Date: Tue, 26 Feb 2008 09:49

From: Andrew Tettenborn

Subject: New Zealander Financial Regulation - duty of care of New Stock Exchange

On the duty to guard against self-harm, the lunatics took over the asylum a little earlier in England. See Stone & Rolls Ltd (In Liquidation) v. Moore Stephens (A Firm) [2008] P.N.L.R. 4 (company scams its bank out of 8-figure sum: auditors owed duty to company to save it from being so wicked).

Andrew

Geoff McLay wrote:

Dear all

You might be interested in the following case in the which the NZ Court of Appeal has allowed a negligence case to proceed against NZX , the company that runs the New Zealand Stock Exchange for the failure to properly investigate a brokerage firm that ultimately failed ‘causing’ loss to those that had dealings with the brokerage. It reversed a prior decision to strike out the case   I have not fully read the case, but the Court considers the familiar overseas law that financial regulators do not owe a duty of care, and rejects its application because NZX was a private body …

[101] For these reasons, we conclude that BNZ is right that NZX is primarily a commercial body, albeit it has some regulatory functions and that an important purpose of the inspection regime is to protect the interests of the broker’s clients. As the matter was argued, that is sufficient to allow the appeal in relation to the claim by BNZ. We add that while there may be issues about causation the matter is at least arguable and so should not be struck out on that basis.

This is a little bit of twist of the old theme of differentiating public from private bodies. 

The court also allowed, perhaps surprisingly at least, the claim of the Brokerage itself to go ahead, apparently that it might have been saved from the actions of its executives if there had been a better audit.  The court wrote of the causation issues:

[117] We consider that the extent to which Access was at fault and so broke the causative link will be a relevant issue at trial. As Evans-Lombe J said in Barings plc (in liquidation) v Coopers and Lybrand [2003] EWHC 1319 at [838] (Ch) this issue is “fact-sensitive” to the particular case and is appropriately determined on the basis of the evidence. We note also the suggestion in Todd (Gen Ed)) The Law of Torts in New Zealand (4ed 2005) at [21.3(4)] that “[i]f there is a legal duty to safeguard another from self-harm, a breach of the duty must be a cause even of that harm.” (See on the latter aspect various decisions of the House of Lords which conclude that where the scope of the defendant’s duty includes a duty to protect the plaintiff against his or her own deliberate actions, the chain of causation cannot be broken by the very act the defendant is obligated to protect the plaintiff from: Environment Agency (Formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22 at 31 (HL); Reeves v Commissioner of Police of the Metropolis [2000] 1 AC 360 (HL) at 367 – 368 (per Lord Hoffmann), at 374 (per Lord Jauncey of Tullichettle) and at 381 (per Lord Hope of Craighead); and Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 and 5) [2002] 2 AC 883 (HL) at [69] - [71] (per Lord Nicholls of Birkenhead) and at [127] – [128] (per Lord Hoffmann).)

[118] The matters raised by NZX illustrate the difficulties the claim by Access may well face at trial but, for the reasons we give, it is premature to strike out the claim brought by Access.

Bank of New Zealand and anor v New Zealand Exchange Limited and anor CA CA238/06 22 February 2008.

--
Andrew Tettenborn MA LLB
Bracton Professor of Law
University of Exeter, England

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