP8 and MGP10 ($10 to $15 per cubic metre on small sizes to about $50 on large end sections) and the uses of visual and machine stress-graded timber.
[48] The flow of the evidence then pauses for about a month. On 19 November 2002 the matter was assigned to Mervyn Theobald, a senior investigator at the Commission.
[49] On 27 November Mr Theobald interviewed the executive director of NZTIF, Mr Coffey. Mr Coffey explained that over the preceding two years, suppliers had turned to machine-graded timber in order to take advantage of the marketing value of being able to give a 100 per cent guarantee that the timber was a certain mechanical strength. Referring to the FRI testing, he said that this guarantee now appeared to be incorrect because the machine settings had been altered. Mr Coffey said that the FRI had tested timber from CHH’s Putaruru and Kopu mills but did not mention any test from the biggest mill, Nelson. He also noted that CHH might not necessarily have the same grading machine on all their sites. Mr Coffey also indicated avenues by which the Commission could continue its investigation.
[50] Mr Theobald deposed that after the interview he met with the Chief Investigator, Ross McPherson. He stated that they were both of the view that the evidence available to the Commission at that stage was an insufficient basis on which to recommend a way in which the investigation ought to be resolved. He considered that more testing needed to be done to substantiate the two existing reports.
[51] Two weeks after the interview with Mr Coffey, on 11 November 2002, Mr Theobald met with Douglas Grant and Dave Cowan of FRI. The file note indicates that the discussion focussed on the testing process. Mr Theobald’s affidavit states that another purpose of the meeting was to determine the extent to which it was possible to draw conclusions regarding CHH’s entire production of MGP10 from the results of the two samples that had been tested. He also states that Mr Grant confirmed that CHH was one of the identified suppliers in the Sawmilling article.
[52] Mr Theobald followed up the meeting with a letter on 7 January 2003. The letter indicated that in the interim FRI had quoted the Commission a price for further testing, and requested that FRI proceed with the testing. The letter also stated:

When testing please ensure that notes and other evidential material are retained as evidence of the testing may be used in civil or criminal proceedings against a particular party should there be sufficient evidence obtained to establish a breach of the Fair Trading Act 1986.

The investigation is in its infancy, and as discussed much investigative work is yet to be undertaken to establish if such a breach of the Act has occurred. ...

[53] The next date in Mr Theobald’s affidavit is May 2003, when FRI provided a preliminary draft report. However, in an affidavit he swore for the application on 24 October 2003 for a search warrant, he states that in January 2003 FRI “made the Commission aware” of a CHH business operation that marketed a product called Tadpole. Tadpole was a computer software programme that monitored and collected data produced by stress grading machines used at the three CHH mills. The promotional material indicated that the software would automatically log and analyse the grade determining machine values and combine them with manual and other test data to provide the necessary information with accuracy. The affidavit continued:

[FRI] advised the Commission that it received marketing material about the Tadpole product. According to [FRI], this material appears to confirm that Carter Holt Harvey’s stress grader operations do not produce timber with the correct properties. [FRI]’s analysis of the statistics produced in this programme indicates to [FRI] that (except for a few months in 1999), over a four year period from 1997 to 2001 the quality of timber being stress graded as MGP12 fell below the required Standard.

...

An employee of [FRI] covertly questioned a Carter Holt Harvey staff member about the Tadpole marketing material and was told that the information in the Tadpole report was not real, but was generated for publication. This explanation did not ring true for [FRI] as it makes little sense to generate data showing that over a four year period, Carter Holt Harvey’s machine stress grading operation was producing timber below grade, when the purpose of the data was to promote the Tadpole system. According to [FRI], the more likely explanation is that the data was in fact real but that there was probably little communication between the different companies involved on the one hand, the MSG (sic) production, and on the other, marketing the Tadpole programme.

[54] The preliminary draft report of May 2003 is not included in the case on appeal. The two reports that are included are dated May 2003 but are signed off on 8 July 2003. Mr Theobald’s affidavit states that in the interim he began assessing the information available at that time: the three reports from FRI (the Sawmilling article, the report attached to the October 2002 complaint and (I presume) the preliminary report) and Mr Coffrey’s allegations. He found that the three reports were consistent in concluding that the samples from the three packets of CHH timber tested in 2001, 2002 and 2003 had not achieved the degree of bending stiffness required by the relevant standard.
[55] Mr Theobald was however of the opinion that there was still insufficient evidence to take enforcement action. In particular, he thought there was a lack of evidence in relation to the time frame in which the alleged misgrading occurred and whether the misgrading had occurred at all three mills (only two had been tested). The evidence was in his view insufficient to reach firm conclusions about CHH’s entire production. He said that “while the three “failed” samples provided good reason to be suspicious, they were unlikely to be sufficient to establish a case against CHH.”
[56] On the basis of Mr Theobald’s conclusions, the Commission planned a formal investigation which was to be kept confidential because of the serious nature of the allegations, and was not to be communicated even to CHH in case search warrants might need to be executed.
[57] Mr Theobald’s affidavit states that the final FRI reports were received in mid July 2003. The first report was on the results of the testing Mr Theobald had requested they carry out. The second was in response to a second request by Mr Theobald that FRI compare the results of the three separate tests (in 2001, 2002 and 2003) for consistency of the failure to meet the standard.
[58] The testing was done on three packets (each 117 pieces) of timber. One was of CHH Laserframe MGP timber, denoted as Kopu 1, presumably as deriving from the Kopu Mill, was purchased from one Rotorua supplier. A second packet denoted as Kopu 2 was purchased from a second Rotorua supplier. A third sample denoted as Putaruru 1 was purchased in Rotorua. FRI concluded:
[59] The second report, comparing the three tests, concluded that:
  1. All the timber was ordered and supplied as Laserframe MGP10 over a period ... from September 2001 to May 2003.
  2. ...
  3. ... the three samples (30 boards per packet) failed to achieve the bending stiffness or bending strength requirement of the MGP10 grade.
  4. It would appear the MGP lower grade threshold is set too low and hence significant quantities of the timber should be graded out into a lower grade.
  5. The stiffness properties of the three packets are very similar with the Kopu 1 packet being slightly better ...
  6. In terms of the machine stress grader grade threshold settings there is virtually no difference between the three packets which indicates a similar machine setup.
  7. The similarity of the three packets coming from two different machine graders, over a 21 month period and possibly from at least two possible forest resources demonstrates one of the known benefits of MSG timber that being uniformity of product.

[60] The next step was in August 2003 when the Commission engaged an expert to assess the statistical probability that the test results were representative of CHH’s entire production. The expert’s advice was that there were real difficulties relying on the data that the Commission possessed at that time.
[61] In September 2003 Mr Theobald began preparations to apply for search warrants for the three mills. It was necessary to marshal the resources necessary to execute the warrants simultaneously and to consider the health and safety implications of searching the mills.
[62] In his affidavit in support of the warrant application, Mr Theobald said:
  1. From the results of the three sets of tests undertaken by FRI, it is apparent that a large proportion of the timber purchased is not of the quality represented: an average of all three test results established that only 33% of the timber tested was of the represented quality (MGP10); of the remainder, 61% was of MGP8 quality and 6% of MGP6 quality (both being inferior to MGP10).

[63] He further deposed (at [30]) that a confidential informant had identified a former officer at the Thames sawmill as having been directed by CHH’s head office to tamper with the machine test grader at the sawmill so that an inferior quality of timber would be graded higher. Mr Theobald referred also to the Tadpole evidence described above at [53].
[64] Mr Theobald also deposed that the Commission had shown that there was a substantial financial benefit to be gained by selling timber of an inferior quality as if it were of a higher grade. Retail pricing inquiries by Commission staff at Lower Hutt on 10 October 2003 established that a 600 lineal metre packet of Laserframe MGP10 cost $3,008.22, whereas the cost of an identical length packet containing MGP8 and MGP6 was $1,566. A mill to trader price comparison had not been sought, as it would have aroused suspicion. Confidential Commission inquiries had established that Carter Holt produced approximately 150,000 cubic metres of Laserframe MGP10 every year. While there is an established difference between mill to trader pricing and trader to retail price, it was clear that a substantial financial benefit had been accrued.
[65] Of vital importance, Mr Theobald deposed:

40 The physical addresses of the three sawmills are:

Putaruru Sawmill: Princes Street, Putaruru;

Thames Sawmill: Thames Paeroa Highway, Kopu, Thames;

Nelson Sawmill: Eves Valley, Waimea West Road, Brightwater, Nelson

...

51 I believe that the Required Information will be located at the three sawmills referred to in paragraph 40 of this affidavit.

52 It is known from the Carter Holt Harvey internet web site that quality control inspections are carried out daily on the MSG machines at the Thames, Putaruru and Nelson sawmills. Information obtained from both an independent sawmill and FRI established that these quality control records are retained on site. Mr Doug Gaunt, the Timber Engineer of FRI believes that he will able to analyse the quality control records against the Standards requirements to ascertain whether the timber graded failed the Standard specifications in respect of the particular MGP grading.

53 As the stress grading machines being operated at both the Putaruru and Thames sawmills appear to be set to grade timber higher than is in fact the case (refer to paragraph 34 above), it is highly probable that the same is the case at the Nelson sawmill. This concern is further strengthened by the allegation that Mr Alexander’s direction to tamper with the stress grading machine at the Thames sawmill came from Carter Holt Harvey’s head office (refer to paragraph 30 above).

The last reference is to the following paragraph:

30 Confidential information received by the Commission had identified a Geoff Alexander as being a former Chief Executive Officer of the Thames sawmill. Mr Alexander was employed by Carter Holt Harvey within the last three years. The Commission’s informant has stated that Carter Holt Harvey’s head office directed Mr Alexander to tamper with the machine stress grader at the Thames sawmill so that an inferior quality of timber would be graded higher. The informant also told the Commission that Mr Alexander himself did not actually tamper with the stress grader but was aware that the machine was tampered with by staff so that an inferior quality of timber was graded higher. It has been alleged by the informant that Mr Alexander discussed the tampering with the stress grading machines with a third party.

[66] Mr Theobald also deposed:

39 The Commission has carried out covert surveillance at all the three sawmills...At the Nelson sawmill, one investigator surveilled a large number of stacks of packet timber similar to those seen at the Putararu mill... The investigator did see plastic packaging similar to that sighted at the other two mills, which was marked on the side as “Laser Frame”.

[67] The Commission sought a warrant to obtain:
[68] That affidavit (of no later than 24 October 2003) is the best evidence of what the Commission then knew.

What do “discovered” and “ought reasonably to have discovered” mean?

[69] It is convenient to repeat s 43(5):

An application under subsection (1) may be made at any time within 3 years after the date on which loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered.

[70] The issue is the degree of knowledge required to satisfy the two elements of the expression “[1] discovered or ought reasonably to have ... discovered...[2] the likelihood of loss or damage”.
[71] I have considered the competing submissions of the parties, discussed at [85] and the following paragraphs. But neither squarely confronts the language Parliament has selected.
[72] As to the first, in my view, the plain words of the section are sufficient to determine the level of knowledge required, without need to cloak them in limitation mythology. “Discovery”, in plain English, connotes an element of certainty to the knowledge acquired. One does not say that Ptolemy “discovered” the great southern continent, even though he had reasonable grounds to suspect that it existed. The Oxford English Dictionary relevantly defines “discover” as:

8. To obtain sight or knowledge of (something previously unknown) for the first time; to come to the knowledge of; to find out.

[73] In a similar vein, Halsbury’s Laws of England’s analysis of the term in the context of the Income Tax Act employs a high level of certainty:

To “discover” means simply to find out, and applies to the discovery of an error in law and an error in fact. It does not mean “ascertains by legal evidence” but “comes to the conclusion from the examination he ... makes, and from any information he may choose to receive” or “has reason to believe” or “finds or satisfies himself”, or “honestly comes to the conclusion on the information before him”.

(Footnotes omitted.)

[74] Neither party advanced this simple conclusion – that Parliament requires that the claimant ought reasonably to have discovered the likelihood of loss. Chambers J at [190] (c) would substitute “there ... could be a link between the damage ... and an earlier event”. But this is consumer legislation, as to which this Court stated in Taylor Bros Ltd v Taylors Group Ltd [1998] 2 NZLR 1 at 40:

We regard this [a departure from the simple language of the statute] as the kind of attempt to add a gloss to the Act that should be discouraged.

In none of the reported cases under such legislation, which also include Anheuser-Busch Inc v Budweiser Budvar National Corporation [2002] NZCA 264; [2003] 1 NZLR 472 (CA) and Neumegen v Neumegen and Co [1998] 3 NZLR 310 (CA), has such departure been permitted. As Chambers J recognises, the test is not of possibility but of likelihood. I see no justification for departing from Parliament’s language in order to adopt judge-made tests which would impose on the Commission a sterner standard than the elected representatives have chosen. Below at [85] and the following paragraphs, I discuss why neither of the arguments advanced can be accepted as a true expression of the law. I then return to discuss the meaning of “ought reasonably to have discovered” at [119].

[75] As to the second element, in speaking of discovery of “the loss or damage, or the likelihood of loss or damage” s 43(3) is referring to the loss or damage caused by the breach of the Fair Trading Act.

(a) Application of the analysis

[76] Application of that analysis in this context would mean the issue is: when did Commission know, or when should it have known, that the relevant parties (ie end-users and competitors) had suffered loss or damage caused by a breach of the Fair Trading Act, that is to say, by a misrepresentation on the part of CHH as to the characteristics of its goods?
[77] The Commission’s statement of claim stated that CHH milled logs at Kopu, Putaruru and Nelson, collectively referred to as “the mills”. It claimed that CHH represented that because its timber was machine stress graded it was a consistent, reliable and high quality product, when in fact CHH knew or ought to have known that the product did not meet the standards. When can it be said the Commission came or should reasonably have come to these conclusions?
[78] Prior to the limitation date the Commission had certain knowledge that CHH had made misrepresentations in relation to two packets of timber from the Putaruru mill, and one packet of timber from the Kopu mill. What knowledge can it be said the Commission should reasonably have inferred from this information? In my view the information was sufficient to constitute knowledge of endemic breach at those two mills. And on the basis of the evidence of Mr Theobald recounted at [65]-[66] I am satisfied that the Commission should have known that it was likely that there were misrepresentations in relation to the timber produced at the Nelson mill.
[79] Certainly the evidence did not satisfy a higher standard of proof. The vital confidential evidence at [30] of the affidavit might not have withstood examination; the expert’s advice at [60] above required caution and established the need for further evidence; it was reasonable for the Commission to have recourse to the search process to be sure as to its case.
[80] Nor in my view can the Commission fairly be criticised for withholding its proceeding until its evidence was stronger. This pleading alleges bad faith. It is the obligation of solicitors and counsel representing the Commission to refrain from issuing proceedings which allege bad faith unless and until there is evidence to justify that course. The leading text on professional obligations states:
... counsel... has no right to put into a pleading any allegation which is not supported by the facts which are put before him by his instructing solicitor... if he is instructed to allege fraud... he must have before him material which as it stands, establishes a prima facie case of fraud.
Boulton on Conduct and Etiquette at the Bar cited in X v Y [2000] 2 NZLR 748 at 758-9 (HC).
CHH is a legal construct, to which is attributed in law the conduct of its directors and employees: Meridian Global Funds Management Asia Ltd v Securities Commission [1995] UKPC 26; [1995] 3 NZLR 7 (PC). The Commission may not assert bad faith by CHH in relation to conduct in any area unless it has the information necessary to condemn by necessary implication those whose acts and omissions constitute that conduct. Any suggestion that it must either file a pleading which suggests bad faith by persons in other areas against whom it has no evidence, or be statute-barred, would be contrary to principle.
[81] But the Commission was not faced with any dilemma. Once “the likelihood of loss or damage” was known to the Commission it had three years to get its case to a standard that would justify filing and serving proceedings. I am satisfied that time started running no later than the date of Mr Theobald’s affidavit. While there was no direct evidence prior to the search that timber supplied from Nelson was not of proper quality, the evidence of events at the two North Island plants did not stand in isolation. The information from the informant referred to at [30] of Mr Theobald’s affidavit was believed by him; he considered it “highly probable” that there was similar conduct at Nelson. Mr Theobald indeed expresses himself in terms of the statutory test: “probable” is synonymous with “likely”. As a responsible officer of the Commission his conclusion of high probability may well be attributable to it as satisfying the s 43(5) test. But it is unnecessary to explore whether, in terms of Meridian his knowledge should have that effect. That is because it is also powerful evidence to justify the conclusion, which I draw, that a reasonable person with his knowledge ought reasonably to have regarded breach at Nelson as likely.
[82] I am therefore satisfied that the Commission ought to have known it was likely that CHH was in breach at Nelson as well as in the North Island no later than the date of Mr Theobald’s affidavit, and that the Commission’s claim filed more than three years later is therefore statute-barred.
[83] It follows that the statement of claim must be struck out not only insofar as it relates to supply of timber from the Kopu and Putaruru mills but also in relation to supply from the Nelson Mill.
[84] I now explain why I have not adopted the approaches proposed by the parties.

(b) The parties’ approaches

[85] Mr Galbraith’s characterisation of the requisite knowledge was of “the facts that the Commission needed to discover in order to make up the cause of action”. But that must be treated with care. Importing the idea of components of a cause of action tends to carry with it the substantial weight of the authorities in relation to the very different wording of the Limitation Act, which has the limitation period starting when the “cause of action accrues”. That should not be done uncritically. If the authorities in relation to the time of accrual are to be relevant, given Parliament’s decision to employ different wording in the Fair Trading Act their continued application would need to be clearly reasoned.
[86] This last point was made by Tipping J in Murray v Eliza Jane Holdings at 276:

Our Legislature has eschewed the familiar concept of accrual of a cause of action in favour of the concept of occurrence of the matter giving rise to the application. There is no doubt ... that our Fair Trading Act should be construed, as far as possible, in harmony with the Australian Trade Practices Act upon which it was modelled [and which used the “accrual of cause of action” formula]. Nevertheless where our Legislature has materially departed from the wording of the corresponding Australian provision one must assume that a materially different meaning was intended.

[87] That case was decided when s 43(5) was in its previous form, with the limitation period running from “the time when the matter giving rise to the application occurred.” Tipping J held that this meant limitation ran from the time of breach, rather than the time of damage. Several years after that decision, in 2001, the section was amended to its present form.
[88] The Courts are familiar with the concept of accrual of a cause of action, which contains within it the evaluative question of discoverability which in England has driven a convoluted jurisprudential history. But there is no need to venture there. A test of discoverability of loss or its likelihood deals with that question very simply, without need to refer to authority. If a “cause of action” analysis were adopted, the analysis as to discoverability in the case law would put a gloss on the meaning of “discovery” that would otherwise be absent. What amounts to “discovery” would be referable to what constitutes a cause of action, with the corresponding questions as to knowledge about the viability of legal proceedings.
[89] The same caution applies to Mr Simpson’s invitation to adopt the analogy of the English position, which focuses on the elements of a cause of action, rather than the discovery of loss or damage. He argued that on that basis that the knowledge required is that the person know “enough for it to be reasonable to begin to investigate further”. In England, the legislature has found it necessary to spell out the elements that must be known in claims for damages for negligence other than personal injury actions. The focus is not what the loss is (as in New Zealand), but what knowledge is required to bring an action. Thus s 14A of the Limitation Act 1980 (UK) identifies the following elements:
[90] The scheme appears to be different from that under the Fair Trading Act. The subject of the knowledge is not merely loss or damage, but “the material facts about the damage [that] ... would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment” (s 14A(7)). The inquiry into what must be known contains an evaluative element, whereas in New Zealand the evaluative element comes at a later point. The inquiry is not into what must be discovered, but into what amounts to discovering it.
[91] As in the “cause of action” analysis, under the English legislation the requisite knowledge is linked to the viability of legal proceedings.
[92] This construction may be contrasted with the question under the “accrual of cause of action” construction and the English construction: whether the person had knowledge that would prompt him or her (or a reasonable person) to consider instituting proceedings.
[93] It appears that the English courts, in opting for a test of when the person knows “enough for it to be reasonable to begin to investigate further”, have departed from the clear wording of the UK section, which requires knowledge of:

... such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment.

I am of the view that the English position is not applicable, but because it lies at the centre of Mr Simpson’s argument I elaborate upon it below.

(c) Haward v Fawcetts
[94] Mr Simpson put at the forefront of the argument for CHH the decision of the House of Lords in Haward v Fawcetts (a firm) [2006] UKHL 9; [2006] 1 WLR 682. Mr Galbraith sought to distinguish it as founded on idiosyncratic English legislation and as inapplicable in New Zealand. I accept Mr Galbraith’s argument.
[95] Recent English jurisprudence is founded on the validity of Cartledge v Jopling [1963] AC 758, which this Court in a series of decisions from McKenzie v Attorney-General [1991] NZCA 105; [1992] 2 NZLR 14 at 16 to GD Searle & Co v Gunn [1996] 2 NZLR 129 at 132 held to be arguably wrong or declined to follow, and on the legislation responding to Cartledge v Jopling.
[96] In Cartledge v Jopling the House of Lords found a claim for silicosis to be barred by the Limitation Act 1939 which by s 2(1) provided (with emphasis added):

The following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued ... (a) actions founded on ... tort ...

[97] That was so even though the victim was unaware of his condition until the limitation period had run. Lord Reid said at 772:

It is now too late for the courts to question or modify the rules that a cause of action accrues as soon as a wrongful act has caused personal injury beyond what can be regarded as negligible, even when that injury is unknown to and cannot be discovered by the sufferer; and that further injury arising from the same act at a later date does not give rise to a further cause of action. It appears to me to be unreasonable and unjustifiable in principle that a cause of action should be held to accrue before it is possible to discover any injury and therefore before it is possible to raise any action.

If this were a matter governed by the common law I would hold that a cause of action ought not to be held to accrue until either the injured person has discovered the injury or it would be possible for him to discover it if he took such steps as were reasonable in the circumstances. The common law ought never to produce a wholly unreasonable result, nor ought existing authorities to be read so literally as to produce such a result in circumstances never contemplated when they were decided.

But the present question depends on statute, the Limitation Act, 1939, and s 26 of that Act appears to me to make it impossible to reach the result which I have indicated. That section makes special provisions where fraud or mistake is involved: it provides that time shall not begin to run until the fraud has been or could with reasonable diligence have been discovered. Fraud here has been given a wide interpretation but obviously it could not be extended to cover this case. The necessary implication from that section is that, where fraud or mistake is not involved, time begins to run whether or not the damage could be discovered. So the mischief in the present case can only be prevented by further legislation.

Urie v Thompson [1949] USSC 69; 337 US 163 (1949), where time was held to run from discovery by the silicosis victim of his condition, was not followed.

[98] But Lord Reid was, unusually, in error. The issue in Cartledge v Jopling was when, for the purposes of s 2(1) of the Limitation Act 1939 on which the 1950 New Zealand Act is based, a cause of action accrued. The time of accrual of a cause of action is, as a rule, determined by the substantive common law, not by statute. The leading judgment of Lord Pearce relied on common law decisions, especially Howell v Young (1826) 5 B & C 259, as the basis of its decision that the cause of action accrued at the time of injury rather than when the plaintiff became aware of it. On Lord Reid’s principle that the common law ought never to produce a wholly unreasonable result (at 772) the opposite result should have been reached. Section 26 (equivalent to s 28 of the New Zealand Limitation Act) could and should have been construed consistently with such interpretation rather than as dictating an unjust result.
[99] The Hon Christine French has argued that to say a cause of action in negligence “accrues” when the damage is reasonably discoverable does not in any way do violence to the word “accrues”: “Time and the Blamelessly Ignorant Plaintiff” [1998] OtaLawRw 6; (1998) 9 Otago L Rev 255 at 258. Contrary to the view that s 28 is inconsistent with such approach, it could apply to cases where in the absence of fraud the damage would have been discoverable. That would entail a test of when the plaintiff knew he had sustained significant injury.
[100] In Murray v Morel [2007] NZSC 27; [2007] 3 NZLR 721 the majority of the Supreme Court held that there is no general principle that a cause of action does not accrue for limitation purposes until the elements were reasonably discoverable by the plaintiff. Blanchard J decided that Searle should be accepted but its reasoning should not be extended to other fields. Tipping J accepted the Cartledge v Jopling approach as the norm but recognised the possibility that Searle could be justified on the basis that discoverability was an element of the cause of action in that case. McGrath J considered that the Court of Appeal remained free in Searle to apply what he termed “the enlightened approach” which it had taken in Invercargill City Council v Hamlin [1994] 3 NZLR 513 and S v G [1995] 3 NZLR 681 to the difficult problems created by the House of Lords in Cartledge. Henry J found it unnecessary to determine whether S v G and Searle were correctly decided. Gault J dissented on the limitation point.
[101] The conventional test is when all the facts necessary to establish a cause of action exist. In Murray at [39] the Supreme Court endorsed an earlier the statement of principle by McKay J in Hamlin at 536:

The phrase “cause of action” has been defined as meaning every fact which it will be necessary for the plaintiff to prove, if traversed, in order to support his right to a judgment of the Court ... . Where the claim is based on negligence, however, damage is an essential part of the cause of action, and until the damage has occurred the cause of action is not complete.

[102] The cause of action under s 43 is based on loss or damage and is therefore akin to a negligence claim, particularly one for negligent misstatement.
[103] For time to begin to run it is unnecessary that the plaintiff be aware of the legal consequences of the facts establishing the cause of action: Stratford v Philips Shayle-George [2001] NZCA 299; (2001) 15 PRNZ 573 (CA) at [17] and [25]. On a reasonable discoverability test the plaintiff must know or have reasonable basis for knowledge of all the facts necessary to establish a cause of action. Here, the Commission submits, that would mean knowledge :
[104] I observe that knowledge of the fact of complaint is not synonymous with knowledge of the facts of which complaint is made. Nor is suspicion as to the facts synonymous with knowledge of them.
[105] CHH however submits that suspicion sufficient to cause enquiry to be commenced is enough. It relies for that submission on Haward, a decision upon the English legislation which had responded to Cartledge v Jopling.
[106] Cartledge was, as French states (at 273), “universally condemned”. In England the consequence was a series of measures which sought to meet the injustices which became successively apparent. Their unhappy sequence is recounted by Janet O’Sullivan in “Limitation, latent damage and solicitors’ negligence” (2004) 20 PN 218. The New Zealand Parliament did not adopt that course, which is why the acceptance of the appellants’ argument in McKenzie, that the Accident Compensation Act 1982 did not inevitably bar antecedent common law claims, did not necessarily give rise to a simple Cartledge v Jopling bar under the Limitation Act.
[107] Care is therefore required when considering transferring to New Zealand the construction by an English court of English legislation. The task of this Court is to construe the New Zealand Parliament’s rather general language in the light of New Zealand legal history and policy. The focus, under s 43(5) is on when “... the loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered” in the context of an application under s 43(1) for a finding:

that person has suffered, or is likely to suffer, loss of damage by conduct of person that constitutes, or would constitute [contravention of s 9 (being a person in trade, engaging in conduct that is misleading or deceptive or is likely to mislead or deceive)].

[108] Read without reference to authority, the italicised passage might be thought to refer to when a reasonable person in the circumstances would have such knowledge that loss or likelihood of significant loss had been suffered as to be in an equivalent position to someone who actually knew that such loss had been suffered, against whom time starts running immediately. The latter person must of course take the steps of making (or causing to be made) enquiries about the facts and the law and, within the limitation period, carry them far enough to be able responsibly to issue and serve proceedings.
[109] Moreover, the “loss” that must be known to have been suffered must extend to all loss sought to be the subject of the statute bar. It would not be enough to bar all such loss in respect of which there was actual or deemed knowledge that some of the production contravened the Act. For applications in respect of a loss to be wholly barred requires that three years have elapsed since such knowledge was acquired that the whole of the production contravened the Act.
[110] For that reason I respectfully differ from the approach of Chambers J at [196]. Otherwise knowledge (or equivalent) by the commission of quite a trivial breach by CHH in relation to a product in, say, Southland or the Far North would set time running in relation to the unknown breaches in Auckland and Christchurch. I see no justification for such a result. A further consideration is that the paradigm of one who has personally sustained loss usually entails a single point of time when loss is known to have occurred. Such knowledge tends not to be partial. To fix knowledge not on the victim but on another party entitled to claim requires that the party have actually, or by deeming process, acquired awareness equivalent to that of the paradigm. To be told by another may or may not be sufficient, depending on the authority of that other and the extent of the information supplied. Information even from an authoritative party that falls short of the paradigm is not enough. Still less is hindsight to be taken into account.
[111] With that caution, one may turn to Haward. There the claimant bought a controlling interest in a company which he knew would require the injection of additional limited capital to become profitable. Despite injection of several times the amount of that additional capital the company failed. The claimant sued the firm of accountants who had advised him at all times. They pleaded successfully that more than three years before the proceedings were commenced the claimant had such knowledge of material facts as would start the limitation period running and the claim was dismissed.
[112] Section 14A of the Limitation Act 1980 set time running from:

(5) ... the earliest date on which the plaintiff ... first had both the relevant knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.

The relevant knowledge was defined by subs (6) as:

... knowledge both –

(a) of the material facts about the damage in respect of which damages are claimed; and

(b) of the other facts relevant to the current action mentioned in subsection (8)...

The material facts were defined by subs (7) as:

... such facts about the damage as would lead a reasonable person who has suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages ...

The other facts referred to in subs (6)(b) were defined by subs (8) as:

(a) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence;

the identity of the defendant; ...

Subsection (10) states:

For the purposes of this section, a person’s knowledge includes knowledge which he might reasonably have been expected to acquire –

(a) From facts observable or ascertainable by him; or
(b) From facts ascertainable by him with the help of appropriate expert advice which is reasonable for him to seek;

...

[113] Lord Nicholls employed two slightly different formulations of the test of when s 14A sets time running:

[7] ... The claimant is to have a reasonable period, set by Parliament at three years, in which to start proceedings after he has the knowledge he reasonably needs for that purpose.

He later stated:

[9] ...[A]s to the degree of certainty required, Lord Donaldson of Lymington MR gave valuable guidance in Halford v Brookes [1991] 1 WLR 428 at 443. He noted that knowledge does not mean knowing for certain and beyond possibility of contradiction. It means knowing with sufficient confidence to justify embarking on the preliminaries to the issue of a writ, such as submitting a claim to the proposed defendant, taking advice, and collecting evidence: ‘Suspicion, particularly if it is vague and unsupported, will indeed not be enough, but reasonable belief will normally suffice.’ In other words, the claimant must know enough for it to be reasonable to begin to investigate further.

[10] ... [I]t is not necessary for the claimant to have knowledge sufficient to enable his legal advisers to draft a fully and comprehensive particularised statement of claim. Where the complaint is that an employee was exposed to dangerous working conditions and his employer failed to take reasonable and proper steps to protect him it may well be sufficient to set time running if the claimant has ‘broad knowledge’ of these matters.

...

[20] ... Time did not start to run against Mr Haward until he knew enough for it to be reasonable to embark on preliminary investigations into this possibility [that the defendant did not do his job properly].

(Emphasis added.)

[114] Lord Scott at [49] stated took the view that “... the requisite knowledge is knowledge of the facts constituting the essence of the complaint of negligence.”

And at [57] Lord Walker stated “... the starting date may occur at a time when a claimant’s knowledge about his claim is far from complete.”

[115] Lord Brown stated:

[87] ... [T]o my mind, (the claim) must fail if anything more is required than that Mr Haward knew that his loss might well have resulted from an investment made on Fawcetts’ advice.

[88] Having, I confess, changed my mind upon the point, I have finally come to the conclusion that nothing more is needed.

...

[90] ... [It is enough] ... to realise that there is a real possibility of his damage having been caused by some flaw or inadequacy in his advisers’ investment advice, and enough therefore to start an investigation into that possibility, which s 14A of the 1980 Act then gives him three years to complete.

[116] Lord Mance at [112] cited Purchas LJ giving the judgment of the Court of Appeal in Nash v Eli Lilly & Co [1993] 1 WLR 782 at 792:

... [K]nowledge is a condition of mind which imports a degree of certainty and ... the degree of certainty which is appropriate for this purpose is that which, for the particular plaintiff, may reasonably be regarded as sufficient to justify embarking upon the preliminaries to the making of a claim for compensation such as the taking of legal or other advice.

[117] The decision of the Lords in Haward cannot be said to result from the language of the statute. It relies heavily on English jurisprudence following the post Cartledge legislation which I have not adopted. Some of the cases cited were personal injury claims, where the plaintiff would be well aware of the fact of loss. Some were under the Limitation Act 1980, for which the primary time limit under s 11(4) is three years from:

(a) the date on which the cause of action accrued; or (b) the date of knowledge (if later) of the person injured

Such “date of knowledge” is a term of art. Section 14(1) stated that:

... references to a person’s date of knowledge are references to the date on which he first had knowledge of the following facts–

(a) that the injury in question was significant; and
(b) that the injury was attributable in whole or in part to the act or omission which is alleged to constitute negligence, nuisance or breach of duty; and
(c) the identity of the defendant; and
(d) if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant; and knowledge that any acts or omissions did or did not, as a matter of law, involve negligence, nuisance or breach of duty is irrelevant.

That Act also provided a judicial discretion to extend time for personal injury claims even if s 14(1) was not satisfied.

[118] I prefer the direct path described at [69] – [71], which gives plain effect to Parliament’s language, to the indirect route via the English jurisprudence.

(d) Ought reasonably to have discovered

[119] The question here is essentially whether the Commission was remiss in any way so that it discovered the loss later than would otherwise have been the case. The focus should not be on the state of the plaintiff’s knowledge, but on whether the actions taken were reasonable. In Hook v Gulf Harbour Town Centre Ltd HC AK CIV 2002-404-1931 2 March 2007 (currently under appeal to this Court), Asher J suggested at [42]:

[T]he test is to be applied by considering how a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff resources, and was motivated by a reasonable, but not excessive, sense of urgency: Paragon Finance PLC v DB Thakerar & Co (a firm) [1998] EWCA Civ 1249; [1999] 1 All ER 400 (CA) approved by the Court of Appeal at [155] of Amaltal [Corporation Ltd v Maruha Corporation [2006] NZCA 112; (2006) 3 NZCCLR 1].

[120] The passage from Paragon approved in Amaltal (at [155] – [161]) was a statement of Millett LJ at 418:

The question is not whether the plaintiffs should have discovered the fraud sooner; but whether they could with reasonable diligence have done so. The burden of proof is on them. They must establish that they could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take. In this context the length of the applicable period of limitation is irrelevant. In the course of argument May LJ observed that reasonable diligence must be measured against some standard, but that the six-year limitation period did not provide the relevant standard. He suggested that the test was how a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff resources and was motivated by a reasonable but not excessive, sense of urgency. I agree.

[121] In that case the onus was on the plaintiffs because they were seeking to add further allegations to a pre-existing claim, arguing that an extended limitation period was available to them.
[122] In this case the question whether the Commission ought reasonably to have discovered the whole of the loss or damage at an earlier point that it did raises questions of fact unsuited to determination pre-trial.

Conclusion

[123] As already noted, I am satisfied that CHH has made out its case in relation to both the two North Island mills and the Nelson Mill. I would allow the appeal by striking out the entire application.

HAMMOND J

Background

[124] I am grateful to Baragwanath J for the careful way he has set out the background to, and particulars of, this claim. I have also had the advantage of seeing the judgment of Chambers J, in draft. For my purposes it suffices to say that the Commerce Commission’s concern is that Carter Holt Harvey had been engaging in a particularly nasty, and widespread, form of price gouging. The timber it supplied to consumers was supposed to be of a particular grade. It was not, but consumers were paying a premium price for it. This, in the Commission’s view, has caused loss to consumers and also to competitors, insofar as they were not getting the share of the market that they would otherwise have got, and consequently suffered reduced profits.

The legislation

[125] The Commission determined that it should use its statutory authority to both prosecute Carter Holt Harvey and bring an application for redress on behalf of loss sufferers, if it could. It is possible, at least in some circumstances under Part 5 of the Fair Trading Act 1986 (“the Act”) to, as it were, “consolidate” these two exercises. Section 43(1) of the Act specifically contemplates that an application for “other orders” (essentially collateral civil remedial orders) can be advanced at the same time as the offence proceeding, or at the conclusion of it. But there is a certain awkwardness in ss 37 and 38 of the Act, because s 38 sets the District Court up as the court of “initial” criminal jurisdiction with appeals subsequently going to the High Court. And the “other orders” of a civil character sought in this case involved sums substantially exceeding the jurisdiction of the District Court.
[126] Hence what happened in this case is that Carter Holt Harvey pleaded guilty to a number of offences in the District Court, and had to pay $900,000 in fines. But the application for the civil “other orders” had to be lodged in the High Court, under s 37(c) of the Act.
[127] The jurisdiction for these “civil” orders is to be found in s 43(1) of the Act:

Where, in any proceedings under this Part [5], or on the application of any person, the Court finds that a person, whether or not that person is a party to the proceedings, has suffered, or is likely to suffer, loss or damage by conduct of any other person that [infringes the Act] the Court may [make certain orders for relief].

[128] Section 43(5) then goes on to provide:

An application under subsection (1) may be made at any time within 3 years after the date on which the loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered.

[129] These statutory provisions accordingly enable what my colleagues have called a “loss sufferer”, or for that matter “any person”, to bring “an application” under s 43. This is an unusual provision, in several respects. Although it will have to be brought within the Rules of Court, it will be noted that the procedure is not stated to be as for a claim in the conventional sense. What is required is an “application”, which has a rather different meaning. In this sort of context it enables a loss sufferer, or a regulatory body such as the Commission, or for that matter even an officious bystander, to “apply” to the relevant Court, and assert, in the simplest terms: “X has suffered, or is likely to suffer, loss or damage from what Y [the alleged miscreant] has done and the Court can and should do something about that”. It is a very broad consumer redress measure.
[130] What s 43(5) then does is to require whoever is minded to make any such “application” to the Court to set in motion the Court’s jurisdiction under the Act, by making that application within three years after the date on which the loss or damage or the likelihood of it was discovered or ought reasonably to have been discovered by the applicant.
[131] The opening words of s 43(5) cannot refer to anything other than the particular application which is in fact before the Court under s 43(1). For limitation purposes the focus is on the application which was actually made, not on what other applications or claims might be able to be made by any other interested party. That other persons might also be able to make a timeous application is irrelevant: the Court has to deal with the actual application which is before it. If somebody else can make a better one at some time, so be it. Of course, nobody else may make an application. Nobody can know, until there is a live event. The law deals with actualities on an issue like this.
[132] The issue here is one of the application of s 43(5). As Baragwanath J has demonstrated, the applicant was out of time if the Commission had discovered, or ought reasonably to have discovered, the loss or damage of which it now complains prior to 27 October 2003.

Discovery provisions in limitation law

[133] Said quickly, a “discovery” theorem for a limitation provision is an attractive enough proposition, but in fact it conceals all sorts of difficulties. It is necessary to say a few words here about the direction that limitations law reform has taken, to put these issues into context.
[134] The most fundamental injustice – and one of an egregious kind – that was wreaked by traditional limitation regimes was that time could expire on somebody before they had any possibility of knowing that they had a potential claim. The response to that by some law reform bodies, legislatures and even some courts of their own motion was to move to a “discovery” regime, which would set time running from that date on which a person knew or ought to have known that he or she had a claim.
[135] So far so good. But the next very real issue was whether the type of knowledge which should be required by a claimant should be specified by legislation, or essentially left open-ended for a court to grapple with. As a very broad proposition, in the Northern Hemisphere the view has been taken that while judges do, and should, occasionally innovate, they cannot and should not be invited to legislate on something of this kind. For how much knowledge is required is a critical matter of policy: it affects the balance between plaintiffs and defendants, which is what legislation in this area is all about.
[136] Once the legislative nature of this issue was appreciated, professional law reformers and draftspersons had then to grapple with the type of knowledge which could be used in formulating a functional discovery rule. The possibilities of the kinds of knowledge which were canvassed included at least the following:

1. Knowledge of the harm sustained;

  1. Knowledge that the harm was attributable in some degree to conduct of another;
  2. Knowledge of the identity of the person (the defendant) referred to in 2 above;
  3. Knowledge that the harm (considered alone) was sufficiently serious to have justified bringing an action;
  4. Knowledge that an action against the defendant would, as a matter of law, have a reasonable prospect of success.
[137] To take an early example of one of a number of limitations reform statutes, for the claims to which it applied, s 11(3) of the Prescription and Limitation (Scotland) Act 1973 utilised a discovery limitation period beginning when the claimant first became aware of the harm sustained. That provision uses the first kind of knowledge which I have articulated. That will probably be the very first knowledge a claimant or applicant will acquire. Logically it is the minimum amount of knowledge which could fairly be used to trigger the operation of a discovery period, although as I will suggest hereafter the provision we have before us is even more minimalist.
[138] It is also possible to track through the various Australian and English statutes and identify the utilisation of various of these five formulations. Sometimes even combinations of them can be identified. For instance, s 14A of the Limitation Act 1980 (UK) (set out at [89] of Baragwanath J’s judgment) utilises the knowledge types in 1 through 4 above, and they are concurrent criteria.
[139] It seems that Parliament was of the view, based on the case law which is helpfully discussed by Chambers J in his judgment, that a generalised discovery rule had evolved in New Zealand. That view of the law was authoritatively laid to rest by the Supreme Court in Murray v Morel & Co Ltd [2007] NZSC 27; [2007] 3 NZLR 721. It should also be observed that the Supreme Court in that case explicitly recognised the difficult choices which have to be made in formulating discovery based rules, and at least implicitly, if not explicitly, the desirability of legislatures undertaking that task.
[140] If the foregoing analysis is correct, s 43 is a discovery-based limitation period which was introduced into our law on the basis of an incorrect assumption as to what the general state of limitation law was in New Zealand.

The interpretation of s 43(5)

[141] Nevertheless this Court has to deal with what Parliament actually enacted. On the basis of the conceptual possibilities set out at [136] above, Parliament has required only a minimal amount of knowledge to set the limitation period running. It did not always require actual knowledge of the harm sustained (category 1 at [136]); even the knowledge of likelihood of loss or damage is sufficient. And what Parliament has done is to couple that with a very firm three year limitation period.
[142] That kind of scheme carries its own difficulties. To take only one instance, in most cases the offence prosecution and the claim for ancillary relief will go hand in glove. But it is possible to conceive of circumstances in which, because of the “likelihood” provision in s 43(5), time might begin to run on the ancillary relief claim even before an offence prosecution has been concluded. There are some shadows which lurk behind this legislation, but they were not addressed, because Parliament seemingly thought it was merely enacting in legislative language what was already found to exist elsewhere in case law. That has turned out to be an incorrect assumption.
[143] However, there may be policy justifications, if the matter is thought through again, for the provision as it stands. What has to be firmly kept in mind is that this is a consumer redress measure and consumers have a notoriously limited ability to investigate complaints against well-heeled and determined corporations such as Carter Holt Harvey.
[144] Be that as it may, Parliament used the words it did. The words “likely to suffer” are not words which are going to be improved by exegesis. They are ordinary words, and simply involve orthodox factual analysis in a given case.

This case

[145] Here, in my view, at least by 24 October 2003 when the affidavit in support of the search warrant was filed in the District Court, the Commission had the requisite knowledge to satisfy s 43(5).
[146] Baragwanath J has carefully set out this factual material. In the case of the Kopu and Putaruru Mills it is distinctly arguable that the Commission had actual knowledge of harm; and in my view it was well appraised of the likelihood of loss arising through the operations of the Nelson Mill. Indeed, as Baragwanath J has noted, Mr Theobald expressly averred in the affidavit he made for the District Court in support of the search warrants that it was “highly probable” that wrongdoing was occurring at that mill. Given the nature of that wrongdoing, loss and damage to consumers would at least have been likely.
[147] In short, in my view, by the time it took the formal step of applying for a search warrant for all three mills, and on the basis of the context in which that application was made, and the information contained in the affidavit in support of that application, the Commission was well appraised of the requisite information to apprehend harm, as would have a reasonable observer. Accordingly, the Commission’s application was out of time.
[148] This gives me no satisfaction whatsoever. There is evidence that Carter Holt Harvey behaved in an aggressive and bullying sort of way to try and “scare off” the Commission. This may have had something to do with the caution with which the Commission proceeded and which, regrettably, has led to the Commission’s proceeding (to assist consumers) getting out of time. But I am afraid that on my analysis the Commission is out of time.

The difficulties in the present law, for the Commission

[149] Real caution has to be exercised by any Judge in articulating deficiencies in the law with the implicit or explicit intention of signalling that something needs to be done. There is a divergence of points of view on this issue. The more conservative answer is that a Judge should never comment. The more modern view is that it may be appropriate, and certainly it is easy enough to find instances of final appellate courts having commented. (See, for instance, Westdeutsche Landesbank Girozentrale v Islington London BC [1996] UKHL 12; [1996] AC 669 at 718 per Lord Browne-Wilkinson and at 719 per Lord Slynn of Hadley.) Recently, Papamatheos in “Judgments calling for law reform” (2009) 18 JJA 141 has suggested that whether a Judge should comment in any particular case “might sensibly be determined according to the circumstances of the case, including the regularity with which the problems arise that need addressing, the public sensitivities to that area of law, the parties affected, how specific the recommendation for change should be and others” (at 142-143).
[150] I do not in fact have specific suggestions. What I do have is some concerns thrown up by this case which are I think at least worth noting.
[151] One of the areas of serious underdevelopment in New Zealand civil law is that of “representative” or “class action” suits. This lack of development poses a distinct impediment to the development of what is sometimes called “public interest law” in New Zealand.
[152] It was perhaps because of that recognition that implicit in the Act is an acknowledgement that a body such as the Commission may have an appropriate and valuable role to fill here. But the enforcement provisions in the Act are, with respect, at best rudimentary. There may well be a case for saying that the various problems need picking out and solving in a revision of this statute. The limitation problem we have just been addressing is one such feature. Is the present provision too strong or too weak and does it strike an appropriate balance between plaintiffs and defendants? There are other relatively obvious techniques which could be employed. To take only one example, it is not uncommon to find “notice” type provisions whereby the particular regulatory body can give formal notice that it is investigating something, and will likely be seeking ancillary remedies, and that notice stops time running. Sometimes wider than usual investigatory powers are included. Another area is the problematic overlap between the jurisdiction of the District Court and the High Court. Given the nature and difficulty of this particular claim, it is hard to see why it ought not to have been open to the Commission to bring both the offence and the ancillary relief proceedings in the High Court. At the conclusion of a prosecution the ancillary relief could have “followed on” somewhat in the same manner as proceeds of crime legislation are dealt with.
[153] I need not labour this further. If New Zealand is not to have better and more modern law on representative or class action suits then the position of another body – such as the Commission – which has a distinct interest in this area may need more appropriate provisions.

Disposition

[154] The members of the panel are unanimous that this proceeding is time-barred and that it must be struck out, with the following consequences:

(a) The appeal is allowed.

(b) The respondent’s proceeding in the High Court is struck out, being time-barred.

(c) With respect to costs in this Court, the respondent must pay the appellant costs for a complex appeal on a band A basis and usual disbursements. We certify for second counsel.

(d) Costs in the High Court are to be fixed in that Court in light of this judgment and the reasons thereof.

CHAMBERS J

Issues on the appeal

[155] I am grateful to Baragwanath J for setting out the background to this appeal, which I do not repeat.
[156] Baragwanath J identified five issues on this appeal: at [10]. I prefer to group the issues under three heads.
[157] First, whose knowledge is relevant for the purposes of s 43(5)?
[158] Secondly, what are the principles underlying s 43(5)?
[159] Thirdly, had time started running against the Commission prior to 27 October 2003, the date which Baragwanath J has referred to as the limitation date?
[160] I shall consider the issues in that order.

Whose knowledge is relevant for the purposes of s 43(5)?

[161] Under the Fair Trading Act as originally enacted, time could start running against prosecutors and those who had suffered loss before they even knew a contravention of the Act had occurred. Parliament recognised the undesirability of that outcome and in 2001 amended s 43(5) so as to introduce what may loosely be called a “reasonable discoverability” limitation test in civil proceedings: see the Fair Trading Amendment Act 2001, s 3. The new s 43(5), which has been the primary focus of this appeal, reads as follows:

An application under subsection (1) may be made at any time within 3 years after the date on which the loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered.

[162] Later that same year, the Government introduced into Parliament the Fair Trading Amendment Bill (No 3). That Bill provided for a corresponding change to the limitation period applicable to criminal proceedings under the Act. Eventually, the Bill was passed, enacting a new s 40(3): see the Fair Trading Amendment Act 2003, s 8(3). I shall discuss that subsection further a little later.
[163] Returning to s 43(5), as amended, I observe that the subsection is silent as to whose knowledge is relevant for the purposes of that limitation test. Obviously, there is no difficulty where the person who has made the “application under subsection (1)” is the victim of the defendant’s wrongdoing. (In this opinion, like Baragwanath J, I shall refer to the victim as the “loss-sufferer”.) The difficulty arises where the loss-sufferer is not the person who has made the application. As Baragwanath J has explained, s 43(1) allows “any person” to make an application under s 43, although only loss-sufferers can be the beneficiaries of remedial orders under s 43(2). I shall call a person who makes an application but is not himself or herself a loss-sufferer an “agent”. Obviously, the entity which will most often fill the role of “agent” will be the Commerce Commission, but it is important for the analysis which follows to recognise that the agent can be anyone.
[164] In the discussion which follows, I am considering only the situation where an agent has made the s 43 application. In those circumstances, whose knowledge is relevant? Is the focus on when the agent acquired knowledge? That is Hammond J’s position. Or is the focus on when the loss-sufferer acquired knowledge of the loss? That was Asher J’s position. Or is the test double-headed? That is, the agent must apply within three years of his acquiring knowledge; even then, the agent can recover only for losses suffered by loss-sufferers who themselves would have been within time to bring a s 43 application on the date on which the agent made the application. That is Baragwanath J’s position.
[165] Each position has merit. Unfortunately, in this case, we receive no assistance from our Australian cousins. Although our Fair Trading Act was modelled on Australia’s Trade Practices Act 1974, and in particular s 43 was modelled on Australia’s s 87, the Australian Act does not contain a “discovery-based” limitation period. The equivalent of s 43(5) in the Australian Act is s 87(1CA), which reads as follows:

An application under subsection (1A) may be made at any time within six years after the day on which the cause of action that relates to the conduct accrued.

[166] So we are on our own. In the end, I have concluded that Baragwanath J is right. One principal factor has driven me to that conclusion. I think it axiomatic that Parliament would have not have intended a defendant’s substantive rights to change based on the procedural route civil or criminal the prosecuting authority or the loss-sufferer uses to recover compensation. Nor should it make any difference to the defendant whether the prosecutor/applicant is the loss-sufferer or an agent. Only the position Baragwanath J has adopted meets that fundamental criterion.
[167] Before I evaluate Hammond J’s and Asher J’s reasoning, I need to explain the structure of the Act which has led me to the above conclusion.
[168] A loss-sufferer can receive compensation from the defendant as a consequence of either a successful criminal proceeding or a successful civil proceeding. Criminal proceedings are brought under s 40 of the Fair Trading Act. Such proceedings, if successful, can lead to the defendant being fined: s 40(1). In addition, the defendant can be required to pay compensation to loss-sufferers: s 43(1) and (2). An example of a prosecution leading to such compensation orders is Commerce Commission v O’Neil [2007] NZCA 466; (2007) 12 TCLR 1; 8 NZBLC 102,086 (CA). Alternatively, the loss-sufferer can recover the same compensation by means of a civil proceeding brought under s 43(1). Should the loss-sufferer pursue this procedural route, one would expect the compensation to be identical with what would be received had a criminal prosecution been brought. The civil proceeding can be commenced either by the loss-sufferer or by an agent. Again, nothing should turn on the identity of the applicant.
[169] I acknowledge there is a slight difference in wording between the limitation subsection applicable to criminal proceedings (s 40(3)) and the limitation provision applicable to civil proceedings (s 43(5)), but I do not attach any significance to that semantic difference. In virtually every case, “the matter giving rise to the contravention” will be discovered or ought reasonably to have been discovered at the same time as “the loss or damage, or the likelihood of loss or damage” will be discovered or ought reasonably to have been discovered. It is clear from the Explanatory Note which accompanied the introduction of the Fair Trading Amendment Bill (No 3) in 2001 that the purpose of the amendment to “the criminal limitation period” was to “[align] the criminal and civil limitation periods in the Act”. The aim was to remove the inconsistency which had now developed with “the civil limitation period” as a result of the amendment to s 43 which had been effected earlier that year by passage of the Fair Trading Amendment Act 2001.
[170] With that background, I now turn to consider criminal proceedings. When a prosecution is brought, it is inevitable, I think, where limitation is in issue, that, at the very least, part of the focus must be on when the prosecutor acquired knowledge or ought to have acquired knowledge. The focus could not be just on loss-sufferers and when they acquired knowledge. Were they the sole focus, there would effectively be no time limit on the starting of prosecutions, as often there will be loss-sufferers who are not aware of the defendant’s contravention of the Act until well after the contravention occurred. The O’Neil case is a classic example. Even after the defendants’ convictions, many of those who had suffered loss were not aware of either those convictions or the fact of their own loss.
[171] In the case of civil proceedings, it would defeat my fundamental proposition if the focus were solely on either the agent or the loss-sufferer. If the focus were solely on the agent, then an out of time loss-sufferer could avoid the limitation period by effectively suing in the name of an agent who was not time-barred. In effect, the defendant would end up facing what were in truth stale claims. If the focus were solely on loss-sufferers, a defendant might be forced to go through a defended hearing, only at its conclusion to find that most, if not all, loss-sufferers were out of time. (I acknowledge there may be procedural techniques available under the relevant rules of court to prevent or minimise that risk. We did not hear submissions concerning that.)
[172] All of this leads me to the conclusion that, whether the proceedings be criminal or civil, the focus, for limitation purposes, will be on both prosecutor/applicant and loss-sufferer. In the case of a prosecution where the prosecutor does not seek compensatory orders, the focus will be solely on when the prosecutor acquired knowledge or should have acquired knowledge. Where the prosecutor seeks compensatory orders in addition to a fine, the prosecutor will be able to recover compensation only in respect of those loss-sufferers who, had they prosecuted or applied under s 43(1) on the date on which the prosecutor commenced the prosecution, would have been in time.
[173] Let me demonstrate that by an example. Suppose the Commerce Commission commenced a prosecution on 1 June 2006. Suppose it had “discovered” the contravention of the Fair Trading Act on 1 June 2005. Its prosecution would be in time. Suppose, either immediately or subsequently, it sought, under that prosecution, compensatory relief in terms of s 43(2). It sought that relief on behalf of loss-sufferer 1, who “discovered” its loss on 1 June 2004, and loss-sufferer 2, who “discovered” its loss on 1 August 2002. In order to assess whether those loss-sufferers’ claims were in time or out of time, one would look at their individual “discovery” dates and assess them against the date on which time stopped running, which in my example would be 1 June 2006, the date on which the criminal proceeding was commenced. It will be immediately apparent that loss-sufferer 1’s claim will be in time, but loss-sufferer 2’s would not be. That is entirely fair, however. Loss-sufferer 2, after all, sat on its rights: it knew, as 1 August 2005 approached, that it had done nothing; nor, to its knowledge, had anyone else. It would be quite unfair for the defendant to have to meet loss-sufferer 2’s stale claim, just because later on a third party commenced a proceeding which, in respect of that third party, happened to be within time.
[174] The difficulty I see with Hammond J’s approach is that it would allow gameplaying. An out of time loss-sufferer could easily evade the time limit by using a nominal plaintiff. This was an important factor which influenced Asher J in his reasoning:

[73] It can also be observed that if the relevant discovery were the discovery of the third party bringing the particular proceedings, any third parties who had no previous knowledge of the loss could be used as a convenient plaintiff to bring the claim on behalf of the loss-sufferers. Indeed this could take place many years after the loss-sufferers had suffered their loss, as long as the third party plaintiff had only learned of the loss within three years of the claim. This possibility demonstrates the artificiality of linking discovery to the mind and actions of the third party, who has not actually suffered the loss. It could lead to the patently absurd result of using a nominal plaintiff chosen for its lack of knowledge as a means of circumventing the limitation period.

[175] Mr Simpson, for CHH, recognised this was “a difficult issue”, which he urged us to defer. He commented, however, that it was difficult to envisage how loss-sufferers, who were themselves time-barred, could cause another person to bring a claim on their behalf “without abusing the process of the court and perhaps infringing the rules against champerty and maintenance”. It is extremely unlikely Parliament left this issue unresolved and intended what would be an obvious hole in the limitation regime to be filled by something as crude as an “abuse of process” plug.
[176] Asher J’s conclusion, however, namely that the focus should be solely on when the loss-sufferers acquired knowledge, leaves defendants potentially open to criminal proceedings for years and years. Asher J, who did not consider the alternative (criminal) regime for recovering civil loss, might respond by saying that the position for criminal proceedings should be different from that which applies to s 43 civil proceedings. But, for reasons given earlier, I do not think Parliament would have intended a different regime for criminal and civil proceedings, given the overlap between them in this particular Act.
[177] Asher J considered that, were time to run against the Commission from the date of its acquiring knowledge, the person who had later discovered his or her own loss would lose the ability to recover it as part of a group through no fault of his or her own: at [71]. There is, in my respectful view, a fallacy in that argument. No one has a right to recover a loss as part of a group; no one is cutting short the losssufferer’s right to sue within a three year period of that person’s discovery of the loss he or she has suffered. Whether a regulator can also sue on the loss-sufferer’s behalf depends on the regulator’s getting off its tail and bringing a proceeding within three years of its discovery of the loss. There is, in my view, no unfairness in that result.
[178] In my view, therefore, the answer to the first issue is this. Where a s 43 proceeding is commenced by an agent, that agent, if challenged, must be able to demonstrate it commenced the proceeding within three years after the date on which it discovered or ought reasonably to have discovered that loss or damage, or the likelihood of loss or damage. Even then, it can recover only in respect of loss-sufferers whose claims would have been in time had they commenced them on the date the agent commenced its proceeding. It may well be that s 43(5) was drafted in such a way as not to specify whose knowledge is relevant precisely because, depending on the circumstances, more than one person’s knowledge might be relevant.
[179] I acknowledge that a person by person analysis (of loss-sufferers), which the approach of Baragwanath J and me might lead to, may seem time-consuming and somewhat cumbersome, but it is the consequence of ensuring that no one steals a march on a defendant by delaying a claim and then finding an in time agent to bring it. That would be an abuse of the special privilege accorded by s 43(1) of permitting an agent to sue in what is effectively a representative capacity.

What are the principles underlying s 43(5)?

[180] As I outlined earlier, under the Fair Trading Act as originally enacted, time could start running against prosecutors and loss-sufferers before they even knew a contravention of the Act had occurred. Parliament recognised the undesirability of that outcome and amended first s 43 in 2001 and later s 40 in 2003. Both amendments introduced into their respective regimes what is generally called a “reasonable discoverability” test. The wording of the test is, I suspect, expressed loosely for good reason. Exactly what has to be discovered is very much fact dependent.
[181] What is clear is that Parliament had in mind when making these amendments three leading appellate authorities, namely the Privy Council’s decision in Invercargill City Council v Hamlin [1996] 1 NZLR 513 and two decisions of this court, S v G [1995] 3 NZLR 681 and G D Searle and Co v Gunn [1996] 2 NZLR 129. These three decisions introduced a “reasonable discoverability” component to the limitation periods under discussion in them. It is well known in legal circles that some interpreted those decisions as introducing “reasonable discoverability” as a component of all limitation periods. Indeed, that was the view of Parliament’s Commerce Committee when reporting back to the House on the Business Law Reform Bill, a part of which proposed amendments to the Fair Trading Act, those amendments becoming the Fair Trading Amendment Act 2001. The committee said in its commentary on the Fair Trading Act amendments ([2000] AJHR I 22A at 5354):

There is a range of different limitation periods in legislation. The Limitation Act 1950 provides that the standard limitation period is six years from the date on which the cause of action occurred. The courts have interpreted this to mean that the standard limitation period is six years from the date on which a person discovered the loss or damage, or ought reasonably to have discovered the loss or damage. The Fair Trading Act provides that the standard limitation period is three years from the date on which the cause of action occurred. The courts have not followed the interpretation given to the Limitation Act. Therefore, the limitation period in the Fair Trading Act is not construed as being three years from the time of discovery, or when the person ought reasonably to have discovered the loss or damage.

[182] In the Parliamentary debates that followed, three Members of Parliament, including the Minister of Commerce, expressed the view that the amendment to s 43 was intended to make “the Fair Trading Act test consistent with the Limitation Act”, at least as they thought the Limitation Act was now being interpreted: see speeches by the Honourable Paul Swain, Kevin Campbell, and John Wright at 591 NZPD 8763, 8758, and 8877 respectively. What all this tells us is that, rightly or wrongly, Parliament considered it was amending the Fair Trading Act limitation test to be consistent with what was considered to be a general “reasonable discoverability” test under the Limitation Act. It will therefore be instructive to look at the three appellate cases in order to flesh out the principles to be derived from them.
[183] All three cases use slightly different terminology in describing the reasonable discoverability concept. That is not surprising when one considers that the facts of each case were so different. Hamlin involved latent building damage; S v G involved personal injury resulting from historic sexual abuse; Searle involved personal injury resulting from medical misadventure, the nature of which was not appreciated at the time by the plaintiff. Each case involved “latent damage” in one way or another, but that generalised terminology should not obscure the differences between the cases. For instance, in Hamlin, the Privy Council held there was no loss or damage until the house owner knew of it, even though, for instance, the defective foundations causing the damage were in place from the moment the house was built. In the other two cases, by contrast, the damage was present from the time the sexual abuse occurred or the intrauterine device was inserted; but what the victim in the one case and the patient in the other did not appreciate until later was that the problems they suffered, in the one case psychological harm, in the other physical harm, had been caused by another person’s acts.
[184] In these circumstances, Parliamentary drafters can scarcely be blamed if they adopt fairly open-textured language when introducing a reasonable discoverability test in other areas. They have obviously reasoned that it is better for the courts to mould the test to fit the factual circumstances of particular cases.
[185] Certain general propositions can be derived from the three cases, however. And for the reasons already given it is reasonable to assume that Parliament intended to endorse those general principles in the Fair Trading Act context, in so far as they might be relevant to the particular factual matrices arising. Before setting out those propositions, I refer briefly to the actual words used in the three cases.
[186] First, in Hamlin, which was, as I have said, a case involving latent damage to buildings, the Privy Council held that “the cause of action accrues when the cracks become so bad, or the defects so obvious, that any reasonable homeowner would call in an expert”: [1996] 1 NZLR 513 at 526. In that regard, Their Lordships were adopting a test the English Court of Appeal had propounded in Dennis v Charnwood Borough Council [1983] QB 409. In that case, Templeman LJ had said that time started running when a building suffered damage or an event occurred “which would cause a prudent owner-occupier to make investigations which, if properly carried out, would reveal the breach of duty by [the] local authority”: at 420.
[187] In S v G, this court held that, in sexual abuse cases, time started running when, by analogy with Hamlin, “the victim discovers the link between the abuse and the harm”: [1995] 3 NZLR 681 at 686. Later, in the judgment, the court expressed the test as being “when the psychological damage is or reasonably should have been identified and linked to the abuse”: at 687. That qualification is important, as the court expressly rejected “a wholly subjective test”. The court said at 687:

It would be to render the Limitation Act quite ineffective to hold that a cause of action accrues only when the plaintiff realises that it exists.

[188] A similar formulation was adopted in Searle, where this court said at 133:

... a cause of action accrues when bodily injury of the kind complained of was discovered or was reasonably discoverable as having been caused by the acts or omissions of the defendant. ...

We can however see no justification for the wider test submitted by Mr Harrison which would require not only that the link between injury and act or omission was reasonably discoverable, but also that the plaintiff knew or should have known that the act or omission was wrongful.

[189] In that case, this court did not decide when Ms Gunn’s cause of action accrued; that was a matter for trial: at 133. Obviously, it was not later than 14 June 1991, when she read an article in the New Zealand Woman’s Weekly, which caused her to realise that the pelvic inflammatory disease from which she had suffered and the ectopic pregnancies which resulted from it “were or may have been caused by her use of the [intrauterine] device”: at 130. That is to say, the article was sufficient to prompt Ms Gunn into seeking expert advice, which led in due course to a proceeding being commenced against Searle as manufacturer and distributor of the device.
[190] Among the general propositions to be derived from these cases are these:
[191] Other principles could no doubt be derived from those cases, but they are sufficient for present purposes. I want to stress that I mention these three cases not to express approval or disapproval of them: that task has already been definitively undertaken by the Supreme Court in Murray v Morel & Co Limited [2007] NZSC 27; [2007] 3 NZLR 721. Rather, I have analysed them because it is reasonable to assume that the Parliamentary drafters would similarly have analysed them when carrying out instructions to introduce a reasonable discoverability concept into Fair Trading Act limitation provisions.
[192] I further want to stress that the general propositions set out at [190] are not intended to be definitive. The propositions may inform, but they do not replace, the general words of the statute. When the statute is read, however, with those underlying principles in mind, there is no doubt in my view that the Commission’s claim is well out of time.
[193] Before leaving this section of my opinion, I should just mention the House of Lords’ decision in Haward v Fawcetts (a firm) [2006] UKHL 9; [2006] 1 WLR 682, a decision which, as Baragwanath J remarks, Mr Simpson put at the forefront of his argument. I do not find that case particularly helpful. First, by reason of its date, it cannot inform as to Parliamentary intention when passing the two amending Acts. Secondly, it is based on a statute formulated in much more precise terms than our s 43(5). Having said that, however, I regard the provisions of s 14A of the English Limitation Act 1980 as strongly confirmatory of the general propositions I have set out at [190]. Were the English section and Their Lordships’ application of it in Haward to be applied in the present case, the conclusion reached would be just the same as the conclusion I reach in the next section of these reasons.

Had time started running against the Commission prior to the limitation date?

[194] We are all agreed that time had started running against the Commission prior to the limitation date. In those circumstances, I need add little to what Hammond and Baragwanath JJ have said.
[195] The only comment I would make is this. Baragwanath J has placed great emphasis on the fact that CHH produced timber from three mills and has been concerned to address whether each of the mills had been implicated in the alleged misrepresentations prior to the limitation date. For the reasons he gives, he is so satisfied.
[196] I acknowledge that is one way of looking at this problem, but it is not the only way. It is certainly not the way the parties analysed this question. The Commission, for instance, did not either in its pleadings or in its submissions draw a distinction between the different mills. It pleaded CHH’s wrong as a single course of conduct over a period, drawing no distinction between timber from North Island mills and timber from the Nelson mill. In my view, the Commission was right to draw no distinction between them, as such a distinction would be irrelevant for the purposes of a Fair Trading Act claim. To my mind, all that matters is that CHH was making false claims about some of its timber, as the Commission well knew prior to the limitation date. It is true the Commission did not know by that date who had suffered loss (other than the generic groups) or the quantum of such loss, but that did not matter. Nor did the Commission fully know exactly what the circumstances were that were leading CHH to make false claims. Was there one cause or several? Was it intentional or innocent? None of that matters in a Fair Trading Act claim.
[197] But this needs no further discussion, as whichever way one analyses this case, the Commission’s claim is out of time. For these reasons, I agree that CHH’s appeal must be allowed.





Solicitors:
Bell Gully, Auckland for Appellant
Meredith Connell, Auckland for Respondent

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