RAHAL v BHARGAV [2026] NZCA 176

The Bhargav litigation concerned Mr Bhargav and Mrs Khajuria, and their purchase of a leaky home. The plaintiffs brought proceedings, initially, against:

• the vendor, First Trust Ltd (FTL) as trustee of First Trust;
• Mr Rahal, FTL’s director/shareholder;
• the real estate agency and agent involved in the plaintiffs’ purchase; and
• a pre-purchase inspection company, and inspector.

FTL later joined, as third parties:

• the real estate agency and agent involved in FTL’s initial purchase of the property; and
• a building company and builder, which FTL had engaged to do work at the property prior to the sale to the plaintiffs.

By the time of the High Court trial, in November 2023, only FTL and Mr Rahal remained as defendants – settlements having been reached with the other parties. In the High Court (Bhargav v First Trust Ltd [2024] NZHC 1054), Hinton J found that:

• FTL and Mr Rahal were aware of weathertightness issues affecting the home. Mr Rahal commissioned “cover up” works before FTL sold the property to the plaintiffs;
• FTL was liable to the purchasers for breach of contractual warranties in the sale and purchase agreement, and awarded damages based on the costs to repair the plaintiffs’ home; and
• both FTL, and Mr Rahal personally, were jointly and severally liability for breach of s 9 FTA and awarded damages based on diminution in value. This was less than the contractual liability.

Mr Rahal appealed the High Court decision, seeking to challenge the High Court’s imposition of personal liability on him, the approach to damages under the FTA, and the quantum of the general damages award.¹ The plaintiffs cross-appealed, also on the High Court’s approach to damages under the FTA.

The Court of Appeal found that there was “more than enough” evidence to justify the imposition of personal liability on Mr Rahal under the FTA, which was based on Hinton J’s “careful, considered and compelling” factual and credibility findings having heard from all the witnesses. Water ingress and damage had been visible (and pointed out to Mr Rahal) when FTL purchased the property. Mr Rahal approved quotes, authorised building work, and exercised control over the renovations. He (as FTL’s alter ego) made the decision to sell the property. He also made the decisions which led to the property being presented as newly renovated, covering up evidence of defects and damage, carrying out works to mitigate or conceal issues without addressing their cause, and failing to disclose the existence of leaks.

The Court of Appeal upheld the FTA liability findings against Mr Rahal.

The Court of Appeal dismissed Mr Rahal’s appeal and allowed the plaintiffs’ cross-appeal. The High Court’s damages award (on a diminution in value basis) was substituted for what amounted to cost of cure damages.

The Court of Appeal reasoned that:

1. Assessment of damages in FTA cases is not constrained by traditional rules relating to correct measure (as tort or contractual claims might be). The Court must ask:
   1. 1. what losses did the misleading/deceptive conduct cause to the plaintiff; and
      2. what award of damages will make good that loss?
2. Ordinarily, where the misleading/deceptive conduct has led the plaintiff to purchase a property they would not otherwise have purchased, the loss suffered will be adequately compensated by diminution in value damages.
3. However, the assessment of FTA damages is a factual enquiry, and will depend on the plaintiff’s particular circumstances. In this case, and for these plaintiffs:
   1. 1. the value of the property they received was, to them, significantly less than the market value in its leaky state;
      2. their financial circumstances meant they were “locked in” to the property. They had paid market value (on an unaffected-by-defects basis) and could not afford to sell it (at a loss) to purchase a different property. Due to changes in their financial circumstances in the meantime, they may not have been able to qualify for mortgage lending at a sufficient level to purchase an equivalent property;
      3. it therefore did not make sense to award damages on a theoretical possible resale when resale was not actually possible; and
      4. Mr Bhargav and Ms Khajuria’s proven losses were not “expectation losses” (which the Court recognised would not be claimable), but actual losses which they suffered because of Mr Rahal’s misleading and deceptive conduct. These losses included:
         1. the costs to repair the property;
         2. costs associated with identification and quantification of the damage to the property;
         3. lost rental income (due to being unable to let the leaky spare room to a boarder, as they had planned);
         4. the costs of alternative accommodation during the repairs; and
         5. moving/relocation costs for vacating the property for repairs to be carried out.

The Supreme Court’s recent decision in Routhan v PGG Wrightson Real Estate Ltd [2025] NZSC 68 was issued shortly after the Court of Appeal heard arguments in Bhargav but before it issued its decision. The Court of Appeal concluded that the Supreme Court’s decision in Routhan reinforced, and did not contradict, its findings on FTA damages.

While the Bhargav decision involves fact-specific findings by the Court of Appeal, the expansion of FTA compensatory damages to remedial costs (which is often a much higher sum) presents a greater risk for defendants.  However, it brings the FTA position in line with negligence cases, where either measure is available.

Parties, and their lawyers, will need to apply a critical lens to claims for cost of cure damages under the FTA, in order to properly assess risk. They should seek to replicate the factual damages enquiry that the Court will conduct, rather than relying on presumptions about the correct measure.

1. FTL brought an appeal too, but this was abandoned when FTL was placed into liquidation.

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