United States resident, Mr Bishop engaged Taylor Marine Limited to be his agent for the purpose of selling a 63' ocean-going yacht, 'Blaze'.
Mr Walters purchased the vessel in his personal capacity for NZ$650,000 in 2003. Unknown to Mr Walters, Blaze was subject to a mortgage held by a United States financier, Keybank National Association. The mortgage secured sums that Keybank had advanced to Mr Bishop.
In 2005, Mr Walters sold Blaze to a company that he controlled, Barrington Charters Limited (BCL). Blaze was later arrested at the instigation of Keybank due to a default on loan repayments. Keybank issued proceedings against Blaze in New Zealand and was partially successful in its action, ultimately resulting in a settlement between Mr Walters and Keybank for $150,000 (see Keybank National Association v The Ship 'Blaze'  2 NZLR 271).
As a result of the proceedings brought by Keybank, Mr Walters suffered a loss of $312,653.95 to clear the encumbrance and in legal costs. Having been unsuccessful in recovering damages from Mr Bishop personally, Mr Walters claimed against the yacht brokers for breach of the Consumer Guarantees Act 1993 (CGA) for selling him a ship with an undisclosed security.
Walters and BCL brought a claim against three brokers involved in the sale of Blaze:
- Taylor Marine, the agent of the vendor Mr Bishop.
- Laurie Abel, an agent subcontracting to Taylor Marine.
- LR Abel & Company Limited (Abel Co), another agent subcontracting to Taylor Marine.
The main issue for determination was whether Taylor Marine (as agents of Mr Bishop), Mr Abel and Abel Co (as agents of Taylor Marine) were 'suppliers' of goods for the purposes of the CGA.
It was common ground that:
- The vessel was a ship and therefore 'goods' as defined section 2 of the CGA.
- 'Suppliers' of goods guarantee that the goods are free from any undisclosed security (section 5(1)(b)).
- The consumer has a right of redress against a 'supplier' of goods where the goods fail to comply with any guarantee (section 16).
Consumer Guarantees Act 1993
The CGA applies to any person providing goods or services in the course of trade, to consumers. The Act prescribes a number of guarantees for suppliers of services and suppliers of goods. In respect of the latter, these include the guarantees of title, acceptable quality, fitness for a particular purpose, compliance with description and sample, and others. Under section 43 of the CGA, the statutory guarantees cannot be contracted out of.
The CGA defines a 'supplier' in section 2(a)(i)(A) as:
- 'a person who, in trade, supplies goods to a consumer by transferring the ownership of the possession of the goods under a contract of sale,...to which that person is a party'.
But a 'supplier' has an extended definition in section 2(b) (iv) and can also include:
- 'a person who, in trade, is acting as an agent for another, whether or not that other is supplying in trade'.
The section 2(a)(i)(A) definition of 'supplier' refers to someone in the vendor's position. In this case that part of the definition was not relevant because Mr Bishop was not himself in the business of selling ships.
Mr Walters therefore advanced the argument that Taylor Marine, Mr Abel and Abel Co were caught by section 2(b) (iv) because they were agents of the vendor, Mr Bishop.
The Court held that Taylor Marine was a 'supplier' of goods by virtue of it acting as agent for the vendor, Mr Bishop.
The Court said that the intention of the section 2(b)(iv) was to catch parties who have a profession or business of selling on behalf of others, even if the owner of the sold goods is not a person in the trade of supplying such goods. The expression 'in trade' in section 2(b)(iv) can include being in trade in relation to services, such as the service of being an agent or broker.
The Court held that Mr Abel and Abel Co were not 'suppliers'.
The facts were that those parties were commissioned by Taylor Marine and not by Mr Bishop. As subcontractors to Taylor Marine only, they had no authority to bind Mr Bishop and were not caught by the CGA. The Court expressed a reluctance to extend the definition of 'supplier' in section 2(b)(iv) beyond agents of the vendor to include the agents of agents / brokers.
Taylor Marine was held to be in breach of the guarantee to title in that it provided a ship to Mr Walters that was encumbered with a security interest. Judgment was entered for both Mr Walters and BCL although the action under the CGA hinged on Mr Walters, not BCL purchasing Blaze. It was perhaps fortunate for Mr Walters that he purchased Blaze in his personal capacity from Mr Bishop. Had his company BCL bought the vessel, Mr Walters would have had no redress as the CGA only governs the provision of goods and services to consumers.
Brokers cannot contract out of their CGA liabilities, so precautionary steps are required. Proper enquiries should be made of the vendor as to any security that may apply to the vessel and searches of the appropriate registers undertaken. However there are sometimes logistical difficulties and costs in doing that, especially for overseas registered vessels. These risks are also of interest to insurers of these professional indemnity liabilities. We shall address some practical solutions in a later article.
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