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Court slashes damages against realtor in misrepresentation claim over farm sale

5 May 2023

| Author: Heidi Bendikson

PGG Wrightson Real Estate Limited v Routhan [2023] NZCA 123 (Gilbert, Mallon and Wylie JJ)

Reasons delivered by Gilbert J

Appeal against High Court measure of damages – cross-appeal against High Court dismissal of claim of deceit and contributory negligence – applicable principles – deceit – discoverability – whether liability excluded by disclaimer – assessment for recoverable loss – scope of duty – appeal allowed, cross- appeal dismissed

In 2010, the trustees of the Kaniere Family Trust (Routhan) purchased for $2.8 million a Hokitika dairy farm through real estate agent PGG Wrightson Real Estate Limited from Cooks Farms.

The farm’s milk production for the three years prior to May 2009 was 103,000 kg of milk solids per season. PGG represented to Routhan in 2010 that the figure remained unchanged when in fact the rolling average had dropped to 98,729 kgMS. Routhan undertook basic due diligence but did not obtain a breakdown of actual production from the farm or ask for details on how the farm had been run.

Over 10 years of ownership, Routhan invested substantial sums in an effort to improve the farm, which significantly increased its level of borrowing. However, milk production levels remained significantly lower than what had been represented.

In 2014, Routhan and Cooks entered arbitration over Routhan’s purported cancellation of a cow lease, with the arbitrator finding in Cooks’ favour. But information provided at the arbitration alerted Routhan to the farm’s actual average production levels in 2010.

Routhan was unable to service its borrowings. Its mortgagee forced the sale of the farm and another of Routhan’s properties at a time when the farm-gate milk price and farm values in the district had plummeted.

The High Court found Routhan suffered losses (including capital expenditure incurred) of $2.122m for negligence and breach of the Fair Trading Act 1986 but reduced that figure by 20% for contributory negligence. PGG now appeals that decision, seeking to set aside the High Court judgment or reduce the damages to no more than $50,000.

Routhan cross-appealed the 20% contributory negligence discount and the High Court’s finding that its claim of deceit was not proved.

Applicable principles – discussion of deceit precedent – whether liability excluded by PGG disclaimer – Court of Appeal found High Court was correct to find the disclaimer did not protect PGG as Cooks did not provide the mistaken figure – whether FTA claim time-barred and misrepresentation was discoverable prior to 2014 – Court of Appeal found Routhan was entitled to rely on information provided by PGG and its focus post-settlement was on evident under-performance, not knowing historic records were incorrect – whether Routhan was induced by misrepresentation to enter the agreement – Court of Appeal  found High Court did not err in its finding on inducement, had benefit of expert evidence – discussion of differing approaches to damages under FTA and negligence – whether recoverable loss correctly assessed – discussion of scope-of-duty precedent and particularly Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 – the Court of Appeal noted milk production information was only one factor relevant to Routhan’s purchase decision and found PGG did not assume a duty to protect Routhan against downstream losses – discussion regarding capital expenditure, finding most of it was not reasonably incurred – noted “expectation damages” not claimable under tort or FTA in any event – whether any losses recoverable – discussion of precedent of “locked in” cases – Court of Appeal noted Routhan was not “locked in” to continuing to own farm – discussion of valuation methodology – Court of Appeal applied quasi–average efficient approach, noting it recognised the ability to drive production levels through farm management, but should be significantly discounted to confine damages to information provided by PGG – Court of Appeal found, given their conclusion that loss should be assessed at date of transaction, relevant contributory negligence related only to due diligence and High Court was justified in concluding Routhan not negligent in this respect.

Held: Appeal allows. High Court judgment set aside and replaced with judgment for respondents in the sum of $300,000 plus interest.  Cross-appeal dismissed.


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