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Statutory Liability - Claim Examples

Brief Scenarios #1

Building Act

A property owner changed the use of his premises without obtaining proper consent. Although the building was situated in a commercial zone and was used partially for commercial purposes, the local authority discovered that part of the building was being let out for residential purposes. The property owner was prosecuted and fined for breaches of the Building Act.

Credit Contracts Act

A finance company pleaded guilty to 17 breaches of the Credit Contracts and Consumer Finance Act 2003, resulting from inadequate disclosure of the terms and conditions of its loans. The contracts were unenforceable because of the failure to properly disclose the terms and conditions. The finance company also pleaded guilty to further charges of breaching the act by telling the customers that the contracts were enforceable. The Court found that documents provided by the finance company had been faxed and photocopied, and in some cases were so distorted what they were impossible to read. The company was fined $60,000. 

Fair Trading Act

A clothing importer and retailer was prosecuted and fined $15,000 for failing to affix country of origin labelling to clothing sold in New Zealand. 

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Brief Scenarios #2

Historic Places Trust Act

Whilst preparing a new property development, old bones were uncovered by a contractor. The contractor continued to work on the site and caused damage to the remains before the Historic Places Trust had an opportunity to assign the site status. The contractor was prosecuted and fined $55,000 under the Historic Places Trust Act for knowingly damaging and destroying a burial area.

Medicine Act

A number of representations were made in the course of marketing a new pharmaceutical product, which, could not be substantiated. An investigation was undertaken and as a result fines of $90,000 were imposed under the Medicine Act.

Sale of Liquor Act

A liquor store owner sold wine to a young woman whom he thought to be over 18, however, he failed to ask for identification. It transpired that she was only 16 years of age and the owner was prosecuted and fined $1,000 under the Sale of Liquor Act for breaching the terms of his licence, by selling liquor to minors.

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Fair Trading Act

The insured, an insurance company, engaged a marketing company to deliver a scheme whereby prizes were offered in relation to the sale of policies. The prize scheme had a draw date. However by that date prizes were not in place resulting in the draw not taking place as scheduled. 

The insured who had been unaware that prizes had not been given out as promised rectified the matter promptly. Nevertheless Commerce Commission prosecuted the insured for violating the Fair Trading Act 1986.

The VL lawyer mounted a successful defence citing abstruse provisions of the Act. The High Court found that the insured’s lack of care in supervising its agent to fulfil the obligation to hold the draws did not demonstrate an intention not to provide the prizes at the time the offer was made.

Similarly, additional charges under s11 – misleading conduct in relation to services and s9 – misleading or deceptive trade practices were successfully defended. 

VL paid legal fees in excess of $100,000.

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Health & Safety at Work Act #1

The insured ran a carpet-laying business. An employee was laying flooring in a premises which had a gas fired water heating cylinder in a cupboard. The water heater had a naked flame pilot light burning. Volatile fumes from the flooring adhesive built up and an explosion resulted causing the employee to suffer burns and bruising. 

The insured was prosecuted by under Health & Safety legislation and the matter was reported to VL under the insured’s Statutory Liability cover. In the course of investigations the VL lawyer uncovered the fact that there had been an earlier similar occurrence (not resulting in injury) in the same premises. 

The prosecution was dropped on the grounds that the insured had no knowledge of the hazard and the property owner should have warned about it. VL paid for legal defence costs.

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Health & Saftey at Work Act #2

The insured is a large commercial bakery. Its employee caught his arm in a pastry rolling machine causing fractures and bruising. 

The insured was prosecuted under both Section 49 and Section 50 of the legislation. Section 49 – exposing the worker to a known hazard has the more serious penalties. Section 50 – failing to ensure the workers safety - the more common basis for prosecution. 

Due to the potentially serious outcome for the insured under Section 49, VL engaged a highly experienced barrister to manage the defence. Upon further investigation, the Section 49 prosecution was eventually dropped.

In pre-sentencing submissions, the VL lawyer was successful in reducing the fine sought by the Department from $60,000 to $45,000. Reparations were set at $17,000. Legal costs were more than $25,000.

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Human Rights Act

A social studies teacher in a private school complained to the School Principal that his Head of Department was discriminating against him because he was of Indian origin. He maintained that the HOD was limiting his class work to just junior classes thereby denying him a proper career path. He alleged that the HOD had told him that his spoken language was regarded as a “bit of a joke” by senior pupils and that he would be unable to command sufficient respect from senior classes to effectively teach the curriculum.

The allegations were denied and the dispute was dealt with by the School as an employment matter. It was reported to VL as a possible claim, under an Employment Disputes policy, for a personal grievance and duly ended up as a mediation by the Labour Department which was settled in the teacher’s favour with an award of $2,000 and an undertaking that his future work would not be restricted to junior classes. VL’s lawyer represented the school

Despite this outcome, the teacher resigned some three months later and the school received a claim under Sections 21 and 22 of the Human Rights Act and demanding compensation of $120,000 for hurt and humiliation and loss of career opportunity.

VL duly received a claim under the School’s Statutory Liability policy and engaged appropriate counsel to assist. It became evident that the employment dispute process had not really got to the bottom of the matter and the teacher’s lawyer had accumulated fairly damaging evidence from various students and teachers at the School. In the balance it was clear that the HOD was at fault and that the School and the mediation had not fairly dealt with the issues. The claim was negotiated and a settlement of $35,000 was reached which VL indemnified plus legal fees in excess of $12,000.

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Maritime Saftey Act and Health & Safety at Work Act

The insured is in the marine industry. Its workboat with six employees on board hit an anchored vessel in good weather conditions. As a result, two died, three others sustained serious physical injuries, and one suffered mental trauma in seeing his co-workers dead and injured. The skipper’s operator licence was a week out of date, as was the vessel’s sea-worthiness certificate.

The company was charged under the Maritime Safety Act for its employee operating a ship in a manner which caused unnecessary danger or risk to others, operating a ship without a current Safe Ship Management Certificate, and its employee driving the vessel without a current operating licence. 

Under the Health & Safety in Employment Act, the employer was charged with failing to take steps to ensure the safety of its employees. The skipper’s own unlawful and negligent acts were imputed to the company resulting in its pleading guilty to all charges. 

VL’s total costs for the claim exceeded $225,000.

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Resource Management Act

The Insured, a local bus operator, had a diesel fuel facility in its yard. The tank was owned by the fuel supplier but the insured was responsible for its upkeep etc. 

The fenced and gated yard was broken into at night and amongst other things an unsecured valve on the tank was maliciously turned on and fuel was allowed to run into a bunded area surrounding the tank. Unfortunately the drain hole in the bund had been left open by an employee of the insured after he had cleared rubbish from it the previous day. 18,000 litres of fuel ran into a nearby stream. 

A massive clean-up operation was undertaken (largely paid for under a VL CGL policy at a cost of circa $300,000). Fortunately an oyster farm located in a downstream estuary was unaffected as the remedial action meant that the fuel had dissipated upstream of that. The Council brought action against the insured and its supplier under the RMA.

The insured was convicted and fined just $14,250 plus prosecution costs of $243. The VL lawyer did particularly well in deflecting a share of the “blame” to the fuel supplier hence the low fine. Defence costs were $60,000. 

Footnote: the outlet valve on the tank was replaced by a lockable device – cost $370! 

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Sale of Liquor Act

The insured operated a tavern. It was prosecuted after a local authority inspector, acting under the council’s powers as the District Licensing Authority discovered it was selling liquor on Good Friday in contravention of the Act. The Act permitted sale of liquor on Good Friday only to patrons who were dining on the premises.

VL’s lawyer assisted the insured in preparing for an appearance to answer the charge in the District Court. The pleading was that by buying hot pies and/or sandwiches patrons were ‘dining’. The court was unimpressed and the insured was convicted and fined $3,000 which VL paid along with lawyers’ fees.

Note: since this claim, the Hospitality Organisation has issued guidelines to its members which spell out parameters for, inter alia, Good Friday trading. Breaches such as in this claim are unlikely to be covered because they would be deemed to be ‘deliberate’ actions.

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