Ferrer-Aza v NZONE Race Management Limited [2016] NZHC 885 (4 May 2016)

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BETWEEN	MATTEO PIETRO FERRER-AZA AND JOSE GABRIEL FERRER-AZA First Plaintiffs STEFAN JULIAN RIENER AND KARL STEFAN RIENER Second Plaintiffs DAMON LEITCH MOTORSPORT LTD AND DAMON BRYCE LEITCH Third Plaintiffs
AND	NZONE RACE MANAGEMENT LIMITED First Defendant BARRIE JOHN THOMLINSON Second Defendant

Hearing:	3 December 2015
Counsel:	M R Crotty and H S W Farmer for plaintiffs L A O'Gorman and A L Harlowe for defendants
_Judgment:	_{4 May 2016}

This judgment was delivered by me on 4 May 2016 at 4:30pm pursuant to Rule 11.5 High Court Rules

[1] Three young international race car drivers, Matteo Ferrer-Aza, Stefan Riener and Damon Leitch (“Drivers”) competed in the 2015 Toyota Racing Series (“2015 TRS”), a high profile racing event aimed at helping develop the next generation of world class drivers. The intention was that all drivers would drive identical race cars, provided by the race organisers, NZONE Race Management Ltd, trading as Toyota Racing Management (“TRM”). The Drivers’ race results, in theory, should have simply been a reflection of their driving ability. Performing well in the 2015 TRS therefore had the potential to enhance the Drivers’ profiles, future career prospects and sponsorship opportunities.

[2] As part of its contractual commitment to competitors, TRM agreed to provide the Drivers with race worthy, competitive and safe race cars. For the 2015 TRS, Toyota NZ Limited (“Toyota NZ”) launched the FT50 race car to replace the previous FT40 vehicle, which had been used successfully in previous seasons.

[3] The Drivers and their representatives (who are the second named plaintiffs) say that they were induced to enter the 2015 TRS by representations regarding the quality of the FT50 cars made by TRM and its director Barrie Thomlinson. Contrary to those representations, and TRM’s obligation to provide race worthy, competitive and safe race cars, the plaintiffs say that they were provided with defective vehicles. In particular, they say that the vehicles they were provided with suffered a number of gearbox failures and other issues during the competition, which impacted on the Drivers’ overall performance. As a result, the plaintiffs have brought these proceedings in contract, tort, and for breach of the Fair Trading Act 1986 (“FTA”).

[4] The defendants do not dispute that there were some issues with the FT50 cars during the competition, particularly in relation to their gearboxes. They deny, however, that the FT50 cars were not race worthy, competitive or safe. They further say that, even if the cars were not race worthy, competitive or safe, the plaintiffs’ claims are barred by exclusion clauses, releases, covenants not to sue and indemnities in the relevant contracts (together, “the exclusion clauses”). The

[5] The threshold that the defendants must meet in order to obtain summary judgment, or to strike out the plaintiffs’ claims at this preliminary stage, is a high one. A Court may only grant summary judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed.¹Alternatively, the Court may strike out all or part of a pleading if it discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading.²

[6] The success or failure of the defendants’ summary judgment/strike out application turns largely on the interpretation of the exclusion clauses. I must determine whether it is possible to confidently interpret those clauses at this stage, in advance of a full trial. If it is, I must determine whether those clauses bear the wide interpretation advanced by the defendants, or the narrower meaning argued for by the plaintiffs.

Legal principles – defendants’ summary judgment and strike out applications

[7] High Court Rule 15.1 provides that the Court may strike out all or part of a pleading if it discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading. In determining whether a pleading discloses no reasonable cause of action, the following principles apply:³

(unless they are entirely speculative and without foundation); (b) the cause of action or defence must be clearly untenable;

(d) the jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument; and

(e) the Court should be particularly slow to strike out a claim in any developing area of the law.

[8] The threshold for striking out a plaintiff ’s claim is a high one. In Couch v

It is inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed. The case must be “so certainly or clearly bad” that it should be precluded from going forward. Particular care is required in areas where the law is confused or developing.

[9] Unlike an application for summary judgment by the defendant, r 15.1 expressly permits the Court to strike out part of a pleading in appropriate cases.

[10] High Court Rule 12.2(2) provides that the Court may give judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed. It is similar in nature to an application for strike out but the same restrictions on evidence do not apply. The following principles, as stated by the Court of Appeal in Westpac Banking Corp v M M Kembla New Zealand Ltd, apply where a defendant is seeking summary judgment:⁵

(a) The defendant bears the onus of satisfying the Court that none of the plaintiff’s claims can succeed. It is not enough for the defendant to merely show that there are weaknesses in the plaintiff’s case.

(b) Summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from the affidavit

⁴_{Couch v Attorney-General [2008] NZSC 45, [2008] 3
NZLR 725 at [33] (footnotes omitted).}

⁵Westpac Banking Corp v M M Kembla New Zealand Ltd [2000] NZCA 319; [2001] 2 NZLR 298 (CA) at [60]- [64].

(c) Summary judgment will generally only be entered against a plaintiff where there is a complete defence to the plaintiff’s claim, or a clear answer to the claim which cannot be contradicted.

(d) It may be inappropriate to award summary judgment where ultimate determination of the case turns on a judgment that is only able to be properly arrived at after a full hearing of the evidence.

(e) It will generally be inappropriate to assess the sufficiency of the proof of the plaintiff’s claim at a summary judgment. Otherwise a defendant, particularly one more in possession of the facts than the plaintiff, could force on the plaintiff’s case prematurely, before discovery and before the plaintiff ’s evidence can reasonably be assembled.

(f) Although a legal point may be decided at summary judgment if it is sufficiently clear, novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.

[11] In Krukziener v Hanover Finance Ltd, the Court of Appeal summarised the legal principles relating to summary judgment and, in particular, confirmed that:⁶

The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable....In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it....

[12] Finally, the decision to grant summary judgment is discretionary. Summary judgment may therefore be withheld where, for example, discovery should be completed, there are complex issues of fact or law, or unusual features render it

⁶_{Krukziener v Hanover Finance Ltd [2008] NZCA 187,
(2008) 19 PRNZ 162 at [26].}

⁷Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) at

[13] The defendants assert that all of the plaintiffs’ claims are barred by the exclusion clauses. The plaintiffs, on the other hand, say that the exclusion clauses were intended only to protect the defendants from liability for the dangers inherent in the sport of motor racing itself, such as car accidents. They were not intended to provide the defendants with an “immunity card” which, in effect, means that they can be negligent or breach their contractual obligations to the plaintiffs with impunity. In particular, the exclusion clauses did not relieve TRM of their core obligations to the plaintiffs regarding the cars and services that it contracted to provide.

[15] I will consider each contract in turn (albeit I will consider the Chassis Lease and Engine Lease together).

[16] The TRM Contracts are between TRM and the first and second plaintiffs (the Ferrer-Azas and the Rieners). Under the TRM Contract, TRM supplies the drivers with an FT50 car along with technical and engineering support, tools and equipment, on-track race insurances and accommodation (amongst other things). TRM also contracts with and supplies professional pit-crews as part of the package.

TRM’s obligations in the TRM Contract include being “responsible for the preparation of a race worthy, competitive and safe race car”.

[17] The Ferrer-Azas and Rieners’ obligations under the TRM contract include paying various fees (totalling approximately $180,000 each) as well as such things as not damaging the reputation of TRM or its business operations and complying with all relevant laws, bylaws and rules prescribed by Motor Sport New Zealand. The TRM Contract includes an entire agreement clause.

[18] The key clause for present purposes is clause 8, which is headed “Exclusion of Liability”. It relevantly provides:

8.1 Risks of Motorsport: The Driver and the Driver Representative acknowledge that motor racing is an inherently risky activity and accordingly accept full responsibility and liability for any injury, damage, or loss, suffered by any person, including the Driver, without recourse to either TRM or its agents, or their respective Sponsors.

8.2 Exclusion Liability: The Driver and the Driver Representative acknowledge and agree that TRM or its Agent shall not be liable for any loss, damage or injury including death that may be sustained by the Driver or the Driver Representative. The Driver and the Driver Representative hereby releases and holds harmless TRM or its Agent ... from any and all claims, lawsuits, judgments, legal fees and expenses, court and pre-trial discovery costs, demands, actions, causes of actions or liabilities arising out of [or] related to any loss, damage or injury, including death, that may be sustained by the Driver or the Driver Representative under this agreement.

8.4 Complete Indemnity: Notwithstanding clause 8.2, the Driver and the Driver Representative undertake to indemnify TRM or its Agent and keep TRM or its Agent indemnified from and against any claims relating to loss, damage, injury (including for the avoidance of doubt, personal injury) or liability as a result of any actions of the Driver or the Driver Representative under this agreement including all of TRM or its Agent’s reasonable costs and expenses in relation to enforcement of the indemnity.

[19] TRM submitted that the words “loss, damage or injury including death” in clause 8.2 is not restricted to “physical harm” or “damage to property”, for the following reasons:

(b) “Loss” in its natural and ordinary meaning would include pecuniary loss. The purpose of the indemnity is to protect TRM from pecuniary loss – ie losses, actions, claims, expenses and demands and the plural of “loss” is used in this regard, therefore the use of it in the singular (ie death, injury, loss or damage) carries the same meaning.

(c) Limiting recovery to “physical harm” is a strained interpretation as it would only provide a narrow opportunity for the indemnity to become operative in that respect given that:

(i) civil actions for personal injury are barred under s 317 of the Accident Compensation Act 2007 (subject to the exemplary damages exception); and

(ii) it is unlawful to insure for fines through any health and safety prosecution (s 56I of the Health and Safety in Employment Act 1992, now s 29 of the Health and Safety at Work Act

(d) Limiting “damage” to property damage is also a strained interpretation as there is limited scope for Drivers to have any personal property to damage during the 2015 TRS as almost all goods and parts used are either leased or hired or are otherwise consumable (and to an extent would most likely be the property of those parties the clause is to benefit, ie TRM, Toyota NZ and Tatuus).

[20] TRM accordingly submitted that the Driver and Driver Representatives have agreed to exclude/release TRM’s liability for any civil action for loss, including in both contract and negligence. As a result, even if TRM breached its obligation under clause 5.2 to provide a race worthy, competitive and safe race car (which is denied) the plaintiffs have no legal recourse, as they have released and indemnified TRM in respect of any losses arising.

[21] The plaintiffs rejected this interpretation. They submitted that the word “loss” must be interpreted contextually, with reference to both the contract as a whole and the relevant factual matrix. The exclusion clause, when viewed in this way, was said to be aimed at loss arising from risks inherent in the activity of motor racing itself, such as the risk of a car accident. In particular, the plaintiffs submitted that:

(a) The inclusion of the words “damage or injury including death” colours, and limits, the meaning of the word “loss”. Looking at the clause as a whole, a reasonable person would interpret “loss” as referring only to loss related to physical harm arising in the event of an accident. This interpretation is supported by the canons of interpretation ejusdem generis (“of the same kind”) and noscitur a sociis (“that the meaning of a word may be known from accompanying words”).

(b) If, as TRM claims, “loss” means “all loss, regardless of how it arises” then the words “damage or injury including death” are redundant. Instead, the intention behind including the words “damage or injury including death” must be to restrict the operation of the clause to the consequences of physical harm. Similarly, if “loss” was intended to include “financial loss” then the contract could and would have explicitly stated this.

(c) This interpretation of the word “loss” is said to be consistent with Mr Collins’ (an expert motorsport consultant) evidence that it is the norm in the motor racing industry for liability arising in the event of an accident to be excluded, but not other types of liability.

(e) The fact that the plaintiffs’ interpretation is narrow in effect does not make it “strained”.

(f) Clause 8.1 refers to the fact that “motor racing is an inherently risky activity”. A reasonable person would interpret this as being a reference to the risk that an accident may occur. A reasonable person would not consider an inherent risk of motor racing to be that those in charge of managing a race series may provide low quality cars, a poor standard of service, and engage in misleading and deceptive conduct.

(g) The defendants’ interpretation of the clause produces an unreasonable and commercially absurd result, as it renders TRM’s contractual obligation to provide safe, race worthy and competitive cars entirely unenforceable.

[22] The TRS Registration Agreements are between the Drivers and TRM and accordingly only bind those parties. The registration form provides that “registration enables entry to all rounds of the 2015 Toyota Racing Series”. The agreements contain both a release and an indemnity.

I agree to be bound by the Supplementary Regulations and all other regulations or Articles as determined in Schedule CH for my entry to this Series and by the National Sporting Code of MotorSport New Zealand Inc.

In consideration of the acceptance of this registration and of my being permitted to take part in the Meeting or Events detailed, I agree to save harmless and keep indemnified [TRM], [Toyota NZ], Tatuus SRL, all the owners and tenants of private property traversed, and the respective officials, fellow competitors, servants, representatives and agents from and against all losses, actions, claims, expenses and demands in respect of death, injury, loss or damage to persons or property of myself, my drivers, passengers or mechanics or any other persons whatsoever howsoever caused arising out of or in connection with this entry or taking part in the events this entry covers notwithstanding that such death, injury, loss or damage may have been contributed to or caused by the negligence of [TRM], Toyota New Zealand Limited, Tatuus SRL, the respective officials, servants, representatives or agents or by any other person.

[24] TRM submitted that the phrase “death, injury, loss or damage” should be

interpreted broadly, in the same manner as the similar phrase in the TRM Contract

(as summarised at [19] to [20] above). In addition, TRM noted that (unlike the exclusion clause in the TRS Registration Agreement) negligence is expressly referred to, and is also indicated by the wording “whatsoever howsoever caused”. TRM submitted that the ultimate effect of the indemnity clause is that each Driver is required to indemnify TRM for any loss (interpreted broadly) relating to not only their own claims but also that of the other plaintiffs (being “any other person”). As a result the present proceedings are circular and pointless.

[25] The plaintiffs, on the other hand, advocated a narrow interpretation, along similar lines to their proposed interpretation of the comparable clause in the TRS Registration Agreement, as set out at [21] above. The word “loss” must be interpreted contextually both in the contract itself and against the background facts. When viewed in this way it is clear that the clause is aimed at loss arising in the event of a car accident. They further submitted that as the Registration Agreement also contains a release clause, and the Drivers had also agreed to exclusion clauses in other contracts with TRM, it is unlikely that the indemnity clause was intended to exclude the defendants’ liability to the plaintiffs in the circular manner alleged by the defendants. Rather, the more likely interpretation is that the clause was intended to apply in circumstances where a driver’s accident caused loss to a third party (in which case the driver would indemnify the defendants’ for any liability they may have in relation to the accident).

We hereby release [TRM], TOYOTA NEW ZEALAND LIMITED, TATUUS and partners or suppliers from all responsibility and liability in relation to the operation and management of the series and the use of the “Toyota FT-50” cars and related components.

[27] TRM submitted that the reference to “the operation and management of the series and the use of the ‘Toyota FT-50’ cars and related components” is sufficiently broad to include all of the allegations made by the plaintiffs in the statement of claim. In particular, TRM submitted that “all responsibility and liability” are words that are intended to capture all liability, including negligence.

[28] The plaintiffs repeated the submissions made at [21](a) to [21](e) and [21](g)

(a) The employment of the word “use” in the phrase “use of the Toyota FT-50 cars ...” indicates that the release is geared towards the potential crashing of the race cars.

(b) The release only refers to “liability in relation to the operation and management of the series and the use of the ‘Toyota FT-50’ cars and related components”. This does not cover liability arising out of the production and testing of the FT-50 prior to the commencement of the series.

(d) The background commercial context, as well as the other contracts (the TRM Agreement and Lease Contracts), all tend to support the view that the subject matter of the release was intended to be damage or injury caused by a car accident. To interpret the release as widely as the defendants contend would be to ignore the commercial context, and also render the other exclusion clauses and indemnities redundant.

[29] The Chassis and Engine Leases are between Toyota NZ and Damon Leitch Motorsport Limited (and do not bind any of the other plaintiffs). Both leases collectively provide the constituent parts for an FT50. The driver must otherwise source all other consumables, goods and services separately, including a pit-crew.

[Damon Leitch Motorsport] hereby releases, discharges, indemnifies and covenants not to sue [TRM], TOYOTA NEW ZEALAND, TATUUS and their employees, partners or suppliers from, for or in respect of any loss, damage, claim or demand on account of death, injury, financial loss or property damage suffered by the [Damon Leitch Motorsport] or any person connected to or acting on behalf of [Damon Leitch Motorsport] in any manner whatsoever in connection with the arrangement, promotion or

conduct of the Toyota Racing Series and/or any activity whatsoever directly or indirectly connected therewith or with the attendance or [sic] spectators or persons whether such death, injury, financial loss or property damage shall have occurred as a result of negligence, breach of contract, breach of duty on the part of any person or otherwise and [Damon Leitch Motorsport] in entering or being associated with the Toyota Racing Series or in relation to the use of the “Toyota FT50” cars and related components accepts these conditions.

[31] TRM noted that this clause expressly covers negligence. It submitted that the words “loss, damage, claim or demand on account of death, injury, financial loss or property damage” have the same meaning as set out in [19] above, although the wording in this clause is more particular in that it specifically details a “claim or demand” to be “on account of” any “financial loss” and not necessarily personal injury as the plaintiffs allege. This is further clarified by adding that any such “financial loss” (or as otherwise stipulated) can be “suffered” by Damon Leitch Motorsport “in any manner whatsoever”.

[32] TRM noted that although the clause is limited to being in connection with the TRS including its “arrangement, promotion or conduct” it then provides an open definition for the party responsible for Damon Leitch Motorsport’s loss to be “any person or otherwise” in “negligence, breach of contract or breach of duty on the part of any person or otherwise”. TRM submitted that “any person” can be TRM itself. This is because the wording is sufficiently wide and also because the wording that follows concerns parties that have a contractual obligation, or may owe a duty of care, to Damon Leitch Motorsport, which includes TRM.

[33] TRM submitted that the clause applies to release TRM and also imposes an obligation on Damon Leitch Motorsport to indemnify TRM (as the case may be) for any loss, damage, claim or demand on account of death, injury, financial loss or property damage suffered by Damon Leitch Motorsport caused howsoever arising out of an act committed by TRM or any other party.

[34] The plaintiffs repeated the arguments they made in relation to the other exclusion clauses, as set out at [21](a) to [21](c) and [21](e) to [21](g) above. The plaintiffs did acknowledge, however, that the exclusion clauses in these contracts are

broader than the others, as they specifically refer to "financial loss" and negligence. The plaintiffs submitted that this lends weight to their arguments regarding the limited scope of the other relevant contractual clauses.

Do the exclusion clauses provide a complete defence to the plaintiffs’ claims?

[35] The defendants bear the onus of establishing, on the balance of probabilities, that the plaintiffs’ claims cannot succeed. As I have already noted, the threshold for both summary judgment and strike out is high. Summary judgment will generally only be entered against a plaintiff where there is a complete defence to the plaintiff’s claim, or a clear answer to the claim which cannot be contradicted.

[36] The issue before me is not whether the defendants’ interpretation of the exclusion clauses is tenable, or even whether it is more likely to prevail at trial than the plaintiffs’ narrower interpretation. Rather, I must be satisfied that the interpretation advanced by the defendants is correct and that the narrower interpretation advanced by the plaintiffs is untenable.

[37] The ordinary rules of construction of contract apply to the interpretation of the exclusion clauses, releases and indemnities.⁸I must determine, objectively, what the common intention of the parties was when they agreed the relevant clauses. In other words, what would a reasonable and properly informed person, with all the background knowledge reasonably available to the parties at the time they entered into the relevant contracts, have considered the words of the exclusion clauses to mean? ⁹Clear words are required to exclude or limit liability and any ambiguity or

_{lack of clarity must be resolved against the party seeking to enforce
the clause.}¹⁰

⁸_{Tag Pacific Limited v The Habitat Group Ltd (1999)
19 NZTC 15,069 (CA) at 15,074.}

⁹Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60]

citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR

¹⁰Dairy Containers Ltd v Tasman Orient Line CV [2004] UKPC 22, [2005] 1 NZLR 433 at [12];

Trustees Executors Ltd v QBE Insurance (International) Ltd [2010] NZCA 608 at [39]–[40].

Exclusion of liability for negligence must be clear and unambiguous.¹¹Similarly, a clause must be clear in order to totally negate contractual liability.¹²

[38] The factual matrix or surrounding circumstances are relevant. This can include matters such as the background of a particular transaction, the field in which the parties are operating, the practice of the industry or trade in question, the origin or genesis of the transaction and any previous dealings between the parties. The majority of the Supreme Court in Vector Gas Ltd v Bay of Plenty Energy Ltd held that factual matrix evidence may be used in determining the meaning of a contractual

[39] In Pyne Gould Guinness Ltd v Montgomery Watson (NZ) Ltd, the Court of Appeal suggested that a helpful approach is to look first at the words used, before examining the surrounding circumstances to make sure one’s first impression of the meaning was right, and that nothing in the circumstances requires modification of

that first impression.¹⁴The Court described this approach as a “cross-check”.

Can the Court confidently interpret the exclusion clauses in the absence of full contextual evidence?

[40] I now turn to consider the key issue in this case - can the Court confidently interpret the exclusion clauses at this preliminary stage, in the absence of full contextual evidence?

[41] As I have outlined above, TRM’s interpretation of the various exclusion clauses is very wide. For example, on TRM’s interpretation of the exclusion clause in the TRM contract, one of its primary obligations, namely to provide a race worthy, competitive and safe race car, is essentially unenforceable. The Drivers would have no recourse even if TRM provide them with vehicles from a local wrecker’s yard, or

_{indeed no vehicle at all. That is because, on TRM’s analysis,
the plaintiffs are}

¹¹DHL International (NZ) Ltd v Richmond Ltd [1993] 3 NZLR 10 (CA) at 17-18; Smith v South Wales Switchgear Co Ltd [1977] UKHL 7; [1978] 1 WLR 165 (HL) at 179-180; see also Southland Indoor Leisure Centre Charitable Trust v Invercargill City Council [2015] NZHC 1983.

¹²SGS (NZ) Ltd v Quirke Export Ltd [1988] 1 NZLR 52 (CA) at 55; I-Health Ltd v iSoft NZ Ltd HC Auckland CIV 2006-404-7881, 8 September 2010; Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2; [1980] AC 827 (HL) at 846.

¹³_{Vector Gas Ltd v Bay of Plenty Energy Ltd
[2010] NZSC 5, [2010] 2 NZLR 444.}

¹⁴Pyne Gould Guinness Ltd v Montgomery Watson (NZ) Ltd [2002] NZEmpC 79; [2001] NZAR 789 (CA) at [29].

required to indemnify it even in respect of losses (interpreted widely) caused by

[42] Further, on TRM’s analysis, each Driver would be required to indemnify it not only for losses arising out of their own claims, but also for losses suffered by other plaintiffs (being “any other person”), making the proceedings circular and pointless. To take an extreme example, if TRM were to provide Mr Ferrer-Aza with an entirely unsuitable and dangerous vehicle, and he were to sue TRM for losses he suffered as a result, TRM could demand that Mr Riener or Mr Leitch indemnify it in respect of such losses, despite them being entirely innocent parties.

[43] The plaintiffs’ submit, as one would expect, that this cannot possibly have been the objective intention of the parties at the time the TRM contract was entered into. They say that, correctly interpreted, the exclusion clauses are of a much narrower ambit than TRM alleges. Further, they say that the clauses cannot be interpreted in a factual vacuum. Motor racing is a highly specialised sport, with its own practices and norms that must be understood before the Court can definitively determine the proper scope of the exclusion clauses.

[44] As I have outlined above, it is well established that factual matrix evidence is relevant (indeed sometimes critically so) to the contractual interpretation exercise. As a result, questions of contractual interpretation may not be able to be adequately addressed in a summary judgment context, particularly where there is either insufficient contextual evidence before the Court, or it is necessary to resolve disputes regarding the matrix of fact. In the somewhat analogous declaratory judgment context, the Court of Appeal observed, in relation to the correct

We consider that the interpretation of the Policy should be undertaken at a full trial where the question can be considered other than in what is somewhat of a factual vacuum. This is particularly the case because we were urged to consider the background circumstances by both parties (with each asserting that the relevant background supported their interpretation).

¹⁵Trustees Executors Ltd v QBE Insurance (International) Ltd [2010] NZCA 608 at [42].

[45] Those observations are apt in this case, where the background information before the Court is very limited in scope and it is claimed by both parties that “industry practice” supports their proffered interpretation. In particular, the defendants submitted that a broad interpretation is reasonable because instances of unexpected mechanical failure and other unforeseen instances are part and parcel of motor racing. The defendants submitted that motor racing is an inherently risky activity because it involves racing cars at their absolute limit for sustained periods. While processes are put in place to limit such risks, it is not possible to fully protect participants from mechanical problems. Mr Thomlinson deposed that it is standard practice in the motor racing industry for race series organisers to exclude all responsibility for their actions, and that it would be “commercially absurd” to do otherwise.

[46] Mr Collins, the plaintiffs’ expert motorsport consultant, expressed a contrary view. He deposed that the general practice in the industry is that race series organisers will be protected from liability arising in the event of a car accident, but nothing more. The plaintiffs’ position is that it would be unfair and unreasonable (and not in accordance with industry practice) for exclusion clauses to exclude all liability of race series organisers in regards to the performance of their obligations. In their view that simply cannot have been the objective intention of the parties. Rather, a person with all relevant background industry knowledge would interpret a phrase such as “motor racing is an inherently risky activity” as being a reference to the risk that an accident may occur. Such a person would not consider an inherent risk of motor racing to be that those in charge of managing a race series may provide low quality cars, a poor standard of service, be negligent, or engage in misleading and deceptive conduct.

[47] The plaintiffs submitted that even if “normal” mechanical problems fell within the ambit of the exclusion clauses (which they deny), the types of mechanical problems suffered by the plaintiffs were far outside of the normal range. They were not problems that would arise in race worthy and safe race cars that had been thoroughly tested. Rather, the plaintiffs say they arose because the testing of the FT50 cars by or on behalf of TRM was insufficient to ensure the cars would be of

high quality and free of mechanical defects. (Obviously, that is a factual issue that can only be determined at trial.)

[48] Clearly, motor racing is a highly specialised sport that has developed its own norms and practices. Precisely what those norms are, however, is a matter of dispute. In my view this is fatal to the Court’s ability to definitively interpret the exclusion clauses at this preliminary stage. The clauses simply cannot be interpreted in a factual vacuum, or in circumstances where there is a conflict in evidence regarding industry norms and practices. For example, what does the phrase “inherently risky” mean when used in this context, and to what extent does such a concept colour the interpretation of the exclusion clauses as a whole?

[49] “Inherent risk” is part and parcel of many recreational activities, as the nature of the activity is itself a source of risk. Organisers cannot remove “inherent” risk from an extreme sport or recreational activity without fundamentally altering the nature of the activity. The law therefore recognises that adults may knowingly, and with an appreciation of the risks involved, choose to participate in inherently risky activities. If they do so, they will usually do so at their own peril. Exclusion clauses may be used to legitimately reduce or eliminate the legal exposure of event organisers in such circumstances.

[50] Determining precisely what risks are inherent in a particular activity, however, will usually require some consideration of contextual or factual matrix evidence. At one end of the spectrum, there is clearly a risk of death or injury in motor racing. I also have little difficulty in accepting that some risk of mechanical failure is also probably inherent, given the inevitable pressures on race vehicles. What, however, if mechanical failure is caused by the negligence of race organisers or others, or a lack of proper maintenance, or inadequate testing? Would participants consider those types of risks to be part and parcel of motor racing? Similar questions would arise in virtually all other extreme sports. One would expect that bungee jumpers or scuba divers would appreciate that death or injury is an inherent risk of such sports. But what if injury or death resulted from the (negligent) failure to attach someone to the bungee harness, or to fill up their tank with oxygen? Would

participants anticipate that those types of risks are covered by standard form exclusion clauses?

[51] Normally a Court would be somewhat reluctant to interpret a clause in such a way as to allow one party to be totally at the mercy of another’s negligence, or to allow one party to breach its own contractual obligations with impunity. In the context of high risk sports or adventure activities difficult policy issues are in play. An extremely wide interpretation of exclusion clauses could potentially impact on the level of care that organisers provide to their paying customers. This in turn could significantly increase the risks of accidents or injury, or death (as well as pecuniary loss). On the other hand, the law generally recognises freedom of contract, and the right of parties to allocate risk as they see fit. As I have noted above, however, any ambiguity or lack of clarity will usually be resolved against the party seeking to enforce an exclusion clause, particularly where there is an inequality of bargaining power (as appears to be the case here).

[52] The interpretation of the exclusion clauses advanced by the defendants is clearly tenable. On their face, the exclusion clauses appear to be drafted fairly widely. The defendants’ interpretation, however, is not the only tenable interpretation. It can credibly be argued that the exclusion clauses are narrower in scope than alleged by the defendants. I have therefore concluded that it is not possible to definitively interpret the clauses in the context of the present summary judgment application. The Court is likely to be considerably assisted in the interpretation exercise by “factual matrix” evidence. What risks are inherent in motor racing? What are the relevant industry norms and practices? What actually happened on this occasion – were the mechanical failures the type of failures normally associated with motor racing, or were they attributable to specific failings on the part of race organisers? I note that Mr Collins has deposed that TRM will have access to large quantities of data concerning the problems experienced by the plaintiffs during the 2015 TRS. TRM does not appear to dispute this. None of this evidence is currently before the Court, however, as discovery is yet to take place.

[53] For the reasons outlined, I am not satisfied that the interpretation of the exclusion clauses advanced by the defendants is the only reasonable or tenable

interpretation. It necessarily follows that, for the purposes of the summary judgment strike out application before the Court, the exclusion clauses do not provide a complete defence to the plaintiffs’ claims. The true meaning and effect of the relevant clauses will need to be determined at trial.

[54] Defendants’ summary judgment is accordingly not available. It may be, however, that individual causes of action may be amenable to being struck out as not disclosing a reasonably arguable cause of action, on grounds unrelated to the exclusion clauses. In particular, the defendants raised several arguments in relation to the FTA cause of action that were arguably “stand alone” in the sense that they were not necessarily dependent on the Court (at this stage) accepting the plaintiffs’ interpretation of the exclusion clauses. I therefore now turn to consider whether any of those matters constitute a complete defence to the FTA cause of action, such that the FTA cause of action should be struck out.

Do either TRM or Mr Thomlinson have a complete defence to the FTA cause of action?

[55] The plaintiffs’ fourth cause of action alleges a breach of s 9 of the FTA by both TRM and Mr Thomlinson. In particular, it is alleged that the defendants made misleading representations to the plaintiffs about the quality of the FT50 cars and the testing that had been undertaken prior to the 2015 TRS. The plaintiffs were allegedly deceived, and were induced to enter the 2015 TRS as a result, causing them to suffer loss.

[56] The Court of Appeal has recently suggested that summary judgment may be unusual where breaches of the FTA are alleged. This is because such cases almost inevitably raise questions of fact that are unsuitable for determination at the summary judgment stage:¹⁶

Although the threshold issue of whether the material in question is capable of breaching the Fair Trading Act is a question of law for the Judge, it will often be difficult to divorce that question from the issue of whether there has been a breach in fact in all the circumstances. It would be relatively unusual to find that a plaintiff’s claims cannot succeed where issues of judgment are involved and where the evidence is incomplete and has not been tested at trial.

¹⁶Luxottica Retail New Zealand Ltd v Specsavers New Zealand Ltd [2012] NZCA 357 at [51].

[57] Those observations apply with equal (and possibly greater) force in a strike out context.

_{[58] The defendants’ defences to the FTA cause of action are
essentially that:}

	(a)	TRM’s conduct was not misleading and deceptive, as the alleged representations were either true or were genuine opinions held by
		Mr Thomlinson and TRM at the time, based on reasonable grounds;
	(b)	the exclusion clauses constitute agreements to “contract out” of the FTA in terms of s 5D and it is “fair and reasonable” for the exclusion
		clauses to bind the plaintiffs; and/or
	(c)	Mr Thomlinson was not personally a party to the relevant contracts, as
		he was acting in his capacity as agent of TRM and did not undertake any personal obligations or liability in respect of the subject matter of
		the proceedings;
[59]	First,	it is obviously not possible to determine whether the alleged

representations were true, or genuine opinions based on reasonable grounds, in the context of a strike out application. Significant evidence will be required in order to determine such issues. TRM also submitted that the plaintiffs could not have been induced by the representations, as they occurred after the contracts were signed. The plaintiffs’ position is that the representations were made before the contracts were signed, and continued thereafter. Again, this is a matter of disputed fact that will need to be resolved at trial.

[60] Similarly, given the conclusions I have reached above regarding the interpretation of the exclusion clauses, it will be necessary to determine at trial whether the clauses constitute agreements to “contract out” of the FTA in terms of s 5D of the Act, and whether it is “fair and reasonable” for the exclusion clauses to bind the plaintiffs. Extrinsic evidence, including evidence relating to practices and norms within the motor racing industry, will be necessary to determine such issues. Further, s 5D(4) provides that the Court must consider “all the circumstances of the

agreement” when considering whether it is fair and reasonable for the parties to be bound by the clause (including the non-exhaustive list of considerations set out in s 5D(4)(a)-(e)). This will need to be the subject of properly tested evidence at trial.

[61] I therefore turn to consider whether the FTA cause of action against Mr Thomlinson personally can be struck out as being not reasonably arguable. In particular, Mr Thomlinson’s evidence is that he was not personally a party to the relevant contracts, as he was acting in his capacity as agent of TRM, and did not undertake any personal obligations or liability in respect of the subject matter of the proceedings.

(a) Primary liability under s 43(1)(a) for engaging in misleading and deceptive conduct while “in trade”. Section 43(1)(a) of the FTA provides that where a person has suffered loss or damage by the conduct of another person, that other person can be held liable for “a contravention of a provision of Parts 1 to 4A” of the Act (in this case, a breach of s 9).

[63] Mr Thomlinson submitted that he cannot have primary liability as he was acting as a director at the time, and a director can only be liable if he or she assumed a personal responsibility akin to acceptance of a contractual obligation. In support of this submission he cited the Court of Appeal decision of Body Corporate 202254

v Taylor (“Taylor”).¹⁷I accept the plaintiffs’ submission, however, that Taylor does

not provide a complete answer for strike out purposes. In Taylor the Court of Appeal

_{held that so long as a person was acting “in trade” when
they engaged in misleading}

or deceptive conduct, they will be liable under s 9. Of particular relevance, the Court stated that:¹⁸

... given the extraordinarily broad and untechnical language of s 9, there is no reason to suppose that a person who engages in misleading or deceptive conduct in trade is exempt from liability if that person was acting on behalf of another legal entity.

[64] Further, in Gilmour v Decisionmakers (Waikato) Ltd the High Court confirmed that the part of the Taylor decision Mr Thomlinson has referred to concerned the test for personal liability for negligence, not liability under the FTA.¹⁹

Taylor makes it clear that an employee may be personally liable under the [Fair Trading] Act for statements they make in the course of employment and no assumption of responsibility is required ... A director who participates directly in his or her company’s business will not ordinarily be able to avoid liability under s 9 of the [Fair Trading] Act and such representations must be regarded as in trade for the purpose of the liability under s 9.

[65] It therefore appears to be reasonably arguable that, if it is ultimately established that Mr Thomlinson engaged in misleading or deceptive conduct, he will have primary liability under the FTA. I also accept the plaintiffs’ submission that he would arguably have secondary liability under s 43(1)(b) in such circumstances. The Court of Appeal has stated that where a company has liability under s 9 of the FTA due to a representation made on its behalf by one of its agents, the agent will have secondary liability under s 43(1)(b) if he or she knew that these representations were

[66] Accordingly, for the reasons I have outlined, neither TRM nor Mr Thomlinson have surmounted the hurdle of establishing, on the balance of probabilities, that the claims against them under the FTA are untenable and should be

²¹Body Corporate 202254 v Taylor, above n 17 [or n 18 if fn 8 is not deleted], at [66].

[68] Leave is reserved to file memoranda on costs, if costs cannot be agreed between counsel. Any memorandum from the plaintiffs is to be filed by 23 May

High Court of New Zealand Decisions

Ferrer-Aza v NZONE Race Management Limited [2016] NZHC 885 (4 May 2016)