Routhan v PGG Wrightson Real Estate Limited
[2019] NZHC 169
•15 February 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-409-77
[2019] NZHC 169
BETWEEN PHILIP WILLIAM ROUTHAN, JULIA
VERONICA ROUTHAN as trustees for the KANIERE FAMILY TRUST
PlaintiffsAND
PGG WRIGHTSON REAL ESTATE LIMITED
Defendant
AND
NELSON JOHN COOK
First Third Party
AND
COOKS STUD FARMS LIMITED
Second Third Party
AND
ROSS BISHOP
Third Third Party
Hearing: 5 February 2019 Appearances:
Plaintiffs in person
E L Keeble for Defendant
Judgment:
15 February 2019
JUDGMENT OF ASSOCIATE JUDGE LESTER
[1] These proceedings were commenced approximately one year ago by the then trustees of the Kaniere Family Trust (“the Trust”), being the present plaintiffs together with a Reginald John Garters.
ROUTHAN & ROUTHAN as trustees for the KANIERE FAMILY TRUST v PGG WRIGHTSON REAL ESTATE LIMITED & ORS [2019] NZHC 169 [15 February 2019]
[2] The defendant, PGG Wrightson Real Estate Ltd (“PGG”) brought its application for security for costs on 25 July 2018. The application was opposed and set down for hearing on 24 August 2018. That hearing was vacated by then Associate Judge Osborne in a Minute dated 16 August 2018 referring to the threshold test under r 5.45 and the need for the applicant to establish that each of the plaintiffs personally would be unable to meet an adverse costs award as opposed to the position of the Trust. In August 2018, one of the originally named plaintiffs, Mr Garters, resigned as trustee.
[3] With Mr Garters’ resignation, PGG elected to pursue its application for security. PGG notes that Mrs Routhan has not filed a notice of opposition, and seeks an order against her on that basis. With Mr and Mrs Routhan being in the same position in relation to the claim, it appears reasonably clear from the Minute of 16 August 2018 that both plaintiffs intended to oppose this application. With Mrs Routhan appearing in person and adopting the submissions made by Mr Routhan, I propose to treat both plaintiffs as opposing the application.
Security for costs principles
[4] Rule 5.45 of the High Court Rules empowers the Court to order the giving of security for costs where there is reason to believe that a plaintiff will be unable to pay the defendant’s costs if the plaintiff does not succeed in the hearing.
[5] The approach is summarised in McGechan1 with an application for security for costs generally following the following steps:
(i)Has the applicant satisfied the court of the threshold that is that there is reason to believe the plaintiff will be unable to pay the defendant’s costs?
(ii)How should the Court exercise its discretion if jurisdiction?
(iii)What amount should security for costs be fixed at if it is ordered?
1 McGechan on Procedure (online loose-leaf ed, Thomson Reuters) at HR5.45.01.
(iv)Should a stay be ordered?
[6]Whether or not to order security and, if so, the quantum, are discretionary.2
[7] Balancing the interests of plaintiff and defendant is the overriding consideration.3 As discussed in McLachlan v MEL Network Ltd:4
[15] The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success. Access to the courts for a genuine plaintiff is not lightly to be denied.
[8]In Highgate on Broadway Ltd v Devine, Kós J stated:5
Only where a clear impression can be formed that the plaintiff’s claim is altogether without merit – so that in the alternative it would be amenable to being struck out – would it be right for security to be ordered where to do so would bring the plaintiff’s claim to dead halt.
[9] The authors of McGechan note that “those seeking security need to exercise caution to ensure the Court has all relevant evidence for its assessment of the merits”.6
Background
[10] While the plaintiffs were represented when the statement of claim was filed, they are now representing themselves.
[11] The general facts leading to the matters in issue are not disputed. Mr Routhan, in his affidavit sworn 8 August 2018, recounts that in late 2009 he contacted a Mr Greg Daly, then a real estate agent engaged by PGG, about purchasing a dairy farm in the Kokatahi Valley. In his affidavit dated 30 January 2019, Mr Routhan provides two emails from Mr Daly, one dated 2 August 2010 and the second 3 September 2010. Both refer to the purchase of what Mr Routhan refers to the “Cook Farm”.
2 McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA).
3 Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [24](c).
4 McLachlan v MEL Network Ltd, above n 2.
5 Highgate on Broadway Ltd v Devine, above n 3, at [23](b).
6 McGechan on Procedure, above n 1, at HR5.45.03(2).
Mr Routhan refers to making an offer on an unrelated property which fell through, but he explains that during that process a rural real estate agent from CRT Real Estate (“CRT”) dropped off brochures advertising various farms for sale in the region. One of the brochures related to the Cook Farm property and that is a convenient label to adopt for the property.
[12] The CRT brochure that has been produced included a picture of the Cook Farm and included the following description:
Averaging 103,000 kgms for the last 3 seasons from approx. 260 cows on a grass-based system with half the heard wintered off each year.
[13] Mr Routhan recounts that the CRT brochure was produced before the end of the 2009/2010 dairy season and he says that he took the reference to the statement of the “last three seasons” as relating to the 2006/2007, 2007/2008, and 2008/2009 seasons. That this was a reasonable way to read the CRT brochure is not in dispute.
[14] With the purchase of the unrelated farm property falling through, the plaintiffs wished to follow up on whether the Cook Farm was still for sale. Mr Routhan provided the CRT brochure to Mr Daly and asked him to make such enquiries.
[15] Mr Routhan says Mr Daly was asked to get production details and a price for the Cook Farm without disclosing the Routhans’ identity. It seems this was around late August/early September 2010, although the exact timing is still to be determined. It seems Mr Daly contacted Nelson Cook, the owner of the Cook Farm, and obtained an agency agreement dated 11 October 2010 which has been produced. Mr Routhan recounts:
Mr Daly and Mr Cook met and signed an agency agreement. On his way back to the office, Mr Daly dropped by our home in his white Prada to tell us the good news. Julie was out, but I was home working in the garden. Mr Daly and I had a brief conservation while he remained in his vehicle. Mr Daly said he had got an agency agreement, so the farm was ours to purchase. I asked Mr Daly about the price of the Cook farm and its production. He orally advised me that there had been no change to the purchase price ($2,800,000) and to the average production of milk solids in the 2009/10 season (i.e. steady at 103,000 kgms).
[16] As will be seen, this meeting is all important to the plaintiffs’ claim. PGG denies that the meeting took place.
[17] Mr Routhan then says he contacted his bank after Mr Daly left his home. Mr Routhan said he spoke to the bank about the settlement of the purchase with the bank reported as saying they needed “everything in writing, from the agent, so I rang Mr Daly and asked him to provide these details to me”.
[18] Mr Routhan then recounts that Mr Daly came by some time in the following week and brought two copies of a document called “Kowhitirangi Proposal prepared for Kaniere Family Trust” (“the Proposal”). It appears under the PGG letterhead.
[19] In a one page document, next to headings such as area, price, nearest school, soils et cetera are short descriptions. Next to the heading “production” there appears “average last 3 years 103,000 kg/ms from 260 cows”.
[20] In short, the plaintiffs say they relied on the production figures in the Proposal and the confirmation at the meeting described by Mr Routhan at [15] above that the production figure in the Proposal had been maintained for the 2009/2010 season. Mr Routhan says the milk solids figures represented in the Proposal and orally by Mr Daly was important to the plaintiffs and that they relied on the figure for calculating forecasts, consideration of debt they would be able to service and in respect of other aspects of the purchase.
[21] A conditional agreement to purchase Cook Farm was entered into by the Trust on 19 October 2010.
[22] The agreement for sale and purchase contained a due diligence clause in the following terms:
This agreement is conditional upon the purchaser completing a due diligence investigation of the property and being satisfied the property is suitable in all respects to the purchaser, within 15 working days from the date of this agreement. This condition is inserted for the sole benefit of the purchaser.
[23] The purchase settled on 20 December 2010. A significant part of the purchase price was funded through borrowing from Rabobank NZ.
[24] Mr Routhan recounts that shortly after taking possession, they noticed that production was down on the figures provided in the Proposal.
[25]The plaintiffs plead in the statement of claim:
In October 2014 the Trust discovered that the actual production figures for the Farm for the three seasons preceding the Agreement were:
2007/08 season 107,931 Kg/ms 2008/09
season
97,930 Kg/ms
2009/10
season
90,337 Kg/ms
[26] It will be recalled that the CRT brochure covered the 2006/2007 to 2008/2009 seasons. The production for these seasons is set out in a letter from Westland Milk Productions dated 12 November 2014 as follows:
Season 2006/2007 106,280.3 Kg/ms Season 2007/2008 107,921.1 Kg/ms Season 2008/2009 97,930.07 Kg/ms
[27] The average production of milk solids for these three seasons is just over 104,000 Kg/ms per annum. As set out in Mr Routhan’s affidavit, reproduced above at [15], Mr Daly is alleged to have orally confirmed to Mr Routhan that the average production of milk solids in the 2009/2010 year was steady at the 103,000 Kg/ms referred to in the Proposal. The 2009/2010 season finished mid 2010 so the production for the past season would have been known in September 2010. The actual figure for the 2009/2010 season is included in the Westland Milk Productions letter of 12 November 2014 as being 90,337.67 Kg/ms.
[28] On this basis, the statement in the PGG Proposal for the “last three seasons” was not incorrect.
Pleadings
[29] The plaintiffs say that Mr Daly’s oral confirmation that the milk production as stated in the Proposal had been maintained for the 2009/2010 season was wrong. Assuming the oral statement as alleged was made, then the Westland Milk Productions figures from November 2014 supports the plaintiffs’ position in that regard. The statement of claim alleges breach of the Fair Trading Act 1986 (“the FTA”), negligent misstatement and deceit arising from Mr Daly’s alleged oral statement.
Defence
[30] PGG denies Mr Daly made the oral representation described by Mr Routhan in the passage set out at [15] above.
[31] The main theme of the statement of defence (in addition to denying the existence of a duty of care in respect of the negligent misstatement cause of action and denying the elements of deceit), is to challenge the reasonableness of the plaintiffs’ reliance on the Proposal. PGG points to the Proposal containing the following statement:
PGG WRIGHTSON REAL ESTATE LTD – STANDARD DISCLAIMER FOR INFORMATION MEMORANDUM
Please note: PGG Wrightson Real Estate Limited is acting solely as the selling agent for the vendor, and is not responsible for the accuracy and completeness of information supplied by the vendor either directly or via PGG Wrightson Real Estate Limited, whether contained in an information memorandum or otherwise. PGG Wrightson Real Estate Limited has not verified such information and PGG Wrightson Real Estate Limited is not liable to any party, including the purchaser for the accuracy or completeness of such information. Potential purchasers and investors should also note that the Vendor is responsible for obtaining legal advice on any securities law aspects associated with the proposed transaction, and that PGG Wrightson Real Estate Limited is not a promoter for securities law purposes, but is solely acting in its professional capacity as a selling agent.
[32] PGG also relies on what it asserts as being a failure to undertake proper due diligence in relation to the purchase of the Cook Farm when the purchase agreement was subject to a due diligence condition. PGG, across all causes of action, says that the plaintiffs’ reliance on the Proposal and the oral statement was “unreasonable,
negligent and reckless” and generally disputes causation and raises contribution and/or contributory negligence defences.
[33] PGG submits that reliance on the production figures was inherently superficial and did not comprise a duly diligent review of the farms’ past or potential production and of themselves the figures did not disclose the trend of milk solid production.
[34] The significance of the production trend is emphasised by Mr Routhan in his affidavit of August 2018.
[35] Mr Routhan’s position is that had he been told by Mr Daly that production had fallen in the 2009/2010 season, the plaintiffs would have known that something was wrong with the fundamentals of Cook Farm. He says that:
If we knew the actual production in the previous three seasons had been declining from 108,000 to 98,000 to 90,350 kgms we would never have considered buying the farm. Consecutive declining production values is a clear warning sign that there is something seriously wrong with the farm or that the figures were somehow artificially high in the first place.
[36] The reference in the Proposal to the average production for the last three seasons being 103,000 Kg/ms appears to be correct and of itself does not communicate anything about production trends. A reference to an average could mean that production is trending up, down, or was fluctuating.
Threshold – plaintiffs’ impecuniosity
[37] The Routhans have frankly acknowledged that they are in a difficult financial position. Their affairs are so entwined with that of the Trust that they acknowledge that they would be personally unable to meet a costs award from their own resources, let alone from the Trust’s resources. Mr Routhan at the hearing accepted the threshold was met. However, it does not follow from the threshold being met that security will be ordered.
Merits
[38] While it is trite that costs follow the event, it is important to keep in mind that the defendant will only obtain an order for costs if the plaintiffs’ claim fails.
[39] The plaintiffs assert three causes of action; breach of the FTA, negligent misstatement and deceit.
Fair Trading Act
[40] The plaintiffs in their FTA cause of action seek as one of the heads of relief sought:
A declaration that the defendant has engaged in misleading conduct in trade by reason of the provision of the Statements to the plaintiffs.
[41] The “Statements” referred to above are the milk production statements, including the Proposal and the oral confirmation by Mr Daly. There is a third statement relied on. Of this document Mr Routhan says in his August 2018 affidavit:
In October 2010 [PGG] also produced and provided to [the Trust] a document titled “Particulars of Real Estate Sale – Statistical Information”. The production is detailed at 103,000 kgms and this document was signed by M Curragh, who at the time was the manager of [PGG] in Greymouth.
[42] At the hearing, Mrs Keeble said that this document was a PGG internal document not provided to the plaintiffs before the agreement for sale and purchase of the Cook Farm was signed. However, Mr Routhan’s affidavit stands uncontradicted.
[43] The plaintiffs have not filed an affidavit from Mr Daly. There is no explanation as to why that is the case. Mr Routhan has gone on oath to give a reasonably detailed account of the alleged statements by Mr Daly. That evidence stands uncontradicted. Mr Daly in an email dated 8 January 2019 to Mr Routhan refers to being in communication with PGG. While Mr Daly is no longer employed by PGG there is nothing in the evidence to suggest he is unwilling to co-operate with PGG.
[44] Nor on the material available at the moment is there anything inherently implausible in what Mr Routhan says about the meeting. A question as to whether the unilateral production figures in the Proposal have been maintained in the last season would appear to be a reasonable question to ask in relation to such a purchase.
[45] PGG has realistically accepted that it was engaged in trade for the purposes of the FTA, but has denied that the statements were untrue and thus denies that it was misleading or deceptive conduct in breach of s 9 of the FTA.
[46] Keeping in mind the practical obligation on an applicant to ensure the Court has all relevant evidence for the assessment of the merits, and the unexplained absence of any contradiction from Mr Daly in relation to the oral statement it is alleged he made, there would appear to be a reasonably strong case for saying that the oral statement was incorrect. Such an incorrect oral statement made in trade qualifies as a breach of s 9.
[47] There is before the Court a brief of evidence from Mr Daly given in an arbitration between the plaintiff and the lessor of cows to the plaintiffs which they milked after the purchase of the Cook Farm. There is also a letter from PGG, Mr Newbold, to the plaintiffs dated 20 April 2016 in which the general manager of real estate of PGG reports on a discussion he had with Mr Daly in response to questions raised by the plaintiffs in an email of 21 February 2016. The brief of Mr Daly in the arbitration was not directed to the matter in issue in this proceeding so does not touch on the alleged oral statement one way or another.
[48] During the hearing, Mr Routhan suggested the vendor of the Cook Farm had misled Mr Daly and as a result Mr Daly had misled the plaintiffs, but after the lunch break Mr Routhan retreated from his submission saying that he “should not second guess what happened at meetings he did not attend”. That is meetings between the vendor of the Cook Farm and Mr Daly.
[49] An argument that Mr Daly was merely a conduit for inaccurate statements by his principal/the vendor does not have an evidentiary basis. As already set out, PGG in its statement of defence denies Mr Daly confirmed that the 2009/2010 production was steady, as alleged by Mr Routhan. Having denied the statement was made, it is difficult for PGG to say that Mr Daly was in fact only passing on his principal’s instructions.
[50] I have not ignored the strong emphasis placed by PGG on whether it was reasonable for the plaintiffs to rely on the Proposal and the oral statement of Mr Daly, particularly in light of the standard disclaimer set out at [31] above. PGG submissions in respect of the reasonableness of reliance, causation and the point about the quantification of the plaintiffs’ claim are all noted.
[51] However, whether it was reasonable for the plaintiffs to rely on the statements as to milk production made by the defendant through Mr Daly is a matter that goes to the Court’s discretion to grant relief under s 43 of the FTA.
[52] Whether the Trust’s reliance on PGG’s statements was reasonable does not affect whether the statements were misleading or deceptive, but it may impact on the level of damages that may be awarded. As was stated by Harrison J in Waikatolink Ltd v Comvita New Zealand Ltd, in relation to the FTA claims, “reasonableness of reliance does not feature in the elements of liability but in fixing compensation”.7
[53] The reasonableness of the Trust’s reliance on PGG’s statements (including whether the Trust’s due diligence was lacking), does not cure what was otherwise misleading or deceptive conduct.
Conclusions on Fair Trading Act cause of action
[54] On the material produced to date, it cannot be said that the merits of the plaintiffs’ cause of action under the FTA, at least in respect of liability, are weak – indeed the claim that the oral confirmation of production by Mr Daly made in the course of trade was wrong, and therefore contrary to the obligations under s 9, stands uncontradicted on the evidence. If such is established, the plaintiffs would be entitled to a declaration to that effect at the very least. To that extent, at a minimum the plaintiffs have at least a reasonable likelihood in succeeding in their claim (a declaration of breach of the FTA is expressly sought), and so the plaintiffs would not be at risk of costs in the absence of, say, a Calderbank offer.
7 Waikatolink Ltd v Comvita New Zealand Ltd (2010) 12 TCLR 808 (HC) at [168].
[55] That is not to say that points made about the quantification of the plaintiffs’ claim lack merit. The plaintiffs have quantified their loss on the basis that the representations in respect of milk solids were true, in short adopting a contractual measure of loss. The plaintiffs would be well advised to seek some specialist legal advice, despite their financial difficulty, to address the issue of how they have quantified loss.
Limitation
[56] While not pleaded, PGG submit that the FTA action was out of time. However, PGG’s submission referred to an agreement to extend time. That agreement is not before the Court. Where limitation is not pleaded and where the limitation agreement is not available, I do not consider that limitation is a relevant factor in this application.
Negligent misstatement
[57] PGG denies that it owed a duty of care to the plaintiffs to take reasonable care in making any statements about any past production level of Cook Farm. Mr Newbold, on behalf of the defendant, goes as far to include in his affidavit his inadmissible opinion that:
Neither Mr Daly nor the Defendant owed a duty of care to the Trust as purchaser in circumstances where Mr Daly and/or the Defendant were engaged as agent for vendor of the Farm.
[58] Such does not represent the law. An agent can be liable in negligent misstatement to the other contracting party, particularly where they held themselves out as having specialised knowledge, on which they knew the other party would rely. By giving misleading information on which the other party in fact relied, the agent is liable in negligent misstatement.8
[59] The plaintiffs sought out Mr Daly’s assistance in respect of a specific transaction. PGG and Mr Daly are specialist rural real estate agents. The Proposal document containing the information is expressed as having been prepared for the Trust. Having prepared a Proposal specifically for the plaintiff, it was not
8 Milburn Tanner Ltd v Wales & Mackinlay Ltd (1986) 1 NZBLC 102,455 (HC).
unreasonable for the plaintiffs to rely on that document, nor what is claimed to be express oral confirmation that production has been maintained. This being particularly so after Mr Routhan said the document was required for the plaintiffs’ bank.
[60] While strictly not necessary to consider the strength of this cause of action in detail given the plaintiffs have, in my opinion, a reasonably arguable cause of action under the FTA, I also consider that the negligent misstatement cause of action to be far from speculative.
Deceit
[61]The elements of the tort of deceit are:9
(a)A false representation as to a past or existing fact made by a defendant who knew it to be untrue or had no belief in its truth or who was reckless as to its truth;
(b)Intention that the plaintiff should act on the representation; and
(c)Action by the plaintiff in reliance on the representation causing loss.
[62] The plaintiffs plead that the making of the statements in the Proposal, and the oral confirmation by Mr Daly, were false, and in such circumstances constituted deceitful conduct.
[63] PGG in its written submissions submits that there is no evidence to support this claim, and that “it was simply a mistake”. It is unclear what “it” is referring to, and the assertion of any mistake appears inconsistent with PGG’s principal submission that the conversation with Mr Daly never happened.
[64] That is the extent of the submissions on deceit, and in any event, it is unnecessary for me to evaluate the strength of this cause of action.
9 Amaltal Corp Ltd v Maruha Corp [2007] 1 NZLR 608 (CA) at [46]-[50].
Conclusion
[65] The application for security for costs is dismissed. While the threshold for the granting of security exists, I consider the plaintiffs have, at the very least, a reasonably arguable case in relation to breach of the FTA.
[66]The Court is charged to:
“as far as possible, … endeavour to assess the merits and prospects of success of the claim”.10 Having done so, this is not a case where it can be said that there is “little chance of success”.
[67] The plaintiffs being self-represented are not entitled to costs on this application, but are entitled to disbursements. If they wish to seek disbursements, they should file a memorandum with the Registrar and serve a copy on the defendant’s solicitor.
Associate Judge Lester
Solicitors:
Parker Cowan Lawyers, Queenstown (Defendant) P W and J V Routhan
10 McGechan on Procedure, above n1, at HR5.45.03(2).
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