Routhan v PGG Wrightson Real Estate Limited
[2025] NZSC 68
•26 June 2025
| IN THE SUPREME COURT OF NEW ZEALAND I TE KŌTI MANA NUI O AOTEAROA |
| SC 45/2023 [2025] NZSC 68 |
| BETWEEN | PHILIP WILLIAM ROUTHAN AND JULIE VERONICA ROUTHAN AS TRUSTEES OF THE KANIERE FAMILY TRUST |
| AND | PGG WRIGHTSON REAL ESTATE LIMITED |
| Hearing: Further Submissions: | 11–12 March 2024 |
Court: | Winkelmann CJ, Glazebrook, Ellen France, Kós and Miller JJ |
Counsel: | D R Kalderimis, T Nelson and O T H Neas for Appellants |
Judgment: | 26 June 2025 |
JUDGMENT OF THE COURT
AThe appeal is allowed. We fix damages payable by the respondent at $780,500, with interest as specified at [234].
BThe cross-appeal is dismissed.
CThe respondent must pay the appellants one set of costs of $50,000 plus usual disbursements. We allow for second counsel.
____________________________________________________________________
REASONS
| Para No | |
| Summary of Reasons Glazebrook and Miller JJ Kós J | [1] [18] [238] |
| Winkelmann CJ and Ellen France J | [327] |
SUMMARY OF REASONS
(Given by the Court)
This summary of the Court’s reasons on the principal issues must be read alongside the full reasons.
Background
In 2010, the Routhans bought a dairy farm near Hokitika.[1] The real estate agent, PGG Wrightson Real Estate Ltd (PGG), carelessly misrepresented to the Routhans that the farm’s recent milk production historical average was steady at 103,000 kg of milk solids (kgMS) per season. In , the farm’s recent production was substantially less than that, and in decline. The Routhans would not have bought the farm had they known the truth. They never achieved 103,000 kgMS, and the farming business declined until their bank forced them to sell the farm in 2020. The lost their incoming equity. They sued PGG for damages in negligence and under the Fair Trading Act 1986.
[1]The appellants bought the farm in their capacity as trustees of the Kaniere Family Trust.
The Courts below established that PGG is liable to the Routhans. The remaining issue in this Court is how much PGG must pay, and on what basis. This Court has also been asked whether and how New Zealand courts should apply the House of Lords decision in South Australia Asset Management Corp v York Montague Ltd (SAAMCO),[2] as refined in subsequent English decisions. The of Appeal applied SAAMCO in this case to limit PGG’s liability to the difference between the price paid and the value of the farm had PGG’s representations been true.
The scope of duty principle and the SAAMCO cap
[2]South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 (HL).
A majority comprising Winkelmann CJ, Glazebrook, Ellen France and Miller JJ confirmed that the “scope of duty” principle, which was discussed in SAAMCO, forms part of New Zealand’s law of negligence.[3] The principle requires the court to consider the position at the time the defendant’s duty arose or was assumed and inquire for what kinds of risk was the defendant taking responsibility and whether the allocation of risk was a fair one in the circumstances. This helps to ensure a defendant is liable only for harm that resulted from the risks that made the defendant’s conduct negligent in the first place.
[3]Below at [139] and [150] per Glazebrook and Miller JJ and [328] per Winkelmann CJ and Ellen France J.
Kós J dissented as to the analytical framework. He took the view that the scope of duty principle was developed as part of the English courts’ departure from Anns v Merton London Borough Council, a departure not taken in New Zealand, and that it should not represent part of duty analysis here.[4] The underlying extent to which a defendant assumed risk remained useful, however, as a backward-looking cross‑check, within or immediately following analysis of causation and remoteness, to ensure liability does not extend to risks not assumed by the defendant.
[4]Below at [239]–[241] per Kós J citing Anns v Merton London Borough Council [1978] AC 728 (HL).
Separate from the scope of duty principle, SAAMCO has been understood as creating a “cap” for liability. If the defendant negligently provided the plaintiff with information for the purpose of helping them to decide upon a course of action, then the defendant’s liability was said to be limited to the foreseeable consequences of that information being wrong.
A majority comprising Glazebrook, Kós and Miller JJ held that the Court of Appeal erred by using the SAAMCO cap as the “normal” measure of damages in this case.[5]
[5]Below at [170] per Glazebrook and Miller JJ and [279] per Kós J.
Winkelmann CJ and Ellen France J preferred the view that the SAAMCO cap can be a useful tool or cross-check to identify whether loss that was caused in fact by the defendant’s breach falls within the scope of their duty of care.[6]
PGG’s duty of care
[6]Below at [331] per Winkelmann CJ and Ellen France J.
Glazebrook, Kós and Miller JJ found that PGG’s duty of care extended both to the risk that the Routhans would pay too much for the farm and to the risk that the Routhans would produce less than the represented historical average following acquisition.[7] That was because of PGG’s role in negotiating and documenting the contract between the Routhans and the vendor. PGG knew why the Routhans wanted the historical production information, it assumed responsibility for having that information verified and updated by the vendor, and it knew the Routhans would rely upon that information because only the vendor (or the dairy company, with the vendor’s authorisation) could verify it.
[7]Below at [171]–[174] per Glazebrook and Miller JJ and [278]–[279] per Kós J.
In dissent, Winkelmann CJ and Ellen France J agreed with the Court of Appeal that the scope of PGG’s duty of care extended only to the risk that the Routhans would pay too much for the farm.[8] The real estate agent did not advise the Routhans in connection with their decision to purchase nor their subsequent decisions regarding how to operate the farm, and there were other misstatements relating to how the previous owner farmed the property which were independently operating causes of the Routhans’ post-purchase losses.
The extent of PGG’s liability
[8]Below at [353]–[377] per Winkelmann CJ and Ellen France J.
The Court was unanimous that PGG could not be held liable for the full extent of post-purchase loss claimed by the Routhans.
Glazebrook, Kós and Miller JJ found that PGG was liable only for the following heads of loss:
(a)$480,500, being the amount the Routhans overpaid by reference to expert evidence of the farm’s market value had its actual production been known;[9]
(b)$150,000, being the cost of additional fertiliser spent in an attempt to achieve the production they had been led to expect. The ’s capacity to grow grass was crucial to its milk production;[10] and
(c)$150,000, being the cost of a re-pasturing programme undertaken by the Routhans, on advice, to try improve pasture quality and therefore production.[11]
[9]Below at [183] per Glazebrook and Miller JJ and [317] per Kós J. Compare below at [393]–[398] per Winkelmann CJ and Ellen France J.
[10]Below at [209]–[211] per Glazebrook and Miller JJ and [326] per Kós J.
[11]Below at [212] per Glazebrook and Miller JJ and [326] per Kós J.
Glazebrook, Kós and Miller JJ rejected PGG’s arguments that the Routhans were contributorily negligent in respect of the post-purchase losses listed above. The Routhans acted as they did, in respect of that expenditure, because they reasonably relied on information provided by PGG.[12] There was no reason to reject the High Court’s findings that the Routhans took appropriate professional advice, were competent dairy farmers who achieved well compared to regional averages, and took reasonable efforts to increase production.
[12]Below at [231]–[232] per Glazebrook and Miller JJ and [308]–[312] per Kós J.
However, Glazebrook, Kós and Miller JJ found that PGG was not liable for other heads of loss: namely, revenue shortfalls, increased debt servicing costs, additional supplementary feed, and the Routhans’ long-term capital investments into the farm. These losses either were not caused in fact by PGG’s breach, or they were not reasonably foreseeable, or the evidence did not make clear how much was attributable to PGG’s breach, or they were already counted in other awards, notably the overpayment for the farm.[13]
[13]Below at [206]–[207], [215], [221]–[222] and [228] per Glazebrook and Miller JJ. See also below at [324]–[325] per Kós J.
Winkelmann CJ and Ellen France J dissented. On their view of the scope of PGG’s duty, none of the post‑purchase losses were properly attributable to PGG’s breach. The substantial cause of these losses was the misunderstanding (not created by PGG) as to the farming method the previous owner had used.[14] There were other causes too: the Routhans did not use the farming method that was represented to them; the Routhans became aware almost immediately upon taking possession that they were achieving well below expectations and nevertheless decided to retain the farm; and the Routhans took multiple business decisions that were not reasonably foreseeable by the real estate agent.[15]
[14]Below at [380]–[381] per Winkelmann CJ and Ellen France J.
[15]Below at [382]–[384] per Winkelmann CJ and Ellen France J.
Winkelmann CJ, Ellen France and Kós JJ also observed that an award for revenue losses would be an expectation measure.[16]
Result
[16]Below at [323] per Kós J and n 554 per Winkelmann CJ and Ellen France J.
The Court has allowed the Routhans’ appeal by a majority comprising Glazebrook, Kós and Miller JJ, but without fully reinstating the High Court award. PGG must pay the Routhans $780,500 in damages, with interest, alongside $50,000 in costs plus usual disbursements.[17] The Court also unanimously dismissed PGG’s cross‑appeal, which related to how the overpayment should be calculated.[18]
[17]Winkelmann CJ and Ellen France J would have confirmed the judgment of the Court of Appeal, which awarded the Routhans $300,000 plus interest: below at [400].
[18]Below at [180] per Glazebrook and Miller JJ, [317] per Kós J and [398] per Winkelmann CJ and Ellen France J.
GLAZEBROOK AND MILLER JJ
(Given by Miller J)
Table of Contents
Para No
Introduction [18]
The farm purchase [26]
The Routhans’ search for a suitable farm through PGG [26]
The introduction to Farm 258 [28]
PGG’s misrepresentations [31]
The agreement for sale and purchase [46]
The purchase [49]
Post-purchase [53]
Revenue shortfalls [55]
Supplementary feed [56]
The cow leases [57]
Fertiliser [64]
Pasture renewal [66]
Milking frequency [68]
Infrastructure improvements [69]
Additional borrowings and falling returns from dairying [71]
Forced sale [76]
The Routhans’ claim in negligence [78]
The High Court judgment [80]
The Court of Appeal judgment [88]
The appeal and cross-appeal [100]
Submissions on the appeal [101]
Submissions on the cross-appeal [104]
Approach [106]
SAAMCO [107]
Leading decisions since SAAMCO [114]
Hughes-Holland v BPE Solicitors [115]
Meadows v Khan and Manchester Building Society v Grant Thornton [120]
Charles B Lawrence & Associates v Intercommercial Bank Ltd [132]SAAMCO not followed at final appellate court level in Australia or
Canada [133]
SAAMCO in New Zealand caselaw [139]
New Zealand methodology in negligence [147]Should the SAAMCO cap have been relied on as the normal measure
of loss here? [155]
Scope of duty [171]
Breach of duty [175]
The losses claimed [176]
The overpayment for Farm 258 [178]
Post-purchase losses generally [185]
Pleadings [194]
Revenue shortfalls and increased debt servicing costs [204]
Avoidable expenditure [208]Additional fertiliser [209]
Re-pasturing [212]
Additional supplementary feed [213]
Herd replacement [216]
Other expenditure [223]
Contributory negligence [229]
Quantum [233]
Disposition [235]
Introduction
A real estate agent carelessly misrepresented a dairy farm’s recent milk production history, causing the purchasers both to pay too much for the farm and, following purchase, to pursue what they had been given to understand was the farm’s existing production level.
The farm was a 105-hectare dairy farm near Hokitika. It was prosaically named Farm 258, its identifier in the records of Westland Co-operative Dairy Company Ltd (Westland Dairy Co).[19] The appellants, the Routhans, bought it in their capacity as trustees of the Kaniere Family Trust (the Trust).[20] The respondent, PGG Wrightson Real Estate Ltd (PGG), was the real estate agent appointed by the vendor.
[19]The company has since renamed to Westland Dairy Company Ltd.
[20]In these reasons, references to the Routhans should be taken as references to the appellants acting in their capacity as trustees of the Kaniere Family Trust unless otherwise indicated.
The case has two distinctive features. The first is that in making the representations PGG exceeded the scope of its authority from its principal and vendor of the farm, Cooks Stud Farms Ltd (Cooks Farms). The second is that the Routhans did not sue Cooks Farms for PGG’s precontractual misrepresentations. Rather, they sued PGG in tort. As we explain below, PGG joined Cooks Farms as a third party but that claim was discontinued before trial.[21]
[21]See below at [79].
The judgments of the Courts below have established that PGG misrepresented the farm’s production levels and that PGG is liable to the Routhans in negligence.[22] The issue is what damages it must pay, and on what basis.
[22]Routhan v PGG Wrightson Real Estate Ltd [2021] NZHC 3585, (2021) 16 TCLR 274 (Dunningham J) [HC judgment] at [117] and [196]; and PGG Wrightson Real Estate Ltd v Routhan [2023] NZCA 123, (2023) 24 NZCPR 97 (Gilbert, Mallon and Wylie JJ) [CA judgment] at [106].
Following acquisition, the farm’s production was consistently well below the levels represented by PGG. The Routhans’ attempts to increase production were unsuccessful. Their mortgagee eventually forced them to sell it a decade after the purchase. They invited the trial Judge, Dunningham J, to award damages on the basis that but for the wrong they would have purchased another, hypothetical property and farmed it successfully.
The Judge found that the Routhans would not have purchased Farm 258 but for PGG’s misrepresentations.[23] In other words, this was a no-transaction case. But she declined to base damages on a hypothetical alternative purchase.[24] Instead, she awarded a sum representing the Routhans’ losses attributable to the forced sale, plus expenditure on capital improvements that were not reflected in the sale price, less a global deduction of 20 per cent for contributory negligence.[25]
[23]HC judgment, above n 22, at [192].
[24]At [193]–[194].
[25]At [196] and [229].
The Court of Appeal allowed PGG’s appeal in part, limiting its liability to the difference between the price paid and the value of the farm had PGG’s representations been true.[26] The Court rested that decision on what we will call the SAAMCO cap, following the decision of the House of Lords in South Australia Asset Management Corp v York Montague Ltd (SAAMCO).[27] We examine SAAMCO and its status in New Zealand law below from [107].
[26]CA judgment, above n 22, at [148].
[27]South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 (HL) [SAAMCO].
This Court granted leave to appeal, confined to the measure and quantum of damages.[28]
The farm purchase
The Routhans’ search for a suitable farm through PGG
[28]Routhan v PGG Wrightson Real Estate Ltd [2023] NZSC 127 (Glazebrook, O’Regan and Kós JJ) [SC leave judgment] at [1]. See below at [100].
In late 2009, Mr Routhan contacted Greg Daly, a well-known local real estate agent who worked for PGG. The Routhans sought his assistance in purchasing a farm in the Kokatahi/Kowhitirangi Valley with a capacity of 500–600 cows, preferably close to a 73-hectare property in Hokitika which the Routhans had purchased on behalf of the Trust in 2000 (the run‑off property). Mr Routhan had been a successful businessman in the plumbing, gasfitting and drainlaying industry but had not previously farmed; Mrs Routhan however had been brought up on a dairy farm.
Mrs Routhan’s uncle had listed his 105-hectare dairy farm with Mr Daly. It was located across the road from the run-off property and was being sold as a going concern with 285 cows producing 102,000 kg of milk solids (kgMS) per annum. The Routhans offered $4 million for this property but their offer was declined after another agent, Shari McLaughlin of CRT Real Estate Ltd (CRT), convinced the owner she could sell it for more.
The introduction to Farm 258
CRT had been approached in mid-2009 by Nelson Cook, an experienced farmer and sole director of Cooks Farms, to list Farm 258 for sale. Ms McLaughlin prepared a brochure (the CRT brochure) containing information about Farm 258, including that it had averaged “103,000 kgms for the last 3 seasons from approx 260 cows on a grass based system with half the herd wintered off each year”. Attached to the brochure was a Ravensdown Ltd fertiliser programme which recommended applying 147 kg of nitrogen per hectare for the 2009/10 season.[29] The brochure represented that the fertiliser applied was “[a]s per recommendation”.
[29]There was no plan for the 2010/11 season but there was evidence that it is usual to test for fertility every second or third year.
In early 2010, Ms McLaughlin approached the Routhans and gave them a number of brochures advertising farms for sale in the Hokitika region, including the CRT brochure. Although CRT did not hold a current listing for Farm , Ms McLaughlin thought it might suit the Routhans’ requirements and she understood that Mr Cook would be open to an offer of $2.8 million—$100,000 less than the original asking price.
Mr Routhan noted that the CRT brochure reported average production from Farm 258 of 103,000 kgMS over the past three seasons. Because the brochure was produced before the end of the 2009/10 season, he understood it to refer to the 2006/07, 2007/08 and 2008/09 seasons.
PGG’s misrepresentations
Mr Routhan told Mr Daly of Ms McLaughlin’s approach and gave him the CRT brochure. He asked Mr Daly to obtain production details and pricing for Farm 258, as well as a neighbouring farm (Casa Finca). Mr Routhan wanted Mr Daly to confirm that production for the 2009/10 season had remained at the average level specified in the CRT brochure. Dunningham J found that Mr Daly knew the Routhans would rely on this information, without making further inquiry.[30] She explained that production figures were not public. They could be obtained only from the vendor or from the dairy company with the vendor’s consent.[31]
[30]HC judgment, above n 22, at [106].
[31]At [105].
On 7 September 2010, Mr Daly met with Mr Cook, who confirmed he was still interested in selling Farm 258 (though no agency agreement was entered into until more than a month later).[32] By the time their briefs of evidence were prepared more than 10 years later, neither could recall exactly what was said at this meeting. Mr Daly’s recollection was that he had asked Mr Cook about the farm’s milk production and was told the average was still the same, which Mr Daly took to mean 103,000 kgMS as stated in the CRT brochure. Mr Cook said it was not his practice to give out production figures and he would have referred Mr Daly to the dairy company. The Judge found that Mr Cook did not confirm that milk production for the most recent season was 103,000 kgMS, though he likely said something to Mr Daly about production levels having been pretty consistent for the last couple of years following a peak when he had an outstanding farm manager.[33]
[32]On 11 October: see below at [41]. Dunningham J preferred Mr Cook’s recollection that there was an initial phone call with Mr Cook followed by an in-person meeting where the details in the CRT brochure were discussed: HC judgment, above n 22, at [30].
[33]HC judgment, above n 22, at [31]–[32].
Mr Daly relayed to Mr Routhan that Mr Cook would sell Farm 258 for $2.8 million and said that average production remained steady at around 103,000 kgMS (or words to that effect). Mr Routhan reasonably took that as confirmation that Farm 258 had maintained average production at that level for the past four seasons, including the 2009/10 season which had since ended. The facts that the average was now an average over four seasons and had been achieved from 260 cows on 105 ha using a grass-based system (with half the stock wintered off) indicated that the farm was in excellent condition, with strong fundamentals in soil and pasture quality.
The average of 103,000 kgMS was incorrect. The farm had produced 106,280 kgMS in 2006/07, 107,921 kgMS in 2007/08, 97,930 kgMS in 2008/09 and 90,337 kgMS in 2009/10. The rolling three-season average at the end of the 2009/10 season was not 103,000 kgMS but 98,729 kgMS. That is the figure that PGG ought to have reported to Mr Routhan.[34]
[34]We note that the Court of Appeal held that the figure PGG ought to have disclosed was 90,000 but counsel in this Court agreed that the correct figure was 98,729 kgMS, being the farm’s rolling three-season average. See CA , above n 22, at [147].
The brochure also overstated the number of cows milked and understated the quantity of fertiliser applied. It stated that approximately 260 cows were milked. In fact the average was 237 cows.[35] It stated that the attached Ravensdown fertiliser recommendations (147 kg of nitrogen per hectare) had been followed. In fact much more fertiliser had been applied.[36] These misrepresentations influenced the Routhans’ management of the farm after they took possession, as we explain below.
[35]See below at [60].
[36]See below at [64].
Dunningham J found that a high and consistent level of production from a grass-based farming system mattered to the Routhans.[37] The drop in the rolling average indicated that the most recent season’s production had fallen markedly. Had been given the actual production average they would have inquired, asking whether production in earlier seasons was artificially high and why it was in sharp decline by the time of sale. They might have learned, for example, that production in the 2006/07 and 2007/08 seasons was attributable to the application of much larger quantities of nitrogen fertiliser than the CRT brochure represented, the use of more supplementary feed, and the fact that not only half of the herd (as represented in the CRT brochure) but also the heifers were being wintered off the property. We add that they might also have learned that, as the Judge found, the farm was milking not the 260 cows represented but only about 237.[38]
[37]HC judgment, above n 22, at [174]–[175].
[38]See below at [60] and n 53.
After receiving Mr Daly’s assurance, Mr Routhan sought indicative financial forecasts and analysis from Ross Bishop, a farming financial consultant, to assess whether the proposed purchase was worth pursuing. Mr Bishop delivered these reports to the Routhans on 10 September 2010.[39]
[39]PGG was declined leave to argue that the Routhans relied on Mr Bishop, and not PGG’s misrepresentations about production levels, when deciding to buy Farm 258: see below at [100].
It was usual practice for a farm financier to require a written proposal or prospectus to verify information about the farm. Mr Routhan told Mr Daly that the Trust needed finance and asked him to prepare a proposal for their bank, Rabobank New Zealand Ltd (Rabobank). It was prepared on the basis that the Trust would buy both Farm 258 and Casa Finca and work them together with the Routhans’ run-off property. Mr Daly acknowledged in evidence that he had understood the Routhans and Rabobank would rely on the information in the proposal.
Mr Daly prepared the proposal (the PGG proposal) using the CRT brochure as a base and updating it with further information from Mr Cook. The PGG proposal confirmed that the average production for the “last 3 years” was 103,000 kgMS from 260 cows. It also attached the Ravensdown fertiliser programme and stated that it had been followed. As noted by the Court of Appeal, the only material changes between the CRT brochure and the PGG proposal were to the following items on the first page:[40]
SUPPLEMENTS Approx half herd wintered off and 115 bales baleage made on. [No mention of baleage in CRT brochure]
SHARES Approx 103,000 shares included in sale [Compared to 95,000 in CRT brochure]
“Shares” meant shares in Westland Dairy Co. The number was 103,000 because the number of shares which were to be transferred with the property corresponded to its milk production.[41]
[40]CA judgment, above n 22, at [41] (alterations in original).
[41]The correspondence is not precise. Rather, it is the maximum that a shareholder could sell into the dairy company, based on what its board considered was the probable supply of milk.
On 15 September 2010, Mr Routhan signed a Rabobank loan application for the Trust, having provided the bank with copies of the PGG proposal and Mr Bishop’s financial forecasts. In a section of the loan application headed “Property details”, Mr Routhan recorded alongside “Carrying capacity” the figures “123,000 m/s” for Casa Finca and “103,000 m/s” for Farm 258 (“m/s” referring to kgMS).
Mr Daly prepared an agency agreement which he and Mr Cook signed at a meeting on 11 October 2010. Mr Daly backdated the agreement to 1 September 2010. The explanation for the delay in completing it is that he had trouble contacting Mr Cook and arranging the necessary meeting.
It was PGG’s practice when executing an agency agreement to have the vendor sign a Rural Information Sheet to confirm information about the property. The standard form Rural Information Sheet provided, in the case of a dairy farm, for details about stock on hand, stock wintered, dairy company shares and production history. Normally the agent would use this information when completing a proposal for the purchaser’s bank, but in this case the proposal had been prepared before the agency agreement.
The agency agreement contained a checklist. Mr Daly ticked the “yes” box next to “Rural Information Sheet Completed”. In fact, Mr Cook did not sign or approve the information sheet which Mr Daly had prepared for the meeting. When he asked Mr Cook to confirm the production figures, Mr Cook responded that he would have to check them first. The information sheet was left with him. Mr Daly did not tell the Routhans that Mr Cook had declined to confirm production, nor did he pursue Mr Cook for the information after the meeting.[42]
[42]Sometime after selling the farm to the Routhans, Mr Cook did sign the information sheet, altering it to record an average production figure of 97,000 kgMS for the three seasons preceding purchase, but he could not recall when he did that and it has not been suggested that the amended sheet was disclosed to the Routhans at any relevant time. See HC judgment, above n 22, at [22] and [55].
Michael Curragh, Mr Daly’s manager at PGG, signed a PGG form headed “Particulars of Real Estate Sale”. It included a checklist which Mr Curragh ticked, relying on Mr Daly, to confirm that the agency agreement had been completed. Dunningham J found that the box should not have been ticked because the agency agreement was incomplete without a signed Rural Information Sheet.[43] The Particulars document again recorded milk production at 103,000 kgMS. It is common ground that, although this appears to be an internal PGG document, Mr Routhan received a copy on 18 October 2010. He was given it because he requested details of PGG’s in‑house complaints and disputes process when asked to agree to that process.[44] He gave evidence that he noted the production figure and took it as confirmation of what Mr Daly had told him.
[43]At [36].
[44]There was no suggestion of any dispute at the time; Mr Routhan was checking what it was that he had been asked to agree to do in the event a dispute did arise.
It will be seen that three separate representations about Farm 258’s production were made by PGG: the first was made orally on 7 September, the second in the PGG proposal and the third in the particulars of sale.
The agreement for sale and purchase
Mr Curragh drafted the agreement for sale and purchase.[45] The vendor was Mr Cook’s company, Cooks Farms. The Trust was the purchaser. The agreement described the land and specified the price, $2.8 million, and the settlement date, 20 December 2010. It was not subject to finance, presumably because the Routhans had secured sufficient commitment from their financiers.
[45]On the form approved by the Real Estate Institute of New Zealand Inc and the Auckland District Law Society Inc (8th ed, 2006) (the REINZ/ADLS form). See HC judgment, above n 22, at [28].
The agreement did not contain a warranty about production levels, but it did incorporate a set of further terms and conditions. These included provisions:
(a)specifying that the purchase price was inclusive of 103,000 Westland Dairy Co shares;
(b)making the agreement conditional on the purchaser obtaining a satisfactory milk supply contract (which can only have been with Westland Dairy Co);
(c)making the agreement conditional on due diligence by the purchaser within 15 working days;
(d)agreeing that the purchaser would lease approximately 260 cows from the vendor on terms to be agreed before settlement, with any dispute over the cows being resolved by arbitration; and
(e)agreeing that the property was sold as a going concern for tax purposes. The agreement also recorded that the existing farm manager would be kept on until the end of the season.
The agreement also recorded that PGG acted as Cooks Farms’ agent on the sale.
The purchase
On 19 October 2010 Mr Routhan signed the agreement for sale and purchase of Farm 258 in his capacity as a trustee of the Trust. Mr Cook signed it for Cooks Farms. He also signed a transfer of 103,000 Westland Dairy Co shares in consideration for $154,500, which appears to have been their nominal value. (As noted above, the purchase price for Farm 258 included the shares).[46]
[46]See above at [39].
Dunningham J found that the Routhans’ due diligence was adequate and reflected common practice at the time.[47] That was despite the fact they did not ask for Farm 258’s actual season‑by-season production or request further details of the farming system Mr Cook had used. (The expert witnesses at trial agreed that the information in the PGG proposal was insufficient to fully represent the farming system). Nor did the Routhans obtain a valuation or any other independent advice about the quality of the farm.
[47]HC judgment, above n 22, at [221].
Rabobank approved a loan of $4.8 million on 24 November 2010 anticipating the purchase of both Farm 258 and Casa Finca. However, the owner of Casa Finca decided not to sell. That reduced the Trust’s borrowing from Rabobank to $2,080,000. That sum comprised $1.3 million for the purchase of Farm 258 and $780,000 to refinance an existing loan from ASB Bank Ltd. The balance of $1.5 million for the purchase of Farm 258 was funded by a loan from Tony Timpson, a close friend of the Routhans, at bank term deposit interest rates. The trial Judge found that Mr Timpson’s loan came with no requirement for security and no expiration date, and would not expire should the Routhans be unable to meet their commitments to him.[48] Rabobank had required that he agree to these terms so that the bank could treat his advance as “quasi-equity”.
[48]At [181].
The purchase price of $2.8 million was entirely funded by debt, namely the loans from Rabobank and Mr Timpson. However, the Routhans did introduce equity to the farming business which they conducted on Farm 258 and the run-off property. Their evidence was that it came to approximately $1,570,000, comprising existing equity of $820,000 in the run‑off and $750,000 from the sale of other properties.[49] The cash was used as working capital on Farm 258. Notably, it funded some of the infrastructure improvements.
Post-purchase
[49]CA judgment, above n 22, at [22]. In an internal credit submission dated 26 July 2011, Rabobank calculated the Routhans’ equity as $1,510,000. In written submissions the appellants claimed their ingoing net equity was $1,580,000. At the hearing the appellants primarily used $1,570,000. We understand this difference to be attributable to rounding: the precise ingoing net equity was $1,575,496.
The Routhans were unable to produce 103,000 kgMS at any time during the 10-year period following settlement on 20 December 2010. Production fluctuated between a high of 88,503 kgMS (in the 2013/14 season) and a low of 60,597 kgMS (in 2019/20).[50] Rabobank ultimately forced the sale of both the run-off property and Farm in September , and both properties were eventually sold in December .
[50]See CA judgment, above n 22, at [5].
In the intervening years, the Routhans made numerous investment and management decisions, some under pressure from Rabobank to improve production. These decisions necessitated a substantial increase in the level of the Trust’s borrowing, from $3.58 million at settlement to $4.8 million by July 2013.[51] We survey specific losses which the Trust claims to have suffered, focusing on the period between purchase and 16 November 2014, when the Routhans discovered that Farm 258’s recent production had been misrepresented.
Revenue shortfalls
[51]Rabobank increased the credit limit to $2.7 million in June 2012 (for the replacement herd mentioned below at [58]), to $2.83 million in September 2012 and to $3 million in July 2013. Mr Timpson advanced a further $300,000 in April 2013. See below at [72].
The Routhans’ gross milk revenue shortfall to 30 June 2015 was at least $482,064.[52] This figure represents the difference in milk revenue between their actual production and from 103,000 kgMS (that is, if the representation had been true).
Supplementary feed
[52]The experts assumed that on the alternate scenario, where Farm 258 achieved 103,000 kgMS, the Routhans parked their capital and did not commence farming until the 2011/12 . For this reason, this figure does not capture any estimated gross revenue shortfall in the 2010/11 season.
Mr Routhan deposed that in the first year after purchase the trustees spent $47,379.87 on extra feed (and transportation of that feed) and $7,857.72 on milk powder for calves who would otherwise have been fed from daily milk production.
The cow leases
As noted above, the trustees agreed to lease cows from Cooks Farms. They leased 270 cows between 20 December 2010 and 31 May 2011, and 300 cows and 75 heifer calves between 1 June 2011 and 31 May 2013. The number exceeded the 260 mentioned in the PGG proposal (and the agreement for sale and purchase) because the Routhans believed the run‑off gave them the capacity to increase production.
On taking possession the Routhans realised that milk production was well below the claimed historical average. In March 2011 Allan , a retired farmer whom they engaged as their farm advisor, inspected the cows and opined they were poor milk producers, identifying this as the main cause of low production levels. The accordingly told Mr Cook on 25 November 2011 that they intended to terminate the second cow lease from 31 May 2012. Mr Cook responded that they had no right to do so. He blamed poor production on their inexperience. The Routhans cancelled the lease on 25 November 2011, with effect from 31 . They paid $700,000 to buy a replacement herd comprising smaller animals. The rationale was that because these animals were smaller the farm could sustain more of them. $620,000 of that sum was borrowed from Rabobank.
Mr Cook invoked the arbitration clause. There was a disclosure process. The Routhans learned for the first time that PGG’s representations about Farm 258’s production were incorrect. The information came in the form of certified production certificates from Westland Dairy Co which the Routhans received, after initial resistance from Mr Cook, on 16 November 2014.
There was evidence at trial that stock levels had been overstated in the CRT brochure and PGG proposal, although the experts agreed that the exact stocking rate by Mr remains unclear. According to the diaries of a former manager Farm had historically milked 220 cows on average, not 260. It appears that for the three seasons represented in the PGG proposal, there were in fact only 237 cows on average.[53] If so, overstocking in reliance on the PGG proposal might help to explain the leased herd’s performance. However, that was not apparent at the arbitration, where it appears to have been understood that 260 cows had been milked.
[53]Dunningham J recorded the average as 233 cows: HC judgment, above n 22, at [58].
Mr Cook won the arbitration. The arbitrator reasoned that misrepresentations about historical production were beyond jurisdiction because they were made in connection with the agreement for sale and purchase, not the leases. The leases contained no implied term that the cows supplied would produce on average 103,000 kgMS per season. The Routhans were entitled to cancel the second lease[54] for non‑disclosure of production records which would allow them to make informed decisions to reject animals on quality grounds, but they could not defer the effect of cancellation for six months, as they had attempted to do. Had they claimed damages for breach of Mr Cook’s obligation to supply the animals’ production history at the outset, a different outcome might have resulted.
[54]It appears that they would have been entitled to cancel the first lease for the same reason. The arbitrator described the second lease as effectively a continuation of the first, but with more cows. They did not have production records for the cows supplied under the first lease either.
The award, which was delivered in August 2015, cost the Routhans $269,165.98. That sum comprised approximately six months’ unpaid rent for the cows ($24,779.71), an award representing some rental for the remaining year of the second lease ($20,000), interest on these sums ($15,233.37), the arbitrator’s fees ($80,125), and legal costs ($129,027.90).
We return to the causal connection between these losses and PGG’s breach of duty below at [216]. For reasons explained there, it is necessary to go into a little further detail about the sequence of events which led to the arbitration.
Fertiliser
As noted earlier, the PGG proposal stated that Ravensdown’s recommendation of 147 kg of nitrogen per hectare had been followed. The quantity actually applied under Mr Cook’s ownership could not be established exactly at trial. There was evidence that he had purchased quantities of 451 kg/ha in the peak production years, but he owned other properties and it may not all have been applied to Farm 258. A valuation report recorded that 400 kg/ha was typically applied to the property each year. Simon Glennie, an independent expert engaged by the Routhans, estimated that Mr Cook’s manager must have applied about 347 kg/ha of nitrogen to produce the feed needed to achieve the farm’s peak production. PGG’s expert witnesses responded that it could not be known how much fertiliser had been applied, but they did not defend the higher figures as economic or sustainable. Dunningham J found that 350–400 kg/ha of nitrogen was being applied to Farm 258 in the seasons shortly before settlement.[55]
[55]HC judgment, above n 22, at [58(a)].
In an attempt to increase the production they were achieving, the Routhans applied more fertiliser than the 147 kg/ha recorded in the PGG proposal. At the beginning of the 2011/2012 season, Ravensdown recommended that they apply 196 kg/ha of nitrogen. Mr Routhan gave evidence that they actually applied 265 kg/ha.[56] They spent $42,081.55 throughout 2011, more than had been budgeted for that year. They later reduced the quantity applied, initially on the advice of Mr Bradley who thought Mr Cook had degraded the pasture by applying too much nitrogen, and after 2014 at the insistence of Rabobank. Mr Routhan’s evidence, which the Judge accepted, was that the over-budget expenditure totalled $150,000.[57]
Pasture renewal
[56]This figure represents nitrogen applied in the first year post-purchase, rather than nitrogen applied during the 2011/12 season.
[57]HC judgment, above n 22, at [51(d)].
In another attempt to address the production shortfall the Routhans renewed the pasture, relying on Mr Bradley’s opinion that it was in a dire state and the advice of an agronomist, Chris Sanders of PGG Wrightson Seeds Ltd.[58] As a stop-gap measure, grass seed was direct-into the pasture in late 2011. The entire farm was then re-pastured over three seasons commencing in 2012. The Judge accepted Mr Routhan’s estimate that the re-pasturing cost $150,000.[59]
[58]The Routhans also received advice from Chris Tibbotts, a field specialist from PGG.
[59]HC judgment, above n 22, at [51(c)]. The farm accounts, which are in evidence, suggest this was a reasonable estimate.
The re-pasturing took one-third of the farm out of production for two to three months in each of the three seasons. The Routhans sought to compensate for it by buying more supplementary feed. The evidence does not show how much was attributable to more pasture being out of production for renewal than would be normal on a dairy farm.[60]
Milking frequency
[60]But see above at [56].
In another attempt to increase revenue, a decision was made to continue milking during the winter of 2013. That contributed to a shortage of grass in the following season, which led the Routhans to reduce milking from twice- to once-daily in the spring of 2014 for the balance of the 2014/15 season.[61] That in turn contributed to production of just 64,674 kgMS in that season.[62]
Infrastructure improvements
[61]They also did so briefly in 2011: HC judgment, above n 22, at [157], n 37.
[62]Mr Lewis estimated that the decision reduced the season’s production by at least 15 per cent, which generally corresponded with other expert evidence.
The Routhans undertook several capital improvements in the two years following settlement. Mr Routhan’s evidence, which the Judge accepted, was that they spent approximately:[63]
(a)$440,000 on a new concrete feed pad and stand-off area on the run-off property;
(b)$250,000 to fully re-fence Farm 258;
(c)$116,000 to replace the water supply system;
(d)$8,000 to install feed troughs in the cowshed to feed palm kernel extract; and
(e)$150,000 on extensive improvements to laneways and culverts.
[63]HC judgment, above n 22, at [51].
These were long-term improvements. Because the Routhans were initially spending capital they had brought to the farm, they did not have to seek Rabobank’s approval.[64] The bank began to impose constraints in 2013, and in October 2014 it insisted that no unbudgeted capital expenditure be incurred without its consent. Thereafter it only permitted funding for expenditure which it considered essential.
Additional borrowings and falling returns from dairying
[64]The further advance of $300,000 from Mr Timpson (see below at [72]) appears to have been spent in the same way.
Between settlement in December 2010 and the end of the 2014/15 season, the Trust’s financial position deteriorated to the point where the Routhans had lost their equity and could not trade their way out. The evidence of Christopher Lewis, an expert called by the Routhans, was that they had by then “reached an unrecoverable position”. Dunningham J agreed, finding that by that time they had no equity in the property and had lost their capital investment.[65]
[65]HC judgment, above n 22, at [187].
A number of factors contributed to the losses which the Routhans accumulated by the time they were forced to sell. First, to meet the expenditure itemised above (excluding the costs associated with the arbitration) the trustees increased their borrowings from $3.58 million to $4.8 million:
(a)In June 2012, Rabobank advanced $620,000 for the purchase of the replacement herd.
(b)In September 2012, Rabobank advanced $130,000 for capital and operating expenditure.
(c)In April 2013, Mr Timpson advanced $300,000.
(d)In July 2013, Rabobank advanced $170,000 to fund capital expenditure and working capital. This brought the total facility to $3 million. The interest rate was increased at this time to reflect the increased risk, which Rabobank classified as “high”.
In April 2015 Rabobank placed the Trust under the oversight of its Special Asset Management division. It subsequently granted further extensions to the credit limit: to $3.25 million in July 2015, $3.35 million in October 2015 and $3.5 million in April 2016. This took the Trust’s total borrowings to $5.3 million, including Mr ’s loans. The Trust’s debt servicing costs increased from $188,373 in the 2012 financial year to $330,474 in the 2017 financial year.[66] Mr Lewis estimated that, if Farm 258 produced 103,000 kgMS, the Routhans would have by 30 June 2015 avoided $204,306 in debt servicing costs.[67]
[66]We omit bank fees. Interest was payable both to Rabobank and Mr Timpson. We note also that during the 2013/14 season the Routhans moved their balance date from 31 March to 30 June.
[67]Neil McAra, an expert called by PGG, instead estimated a figure of $190,479.
Second, the milk price declined sharply. The Westland Dairy Co farm gate price fell from $7.57 per kgMS in the 2013/14 season to a low of $3.62 per kgMS in the 2015/16 season.
Third, the value of the land fell following the decline in the milk price.
Forced sale
In September 2017, Rabobank insisted that the Routhans put the Trust’s properties on the market. They did as instructed but found it difficult to secure a buyer. On 5 October 2017 they entered into an agency agreement with Mr Daly’s new agency, Greg Daly Real Estate Ltd, for the run-off property. A price between $1.4–$1.65 million was negotiated with the neighbours, but the sale fell through because they could not secure funding. The trustees then engaged Mr Daly to conduct a deadline sale process for Farm 258 by private treaty in March and April 2019, but no sale resulted. In May 2019 Rabobank arranged for the Routhans to engage Ernst & Young Transactional Advisory Services Ltd to help prepare Farm 258 and the run-off for sale and to oversee the sale process. Mr Daly was re-engaged in March 2020 to attempt a sale of the farm and the run-off, but COVID-19 rules limited property inspections and the marketing campaign produced few enquiries.
Eventually, in December 2020, the Routhans succeeded in selling the run-off property for $761,000 (a loss of $839,000 based on its 2010 value) and Farm 258 for $1.5 million (a loss of $1,145,500).[68]
The Routhans’ claim in negligence
[68]See CA judgment, above n 22, at [7(a)] and [107]. The sale excluded dairy company shares, for which the Routhans were paid out in 2019 upon the sale of Westland Dairy Co. For this reason, we assess the loss based on the purchase price at $1,145,500 not $1,300,000.
The Routhans pleaded five causes of action. We need not address the two which were brought in deceit and under the Fair Trading Act 1986.[69] The second and third causes of action sought to hold PGG vicariously and directly liable for the negligence of Mr Daly and Mr Curragh. The fourth pleaded negligent misstatement. In each cause of action the Routhans pleaded that but for PGG’s breaches of duty they would not have purchased Farm 258 but would have purchased an alternative farm. They sought to recover loss defined as the net difference in financial position between the Trust’s actual position and its position had they purchased an alternative farm. The farm was a hypothetical property which they would not have been forced to sell. It would have produced about 103,000 kgMS, making an operating profit, and would have allowed the Routhans to sell the run‑off property in 2010 to reduce debt and provide working capital. The relief sought comprised declarations of liability, damages of not less than $3 million (which sum included ongoing operating losses), and interest and costs.[70]
[69]Leave was not granted on the deceit cause of action and the parties accept that the measure of damages under the Fair Trading Act 1986 is the same as in tort.
[70]See also below at [194]–[203].
The Routhans did not sue Cooks Farms (or Mr Cook) in respect of the misrepresented stocking rate, fertiliser application rates, use of supplementary feed or the extent to which cows were wintered off. Nor did they plead these as misrepresentations, although they were carried over by Mr Daly from the CRT brochure into the PGG proposal. Mr Cook and Cooks Farms were originally joined as third parties to the proceedings by PGG but that claim was discontinued in June 2021. It is no longer an issue that PGG can be held liable as Cooks Farms’ agent: PGG assumed personal responsibility to the Routhans as to create a special relationship between them.[71]
The High Court judgment
[71]See Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL) at 837–838; and Body Corporate 202254 v Taylor [2008] NZCA 317, [2009] 2 NZLR 17 at [33] per William Young P and Arnold J (with whom Glazebrook and Ellen France JJ agreed on this point).
Dunningham J found PGG liable in negligence and for misleading and deceptive conduct under s 9 of the Fair Trading Act.[72] It had failed to act as a reasonably prudent real estate agent in various respects. Notably, Mr Daly incorrectly represented that there had been no change to average production figures following the 2009/10 season, he failed to verify key details about the farm, including the production figures, and he did not tell the Routhans that Mr Cook had refused to confirm the production figures.[73] Mr Curragh failed to supervise Mr Daly adequately, instead confirming that an agency agreement had been completed when it had not. The Judge dismissed the claim in deceit, finding that Mr Daly had not knowingly or recklessly misled the Routhans.[74]
[72]HC judgment, above n 22, at [116]–[117] and [139]–[141].
[73]At [116].
[74]At [128]–[130].
The Judge found PGG’s negligence was a material and substantial cause of the Routhans’ losses stemming from their inability to achieve the represented average production level.[75] She rejected PGG’s claim that the Routhans’ own negligence was the real cause of their losses. They had conducted adequate due diligence based on the information provided by PGG, which they had no reason to doubt at the time.[76] They had an advisor prepare budgets.[77] After the purchase they had sought professional advice and, relying on that advice, made what she found to be reasonable efforts to improve production.[78] She also found that their losses were not attributable to inexperience; they were competent dairy farmers and their results were good relative to regional averages.[79] Nor did she accept that their losses were the product of intervening causes, in the form of Rabobank’s decision to fund the purchase and the failure of the Routhans and/or Rabobank to cut their losses sooner.[80] To reach these conclusions she must have rejected or discounted much of the expert evidence adduced by PGG.[81]
[75]At [190].
[76]At [221].
[77]At [222]–[224].
[78]At [225] and [228].
[79]At [225]–[227].
[80]At [178]–[187].
[81]There was extensive expert evidence, much of it focused on whether the misrepresentations misled the Routhans, whether they conducted adequate due diligence, whether they should have realised before 2014 that they had been misled, Mr Cook’s actual farming practices relative to those represented in the PGG proposal, the competence and farming practices of the Routhans relative to that of the manager who achieved the peak production figures for Mr Cook, the viability of the venture and the hypothetical alternative farm, the associated questions whether the loan from Mr Timpson should be treated as debt or de facto equity and whether the Routhans would have retained the run-off had they purchased an alternative farm, whether Rabobank acted negligently in financing the purchase, and whether the Routhans should have been forced to sell sooner.
However, the Judge found there was “some merit to the criticism that [the Routhans] unreasonably undertook capital expenditure which had no bearing on production or productivity”.[82] The re-pasturing programme and the water system upgrades were justified but other improvements, such as the feed pad and stand-off area, the fencing and laneways and the farm buildings, “exacerbated the financial decline of the farm and contributed to the losses suffered”.[83]
[82]HC judgment, above n 22, at [228].
[83]At [228].
As noted earlier, the Judge did not accept that the Trust should be put in the position it would have been in had it bought a hypothetical property roughly equivalent to Farm 258 as represented, there being too many variables to satisfy her that this would have happened.[84] Rather, the Routhans were entitled to compensation for their lost equity in Farm 258 and the run-off property, and their investment in capital improvements to improve production.[85] She was satisfied that they had effectively lost their capital investment by November 2014, when they realised, as she put it, that “they had not bought the farm that had been represented to them”.[86]
[84]At [144] and [193]–[195].
[85]At [195].
[86]At [187].
Dunningham J calculated the loss on sale of Farm 258 and the run‑off at $1,442,000.[87] That sum was calculated as:
(a)$603,000, being that part of the total difference between the purchase price in 2010 and the sale price in 2020 ($1,300,000) that was attributable to forced sale conditions;[88] and
(b)$839,000, being the difference between the value of the run‑off in 2010 and its sale price in 2020.
[87]At [196].
[88]The Judge accepted Mr Glennie’s evidence, which reached this figure by benchmarking against six other dairy farms of comparable size to estimate how much of the fall in the value of Farm 258 was attributable to forced sale conditions. But we assess the loss based on the purchase price at $1,145,500 not $1,300,000: above n 68.
She assessed the loss of investment in capital improvements not reflected in the forced sale price at $680,000, making a total of $2,122,000.[89]
[89]HC judgment, above n 22, at [196].
The Judge rejected a claim for interest costs of $1,062,000 that allegedly would have been avoided had the Routhans purchased a comparable property instead; she accepted they would have purchased another property but there were too many variables to satisfy her that they would have avoided the interest loss in that counterfactual.[90] The measure of damages was the same in negligence and under s 43 of the Fair Trading Act.[91]
[90]At [193].
[91]At [191] and [196]. This conclusion was not disputed before us and we express no view about it.
Finally, the Judge adjusted the award for contributory negligence in the form of capital expenditure which did not improve productivity but contributed to the Routhans’ losses.[92] She reduced the total award by 20 per cent, to $1,697,600.[93]
The Court of Appeal judgment
[92]At [228]–[229].
[93]At [229]–[230].
The Court of Appeal agreed that PGG had negligently misrepresented the production figures, inducing the Routhans to purchase Farm 258.[94] It upheld the Judge’s decision to dismiss the claim in deceit.[95] It further agreed that the measure of damages was the same in negligence and under the Fair Trading Act.[96] But the Court took a different approach to the calculation of damages, resting its decision on the scope of PGG’s duty as agent.[97]
[94]CA judgment, above n 22, at [106].
[95]At [87].
[96]At [108]. See above n 91.
[97]At [108]–[109].
The Court found that PGG’s duty was to provide updated production information.[98] That information was relevant to the expected return from Farm 258. Importantly, it would show how production for the most recent season compared with the average over the preceding three seasons, in particular whether production was declining, being maintained, or increasing. The risk that the production information was intended to address was that the Routhans would pay too much for the farm.
[98]At [115].
However, PGG had not assumed responsibility to advise the Routhans on what course of action to adopt.[99] Its duty was confined to supplying specific information which they wanted to decide what to do. Following SAAMCO and subsequent English cases,[100] the Court held that the scope of PGG’s duty was confined to the consequences of the production information being wrong.[101] The normal measure of damages for negligently supplying the information in this case was the difference between the price paid for Farm 258 and its true market value at that time, had it been correctly described.[102] The Court cited Cemp Properties (UK) Ltd v Dentsply Research & Development Corp (No 2), in which Sir Nicolas Browne-Wilkinson V-C held that was the normal measure of damages for a fraudulent misrepresentation inducing a contract but added that consequential losses directly caused by the misrepresentation could also be recovered where the normal measure did not fully compensate the plaintiff.[103] The Court held that PGG was not liable for all the consequences resulting from the Routhans’ decision to purchase, let alone the downstream consequences of other decisions made in the decade that followed.[104] In particular, PGG was not responsible for:[105]
… the losses occasioned by the dramatic fall in the milk price and reduction in revenue which resulted in the decline in the value of the Farm, the Trust’s inability to service its increasing level of borrowings (including because of the Trust’s significant capital expenditure) and the consequent erosion of its equity.
Nor was it reasonable to hold PGG liable for the Routhans’ loss on sale of the run-off property a decade later.[106] There was no suggestion that PGG knew the Routhans would rely on the production information when deciding whether to retain the run-off, and PGG had assumed no duty to protect the Routhans against loss of that kind.
[99]At [116].
[100]SAAMCO, above n 27; Hughes-Holland v BPE Solicitors [2017] UKSC 21, [2018] AC 599; Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20, [2022] AC 783 [MBS v Grant Thornton]; and Meadows v Khan [2021] UKSC 21, [2022] AC 852.
[101]CA judgment, above n 22, at [109] and [115]–[116] citing SAAMCO, above n 27, at 214 and Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726 [Altimarloch] at [109]–[111] per Tipping J (but see below n 236). The Court recognised, as discussed below at [117] and [124], that subsequent English cases recognised the distinction between information and advice can be elusive.
[102]CA judgment, above n 22, at [115].
[103]Cemp Properties (UK) Ltd v Dentsply Research & Development Corp (No 2) [1991] 2 EGLR 197 (CA) at 200 citing McConnel v Wright [1903] 1 Ch 546 (CA) and Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 (CA).
[104]CA judgment, above n 22, at [116].
[105]At [116].
[106]At [117].
The Court also found that the Routhans could not recover losses on the forced sale of Farm 258 in 2020, or for expenditure on capital improvements.[107]
[107]At [118].
The Court gave three reasons for these conclusions. First, post-purchase losses lay beyond the scope of PGG’s duty.[108]
[108]At [116]–[125].
Second, the losses were not caused by PGG’s misrepresentations because the Routhans had learned almost immediately that production was well below the represented level.[109] The Routhans’ losses resulted from post-purchase decisions to carry out substantial and mostly unreasonable capital improvements and assume increasing debt which left the farm vulnerable to the decline in milk prices.[110] PGG had no input into any of those decisions. The Court instanced the termination of the second cow lease, the re-pasturing of Farm 258 and the capital improvements.[111] There being no substantial causal connection, PGG’s negligence did no more than provide the occasion for the losses to occur.[112]
[109]At [119].
[110]At [123]–[125].
[111]At [120]–[122].
[112]At [126].
Third, there was evidence that the Routhans could have sold the farm in 2014 for the price paid in 2010.[113] That being so, the Court reasoned that they were not locked into their investment.[114] It distinguished Esso Petroleum Co Ltd v Mardon and Downs v Chappell, cases in which businesses were sold on a “going concern” basis and the plaintiffs were able to recover not only the difference in value on purchase but also some losses subsequently incurred.[115]
[113]At [134]. The Court appears to have drawn this inference from Mr Hines’s valuation of the farm as at 1 June 2014: at [138]–[139].
[114]At [133]–[134] citing Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm), [2020] 1 CLC 428 at [185]–[186].
[115]Esso Petroleum Co Ltd v Mardon [1976] QB 801 (CA); and Downs v Chappell [1997] 1 WLR 426 (CA).
The Court accordingly returned to what it described as the normal measure, being the difference between the price paid and the market value of Farm 258 at that time.[116]
[116]CA judgment, above n 22, at [128].
The Court rejected PGG’s argument that damages should be fixed at nil, on the basis that Farm 258 was actually worth more than the Routhans paid for it, or $50,000, on the basis that that was the difference in valuations prepared by Peter Hines, a valuer called by PGG, with assumed production of 97,000 kgMS and 103,000 kgMS respectively.[117] The Court was satisfied that Farm 258 was not worth $2.9 million at the time of purchase, despite Mr Hines’s valuation, because the farm had previously been on the market at that price and not sold. MrHines also had not completed true market valuations and had taken no account of the significant decline in production.[118]
[117]At [142]–[143]. See at [138] and [140].
[118]At [140] and [143].
The Court largely accepted the evidence of John Hancock, a valuer called by the Routhans,[119] who assessed the farm’s market value in 2010 at $2,319,500 including the dairy company shares, $480,500 less than they paid for it.[120] However, the Court discounted that figure on the ground that the above-market payment was not wholly attributable to the production information.[121] The price paid was also attributable to omissions of the trustees, who had not asked PGG to assess the farm’s average efficient production (a metric which is preferred for valuations) and had not asked Mr Cook how he achieved historically high production levels.
[119]There was no real controversy about the valuation evidence. Differences among the witnesses were explained by the assumptions they had adopted: see at [141].
[120]At [135]–[136]. That valuation was based on an average efficient production of 84,000 kgMS per annum: at [137].
[121]At [144].
The Court fixed the recoverable loss at $300,000.[122] It based that figure on Mr Hancock’s valuation, which invited an inference that the land value would have been $2,188,750 if the correct production figure was 103,000 kgMS and $1,912,500 based on the correct production figure of 90,000 kgMS.[123] The Court rounded the difference, $276,250, to $300,000. It found that sum a fair and reasonable estimate of PGG’s contribution to the Routhans’ losses.[124]
[122]At [145].
[123]At [147]. As noted above n 34, the figure which ought to have been disclosed was 98,729 kgMS, being the farm’s rolling three-season average, but on our approach nothing turns on this.
[124]At [148].
No deduction was made for contributory negligence. The question whether the Judge was right to deduct part of the forced sale and capital improvement losses fell away, since those losses were not recoverable.[125] With respect to the decision to purchase, the Court rejected PGG’s submission that a deduction should be made for the Routhans’ failure to undertake adequate due diligence, agreeing with Dunningham J that they were entitled to rely on PGG to supply accurate information.[126]
The appeal and cross-appeal
[125]At [126] and [149] citing Andrew Burrows Remedies for Torts, Breach of Contract, and Equitable Wrongs (4th ed, Oxford University Press, Oxford, 2019) at 124.
[126]At [150].
The approved question for which the Routhans were granted leave to appeal was whether the Court of Appeal was correct in varying the damages awarded in the High Court.[127] PGG was granted leave to cross-appeal in part. The Court declined leave to revisit liability in deceit and the question whether PGG’s misrepresentations caused the Routhans to buy Farm 258.[128] The Court explained that the focus of the appeal is the “application of the so-called SAAMCO principle limiting liability in the case of the provision of information to a ceiling based on a difference in value”.[129] So that this Court might resolve quantum, the approved question permitted the parties to pursue other arguments relating to the measure of damages awarded.
Submissions on the appeal
[127]SC leave judgment, above n 28.
[128]At [2]–[4].
[129]At [1].
The Routhans’ principal argument was that PGG assumed responsibility for supplying verified production information and should be liable for all foreseeable loss caused by the Routhans’ reliance on that information, especially as it earned a commission on the transaction. Mr Kalderimis argued that, properly understood, SAAMCO does not cap liability for a misrepresentation inducing a purchase at the difference between purchase price and actual value. The “cap” should be used, if at all, to cross‑check that damages reflect the risk assumed by the defendant. In this case, the losses claimed were closely associated with the risk of purchasing an uneconomic farm based on incorrect information.
Mr Kalderimis invited us to award the Routhans’ incoming net equity, $1,570,000,[130] which included at least $570,000 for wasted expenditure, instancing the costs of arbitration after the Routhans terminated the second cow lease ($269,166) and pasture improvement ($300,000).[131] He argued that this amount was a conservative account of the Routhans’ losses. Had production been as represented, the Routhans would have been at least $2.2 million better off by the end of the 2019 financial year; the farm would have been worth at least what they paid for it, their revenue would have been significantly higher and they would not have entered into the futile expenditure identified above. The evidence strongly supports the trial Judge’s overall quantum. The amount could be higher still, as it does not take account of spiralling debt servicing costs caused by lower-than-expected revenue and wasted expenditure.
[130]See above at [52].
[131]See above at [62]. The $300,000 claimed for pasture improvements is the sum of $150,000 for additional fertiliser and $150,000 for re-pasturing: see above at [65]–[66].
PGG generally supported the reasoning of the Court of Appeal, emphasising that the scope of its duty did not extend to buying the farm or the risks involved in carrying on the business of farming. Losses caused by the forced sale of the two properties resulted from decisions made independently by the Routhans post‑purchase. Further, there was no sufficient causal nexus between the information provided by PGG and the losses claimed by the Routhans.
Submissions on the cross-appeal
PGG argued that the Court of Appeal was wrong to quantify damages arising as a consequence of the misrepresentation at $300,000. Mr Taylor KC submitted that the correct assessment on the normal measure is, on the basis of Mr Hines’s valuations, either nil or $50,000 at most. The Court correctly dismissed Mr Hancock’s valuation, which was based on the average efficient production of Farm 258, but the Court was wrong to substitute its own, admittedly unscientific, valuation.
The Routhans responded that Mr Hines’s methodology was flawed, citing the Court of Appeal’s findings that he had not completed true market valuations and had taken no account of the significant decline in production.[132]
Approach
[132]CA judgment, above n 22, at [140] and [143].
We begin by examining the principle for which SAAMCO stands and its status in New Zealand law. We analyse the appeal and cross-appeal, focusing on scope and breach of duty, factual causation, remoteness and defences. We then quantify the damages payable.
SAAMCO
SAAMCO was decided in 1996. The case involved three appeals in which lenders sued valuers on whose valuations the lenders had relied to advance money to borrowers who subsequently defaulted. In each case the lender would not have advanced the money but for the valuer’s negligent overvaluation.[133] In each case the market value of the property had fallen substantially soon after the advance, increasing the lender’s losses.[134] The Court of Appeal had held that where there would have been no transaction but for the overvaluation, the valuer was liable for the whole of the loss.[135]
[133]SAAMCO, above n 27, at 210.
[134]In each case the advances were made in 1990. It appears the market was declining by that time. The first sale of a secured property was made in 1992: at 222–223. The invasion of Kuwait on 2 August 1990 appears to have been a contributing factor: South Australian Asset Management Corp v York Montague Ltd [1995] 2 EGLR 219 (QB) at 219 and 223.
[135]See Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1995] QB 375 (CA) at 419–420.
Lord Hoffmann delivered the only reasoned speech in the House Lords. He explained that before damages were quantified it was necessary to decide for what kind of loss the lender was entitled to compensation.[136] The Court of Appeal had erred by starting with the proposition that damages ought to restore the plaintiff to the position it would have been in but for the defendant’s negligence. A plaintiff who sues for breach of a duty imposed by the law (whether in contract or tort) must show that the duty was owed to them and that it was a duty in respect of the kind of loss suffered. His Lordship noted that normally the law limits liability to consequences attributable to that which made the act wrongful.[137]
[136]SAAMCO, above n 27, at 211.
[137]At 213.
Lord Hoffmann reasoned that where the defendant is liable in negligence for providing information, liability should be limited to “the consequences of the information being inaccurate”.[138] He explained that the valuations were commissioned to provide estimates of a property’s market value. It was not in dispute that the lenders would rely on the valuations when deciding whether and how much to lend. But the valuer would not be privy to other considerations the lender might take into account, such as how much money the lender has available, how much the borrower needs, the strength of the borrower’s covenant and so on.[139]
[138]At 213.
[139]At 211.
This principle was illustrated using the parable of a mountaineer whose doctor negligently pronounces his knee fit and who, relying on that opinion, goes on an expedition where he suffers a mountaineering injury that has nothing to do with his knee. Lord Hoffmann considered that, on the Court of Appeal’s reasoning, the doctor would be liable because the mountaineer would not have gone on the expedition but for the negligent advice.[140] The correct view was that the injury was not caused by the doctor’s bad advice because it would have happened even if the doctor’s advice had been correct. To find otherwise would be to hold the doctor responsible for consequences which, though foreseeable in general terms, did not appear to have a sufficient causal connection to the subject matter of the duty.
[140]This conclusion has been challenged on the ground that the Court of Appeal accepted there may be situations where the negligence was not the effective cause of the loss: DW McLauchlan “A Damages Dilemma” (1997) 12 JCL 114 at 130 citing Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd, above n 135, at 406–407. Professor Jane Stapleton says that Lord Hoffmann was wrong to say the injury would have happened anyway, because the conduct was a cause in fact if he would not have gone climbing: Jane Stapleton “Conceptual Interplay between Elements of the Tort of Negligence” in Three Essays on Torts (Oxford University Press, Oxford, 2021) 65 at 91, n 78. This is true but goes no further than but-for causation and the English courts accept that the question is whether but‑for losses should be excluded.
Lord Hoffmann sought to state this principle more generally, distinguishing cases in which the defendant provided information from those in which the defendant advised on a course of action:[141]
A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them.
The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong.
[141]SAAMCO, above n 27, at 214 (emphasis in original).
The measure of damages for breach of a duty to take care to provide accurate information was distinguished from the measure of damages for breach of a warranty that the information was accurate:[142]
In the case of breach of a duty of care, the measure of damages is the loss attributable to the inaccuracy of the information which the plaintiff has suffered by reason of having entered into the transaction on the assumption that the information was correct. One therefore compares the loss he has actually suffered with what his position would have been if he had not entered into the transaction and asks what element of this loss is attributable to the inaccuracy of the information. In the case of a warranty, one compares the plaintiff’s position as a result of entering into the transaction with what it would have been if the information had been accurate. Both measures are concerned with the consequences of the inaccuracy of the information but the tort measure is the extent to which the plaintiff is worse off because the information was wrong whereas the warranty measure is the extent to which he would have been better off if the information had been right.
[142]At 216.
This principle required that in an information case recoverable loss should be assessed using a cap, under which the court inquired whether claimed losses would still have been suffered had the information been correct.[143] This became known as the SAAMCO “cap” and we will adopt that terminology.[144]
Leading decisions since SAAMCO
[143]At 214, applied to the facts at 222–224.
[144]Lord Hoffmann himself rejected the term, stating that he did not wish to exclude the possibility that other kinds of loss might flow from the valuation being wrong: at 219–220.
The judgment of the House of Lords was met with academic criticism. Briefly, commentators argued that there was no policy reason why the damages in tort may not exceed those payable had the claim been brought in contract,[145] that the distinction between information and advice was elusive and unsatisfactory,[146] and that the cap can produce anomalous results.[147] With respect to the last of these points, commentators observed that the judgment resulted in one of the lenders, SAAMCO itself, recovering part of the market value loss which it would have suffered in any event.[148]
Hughes-Holland v BPE Solicitors
[145]Jane Stapleton “Negligent Valuers and Falls in the Property Market” (1997) 113 LQR 1 at 3–6; McLauchlan, above n 140, at 117–124; and Burrows, above n 125, at 120–127.
[146]Stapleton, above n 145, at 2–3; and Hugh Evans “The scope of the duty revisited” (2001) 17 PN 146 at 167–168.
[147]McLauchlan, above n 140, at 122–124; and Hugh Evans “Solicitors and the scope of duty in the Supreme Court” (2017) 33 PN 193 at 204. See also MBS v Grant Thornton, above n 100, at [105] per Lord Leggatt SCJ.
[148]McLauchlan, above n 140, at 128; and Evans, above n 147, at 200. Lord Leggatt SCJ entertained a similar analysis in MBS v Grant Thornton, above n 100, at[102]–[103]. See also Hughes‑Holland v BPE Solicitors, above n 100, at [45]–[46]; Nick Hegan “SAAMCO, The Scope of the Duty and Liability for Consequences” (2007) 38 VUWLR 465 at 469–470; and Benjamin Liu “More Than Basic: Causation in Securities Misstatement Cases” (2016) 27 NZULR 54 at 59.
The United Kingdom Supreme Court revisited SAAMCO in Hughes˗Holland v BPE Solicitors, a 2017 case in which the plaintiff had lent money on the mistaken understanding that it would be used to develop a disused building as offices.[149] The defendant solicitors negligently confirmed that was the purpose of the loan. The plaintiff would not have entered the transaction at all had he known that the borrower would apply the money to his company’s own liabilities to a bank. The failed, but it would have done so even if the money was used as intended.
[149]Hughes-Holland v BPE Solicitors, above n 100, at [4]–[5].
Delivering the judgment of the Supreme Court, Lord Sumption SCJ stated that SAAMCO had been much misunderstood.[150] The SAAMCO principle was not a principle of causation.[151] Rather, it stood for the long-established scope of duty principle.[152] It was generally a necessary, but not always sufficient, condition for the recovery of a loss that it would not have been suffered but for the breach of duty.[153] He cited the 1954 judgment of Denning LJ in Roe v Minister of Health for the proposition that the law limits recovery by inquiring whether the consequences can fairly be regarded as within the scope of the risk.[154] The law employs the intimately linked concepts of duty, factual causation and remoteness to limit liability to consequences for which the wrongdoer should be held responsible.
[150]At [34].
[151]At [36].
[152]At [21] and [38].
[153]At [20].
[154]At [21] citing Roe v Minister of Health [1954] 2 QB 66 (CA) at 85.
Lord Sumption SCJ acknowledged that the distinction between advice and information is unsatisfactory because the terms are neither distinct nor mutually exclusive.[155] The true distinction is between transactions in which the professional adviser is to consider all matters relevant to the transaction and transactions in which the adviser contributes a limited part of the information on which the client will rely when assessing the transaction and is not responsible for identifying other relevant considerations or advising on the commercial merits.[156] The fact that information is known to be vital to the client’s decision—that is to say, it is a no-transaction case—does not turn an “information” case into an “advice” case.[157]
[155]At [39].
[156]At [40]–[41].
[157]At [42].
With respect to the SAAMCO cap, Lord Sumption SCJ explained that it is simply a consequence of giving effect to the distinction between loss flowing from negligent and erroneous information and loss flowing from the decision to enter the transaction at all.[158] He acknowledged that it can be hard to tease out consequences attributable to wrong information and accepted that the cap can be a “mathematically imprecise” way of relating recoverable losses to the breach of duty.[159]
[158]At [45].
[159]At [46].
It is also relevant that to Mr Daly’s knowledge, the Routhans were entering into the purchase on the basis that they would farm the land alongside two other blocks of land — their own run-off block, and the other farm they were intending to purchase, Casa Finca. This was a relatively complex farming proposition, compared to simply farming Farm 258 alongside the run-off block. It required an expert to run the numbers. Mr Bishop’s evidence was that in creating the financial model that was presented to the bank by the Routhans, he relied on district information, rather than the information confirmed by Mr Daly.[566]
[566]That information was the subject of criticism in cross‑examination, as it in fact provided a higher average production figure than 103,000 kgMS. That was due to the fact that Mr Bishop included all land, not just productive land, in his calculations.
It is true that Mr Daly was asked to, and did, complete a proposal document in knowledge that it was to be passed to the bank, but the only information included in that document he assumed responsibility to verify was the average production information. Mr Routhan did not ask Mr Daly to check the representations Mr Cook had made as to how he had farmed Farm 258 to achieve the production.
There was, as noted above, additional inaccuracy added through the proposal document completed by Mr Daly. In the High Court the Judge accepted that any additional information as to the farming method was obtained by Mr Daly from Mr Cook.[567] There is no suggestion therefore that Mr Daly was in any way responsible for that information or for any inaccuracy in it, or that at any time he had assumed responsibility for its accuracy. This no doubt explains the absence of any allegation in the pleading that Mr Daly was responsible for misstatements as to the farming model utilised by Mr Cook.
[567]HC judgment, above n 509, at [18] and [115].
The treatment of those other misstatements in formulating the duty is the critical point of difference between us and Glazebrook and Miller JJ. On our view, the existence and effect of these misstatements about how the business was run tend to make our point that Mr Daly did not assume, and cannot be taken to have assumed, risk in connection with the business. As Mr Taylor submitted, these other misstatements were independently operating causes of loss, for which Mr Daly should not (indeed cannot, in the absence of pleading) be held responsible. The duty as argued for by Mr Kalderimis, and as formulated by Glazebrook and Miller JJ, in substance and form, imposes upon Mr Daly a duty to protect the Routhans from the risk that other misrepresentations have been made that bear upon the purchase, even though he had not assumed responsibility for the accuracy of those statements, nor even had good reason to doubt their accuracy.
There are obvious parallels with Lord Hoffmann’s parable of the mountaineer with the misdiagnosed knee, in SAAMCO, or with holding negligent valuers liable for post-purchase falls in the property market.[568] Mr Daly’s misrepresentation is said to have been a missed opportunity for the other misrepresentations to be discovered. Lord Hoffmann’s parable of course was intended to establish why it is wrong that such loss be recoverable.
[568]SAAMCO, above n 510, at 213.
It is moreover hard to see why it should be PGG who assumes this risk rather than the Routhans. The Routhans after all had the means to check how Farm 258 had been farmed, simply by asking Mr Cook questions in connection with that, for example when driving over the farm with him. Mr Daly was not asked to make those inquiries and nor could he have understood he should have done so.
Glazebrook and Miller JJ’s formulation of the duty also imposes on Mr Daly the risk of any deviation in future production from a steady state of 103,000 kgMS using the represented farming method. However Mr Daly was not asked to, and did not, advise on future productivity or farming methods. There is no suggestion that Mr Daly was asked or offered advice on the likelihood of future production, or that he would have understood that the Routhans would reasonably rely upon him for that. He was not asked to inspect Farm 258 on behalf of the Routhans. He was not asked to inspect the pasture. When the Routhans visited Farm 258 to look at the farming operation, they did that with Mr Cook, leaving Mr Daly waiting elsewhere on the property. In short, Mr Daly was no more than the real estate agent assisting with the purchase of Farm 258. As noted earlier, it must be accepted that the property he assisted with the purchase of was a farm. But Mr Daly was not engaged by the Routhans to enable them to assess or manage risk associated with the prospective farming business, and is not therefore responsible for their decisions to proceed with the business, how to conduct the business, or the consequences of those steps.
In short, risks associated with the ongoing farming of Farm 258 (whether alone, or in accordance with the plan at the time to farm three blocks of land) cannot reasonably be amongst those Mr Daly assumed when he agreed to check on the rolling three‑season average for productivity.
Causation
This takes us to the issue of causation. The causation issues that arise are inevitably closely linked, and overlap with the scope of duty analysis set out above. Losses recoverable for the breach are limited by the scope of the duty Mr Daly assumed — in this case, as the Court of Appeal found, these relate to the purchase of the property and not the operation of the farm.[569] This is an answer to this aspect of the appeal — given the scope of that duty, the Routhans could not reasonably rely upon the representation as to average production as a basis for the business decisions they made in connection with the farm and, it follows, to recover post-purchase losses.
[569]CA judgment, above n 509, at [144].
There are also however a number of additional difficulties for the Routhans as to causation in relation to post-purchase losses. The relevant question when assessing causation in negligence is whether there is a “material and substantial” causal link between the breach of duty and the damage.[570] For the purposes of the Fair Trading Act, the focus is on whether there is a “clear nexus” between the impugned conduct and the claimed loss in the sense that it is an effective cause of that loss.[571] In this case that link or nexus is missing with respect to post-purchase losses. In agreement with the Court of Appeal, we consider that all that the proven allegation did was create an opportunity for the losses that flowed — losses materially and substantially caused by misrepresentations for which PGG is not responsible, and by the Routhans’ own decisions in connection with the purchase, and farming of the land.[572] We say this for the following four reasons, each of them closely related to scope of duty.
[570]Price Waterhouse v Kwan [2000] 3 NZLR 39 (CA) at [28].
[571]Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [29] citing Goldsbro v Walker [1993] 1 NZLR 394 (CA) at 401 per Richardson J.
[572]CA judgment, above n 509, at [126].
First, on the Routhans’ own account, the primary and substantial cause of their loss was the misrepresentation as to the farming method used to achieve high production levels. As Mr Taylor submits, all that buying a farm on the basis of an average production of 103,000 kgMS tells you is that the farm is capable of producing that level of milk solids. Mr Lewis, the Routhans’ expert witness, likewise said that production figures are just a start — behind them lies the farming inputs and farming policy utilised to achieve that production, including the type and number of stock, the state and extent of the pasture, inputs into the pasture, and the availability of other feeding sites away from the milking platform to enable the pasture to rejuvenate.
Here the Routhans went into the transaction on the basis of a misunderstanding, not created by PGG, as to the inputs into those production figures. As noted above, in terms of causation, PGG’s misrepresentation simply provided the opportunity for the occurrence of their loss — in the sense that it created a missed opportunity to detect these other, causally potent misrepresentations.[573] To employ the SAAMCO counterfactual, if the representations as to productivity had been true it is likely that some trading losses associated with Farm 258 would still have been suffered because they were actually caused by the fact that the production to that point had been achieved by a different means to that represented in the CRT brochure. In fact the volatility in production figures was already apparent in the three seasons that produced the 103,000 kgMS average represented in the CRT brochure (2006/2007, 2007/2008 and 2008/2009). These three seasons had figures of 106,280 kgMS, 107,921 kgMS and 97,930 kgMS respectively. The drop‑off in the last of those seasons was in fact more significant, in percentage terms, than the drop‑off in 2009/2010, the year implicated in the misrepresentation (from 97,930 kgMS to 90,337 kgMS).
[573]At [126].
Second, if PGG were somehow culpably implicated in these other misrepresentations, as the duty formulated by Glazebrook and Miller JJ assumes, it is significant that the Routhans did not use the farming method they claim had been represented to them. The evidence was that they used a different breed of cattle (not the Friesians Mr Cook had a strong preference for), and in greater number. The farming results achieved are no doubt due in part to those decisions. For this reason, there is a significant factual issue, not tested in the High Court — because of how the claim was run in that Court — as to what the outcomes on the farm would have been if it had been farmed in accordance with the representations in the CRT brochure, repeated in the proposal. While it may not have reached an average of 103,000 kgMS, it may well have achieved more than the Routhans were able to achieve. This is entering the realms of speculation because the High Court Judge did not make any findings in relation to this, given the basis upon which she decided damages.
Third, and as the Court of Appeal observed, almost immediately upon taking possession, the Routhans became aware that their farming venture was achieving well below what they understood to be the historical performance.[574] They nevertheless made the decision to retain Farm 258 and to take the various steps described to increase production. They engaged experts and took their advice. In the High Court this was addressed as an issue of contributory negligence, but we prefer the Court of Appeal’s analysis, differing from the High Court, that it is an issue of reliance.[575] It is difficult to construct a case that the Routhans’ conduct in persisting with the farm was in reliance upon the representations as to historical production. They were farming the property, and well able to assess its productivity. They engaged experts who could help them with this.
[574]At [59].
[575]HC judgment, above n 509, at [219]–[229]; and CA judgment, above n 509, at [119] and [124].
Fourth, (a closely related point) as the Court of Appeal found, the business outcomes for the Routhans were the consequence of multiple business decisions taken by them, which were not reasonably foreseeable by Mr Daly. As noted, Farm 258 was farmed differently to how Mr Daly could have foreseen — it was farmed only with the run-off block, and not also with Casa Finca. It was also farmed differently to how it had been by Mr Cook. The Routhans used a different farm manager and took pasture out of productive use for re-grassing. There were numerous decisions taken that impacted upon the trading results, such as the decision to terminate the second cow lease, or the timing and nature of the decisions to improve pasture performance. The eventful and complex management history of this farming business is such that it cannot be said that the financial consequences that flowed from them were reasonably foreseeable by Mr Daly when he provided historical average production figures for a single block of farming land. An allied point, made by the Court of Appeal, is that the production information supplied by PGG pre-purchase was not sought for the purpose of making any of these investment decisions years later.[576] PGG could not reasonably anticipate that its advice would be relied on for this purpose.
The majority’s reasons
[576]CA judgment, above n 509, at [124].
As noted above, we formulate the scope of duty more narrowly than Glazebrook and Miller JJ, and so would not allow damages for losses flowing out of the conduct of the business. We note that Kós J’s methodological differences with Glazebrook and Miller JJ do not result in any difference in outcome.[577]
[577]See above n 555.
The majority allows recovery of wasted expenditure to improve the farm — $150,000 for the cost of re-pasturing and $150,000 for the cost of additional fertiliser.[578] It concludes that the wasted expenditure was caused in fact by the misrepresentation because it was a “no transaction” case.[579] The majority finds that it was reasonably foreseeable that the Routhans would incur this additional expenditure due to production not being 103,000 kgMS per annum. The majority does not allow recovery for the costs of additional supplementary feed, the costs associated with the termination of the second cow lease, or long-term capital investments not recovered in the forced sale.
[578]Above at [209]–[212] per Glazebrook and Miller JJ.
[579]Although Kós J above at [255] uses the expression “not that transaction”, we are of the view that this distinction is not material to the analysis he then applies.
We do not consider that damages for wasted expenditure should be awarded by this Court. The proposition that underpins this award is that the representation was Farm 258 would produce 103,000 kgMS year-on-year. But Mr Daly’s representations were not as to future production, rather as to past production. It is not reasonable to convert this into a future warranty, as the majority have done. No such representation was sought or made. It would be surprising, to say the least, were any farmer (let alone a real estate agent) prepared to give such a warranty — evidence was given at trial about the extent of natural variability that occurs in any farming operation due to weather, farming method and farm management. Future expenditure in an effort to achieve 103,000 kgMS year-on-year was outside the scope of PGG’s duty.
First ground of appeal and cross-appeal: diminution in value of Farm 258
This brings us to the appeal and cross-appeal in respect of the award directed to the diminution in value of Farm 258 attributable to the misrepresentation.
The High Court awarded the losses caused by the forced sale of both Farm 258 and the run-off in 2020, which amounted to $603,000 and $839,000 respectively.[580]
[580]HC judgment, above n 509, at [189(a)]. This calculation was undertaken by the Routhans’ witness, Mr Glennie. He took the purchase price of Farm 258 in 2010 ($2,800,000), subtracted its sale price in December 2020 ($1,500,000), and subtracted the expected market decline of a comparable property over that period ($697,000), to quantify loss at $603,000. For the run-off, Mr Glennie took the expected sale price if sold in 2010 ($1,600,000) and subtracted the actual sale price in December 2020 ($761,000), to quantify loss at $839,000.
The Court of Appeal concluded that the losses caused by the forced sale of the properties in 2020 fell outside the scope of PGG’s duty because they were the consequence of decisions made by the Routhans post‑purchase.[581] The Court found however that loss of value in Farm 258 attributable to the misrepresentation should be recoverable.[582] It addressed the evidence before it from the Routhans’ valuer, Mr Hancock, who assessed that loss at $480,500, basing his valuation for a fair market value for the property at the time of purchase on the average efficient production of the farm which he assessed in the vicinity of 84,000 kgMS.[583] The Court of Appeal noted the evidence of PGG’s valuer, Mr Hines, who gave evidence that while Mr Hancock’s approach was the preferred valuation methodology, he had been instructed to value Farm 258 on two alternative bases at the date of purchase — an assumed production of the represented rolling three-season average, and a 97,000 kgMS rolling three-season average.[584] On that basis he found that the farm was worth more than the price paid for it by the Routhans, and would only have been worth $50,000 more if the represented rolling average were true.
[581]CA judgment, above n 509, at [125].
[582]At [144]–[148].
[583]At [135]–[137].
[584]At [138].
While accepting that Mr Hancock’s valuation used the preferred methodology, the Court of Appeal nevertheless considered that the approach advanced by Mr Hines isolated the relatively minor significance to value of the misrepresentation proved as against PGG — placing that at $50,000.[585] Having reviewed the evidence the Court of Appeal noted that it left recoverable damages falling somewhere between zero and $480,500.[586]
[585]At [140].
[586]At [141].
The Court was satisfied that the farm was not, as Mr Hines had suggested, worth more than the Routhans paid for it in 2010, noting it had not sold earlier at a higher figure notwithstanding a marketing campaign.[587] It also rejected the $50,000 value, given that this took no account of the significant decline in production the previous year.[588] But it also saw difficulty with Mr Hancock’s figure because, in light of Mr Hines’ evidence, the entirety of the payment above market value could not be attributed to the erroneous information supplied by PGG.[589] Mr Hancock’s valuation was based on the average efficient production level for the farm, but PGG was not asked to assess the average efficient production level. Nor did the Routhans make inquiry of Mr Cook about that, or indeed, how the historically high production was obtained. Accordingly, PGG was not responsible to these failures which also contributed to the overpayment.
[587]At [142].
[588]At [143].
[589]At [144].
It therefore reduced the $480,500 figure to $300,000 stating that while there was no exact science in the figure, it was:[590]
… supported by calculating the proportionate reduction in the purchase price based on the difference between actual production in the year prior to purchase of 90,000 kgMS (which would have been apparent if PGG had supplied the correct information) and the figure supplied of 103,000 kgMS.
[590]At [145].
The Court was satisfied that was a figure proportionate to PGG’s contribution to the Routhans’ loss and provided a fair and reasonable outcome, doing justice between the parties.[591]
[591]At [148].
In this Court, each party rehearses the arguments made in the Court of Appeal and addressed in its reasons. The Routhans seek to recover $480,500 on the basis of Mr Hancock’s evidence, an argument which follows from their formulation of the scope of duty that PGG assumed. They submit that the significance of the misrepresentation to value was far more than the lesser production value — it would have sparked a chain of enquiry that would have revealed the significant degree to which the farming system had been misrepresented by Mr Daly.
The Court of Appeal rejected the figure of $480,500 on the basis that it represented over‑recovery for the Routhans. It had a proper basis to do so. That figure assumed that the misrepresentation for which PGG was responsible was the only contributor to the reduction in true value. But there were other contributors, as the Court of Appeal found — the Routhans’ failure to enquire about the average efficient production level for the farm, and their failure to enquire of Mr Cook the farming methods he employed to achieve such productivity.[592] We agree with the Court of Appeal that the principled approach is to award the loss attributable to the misrepresentation. We therefore agree with the Court of Appeal’s assessment that $480,500 is not the appropriate figure to award for loss arising from the purchase of Farm 258.
[592]At [144].
In support of its cross-appeal PGG says that the Court of Appeal was wrong to adopt the methodology that it did — that the correct way to assess any difference in value of the property arising from the misrepresentation is to identify the gap in value between the farm’s value with the represented average production, and its value based on the actual historical three-season rolling average production. PGG submits that was Mr Hines’ unchallenged evidence and the Court should have accepted it. Instead, PGG says, the Court of Appeal undertook its own calculation, with inadequate evidence, and on the mistaken basis that 90,000 kgMS was the figure that PGG should have supplied to the Routhans. But the latter was the production value for the preceding year. The correct three-season rolling average should have been used — which was 98,729 kgMS. If that figure had been utilised in the Court of Appeal’s calculation, PGG says, the difference comes down to only $90,758.
In our view the Court of Appeal had a proper basis for rejecting the evidence of Mr Hines as to valuation — which was his concession that, instructed as he was, he had not utilised the preferred method for valuation. We also see nothing in the fact that the Court of Appeal selected the past year’s production rather than the correct rolling average. This is an issue of a fair valuation methodology and, given a declining level of production concealed by the average, the most recent year’s production seems the fairest value to use in this assessment. The balance of PGG’s criticism proceeds on the mistaken basis that the Court of Appeal was attempting a scientific calculation. But the Court of Appeal made clear that it was not attempting a scientific exercise, rather one aimed at achieving a figure which seemed proportionate to PGG’s contribution to the loss, and which produced a fair and reasonable outcome doing justice to each party.[593] It seems to us this is what it achieved.
[593]At [145] and [148].
We would therefore have rejected the appeal on this ground, and the cross‑appeal.
Result
For these reasons we would have dismissed the appeal and the cross‑appeal, confirming the judgment of the Court of Appeal.
Solicitors:
Luke Cunningham Clere, Wellington for Appellants
Parker Cowan Lawyers, Queenstown for Respondent
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