Connected Lender Liability in New Zealand

Abstract

Courts have long struggled to identify those circumstances when one legal actor should bear legal responsibility, and accordingly be vicarious liability (usually on a joint and several basis), for the legal, equitable, or statutory wrongs of another. At common law, there exist well-established situations in which this can occur (most notably in the employer-employee context), even though the scope and justification for these situations has not always received universal endorsement. The purpose of this paper is to consider a related legal principle, namely that of ‘connected lender liability’. According to this principle, a bank (or other financier) may be liable to a borrower for the actions of a third party supplier or service-provider if those actions constitute a breach of the supply contract that the bank has agreed to finance, or alternatively constitute a legal or equitable wrong committed in connection with the formation or performance of that agreement. Not only has this principle and its justifications been considered recently by the House of Lords in Office of Fair Trading v Lloyds TSB Bank plc, but it has also been recently adopted by the European Union in the Consumer Credit Directive 2008 and is currently under review in both Australia and the United States following the global “credit crunch”. In contrast, ‘connected lender liability’ has received virtually no judicial or academic attention in New Zealand. The paper will not only examine the justifications for ‘connected lender liability’, but will also analyse the extent to which this principle is recognized (whether at common law or by statute) in New Zealand. Whilst the analysis will consider the extent to which ‘connected lender liability’ arises out of the provision of consumer finance generally in New Zealand, it will focus in particular on the extent to which such liability can arise out of the most common form of consumer finance, namely credit card financing.