Rahal v Bhargav [2026] NZCA 176 confirms that damages under the Fair Trading Act 1986 (FTA) are not confined to traditional diminution in value measures. The Court of Appeal held that where misleading conduct causes a purchaser to become effectively “locked in” to a defective property, recovery may extend to remediation costs and consequential losses.
It also upheld the High Court’s imposition of personal liability on the director.
Background
The case concerns the sale of a residential property in Auckland by Mr Davinder Rahal and First Trust Ltd (FTL), the vendor company he was a director and shareholder of, to Mr Ameet Bhargav and Ms Renu Khajuria (Purchasers). In summary the property was a “leaky building” and Mr Rahal arranged the “cover up” works before FTL sold the property to the unsuspecting Purchasers. Mr Rahal was instrumental in the cover up; he approved quotes, directed the building work, and made the decision to sell the property, presenting it as newly renovated.
The property was later found to be a leaky home. The Purchasers alleged they had been misled about the property’s weathertightness and brought claims against FTL and Mr Rahal for breach of contractual warranties and misleading and deceptive conduct under s 9 of the FTA.
Initially, claims were brought against FTL, Mr Rahal, and various third parties including the real estate agency and agent Mr Bal, and the building inspector, Mr Mehta. However, the claims against the third parties were settled prior to the High Court trial. The claims against FTL and Mr Rahal remained and progressed to trial.
High Court Decision
The High Court held FTL and Mr Rahal liable but assessed FTA damages primarily on a diminution in value basis – the difference between what it was worth without the defects less what it was worth with the defects.
Both sides appealed. Mr Rahal challenged his personal liability and the damages awarded, while the Purchasers argued that the High Court had adopted the wrong approach to assessing loss under the FTA saying that the damages should be the actual cost to cure the defects in their home.
Court of Appeal Decision
Personal liability under the FTA
The Court of Appeal had little difficulty upholding the finding of personal liability against Mr Rahal given his personal involvement, albeit under the guise of his company. It found there was ample evidence that he was personally involved in the renovation, presentation, marketing and sale of the property, and that he was effectively the “alter ego” of the vendor company.
The Court confirmed that directors who are personally involved in the transaction cannot avoid liability under s 9 simply because the misleading conduct was carried out through a company.
The correct approach to FTA damages
The more significant aspect of the decision concerns damages.
The Court emphasised that FTA damages should not be determined by rigid labels such as “expectation loss” or “reliance loss”. Instead, the correct questions are:
- What loss was caused by the misleading conduct?
- What award will adequately compensate that loss?
Ordinarily, where misleading conduct induces a purchaser to buy a property they would not otherwise have bought, damages may be measured by the difference between the price paid and the property’s true value. However, the Court held that this will not always provide adequate compensation.
In this case, the Purchasers could not realistically sell the property because its value was less than their mortgage. As a result, they were effectively “locked into the property” and forced to bear the costs and consequences of remediation. Mr Rahal and FTL were found jointly and severally liable for the costs of remediation and consequential losses.
As a result, the damages more than doubled. The Court set aside the awards of $270,000 for breach of the FTA and $51,840 for consequential losses and substituted awards of $688,868.40 for remediation costs and $103,107 for consequential losses.
General damages dropped from $80,000 to $35,000. The Court held that, “courts will be particularly influenced by the desirability of consistency in treating like cases alike.” The Court noted that the conventional approach is for general damages to be awarded on the basis of each dwelling rather than each person in the dwelling and that a trial judge must have to adjust for particular circumstances to do justice in the individual case which includes the level of inflation since the last award by the court and the level of harm and distress experienced by a plaintiff. It found that $35,000 was appropriate in this case.
Relationship with Routhan
The Court also considered the Supreme Court’s decision in Routhan v PGG Wrightson Real Estate Ltd [2025] NZSC 68. It concluded that Routhan reinforced a flexible, fact-specific approach to compensatory damages and did not restrict recovery to diminution in value alone. Where expenditure is a direct consequence of the misleading conduct, it may be recoverable despite arising after purchase.
Key takeaways
The decision has potentially significant implications for FTA claims involving property defects and directors:
- Directors who are personally involved in misleading conduct remain exposed to personal liability despite operating through a corporation.
- Damages under the FTA are not automatically limited to diminution in value.
- Courts will focus on the actual losses caused by the misleading conduct.
- Where purchasers are unable to escape ownership of a defective property, remediation costs may be recoverable.
- General damages are to remain predictable and in line with preceding cases.
If you have any questions about the Fair Trading Act 1986 (FTA) claims involving property defects and directors, please get in touch with our Disputes Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
