Shabor Ltd v Graham

[2020] NZHC 507

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2017-419-88

[2020] NZHC 507

IN THE MATTER

of the sale and purchase of a farm at 910 Morangi Road, Oparau

BETWEEN

SHABOR LIMITED

Plaintiff

AND

ROBERT GRAHAM

First Defendant

PINE RIDGE TRUSTEE COMPANY LIMITED

Second Defendant

SUCCESS REALTY LIMITED

Third Defendant

Hearing:

9 to 20 September 2019

Counsel:

KM Quinn and CB Pearce for plaintiff

DM O'Neill for first and second defendants

Judgment:

13 March 2020

JUDGMENT OF FITZGERALD J

This judgment was delivered by me on 13 March 2020 at 2pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:          Cargill Stent Law, Taupo (S Hickman)

Forgeson Law, Te Kuiti (D Forgeson) Gilbert/Walker, Auckland (I Rosic)

Shabor Limited v Graham [2020] NZHC 507 [13 March 2020]

CONTENTS

Introduction  [1]

Stock Units as a measure of carrying capacity  [7]
Factual background

Purchase and earlier steps taken to sell  [20] Use of fertilizer and supplementary feed in the years preceding the sale  [24] Steps to sell the Property in 2013/2014  [25]

Mr Borland and Mr Sharp become interested in the Property  [33]
Events after the visit on 7 April 2014  [46]

The misrepresentation claim – elements  [60] Is the Capacity Representation a representation as to a present or past fact? [61] Was the Capacity Representation misleading?

Introduction  [62]

Preliminary points on interpretation of Capacity Representation  [63]

Importance of soil fertility, and phosphorus in particular  [67]
Fertility levels at the Property up to the time of sale  [70]

Mr Graham’s evidence as to carrying capacity  [77]
Experts’ evidence on carrying capacity – introduction  [83]

Mr McLaughlin’s evidence as to carrying capacity  [87]
Dr Roberts’ evidence as to carrying capacity  [94]

Mr Beetham’s evidence as to carrying capacity  [99]

Mr Thomson’s evidence as to carrying capacity  [108]

Mr Miller’s evidence as to carrying capacity  [117]

Mr Matheson’s evidence as to carrying capacity  [129]
Overall conclusions regarding the Capacity Representation  [137]

Effect of the non-reliance clause

Introduction  [138]
“Fair and reasonable” assessments in leading and other relevant decisions  [142]
Should cl 27.3 be enforced in this case?  [162]

Fair Trading Act cause of action

Introduction  [183]

Approach  [186]

Discussion  [196]

Observations on reasonable reliance and damages  [199]

Reasonable reliance  [200]

Damages  [211]

Result and costs

Result  [237]

Costs  [238]

Introduction

[1]                 How many stock can a farm comfortably carry over the winter period? That is the key issue in this case.

[2]                 In 2014, the plaintiff (Shabor) bought a large sheep and beef farm (the Property) from the first and second defendants (who I will refer to collectively as “Mr Graham”). Shabor wanted to develop it into a deer farm. Shabor’s principals, Mr Sharp and Mr Borland,1 bought the Property after having seen marketing material which said it could “comfortably winter 7,500 plus Stock Units with capacity for more”.2 After inspecting the Property, Shabor submitted an unconditional tender for

$5,250,110. Its tender was accepted and Shabor took possession in June 2014.

[3]                 Shortly after taking possession, however, Shabor formed the view that the Property fell well short of being able to comfortably carry 7,500 Stock Units over winter. Rather, its view was that the Property could only carry around 5,500 (at most) Stock Units. It says that since taking over the Property, it has implemented a professionally recommended fertilizer programme and made a range of other improvements which have gradually lifted the Property’s carrying capacity. By the time of the hearing, however, and despite spending many hundreds of thousands of dollars, Shabor says the Property is still not up to a carrying capacity of 7,500 Stock Units.

[4]                 Shabor commenced these proceedings in 2017. It advances two causes of action against Mr Graham; the first (described by Mr Quinn, senior counsel for Shabor, as the primary claim) is that the Capacity Representation was a misrepresentation which induced Shabor to enter into the agreement for sale and purchase, thus entitling it to damages pursuant to s 35 of the Contract and Commercial Law Act 2017 (CCLA).3 In its second cause of action, Shabor says that by making the Capacity Representation, Mr Graham engaged in misleading and deceptive conduct in trade and

1      “Shabor” being a combination of Mr Sharp and Mr Borland’s surnames.

2      I will refer to this as the “Capacity Representation”.

3      Previously s 6 of the Contractual Remedies Act 1979.

thus acted in breach of the Fair Trading Act 1986. On each cause of action, Shabor seeks damages of around $1 million.

[5]                 Mr Graham denies Shabor’s claims. He stands by his claim that the Property could comfortably winter 7,500 Stock Units. He says the Property traditionally carried that number of stock and in fact in some years, it carried many more. He also says Shabor failed to carry out proper due diligence on the Property, as would be expected of a reasonable purchaser making such a significant investment. Finally, he points to a “no-reliance” clause in the agreement for sale and purchase which he says is a complete answer to the claims in any event. And in relation to the damages claimed, he says that much of the claimed expenditure would have had to have been incurred by Shabor in any event, including in converting the Property to a deer farm.

[6]                 Finally by way of introduction, the third defendant was Success Realty Limited (trading as Bayleys). Mr Graham had also filed a cross-claim against Bayleys. However, by the time of the hearing before me, all claims against Bayleys had been resolved and it took no active role at the hearing. Some of the witnesses Bayleys had intended to call, however, were called by Shabor and Mr Graham.

Stock Units as a measure of carrying capacity

[7]                 Before turning to the factual background to the dispute, it is useful to explain what a “Stock Unit” is and how it is relevant to the Property’s carrying capacity.

[8]                 The concept of a Stock Unit was originally developed at Lincoln College in the 1950s or 1960s. The experts called by both parties agreed that the standard accepted measure of a “Stock Unit” is one breeding ewe weighing 55 kilograms with one lamb. I will refer to this as the “base” Stock Unit. The experts also agreed that one base Stock Unit equates to 550 kilograms of dry matter eaten per annum. In other words, one breeding ewe weighing 55 kilograms with one lamb will eat 550 kilograms of dry matter per year. Thus, to carry one Stock Unit, and excluding the use of any supplementary feed, a property would need to grow at least 550 kilograms of dry matter per year.

[9]                 So far, the propositions are uncontentious. Where the experts disagreed, however, is how the base Stock Unit described in the preceding paragraph is translated, or converted, to apply to other types or weights of animals. For example, a heavier ewe with a higher lambing rate would be expected to eat more than 550 kilograms of dry matter per annum. So too, for example, would a cow. How are animals of that type and/or weight to be expressed in Stock Unit terms?

[10]              The Lincoln University Farm Technical Manual was produced in evidence, which includes a Ministry of Agriculture and Fisheries (MAF) table of “Stock Unit Figures” for ewes and cows. The table for ewes centres on the base unit of one Stock Unit equalling a 55 kilogram ewe with one lamb (expressed as a lambing rate of   100 per cent), but also gives conversion rates for lighter and heavier ewes, with higher or lower lambing rates. So, for example, a 65 kilogram ewe with a lambing rate of 130 per cent is described as 1.25 Stock Units. A 400 kilogram cow with a 280 kilogram milk solid yield is described as 6.8 Stock Units. Other (non-MAF) conversion tables for a range of animals (such as deer, goats and horses) are also included in the Manual, some headed “other sources/common usage”.

[11]              But the fact the experts disagreed on whether there are “standard” Stock Unit rates for anything other than the base unit of a 55 kilogram ewe with one lamb demonstrates that the conversion tables included in the Lincoln Farm Technical Manual are not adopted “industry wide” for all purposes. For example, one expert said the MAF table was really only designed to be used for feed budgeting purposes, not for comparative assessments of carrying capacity. Another expert said there is relatively little variation in the Stock Unit conversion rates used for other animals or different weights of ewes, though some of the other experts disagreed, and said there can be a reasonable degree of variation. Another said that it is quite common to use the “1 ewe = 1 [Stock Unit] conversion for back of the envelope assessment of a property”, however, when trying to accurately determine the carrying capacity of a property, “it is best practice to factor in animal live weight and performance”. Another expert noted that because, other than the base Stock Unit definition, there is no single New Zealand convention for Stock Unit rates (but rather a number of published conventions with variable usage and adoption), the “limitations of the [Stock Unit]

measure means interpretation should be done cautiously and not in isolation of other data”.

[12]              It will nevertheless be apparent from the above discussion that there is at least a commonly accepted industry definition of the base Stock Unit, and that it can be converted into an objective measure, namely an amount of dry matter eaten each year. Given the clear purpose of the Capacity Representation was to convey useful and meaningful information to potential purchasers about the Property’s carrying capacity, its reference to “Stock Units” must, objectively, be a reference to the base Stock Unit definition. Without being “tied” to this standard definition, the Capacity Representation would have been meaningless.

[13]              I therefore proceed on the basis that the Capacity Representation conveyed that the Property could comfortably winter the equivalent of at least 7,500 55 kilogram ewes each with one lamb, or framed by reference to the amount of dry matter eaten, could produce the 4,125,000 kilograms of dry matter per annum needed to sustain that number of animals.4 Ultimately, all experts agreed on this. They also agreed that across the Property’s 810 “useable” or “effective” hectares, this equated to being able to grow 5,092 kilograms of dry matter per hectare per annum of pasture eaten.5

[14]              Given this, I see the debate between the experts as to the conversion rates used to apply the base Stock Unit to other types of animals (or to lighter or heavier ewes) as somewhat of a distraction. An assessment of whether, at the time of the Capacity Representation, the Property could produce the agreed 4,125,000 kilograms of dry matter per annum turns predominantly on the Property’s inherent physical qualities, and importantly, its soil quality and fertility.

[15]              The assessment of a property’s carrying capacity is also a different exercise to assessing, in Stock Unit terms, the number of actual stock on a property at any given time. I mention this now, as a lot of the factual evidence was directed to how many

4      7,500 x 550 kilograms of dry matter per annum.

5      Expressed as pasture grown, Mr Beetham, one of the experts called by Shabor, said the Property would need to grow 6972 kgDM/ha/annum to support 7,500 Stock Units; Mr Thomson, an expert called by Mr Graham, said 6,394 kdDM/ha/annum. Mr Beetham and Mr Thomson agreed that the difference between their “pasture needing to be grown” figures is not material or significant.

stock Mr Graham carried on the Property in the years preceding the sale. Ultimately, however, I did not find this evidence directly relevant to or helpful in determining the Property’s carrying capacity.

[16]               This is because the actual number of stock on a property at any given time does not say anything, directly at least, about its inherent carrying capacity. For example, a farmer might have 500 stock on his or her property, but could nevertheless accommodate a great many more. The farmer might have simply decided to farm a much smaller number of animals than the property could comfortably accommodate. Conversely, a farm may have more stock on it than its inherent carrying capacity would ordinarily allow, but is “getting by” by using significant amounts of supplementary feed.

[17]                  I accept that evidence of actual stock numbers on the Property in earlier years, if equivalent to 7,500 Stock Units or more, might bolster or support the Capacity Representation.6 But a number of factors in this case mean that little guidance can be drawn from such evidence:

(a)First, it quickly became clear during the hearing that it was difficult, if not impossible, to accurately calculate how many stock Mr Graham actually carried on the Property from year to year, or to make an accurate assessment of the animals’ live weights (for Stock Unit conversion purposes).7   Indeed, Mr Thomson,  an expert called by   Mr Graham, disavowed relying on actual stock numbers to assess carrying capacity, given the available information was not of good quality and complicated by Mr Graham’s policy of livestock trading (meaning livestock numbers were variable).

6      See for example, the analysis in Undrill v Senior HC Blenheim CP 9/94, 20 August 1997, also a case about an alleged misrepresentation of a farm’s carrying capacity.

7      For example, Mr Graham acknowledged that “exact cow numbers are not easy to work out”, and that on a farm of this size, “no-one’s ever certain of exact stock numbers”. He also accepted that there were some mistakes in the actual stock numbers as at 30 June 2013 listed in the Property Information Memorandum for the Property. Mr Graham also noted that he no longer had a number of farm diaries from over the years, which could have enabled a more accurate assessment to be made. And the farm manager, Mr Hughes, quite properly acknowledged that his actual stock number estimates were not accurate in a number of respects.

(b)Second, and as noted, there was genuine debate between the experts on how the base Stock Unit should be converted to different types and weights of animals in any event. That genuine debate confirms there simply isn’t an industry accepted set of Stock Unit conversion rates for all purposes. Given this, it would be wrong for the Court to arbitrarily adopt one set of conversion rates over another.

(c)Third, the Property’s capacity to carry stock in the past was influenced by the use of supplementary feed, which Mr Graham accepted he used from time to time.

(d)Finally, at the time of sale, the Property had experienced two years of serious drought and was significantly under fertilized. Because of this, even if it had carried higher stock numbers in the past, it was not disputed that its carrying capacity had reduced in more recent years.

[18]              I have therefore not sought to determine the actual stock numbers carried on the Property at any given time, or to make an assessment of how those stock numbers would translate into Stock Units. Rather, I have focused on whether at the time of the sale, the Property was capable of producing the agreed 4,125,000 kilograms of dry matter per annum needed to sustain 7,500 Stock Units.

[19]I turn now to the factual background in more detail.

Factual background

Purchase and earlier steps taken to sell

[20]              Mr Graham bought the Property (in two blocks) in 2000 and 2001. In October 2007, he entered into a listing agreement with Bayleys, and represented the Property’s carrying capacity at that time to be around 8,500 Stock Units.

[21]              In June 2008, Mr Graham entered into a conditional agreement for sale and purchase of the Property with Nugen Farms. Mr Allan Crafer represented Nugen Farms at the time, and provided a brief of evidence in these proceedings (which was

taken as read). Mr Crafar explained that Nugen Farms had offered to purchase the Property for $5.8 million. He said that he had over 50 years’ experience in farming, and had purchased approximately 35 farms during that time. While Mr Crafar did not give evidence of any representations made about the Property’s carrying capacity at that time, he said that adequate due diligence needs to be carried out in farm purchases of this kind.

[22]              In the event, the sale to Nugen Farms did not proceed, as the purchaser did not satisfy a finance condition.

[23]              Mr Graham again listed the Property for sale with Bayleys in 2012 (though it was not  actively  marketed  at  that  time).  The  uncontested  evidence  was  that  Mr Graham had told a Mr Dawe of Bayleys that the Property had historically carried around 8,000 Stock Units.

Use of fertilizer and supplementary feed in the years preceding the sale

[24]              As will become evident from the discussion of the expert evidence later in this judgment, a property’s soil fertility (and therefore pasture production) is a key factor in assessing carrying capacity. In this context, Mr Graham accepted that in the years immediately preceding the sale to Shabor, he had significantly reduced the level of fertilizer put onto the Property, and had in fact put little to no phosphorus (an important nutrient) on the Property in the preceding two years. Indeed, Mr Matheson, an expert called by Mr Graham, confirmed that fertilizer application on the Property had been dropping over a period of five years prior to the sale. Mr Graham also accepted that he used supplementary feed in the years preceding the sale. This was also consistent with the evidence of Mr Hughes, who was the farm manager. For example, he said that over the 2012 and 2013 winters, supplementary feeds of various types were put out “in fairly large quantities”. He said that in 2012, silage was fed out fairly steadily from 10 July to 1 November, and that hay was also fed out on a regular basis from June to the end of October 2013. Mr Hughes also said that palm kernel extract (PKE) was fed out in both years.

Steps to sell the Property in 2013/2014

[25]              In late 2013, Mr Graham again looked to sell the Property. He met with a representative of Bayleys in December 2013, a Mr Stuart Gudsell. Mr Gudsell said that he had attended the Property for around two hours at that time, and from that meeting, he  presented  a  marketing  proposal  to  Mr  Graham.  Mr  Gudsell  said Mr Graham told him that the Property had carried over 8,000 Stock Units in previous years, and that while the exact numbers varied over time, the Property comfortably wintered 7,500 plus Stock Units.   Mr Gudsell said this was again conveyed by     Mr Graham at a further meeting between the two in January 2014.

[26]              Mr Graham also provided Mr Gudsell with actual stock numbers on the Property as at 30 June 2013 (which were later reported in the marketing materials). Mr Gudsell carried out a “conversion” of those stock numbers to Stock Units, using conversion rates he said he had googled on the internet.8 This produced a total Stock Unit number of 7,839. Being in line with the 7,500 Stock Unit figure given to him, Mr Gudsell said he had no reason to question the stock figures with Mr Graham. The 2013 stock numbers included, however, 650 fallow deer and feral goats. Mr Graham later told Mr Gudsell that he could not be sure about the number of deer and goats on the Property, and so the goat numbers were not included in the later marketing materials.9

[27]                Mr Graham said that he had told Mr Gudsell on a number of occasions that the Property “traditionally” carried 7,500 Stock Units. He also accepted that, on further analysis in the context of these proceedings, the actual stock numbers for 2013 he gave to Mr Gudsell (and which were included in the marketing materials) were not accurate in all respects.

[28]              But irrespective  of  the  precise  conversation  between  Mr  Graham  and  Mr Gudsell about the Property’s overall carrying capacity, the point remains that the Capacity Representation was ultimately framed as the Property comfortably wintering 7,500 plus Stock Units, with capacity for more. Mr Graham accepts that he approved

8      He could not recall the particular table or publisher.

9      Taking all the deer and goats out of the equation, Mr Gudsell’s conversion to Stock Units drops to 7,327 Stock Units.

the marketing materials in which the Capacity Representation featured. I return later in this judgment to Mr Graham’s evidence of how he  arrived  at  his  figure  of  7,500 Stock Units.10

[29]              Mr Graham also said that Mr Gudsell asked him at this time if he made supplementary feed on the Property, to which he replied no.  This was reflected in  Mr Gudsell’s notes in the listing agreement, which record “no supplement made”.  Mr Gudsell said he could not recall if Mr Graham told him whether he used supplementary feed on the Property, and accepted in cross examination that he had probably not asked Mr Graham about this. He said, however, that he did not believe Mr Graham told him that he did use supplement, as he would have noted that in the marketing materials. Mr Graham said he was not asked by anyone if he fed supplement on the Property, and he would have been quite open about that if he had been.

[30]              The issue of whether supplement was used (rather than made) on the Property is relevant as Mr Sharp and Mr Borland said they asked Mr Gudsell if supplementary feed was used on the Property, and he had said no. Mr Sharp and Mr Borland’s evidence on this was not seriously challenged. But I do not ascribe anything untoward or sinister in Mr Gudsell’s response to Mr Sharp and Mr Borland’s inquiry. Rather, it seems likely there had been some miscommunication or misunderstanding as between Mr Graham and Mr Gudsell on whether supplementary feed was made on the Property (which it was not), and whether supplementary feed used on the Property (which it was). In this context, there was no dispute that Mr Graham’s machinery for feeding out was plainly visible during the Property’s open homes, and indeed Mr Sharp and Mr Borland said they had seen it when they visited the Property in April 2014.

[31]              The marketing materials for the Property included a Property Information Memorandum (PIM). The PIM included a variety of information about the Property, but of key relevance for present purposes, it included the Capacity Representation itself, four soil test results from February 2014, information on fertilizer application in prior years and actual stock numbers (by class) as at 30 June 2013.11

10 See [77]–[82] below.

11 That is, those stock numbers discussed at [26] above.

[32]              The Property went onto the market on 11 March 2014. It was advertised for sale by tender, with the tender closing at 4 pm on 10 April 2014. Open homes commenced on 18 March 2014.

Mr Borland and Mr Sharp become interested in the Property

[33]              At around this time, Mr Borland and Mr Sharp were looking to purchase a large farm together, to develop as a deer farm. They had met in around 2000 through the deer industry.

[34]              Mr Borland explained that he had been involved in deer farming for around 27 years, though for many years during that time, his main job continued to be as an engineer. He became a full time farmer in 2008 (when he purchased a 53 hectare ex- dairy farm which he converted to a deer farm). Prior to Shabor purchasing the Property, Mr Borland explained that he had not been involved in a farm as large as the Property.

[35]              Mr Sharp had been farming on his own account since 1976, and until 1989, this mainly involved cattle and sheep. From 1989, Mr Sharp had focused on deer farming. At the time of the hearing before me, he was farming a 195 hectare farm at Whakamaru, comprising mainly deer but also with some cattle. Mr Borland said that he generally deferred to Mr Sharp on matters to do with cattle and sheep, and also in connection with fertilizer.

[36]              Mr Borland and Mr Sharp had been looking for suitable properties for a little while, and by the time they looked at the Property, they had already viewed several other  properties  together.  Three  farms  had  been  of  particular  interest.   About 18 months prior to purchasing the Property, they had tendered for a property at Galatea, but had not been successful. They had also missed out on a second property, just northeast of Taupō. And shortly before purchasing the Property, they had bid on a property in Taranaki, but that bid had also not been accepted.

[37]              Mr Sharp saw an advertisement for the Property on or around 1 April 2014 and was interested, as was Mr Borland. They both said they took note of the Capacity Representation, and the opportunity it presented for development. The Property’s

location and contours were also of interest.   Mr Sharp telephoned Mr Gudsell on     1 April, and was sent a copy of the PIM. Mr Sharp said he noticed the soil test results disclosed in the PIM, which showed below optimum fertilizer levels. He said that they “looked promising”. In cross-examination, he clarified that he considered there was an opportunity to increase carrying capacity beyond 7,500 Stock Units by lifting the soil fertility levels.

[38]              Mr Sharp and Mr Borland visited the Property on 7 April 2014. Their banker at ANZ, Mr Murphy, was with them. Their visit (being three days prior to the tender close date) was fairly late in  the  tender  process.  Mr  Sharp  agreed  that  he  and Mr Borland were keen to get a farm, and knew they would have to move quickly if they were interested in the Property.

[39]              Both Mr Sharp and  Mr  Borland  said  they  discussed  the  Property  with  Mr Murphy on the drive out to it, and that any price they offered would be on a per Stock Unit basis. Mr Murphy gave them an indication of sale prices for farms in the area on a per Stock Unit basis, ranging from $500 to $1000 per Stock Unit.

[40]              After arriving  at  the  Property  and  exchanging  some  pleasantries  with  Mr Graham, Mr Borland and Mr Murphy went outside. Mr Sharp says that he stayed and kept chatting with Mr Graham, and asked him if he fed supplement out on the Property, to which Mr Graham replied no. Mr Graham denied that he had said no, or that Mr Sharp had even asked him the question. Mr Graham was adamant that had he been asked about supplement, he would have been quite open about it.

[41]              I prefer Mr Graham’s evidence on this point. Ultimately, there was no reason for Mr Graham to, in effect, straight out lie to Mr Sharp in response to a direct question on supplementary feed. This is particularly so given the equipment he used for feeding out was fully visible to potential purchasers (and indeed, as noted, was seen by both Mr Borland and Mr Sharp). Mr Graham was also quite open at the time about some dilapidated fences on the Property, pointing them out to Mr Sharp. In addition, and as discussed further below, Mr Borland and Mr Sharp did ask Mr Gudsell whether supplement was fed out on the Property. I consider it a reasonable possibility that

given the discussions took place more than five years ago, Mr Sharp has confused who he asked about supplementary feed.

[42]              Mr Sharp, Mr Borland, Mr Gudsell and Mr Murphy then went on a tour of the Property. It took about two hours. Mr Borland and Mr Sharp accept they saw a hay mower and a bale feeder in the implements shed, but formed the view that neither appeared to have been used. They also accept they saw a few dilapidated fences.

[43]              Mr Borland said that while on the tour, he asked Mr Gudsell if supplements were fed out on the Property. Mr Gudsell did not have any recollection of that discussion, but accepted that if he had been asked, he would have said no, given he was not aware of supplementary feed use at that time.

[44]              Given the tight timeframe before the tender closed, Mr Borland and Mr Sharp said that they tried to get as much information as possible about the Property on their two hour visit. For example, Mr Borland said he made it clear that any tender they put in would be based around a price per Stock Unit, and therefore it was important the Stock Unit figures were accurate. He also said that Mr Gudsell assured them on multiple occasions that the farm “cruised” through winter on 7,500 Stock Units and had room for more. Mr Gudsell did not specifically recall these conversations, but denied he would use a word like “cruise”. He accepted however, that if he had been asked about the carrying capacity, he would have reiterated 7,500 Stock Units, given that is the information he had been given by Mr Graham. Mr Murphy, in some notes made by him in early 2016 about the tour of the Property, said Mr Gudsell had reinforced the carrying capacity of 7,500 Stock Units.

[45]              Given Mr Borland and Mr Sharp were both giving evidence more than five years after the event, I doubt they can accurately recall the exact words used during their discussions with Mr Gudsell. There is no contemporaneous record.  I accept  Mr Gudsell’s evidence that “cruising” through winter is not a phrase he would ordinarily use. I accept, however, that Mr Borland and Mr Sharp may well have raised the  carrying  capacity  point  with  Mr  Gudsell,  which  is  also  consistent  with   Mr Murphy’s notes (albeit written some two years after the event). But given the Capacity Representation itself is very clear on the Property’s carrying capacity,

nothing particular turns on the precise content of Mr Borland and Mr Sharp’s discussions with Mr Gudsell. As Mr Gudsell said, anything he had said about the Property’s carrying capacity would have been consistent with the Capacity Representation.

Events after the visit on 7 April 2014

[46]              After the tour, Mr Borland and Mr Sharp, together with Mr Murphy, visited a nearby café to discuss the Property. Mr Sharp and Mr Borland were very interested, and formulated a price based on 7,500 Stock Units multiplied by $700. The

$700 figure was derived from the information Mr Murphy had provided on the way out to the Property about other farm sale prices. Mr Sharp and Mr Borland agreed to add a further $110 to their tender price, just in case other tenderers took a similar approach to calculating the price. Mr Sharp, Mr Borland and Mr Murphy then travelled to Bayleys’ office in Hamilton to collect the tender documents, and copies were also emailed to them.

[47]              Of relevance to issues discussed later in this judgment is that, as would be expected, the tender documents included the tender terms and conditions. These included “further condition” 27. That condition provided as follows:

Limitations of Liability

The Vendor does not warrant:

27.1      The accuracy of any matter, fact or statement in any report or other information on the property prepared or provided by the Vendor’s [sic] or its Managers or Agents (including information contained in Schedules to this Agreement), any advertising of the sale of the property or any statement made except in relation to any specific warranty given in this Agreement or

27.2      Any other matter relating to the property or its use or nature or the state of the property in any respect other than expressly set out in this Agreement.

27.3      The Purchaser shall be deemed to have purchased the property acting solely in reliance on the Purchaser’s own judgement and upon its own inspection of the property and all other information regarding the property, and not in reliance upon any representative [sic] or warranty made by the Vendor, the Vendor’s Agent or Managers other than as expressly set out in this Agreement.

[48]              Mr Quinn accepts the reference in cl 27.3 to “representative” is a typographical error and is to be read as “representation”. The parties also agree that clause

27.3 ought to be interpreted as a ‘stand-alone’ clause (that is, it does not follow on from the opening words “The Vendor does not warrant…”).

[49]              Also forming part of the tender documents was a “memorandum to tenderers”, which set out instructions for preparing and submitting a tender. These instructions included that tenderers needed to insert any special conditions or make any desired amendments, and that “tenders may be submitted subject to conditions you, the Tenderer, may wish to include under the Special Conditions of sale”.

[50]              A few days later, on 10 April 2014, Mr Borland and Mr Sharp visited their lawyer to discuss and finalise their tender. They made a number of handwritten edits to the “further conditions” section of the tender, including that Shabor could access the Property prior to settlement to apply fertilizer before winter. They also added a clause permitting Mr Graham to return to the Property to hunt for deer, as they knew he was a hunter and thought this might act as bit of a “sweetener”. They also added some further chattels to the chattels list. Mr Sharp confirmed that their lawyer explained the “further conditions” to them, which included cl 27. Mr Sharp also accepted that before submitting their tender, they had an opportunity to delete cl 27, but chose not to do so. Once the documentation was finalised, they drove to Bayleys’ office in Hamilton to submit the tender. Their tender was unconditional.

[51]              I interpolate to note that Mr Gudsell, with 25 years’ experience in rural real estate, stated that it was rare to receive an unconditional tender for a farm property. He said that in his experience, 90 per cent of tenders would be conditional on completion of due diligence. There was no particular challenge to this evidence (and Mr Gudsell was called by Shabor in any event).

[52]              In the event, there were two tenders. Mr Sharp and Mr Borland were notified later on 10 April 2014 that they were the preferred tenderer. They were asked if they would increase their price but they made it clear they would not. After some further negotiations and amendments to the terms which are not relevant for present purposes, the tender agreement was confirmed as agreed and unconditional on 17 April 2014

(the Agreement).  Settlement was to take place on 3 June 2014.  On 8 May 2014,   Mr Sharp and Mr Borland’s lawyer notified Mr Graham’s lawyer that Shabor had been nominated as purchaser under the Agreement.

[53]              Mr Borland and Mr Sharp said they first started having concerns about the Property’s true carrying capacity when they attended the Property in late May 2014 to observe the valuation of stock which Shabor had an option to purchase under the Agreement. Mr Sharp said the low number of animals on offer surprised him, as did the poor condition of some of them. He said “alarm bells” started to ring.

[54]              The day before the scheduled settlement of 3 June 2014, Shabor’s solicitors wrote to Mr Graham’s solicitors raising Shabor’s concerns about the Property’s carrying capacity. The letter stated:

Notwithstanding the provisions of Clause 27, our client relied on the representation from Bayleys, both in writing and verbally given to them, with regard to the stock carrying capacity of the farm. We attach the Bayleys summary which clearly sets out the farm comfortably winters 7500 plus stock units with capacity for more.

Our client has reason to question that statement and has instructed us to reserve its rights with respect to the potential misrepresentation of the property. You will no doubt be familiar with a number of cases pertaining to misrepresentation around stock carrying capacities in the farming industry.

Suffice to say our client has instructed us to settle in full but reserve its position in this regard and accordingly your client is put on notice of a potential claim.

[55]Mr Graham’s solicitor replied later that day, stating that “[o]ur client advises”:

1.   He has in the past carried at least 7,500 stock units on the property.

2.   With the drought conditions, a different fertilizer policy our client has utilized over the last couple of years, this has affected the carrying capacity.

3.   Our client advised the Real Estate Agents the exact numbers of stock he was carrying and they prepared and presented the information in stock units.

4.   Our client understands that there is a very wide variation as to how stock units are calculated.

5.   We understand that your clients are capable experienced farmers and would have known the capabilities of the farm they intended to purchase.

[56]              Mr Borland and Mr Sharp said that their concerns about the Property’s true carrying capacity were confirmed after settlement, when they questioned Mr Hughes (who had stayed on at the Property) about how many stock had been run on it in the past. Mr Borland and Mr Sharp said Mr Hughes had shown them his diaries which showed lower stock numbers than represented, and also that supplementary feed had been fed out to cattle almost every day during winter.

[57]              Mr Borland said that during the first winter (of 2014), they struggled to get through, despite running only about 4,500 to 5000 Stock Units.12 They did not use any supplementary feed. They did, however, make two drops of fertilizer; one going into the winter (that is, prior to settlement in accordance with the access permitted under the Agreement) and one coming out of winter.

[58]              Mr Borland and Mr Sharp also gave evidence about various steps taken in the ensuing years to improve the Property’s carrying capacity. I discuss these steps later in this judgment, when addressing Shabor’s damages claims.

[59]Shabor commenced these proceedings in March 2017.

The misrepresentation claim – elements

[60]              The legal principles applying to a misrepresentation claim pursuant to s 35 of the CCLA are well settled. A plaintiff must demonstrate:13

(a)A representation as to a past or present fact that is false or misleading. The meaning of the words used, in their proper context, is the focus of the inquiry.

(b)That the representor intended that the representee would be induced to enter the contract.

12     This again of course depends on the stock unit conversion rates used for anything other than a  55 kilogram ewe with one lamb.

13     For recent statements of the applicable principles, see Magee v Mason [2017] NZCA 502, (2017) NZCPR 902 and Shen v Ossyanin [2019] NZHC 135.

(c)That the representee relied on the representation when entering the contract and that such reliance was reasonable (in the sense discussed at [200]–[204] below).

(d)That the representee has suffered loss as a result, recoverable on the basis the representation is a term of the contract.

Is the Capacity Representation a representation as to a present or past fact?

[61]              There is no doubt the Capacity Representation is a statement as to present fact. It is expressed in the present tense, and would have been reasonably understood as conveying information on the Property’s (then) carrying capacity. The Property’s carrying capacity at some undefined point in the past, or at some undefined point in the future, would have been meaningless information to a prospective purchaser. In this context, I also note the observations of Sim J, approved by the Privy Council in Bisset v Wilkinson (also a case regarding carrying capacity) that “[i]n ordinary circumstances, any statement made by an owner who has been occupying his own farm as to its carrying capacity would be regarded as a statement of fact.”14

Was the Capacity Representation misleading?

Introduction

[62]              Whether the Capacity Representation was misleading is obviously a key issue in this case. The following discussion of this issue is structured as follows:

(a)I first address two preliminary points concerning the proper interpretation of the Capacity Representation.

(b)I then summarise the evidence about the Property’s soil fertility, and why that is relevant to carrying capacity.

(c)I then address Mr Graham’s and each expert’s evidence about the Property’s carrying capacity.

14     Bisset v Wilkinson [1927] AC 177 (PC) at 183–184.

(d)Finally, I set out my findings on the Property’s carrying capacity, and whether the Capacity Representation was false or misleading.

Preliminary points on interpretation of Capacity Representation

[63]              The first preliminary point is whether the Capacity Representation represents the Property’s carrying capacity without the use of supplementary feed, or whether it factors in the use of such feed.

[64]              In my view, the former must be the correct approach. If it were otherwise, the Capacity Representation would effectively be meaningless. Plainly the use of supplementary feed will affect how many stock a property can comfortably carry. In theory, the more money a farmer is prepared to spend on supplementary feed, the more stock his or her property will be able to carry, particularly through the winter months. What a prospective purchaser is interested in, however, is the inherent carrying capacity of a property, uninfluenced by what decisions any individual farmer might then make as to the use of supplementary feed.

[65]              It is helpful to record at this point that in addition to the Capacity Representation, Shabor also pleaded a second alleged misrepresentation, namely that the Property’s carrying capacity was achieved without supplementary feed.15 But as I have found that “no use of supplementary feed” is inherent in the Capacity Representation itself, it is not necessary to address this second alleged misrepresentation separately.

[66]              The second preliminary point is that the Capacity Representation was that the Property could comfortably winter 7,500 “plus” Stock Units. It is therefore not a precise number. But the use of the word “plus” conveys that the Property can comfortably winter at least 7,500 Stock Units. This is then reinforced by the words which immediately follow, namely “with capacity for more”. It is not entirely clear what those additional words mean; for example, whether there is capacity for more with or without the use of supplementary feed, or with or without additional steps being taken and/or funds being expended to improve the Property’s carrying capacity.

15     Statement of Claim at [45(b)].

Nor is it clear how much “more” capacity is being suggested. But I am not required to determine these sorts of issues. This is because the key issue between the parties is whether the Property could comfortably winter even 7,500 Stock Units, that is, rather than some higher, unspecified number.

Importance of soil fertility, and phosphorus in particular

[67]              As noted earlier, the experts generally agreed that a property’s inherent carrying capacity is closely tied to its soil quality and thus the amount of grass and other dry matter it can grow.

[68]              Shabor called Dr Antony Roberts, the Chief Scientific Officer at Ravensdown (an agricultural servicing co-operative). Dr Roberts has, among many other qualifications, a Doctor of Philosophy in Soil Science. There was no dispute that he is a, if not the, pre-eminent soil scientist in New Zealand. His evidence was not seriously challenged.

[69]              Dr Roberts confirmed that phosphorus in particular is an essential nutrient for both plant and animal development, and if soil is deficient in this nutrient, plaints will not grow to their maximum capacity. He stated that in New Zealand, “[phosphorous] is the driver to basically build up your soil and nitrogen pool to maximise as much as possible your pasture production”. Dr Roberts also explained that phosphorus is the most expensive nutrient per kilogram that farmers generally have to apply.

Fertility levels at the Property up to the time of sale

[70]              Dr Roberts stated that for the soil type seen at the Property,16 the optimum phosphorous levels would have been 20 to 30 micrograms per millilitre.

[71]              Soil test results (three samples) for the Property in 2000 were produced in evidence, which recorded phosphorus levels of 3, 4 and 2 micrograms per millilitre respectively.17 Mr Graham accepted these were “very low” levels, and well below the optimal range. Dr Roberts described them as “extremely low”.

16     Mairoa Ash.

17     This testing is commonly referred to as the “Olsen P” test, or “Olsen P” levels.

[72]              Soil test results from the Property taken in February 2014, so reasonably proximate to the sale, were also produced in evidence. These test results were also set out in the PIM. They showed phosphorus levels from four different sites around the Property, with recorded Olsen P levels of 16 (location = Calf); 10 (location = Mid pig); 9 (location = T Flat 2); and 9 (location = Sheep 1), with a resulting average of 11.  Mr Borland and Mr Sharp were therefore aware of these results prior to purchasing the Property.

[73]              In his written report, Dr Roberts described four soil samples for a Property of this size as “somewhat inadequate,” though in his evidence-in-chief, added that “this is putting it mildly”. In cross-examination, he also noted that having seen a reference to only four soil samples for a Property of some 810 effective hectares, his first thought would have been that he needed to get more information about fertilizer history.18 He agreed that “any farmer worth their salt would probably think to himself, [the test results] were low”.

[74]              Dr Roberts also noted that the samples were taken from a drought year and during the summer period, which is not recommended, as the soil is very dry and can artificially elevate test results, including in relation to Olsen P levels. Dr Roberts considered the Olsen P result for the “Calf” location of 16 to be particularly unreliable, given it was significantly lower in later samples taken (in July 2014 and August 2015). He considered this was likely because the February 2014 sample was taken during a drought, when the later samples were taken at more optimum times.

[75]              12 soil samples were taken from the Property shortly after settlement of the sale, in July 2014. One of these samples recorded an Olsen P level of 6.1. The remainder ranged from 5.2 to 5.9, producing an average of 6. Overall, Dr Roberts agreed with a further expert called by Shabor, Mr McLaughlin, that there was “very low P fertility of the farm”. Dr Roberts stated that modelling he had carried out showed that with an Olsen P level of only 6, “the farm would be producing around 71 per cent relative yield”.

18     He acknowledged, however, that farmers may well think the number of soil samples was adequate.

[76]              Later soil samples taken from the Property in August 2015 (11 samples) and August 2016 (11 samples) produced average Olsen P levels of 8 and 11 respectively.19 Again, therefore, while generally tracking upwards, the Olsen P levels remained well below the optimum range.

Mr Graham’s evidence as to carrying capacity

[77]                 As noted earlier, Mr Graham purchased the Property (then in two blocks) in 2000 and 2001. Accordingly, by the time of the Capacity Representation, he had been farming the Property for some 14 years.

[78]              Mr Graham’s evidence was that the Capacity Representation was based on his experience of what the Property had been able to and could carry. He emphasised that he had communicated to Mr Gudsell that the Property had “traditionally” carried 7,500 Stock Units. Mr Graham’s evidence was also that the actual number of stock on the Property in earlier years had often been materially higher than this.

[79]              The crux of Mr Graham’s evidence was that he estimated or believed, based on his own assessment of stock numbers, that the Property had carried around 8,000 to 8,500 Stock Units over the time he had farmed it. This assessment included “working backwards” from carcass weights for ewes to live weights, to arrive at an average live weight of 65 kilograms.

[80]              On the basis that the Property had in the past  carried  around  8,000  to  8,500 Stock Units, but taking into account the droughts in the two seasons prior to the sale, coupled with a “new” fertilizer policy,20 Mr Graham said he knew in early 2014 that the carrying capacity must have dropped back somewhat. He accepted in cross- examination that by 2014, the Property was “materially” short of fertilizer, and that in hindsight, he should have spent “a couple of hundred thousand” on fertilizer in April 2014. When considering the Property’s carrying capacity for the purposes of the marketing sales campaign, he accordingly brought the Stock Units down from what

19     This overall “lift” reflected the steps taken by Shabor after acquiring the Property to apply phosphorous fertilizer in an effort to lift soil fertility.

20     That is, that he had added “hardly any” phosphorus to the Property over the last couple of years, instead experimenting with biological fertilizer.

he thought it had been carrying a few years prior, to the stated number of 7,500. In cross examination, the following exchange took place with him, in which he accepted, given the points just discussed, there may have been some doubt about the figure of 7,500:

Q. Well why is that relevant? Why are you telling us that?

A. That, that is because…they could look at that and they could see 2013, 11’ 12’, if they bothered to ask me, in fact even if you go back to 2002, this is how much was carried. They could look at the conditions of the pasture, they could look at the fertiliser use over the previous two years, they could see that no fertiliser had been put on that year, they could see, for some strange reason they never requested that fertiliser was put on by me, which is quite a common practice, they could see that, yes, the fertiliser was going down, so there was doubt about whether it would carry 7500 in 2014.

Q. Doubt in whose mind, Mr Graham?

A. As I’ve said before –

Q. Any doubt in your mind?

…

A. There would’ve been a little bit of doubt, but if I hadn’t, hadn’t had a farm on the market and was not selling it and carried on, there would’ve been, there would’ve been no doubt at all.

[Emphasis added]

[81]                  Mr Graham also accepted in response to a question from me that he had included the 7,500 figure in the sales materials without specifically working out the Stock Unit carrying capacity, but simply knowing it was something less than he had traditionally carried.

[82]              Mr Dawe, a manager at Bayleys, gave evidence that when the dispute first arose, Mr Graham had discussed it with him and said words to the effect that the carrying capacity of the Property at the time of sale was 6,500 Stock Units.   But    Mr Graham’s evidence, which I accept, was that this was a reference to the actual number of Stock Units he thought he had on the farm at the time of sale, not its inherent carrying capacity. Mr Graham’s evidence is consistent with a contemporaneous email sent by Mr Dawe to others within Bayleys at the time, which recorded that:

When talking with [Mr Graham] before he said that based on the stock figures on the farm when the property was sold it was approximately 6500

stock units at that time in a drought but he had farmed the property with higher stock numbers to be around or above 7500.

[Emphasis added]

Experts’ evidence on carrying capacity – introduction

[83]              Before addressing each of the experts called to give evidence about the Property’s carrying capacity, it is appropriate to comment on their qualifications and expertise.

[84]              In short, there was no challenge to any of the experts’ qualifications. All are highly qualified in their respective fields, and most have had lengthy careers related to farming and rural business. I found all the experts to be credible and reliable. The overall content of their evidence was helpful.

[85] In addition, there was ultimately a fair degree of agreement between them. For example, most (if not all) agreed that matters such as a property’s contour and pasture production will be very important to its carrying capacity. All agreed with the base Stock Unit definition, discussed at [8] above. And all agreed that the Property’s carrying capacity had been declining in the period immediately prior to sale. Finally, those experts who were willing to put a number on the Property’s carrying capacity in June 2014 all assessed it as something less than 7,500 Stock Units.

[86]              It was also very apparent from the experts’ collective evidence that assessment of a property’s carrying capacity, particularly when carried out a number of years after the event, is quite an imprecise exercise – whether based on soil fertility and pasture production, or drawn from evidence of actual stock numbers historically carried on a property.

Mr McLaughlin’s evidence as to carrying capacity

[87]              Shabor called Mr Avon McLaughlin, a valuer and farm management consultant with Veitch Morrison. Mr McLaughlin has had a long career in the rural sector, ranging from working as a farm appraiser for the Rural Bank, a share-milker, a self- employed  farm  consultant,  a  rural  real  estate  agent  and  farm  valuer.  While  Mr McLaughlin’s evidence focused to a significant extent on valuation of the Property

(relevant to Shabor’s damages claim), he also expressed his opinion as to the Property’s carrying capacity.

[88]              Mr McLaughlin first converted the known actual stock on the Property at settlement (that is, the stock Shabor bought from Mr Graham pursuant to the option to purchase in the Agreement) to Stock Units, as well as the actual stock numbers listed the PIM as at 30 June 2013. The former produced a total of 5,528 Stock Units, or

6.82 Stock Units per effective hectare. The latter produced a total of 6,839 Stock Units, or 8.44 Stock Units per effective hectare.21

[89]              Mr McLaughlin did not arrive at these Stock Unit numbers by using the conversion ratios contained in the Lincoln Farm Manual discussed earlier.22 In particular, he considered the MAF table for ewes and cows23 was designed for feed budgeting purposes only. His conversion rates were drawn from what he referred to as “industry publications” (such as the “farm budget manuals” from Lincoln), though he was not particularly clear on the actual publication he had used.

[90]              Mr McLaughlin also considered soil fertility and pasture production, noting that on the basis of the soil samples he reviewed, the Property’s pasture production was restricted. He said that even with an Olsen P level of 10, pasture productivity would only be at around 67 per cent of relative yield (in other words, expected pasture production was only two thirds of the potential).24

[91]              Mr McLaughlin gave his opinion that the Capacity Representation equated to a carrying capacity of 9.26 Stock Units per effective hectare,25 and that he had seen “no evidence to support [this] claim”. Mr McLaughlin said that “I don’t believe the fertility levels (Olsen P) have ever been in the medium range in the past that would be a prerequisite to achieve the above stocking rate of 9.26 SU/eff ha.” Based on his review of the Property and its soil condition, his view in July 2016 was that its carrying capacity at the time of sale was between 5,265 and 5,670 Stock Units.

21     As discussed below, this figure was then used by Dr Roberts in his report in relation to the Property’s soil fertility and carrying capacity.

22 See [10] above.

23 Discussed at [11] above.

24     Compared to Dr Roberts’ estimate of 71 per cent when Olsen P was at 6.

25     7,500 Stock Units divided by 810 effective hectares.

[92]Mr McLaughlin said the following in relation to the above conclusions:

In reaching the above conclusions, I took into consideration the information I had been given about the actual stock numbers that had been farmed on the Property in the past. However, I considered that it is important to assess a farm’s carrying capacity on a more objective basis that primarily reflects the physical resources of a farm, rather than the skill or farming policies of the individual farmer.

…

In assessing the average efficient carrying capacity of the Property, I have considered not only the stock numbers that had previously been farmed, but also the February 2014 soil test results, the history of fertilizer application, comparison to the Beef and Lamb New Zealand economic survey data from comparable farms in the region, and my general knowledge of the district from having worked there (albeit in the 1970s).

[Emphasis added]

[93]              Mr McLaughlin also said that in his opinion, the maximum inherent carrying capacity of the Property was capped at 7,290 Stock Units.

Dr Roberts’ evidence as to carrying capacity

[94]              Dr Roberts agreed with Mr McLaughlin that the represented carrying capacity of 7,500 Stock Units, relative to the size of the Property and its “usable” areas, equated to 9.26 Stock Units per effective hectare. Dr Roberts also agreed with Mr McLaughlin that given the low levels of phosphorus shown in the various test results discussed above, it was simply not possible for the Property to carry 7,500 Stock Units at the time of sale. The following exchange took place between the Court and Dr Roberts:

Q. And you say, and so that is ignoring the numbers that we have got in the Veitch report and you say that a stocking rate of 9.6, 9.26 stock units per hectare could not be carried at this level of P fertility. What level of P fertility are you referring to, is that the middle column, am I right, the Olsen P?

A. Yes, the July 2014, sorry the Olsen P levels, yes, but the ones taken from July 2014.

Q. And so, putting aside what actual stock numbers might have been on this farm at any one time, am I right, are you saying there that with that Olsen P level, you could not support 7500?

A. Can’t possibly grow enough pasture, you can’t possibly grow, I don’t believe, in my opinion and my experience on those sort of classes of farms and soils, that you could support that stocking rate.

Q. On grass alone?

A. Yes, absolutely, on pasture.

Q. And so that is assuming there is no supplementary feed or anything?

A. So the modelling that I did contains nothing about supplementary.

[95]              Dr Roberts also estimated that to support the number of stock purchased by Shabor at settlement (equating to 5,528 Stock Units, or 6.8 Stock Units per effective hectare)26, the Property would have needed to grow around 5330 kilograms of dry matter per effective hectare per year (kgDM/ha/annum).

[96]              On the basis of the actual Stock Units represented in the PIM as at 30 June 2013 (namely around 6,839,27 which Dr Roberts agreed equates to 8.44 Stock Units per effective hectare), Dr Roberts said there would have needed to be a significant lift in pasture growth to accommodate even those numbers. Based on model analysis carried out by him, he estimated that a 22 per cent increase in pasture grown (and eaten) would have been needed to sustain this level of Stock Units.

[97]              Dr Roberts then used the “econometric nutrient recommendation model” developed by AgResearch to estimate the phosphorus input required to raise Olsen P levels high enough to sustain a 22 per cent increase in pasture production. That model demonstrated that raising Olsen P levels to 18 would sustain a 23 per cent increase in pasture growth, and that to achieve that, a capital application of 178 kilograms of phosphorus per hectare would have been needed in 2014 and 2015 (together with   38 kilograms per hectare of maintenance fertiliser each year). Dr Roberts estimated the cost of lifting the Olsen P levels to 18 to be $638,958.28

[98]That assessment was based on lifting pasture production to accommodate

8.44 Stock Units per effective hectare, rather than 9.26 Stock Units per effective hectare (based on the total 7,500 Stock Units as per the Capacity Representation).  Dr Roberts made the obvious point that an even greater lift in pasture production would have been required to support that higher number of Stock Units, though did not specify what this might be (or what it would cost).

26     Drawn from Mr McLaughlin’s evidence and adopted conversion ratios (see [88] above).

27     Again, drawn from Mr McLaughlin’s evidence.

28     It will be recalled that even Mr Graham accepted that, in hindsight, he should have spent “a couple of hundred thousand” on fertilizer in April 2014; see [80] above.

Mr Beetham’s evidence as to carrying capacity

[99]              Shabor also called  Mr  Richmond  Beetham,  an  agribusiness  consultant. Mr Beetham grew up on a sheep and beef farm, and currently owns a 410 hectare sheep and beef farm. Mr Beetham has worked for Balance Agri-Nutrients as a technical field representative, as an extension manager and then economic service manager at Beef + Lamb New Zealand, and more recently, as an agribusiness consultant with BakerAg.

[100]          Mr Beetham generally explained the Stock Unit system and carrying capacity, the relevance of the soil fertility reports in relation to the Property and his view that it was unable to carry 7,500 Stock Units at the time of sale. Mr Beetham also addressed the steps needed (and associated costs) to bring the Property up to a carrying capacity of 7,500.

[101]          Mr Beetham produced a schedule of conversion rates to apply the base Stock Unit to other animals and types of sheep. This schedule was taken from the Beef

+ Lamb New Zealand sheep and beef farm survey, which Mr Beetham described as “one of the leading and largest standardised data set that allows farmers and industry to compare financial and physical performance across similar farms across the country.” Nevertheless, given the genuine debate between the experts as to whether there is a “standard” schedule of Stock Unit rates for different animals and weights, it is evident that the Beef + Lamb schedule is not such an industry standard. Mr Beetham also produced a table of conversion rates used in a BakerAg database called “Financial Analysis Benchmarking”, contributed to by 160 farmers. Some of those conversion rates are different to the Beef + Lamb conversion rates, again reinforcing there is no settled “industry standard”.29

[102]          Mr Beetham noted that after acquiring the Property, Shabor carried the equivalent (using his adopted stock conversion rates) of 4771 Stock Units on the

29 The experts met prior to the hearing and produced a (helpful) joint report. Seeing that there was disagreement on the Stock Unit conversion rates, Mr Beetham contacted rural professionals across a range of disciplines and asked for the Stock Unit conversion rates they used. He then appended a resulting table to the joint report, which showed a maximum variance of four per cent across the rates adopted. I have declined to take this table into account. Mr O’Neill, counsel for Mr Graham, objected to it on the basis of hearsay, and I agree with that characterisation. It was advanced for the truth of its contents, yet none of the other rural professionals were called to give evidence.

Property over the winter of 2014, with no supplementary feed. He noted that over the successive years, the number of Stock Units carried by Shabor gradually increased to 5,841 (2015); 5,418 (2016); 6,068 (2017); and 6448 Stock Units (2018). To carry

these numbers, Mr Beetham noted that four tonnes of PKE had been used to finish animals, and hay was also fed out in the winter of 2015. Silage and hay have also been made on the Property and fed out since 2015.

[103]          Mr Beetham then turned to the soil fertility and pasture yield. He stated that “ultimately the carrying capacity of a farm is largely determined by the expected pasture production”. He noted the “very low” Olsen P test results from February and July 2014, observing that “phosphorous is one of the main nutrients that when deficient will impact the quantity and quality of pasture grown and the resulting amount of stock that can be carried”. These comments are consistent with Dr Roberts’ and Mr McLaughlin’s evidence. Mr  Beetham  agreed  with  Mr  McLaughlin  and Dr Roberts that at the time of sale, the Property would have been producing around 67 to 71 per cent of total potential yield.

[104]          Mr Beetham them assessed the carrying capacity of the Property using a computer-based modelling programme called “Farmax”. Mr Beetham said that with good subdivision and soil fertility at the Property at economic optimum levels, its potential    pasture    production    was    estimated    at    between    6800    to     7500 kgDM/ha/annum.30

[105]          Relying on Dr Roberts’ assessment that with an average Olsen P of 6, the Property would have been producing only around 71% relative yield at takeover,   Mr Beetham estimated a range of predicted pasture production in June 2014 of 4828 to 5325 kgDM/ha/annum. Adopting the higher figure, and applying the Farmax modelling to it, Mr Beetham concluded that 5325 kgDM/ha/annum would only support around 5,500 Stock Units (or 6.8 Stock Units per hectare). He noted that this was comparable to the outcome of Dr Roberts’ modelling on “Overseer”, namely that the Property would have to grow 5330 kgDM/ha/annum to support 5,528 Stock

30 Mr Beetham said  this was comparable to Mr Thompson’s estimate of 7422 kgDM/ha/annum,  based on what Mr Thompson considered to be a comparable property (Whatawhata), which had an average Olsen P level of 15.8.

Units.31 Mr Beetham stated that the figure of 5,500 Stock Units broadly lined up with the stock numbers Shabor was actually able to winter in the first three years after purchase. He therefore gave an overall view that the Property’s carrying capacity at sale was somewhere between 5,300 and 5,500 Stock Units.

[106]          By comparison with Beef + Lamb data, Mr Beetham said that his estimated carrying capacity meant that the Property’s actual gross revenue per Stock Unit was consistent with similar data reported by Beef + Lamb New Zealand for comparable farms, whereas the higher Stock Unit numbers represented would mean the Property was performing with much lower than average gross farm revenue per Stock Unit. Mr Beetham said this ought not to be the case, given the Property operated at better levels of production per head than an average comparable farm (the Property having a five-year average lambing rate of 131 per cent versus 124.6 per cent on comparable farms). Mr Beetham said this further supported a carrying capacity nearer his assessment, rather than 7,500 Stock Units.

[107]          Finally, Mr Beetham estimated that there would have needed to be about a 30 per cent increase in annual pasture production (to 6972 kgDM/ha/annum, being pasture grown, not eaten) to support 7,500 Stock Units on the Property in 2014.32 He concluded that as of June 2019, the Property’s carrying capacity had been lifted to between 6,000 and 6,500 Stock Units.

Mr Thomson’s evidence as to carrying capacity

[108]          Mr Thomson was called by Mr Graham. Mr Thomson has been a farm management consultant in various roles for 25 years. He has worked in research and monitoring of sheep and beef for MAF, as a self-employed farm consultant (specialising in beef and sheep breeding and management), as the General Manager and Director of the NZ Beef Improvement Group Ltd, as a project manager for a large beef processor and exporter, and is currently an agricultural consultant with AgFirst in Waikato.

31     See [95] above for Dr Roberts’ evidence.

32     See fn 31 above, where this figure is comparable to Mr Thomson’s.

[109]          Mr Thomson’s evidence relied very heavily on his assessment of what he considered to be a comparable property some 40 kilometres from the Property named “Whatawhata”. He considered it had comparable contour, aspect and soil fertility to the Property. In relation to the latter, Whatawhata had an average Olsen P level of 15.8, which he viewed as comparable to the reading of 16 for “calf paddock” from the February 2014 soil samples. Based on the contour of the Property, Mr Thomson assessed the result for the “calf paddock” was representative of around one third of the Property, and thus one third of the Property had good soil fertility.

[110]On this basis, Mr Thomson assessed that, in June 2014:

(a)The weighted average pasture production at the Property in a normal rainfall year would be around 7,400 kgDM per annum.

(b)When adjusted for pasture utilisation at 80 per cent of the total amount available, this would lead to around 6,000 kgDM per annum available for feed.

(c)Based on that level of available feed, and one Stock Unit requiring 550 kgDM per annum, the Property could potentially support up to 8,700 Stock Units.

[111]          In his report, Mr Thomson accordingly stated that the Capacity Representation was “conservative based on the assumptions made around pasture utilisation, soil fertility and rainfall.”

[112]          In cross-examination, however, Mr Thomson accepted that the July 2014 soil samples provided a “better and much more useful data set” for assessing the Property’s soil fertility. It became apparent that Mr Thomson had not taken those results into account, given he was seeking to assess the Property’s carrying potential capacity at the time of sale, and those results were shortly after the sale. There is, however, a distinction between information a purchaser could take into account when assessing the purchase, and what an expert can legitimately take into account when assessing actual carrying capacity in June 2014 (an objective exercise). It would not have been

objectionable for Mr Thomson to have taken these results into account when carrying out his assessment.

[113]          Mr Matheson (another expert called by Mr Graham), agreed that Whatawhata would be a useful comparator, assuming the soil fertility results of February 2014 were an accurate representation of the Property’s overall fertility at the time. Given the later test results showed, however, that the result of 16 for “calf paddock” was not accurate, Mr Matheson said Whatawhata would only be a useful comparator “once the Property’s soil fertility was improved to similar levels as at Whatawhata”. Similarly, Dr Roberts did not consider the Whatawhata property (on which he had carried out research) to be comparable to the Property. Dr Roberts’ evidence was not challenged on this point.

[114]          Given Mr Thomson had not had regard to the post-sale soil fertility results, he agreed that “hindsight is a great thing, and if you had the information at the outset, you would’ve come to a much different conclusion.” He accepted that in light of the later soil test results, the February 2014 result for “calf paddock” (of 16) was almost certainly an erroneous result.

[115]          It also became apparent that Mr Thomson had not in fact assessed the Property’s carrying capacity in 2014, but rather had approached the issue of what the Property’s carrying capacity could potentially be in the future; in other words, whether it could ultimately “get there”. The following related exchange took place between Mr Quinn and Mr Thomson:

Q. Right, thank you. If you had a client come to you now, knowing all that you know, let me put this question in exactly the right way, assume we’re back in the middle of 2014, but you know now, well you know at that point what we now know with all the benefit of the hindsight that we have, and a client comes to you and says “I’m looking at buying this farm at Moerangi Road”, would you be advising that client, with the benefit of all of this knowledge you have about soil fertility, would you be advising that client to run 7500 stock units on that property in 2014?

A. Probably not.

Q. And why not?

A. Well because I know that to raise your fertility levels to optimum levels as Mr Beetham has pointed out in his evidence, it costs a lot of money, and so in

the due diligence process, one would’ve calculated that, but one would’ve also taken a conservative view to stocking, and when one’s purchasing property, that I am satisfied the position which you come. You don’t take an inflated view of ideas, I mean we’re asked about what the potential was, not what it was going to carry and I think we need to come back to that point, we’re talking about what in your opinion is the potential stocking rate for this farm, and on the basis of the information I had at the time, I came to the conclusion that the farm could carry 7500 stock units as a potential.

Q. It could get there?

A. Yes.

Q. That’s the exercise that the plaintiffs are engaged in at the moment isn’t it?

A. Yes.

Q. They’re trying to lift the fertility up to a level where it would support 7500 stock units?

A. Correct.

[Emphasis added]

[116]            Mr Thomson’s evidence was accordingly consistent with the Property’s carrying capacity at June 2014 being something less than 7,500 Stock Units.

Mr Miller’s evidence as to carrying capacity

[117]          Mr Graham also called David Miller to provide an opinion on the Property’s carrying capacity at June 2014. Mr Miller had spent several years with the Livestock Improvement Corporation, as a consulting officer and then senior consulting officer. He was also employed by Genetic Technologies providing management input to farmers and consultants across the North Island. In more recent years, he has been employed as General Manager of Extension at DairyNZ and from 2009, contracted to AgFirst Waikato as a senior farm management consultant.

[118]          Mr Miller said that he had been engaged by Mr Graham to “calculate the stock units he carried on the property based on stock numbers that were supplied and verified by him”. Mr Miller’s assessment was accordingly dependant on the accuracy of the underlying stock numbers supplied by Mr Graham.

[119]          Mr Miller agreed with the “base” Stock Unit described earlier in this judgment. For more accurate assessments, however, he used the Lincoln Farm Manual tables,

which are dependant on an assessment of stock live weight. Mr Miller had assessed live weight of stock on Mr Graham’s farm by “reverse engineering” from carcass weights, using a percentage of 40 per cent. He accepted in cross-examination, however, that an MPI research paper on assessing live weights noted the percentage then used was 43 per cent but the research paper was advocating for a percentage of 40 per cent, and stated the conversion factor could range from 36 per cent to 47 per cent. Mr Miller agreed that it would make an “enormous difference” to the live weight assessment which end of that scale was used.

[120]          Mr Miller stated that based on information provided by Mr Graham, he had been able to assess that in excess of 7,500 Stock Units were run on the Property through the 2006, 2007, 2008, 2010, 2011 and 2013 years. He said that Stock Units were at or below 7,500 in the 2009, 2012 and 2014 years. Mr Miller said the lower stock numbers in the latter years reflected a change in farming practice (the cattle to sheep ratio changing) and the impact of the 2013 and 2014 droughts.

[121]          Based on these Stock Unit numbers, Mr Miller initially stated that they placed Mr Graham’s gross farm revenue per Stock Unit in line with Beef + Lamb data for the comparable farm class. However, after  discussing  this  topic  with  Mr  Beetham, Mr Miller agreed Mr Beetham’s approach to the Beef + Lamb data was more accurate, and that Mr Graham’s  gross farm revenue was below the Beef + Lamb average.    Mr Miller said this was consistent with Mr Graham running higher stock numbers with lower performance. He also noted that the assessment based on Mr Beetham’s numbers indicated a per stock unit performance well above the top quintile in the Beef

+ Lamb survey.

[122]In the joint experts’ report, Mr Miller stated:

[The figures are] symptomatic of a farm operating at the higher end of an appropriate stocking rate. Describing a farm as carrying 7,500 SU makes no comment about how well or otherwise those stock are being farmed.

[123]          In this context, however, it is important to recall that the Capacity Representation was that 7,500 Stock Units could be “comfortably” wintered, which would not convey that capacity was at the higher end of an appropriate rate, or perhaps more colloquially, “stretched”.

[124]          Like a number of the other experts, Mr Miller considered Shabor should have carried out further due diligence before purchasing the Property. This in part stemmed from his view that the Stock Unit system is a “relatively weak methodology for calculating farm performance”. Mr Miller stated:

In Mr Graham’s situation with the stock number provided there could be a difference of 1500 in the stock unit calculations derived by different people based on the assumptions they had to make.

[Emphasis added]

[125]          Mr Miller also addressed the 2013 and 2014 droughts, and agreed that they would have led to lower stock numbers being carried and higher use of supplementary feed.

[126]          Mr Miller agreed with Mr Beetham’s methodology for assessing the cost of additional fertilizer to lift Olsen P levels to an average of 18. Mr Miller also commented on the Farmax  model  used  by Mr  Beetham, noting that  he (that is,  Mr Miller) also used it “extensively” in his farm consulting business.

[127]          In his initial report, Mr Miller did not provide an assessment of what he considered to be the Property’s carrying capacity as at June 2014. In the joint experts’ report, however, he stated:

[G]iven the historic numbers of animals carried on the property and considering the less than maintenance fertilizer applied in the two years prior to sale, under Mr Graham’s farming style the property would have carried 6,500 – 7,000 stock units through the 2014 winter, assuming the property had recovered from the drought during the autumn. Applying less than maintenance fertilizer does not have an immediate impact on pasture production. Impacts become more pronounced 3 to 4 years post the reduced fertilizer application. This case is confounded by a significant difference in farming philosophy. Mr Graham ran a high stocking rate/lower animal performance regime. It appears Shabor favour a lower stocking rate/higher level of animal performance.

[128]The following observation may be made about this evidence:

(a)First as noted, the assessment is dependant on an accurate assessment of stock carried in prior years, which was accepted at the hearing not to be possible.

(b)Second, even Mr Miller’s evidence was that the actual carrying capacity at June 2014 was lower than represented.

(c)Third, the assessment is based on an assumption that the Property had recovered from the drought. There was no particular evidence directed to this, but I note Mr Graham’s acceptance that “in hindsight”, he should have spent “a couple of hundred thousand” on fertilizer in April 2014.

(d)Finally, Mr Graham’s “farming policy” of high stock numbers with lower animal performance is, in my view, inconsistent with the notion of the Property “comfortably” wintering 7,500 plus Stock Units.

Mr Matheson’s evidence as to carrying capacity

[129]          Mr Matheson was also called by Mr Graham. He was originally employed by ANZ and the National Bank of New Zealand as an interest rate trader. He later obtained a Bachelor of Applied Science (Rural Valuation and Management), and an Advanced Certificate in Sustainable Nutrient Management in New Zealand Agriculture from Massey University. Since 2006, he has been an employee of Perrin Ag Consultants Ltd, and since 2008, has also been a director. His area of expertise is agricultural investment, financial analysis and modelling, profitable nutrient management and farm business management.

[207]Heath J also said:110

The mere fact that a party has been afforded an opportunity to investigate and verify a representation does not deprive him or her from seeking damages when that representation turns out to be false. As Lord Dunedin stated in Nocton v Lord Ashburton [1914] AC 932 at 962:

109   Best of Luck Ltd v Diamond Bay Investments Ltd, above n 80, at [132].

110 At [125].

No one is entitled to make a statement which on the face of it conveys a false impression and then excuse himself on the ground that the person to whom he made it had available the means of correction.

[208]          Mr Quinn referred to similar statements made by Sir George Jessel MR and Baggallay LJ in the leading decision of Redgrave v Hurd.111 In New Zealand Motor Bodies v Emslie, and referring to Redgrave v Hurd, Barker J accepted “[i]t is no defence to an action for misrepresentation that the representeee had the means of discovering that it was untrue, or that with reasonable diligence, he could have discovered it to be untrue”.112 Barker J also stated that the Contractual Remedies Act had not changed the common law in this area.113

[209]          Accordingly, had it been necessary to determine this aspect of the claim, I would have found that given the nature and circumstances of the Capacity Representation, it was not unreasonable for Mr Sharp and Mr Borland to have relied on it. Nor was any suggested lack of due diligence a “defence”.

[210]          For completeness, and as noted earlier, a plaintiff’s lack of care may be relevant at the second stage of a claim brought under the Fair Trading Act, namely the discretion afforded to the Court under s 43 of the Act to grant relief. I return to this topic later, when considering damages under the Fair Trading Act claim.114

Damages

[211]          Mr Quinn submitted that the appropriate measure of damages under the CCLA cause of action in this case is the “costs to cure”, that is, the costs incurred (and to be incurred) by Shabor in developing the Property into a farm that can comfortably winter at least 7,500 Stock Units.115 As noted by Mr O’Neill in his closing submissions, the costs to cure will be the appropriate measure of damages when the purpose of the

111 Redgrave v Hurd (1881) 20 ChD 1 (CA).

112 New Zealand Motor Bodies v Emslie [1985] 2 NZLR 569 (HC) at 595.

113 At 595. See also Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at [11.2.4(c)].

114 At [233]–[236] below.

115 Relying on Vining Realty Group Ltd v Moorhouse, above n 101, at [60]. On appeal to the Supreme Court, reported as Marlborough District Council v Altimarloch Joint Venture Ltd, above n 99, the majority (Elias CJ and Anderson J dissenting) held that the purchasers were entitled to the costs of building a dam to enable them to acquire the level of water for irrigation which had been represented by the vendor able to be lawfully taken from a stream, which was not in fact true.

contract is to provide an item with a particular feature and substitution is not reasonably possible; otherwise, diminution in value will be the appropriate measure.116 Ultimately, Mr O’Neill accepted that given the nature of the Capacity Representation, the cost to cure measure of damages would be appropriate in this case.

[212]          I agree that costs to cure would have been an appropriate measure of damages in this case, for the following reasons:

(a)There was no suggestion in the evidence, nor was it put to either     Mr Borland or Mr Sharp, that it would have been reasonable for them to sell the Property, purchase a new property and claim damages on the diminution of value measure.

(b)Indeed, there was no evidence that similar suitable properties were readily available, and on the contrary, the evidence suggested properties this large do not “come up” very often. As such, this is not a case where the evidence suggests a readily substitutable item where diminution in value is the more orthodox measure of damages.117

(c)Further, it was not unreasonable for Shabor to take the steps it did to “cure” the breach and lift the carrying capacity. That this approach was reasonable is reflected in Mr Graham’s own evidence that “in hindsight”, he ought to have spent “a couple of hundred thousand” on fertilizer in April 2014. Had Mr Graham continued to own the Property and wanted to comfortably run 7,500 Stock Units, it is therefore likely he would have had to incur additional significant costs to bring the soil fertility levels back to what they ought to have been.

(d)The “costs to cure” approach also reflects the stipulated performance of the Agreement, given the representation as to 7,500 Stock Units becomes a term of the Agreement itself. The costs to lift capacity to that level brings the Property back where it had likely been some years

116   Altimarloch, at [24] per Elias CJ; [62] per Blanchard J; and [158] per Tipping J.

117   Altimarloch, at [157] and [167] per Tipping J.

earlier, rather than creating something new or different from as stipulated in the Agreement. For these reasons, the concerns expressed by Elias CJ (and Anderson J) in Altimarloch as to the presence of the dam not being stipulated performance do not arise here.118 In addition, Elias CJ noted in Altimarloch that “[i]f sufficient water rights had been available for purchase, this could well have been a case where, depending on the reasonableness of price, cost of cure in such purchase could be an appropriate way to value the loss in the bargain”.119 By analogy, the shortfall in Stock Units was “available” to acquire in this case, by making various improvements to the Property.

(e)There was nothing in the valuation evidence presented that would indicate, like in the swimming pool case of Ruxley Electronics,120 that the costs to cure are wholly disproportionate to Shabor’s loss on a diminution in value measure. Mr McLaughlin’s valuation evidence on behalf of Shabor was that the value of the Property if it could only carry 5,500 Stock Units would have been some $530,000 less than the price paid by Shabor. I do not accept the valuation evidence for Mr Graham that even if the Property’s carrying capacity was materially less than represented, it would  not  make  a  difference  to  its  price.  Given  Mr Matheson, called by Mr Graham, described carrying capacity as a proxy for the revenue generating potential of a property, it would not make sense for a materially lower carrying capacity to have no impact on value.

(f)I am conscious that Mr Sharp in particular had some concern about the Property’s carrying capacity shortly prior to settlement, which led to the “reservation of rights” letter of 2 June 2014.121 In Altimarloch, Tipping J said the facts in that case were “not as if the purchaser elected to settle with knowledge of the shortfall. If that had been so the position

118   At [37] per Elias CJ and [236] per Anderson J.

119 At [38].

120   Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 (HL).

121 See [54] above.

as regards the proper measure of loss may well have been different”.122 But in this case, while some suspicions were raised, there was no actual knowledge of the shortfall in carrying capacity or how significant (or not) it might be. The reservation of rights letter referred only to “potential” issues. The actual position only became clear after Shabor took possession, passed through its first winter on the Property and took expert advice. And again, it was not put to Mr Sharp or Mr Borland that it would have been more reasonable for them not to settle, even if another suitable property had been available.

[213]          For these reasons, I consider the costs to cure approach to damages in this case most closely reflects the costs “actually and reasonably suffered” by Shabor as a result of the Capacity Representation being false.123 In assessing the quantum of the costs to cure, however, care needs to be taken to ensure that no elements which might properly be considered betterment are included in the analysis.

[214]          Turning to the make-up of Shabor’s damages claim, key costs incurred to improve the Property’s carrying capacity are additional fertilizer (capital application, rather than maintenance) and fencing. In the event, there was a degree of agreement between the respective experts who considered these costs (Mr Beetham for Shabor and Mr Matheson for Mr Graham) – at least in relation to the underlying calculations.

[215]          On the cost of capital fertilizer, Mr Beetham noted that to date, Shabor has spent $370,401 in applying 110 kilograms/ha of phosphorus.124 This has already led to some improvement in carrying capacity. Mr Matheson did not take issue with this figure, though in his damages analysis, had only catered for lifting Olsen P levels to an average of 11, being the average of four February 2014 test results included in the PIM. I do not agree, however, that that is the correct approach. First, there was no serious challenge to Dr Roberts’ evidence that a lift to an average  Olsen P level of 18 was required to support even just under 7000 Stock Units. In addition, while the lower fertility levels were recorded in the PIM, that was in conjunction with a stated

122   Marlborough District Council v Altimarloch Joint Venture Ltd, above n 99, at [168] per Tipping J.

123   At [156] per Tipping J.

124   This excludes maintenance levels of fertilizer, which would be incurred in any event.

carrying   capacity   of   7,500 Stock  Units.     I accordingly adopt Mr Beetham’s

$370,401 figure.

[216]              Mr Beetham estimated a further $232,348 is needed in capital fertilizer to lift the overall Olsen P levels to 18 (being Dr Roberts’ estimate of what would be required to lift carrying capacity to 6839 Stock Units).125 Again, Mr Matheson did not take issue with Mr Beetham’s calculation, though notes that “few hill country properties would operate with average soil Olsen P levels at or near ‘optimum’ over all of their country, but might maintain higher soil fertility levels over the better contoured or subdivided areas”. Mr Beetham also estimated that a further $51,217 would be required to lift Olsen P levels further on the cropable contour parts of the Property to comfortably  support  pasture  growth   to   sustain   7,500   Stock   Units.   Again, Mr Matheson did not specifically comment on this aspect of Mr Beetham’s evidence.

[217]          I accordingly adopt those further figures from Mr Beetham’s evidence, giving a total capital fertilizer (phosphorus) spend (to date and expected) of $653,966.

[218]          While lifting the Olsen P levels was identified by all relevant experts as the priority and giving the “best return”, Mr Beetham also recommended additional lime on the Property to reduce the impact of aluminium toxicity. While Mr Beetham said that quantifying how much lime is needed would require more detailed soil testing or paddock by paddock texting, as a “basic estimate”, a further $52,560 needs to be spent on lime to help lift pasture production and thus carrying capacity. Mr Matheson did not comment on this aspect of Mr Beetham’s evidence. While the focus of the evidence on fertilizer was lifting the Olsen P levels, lime also formed part of the recommended capital fertilizer application, including by Dr Roberts. Mr Sharp noted that the access obtained to the Property shortly prior to settlement to apply fertilizer before winter included the application of lime. Accordingly, it is reasonable to conclude that there is a “genuine intention to expend”126 these further sums on additional lime application.

125 See [96]–[97] above. As noted, Dr Roberts did not say what Olsen P level would be required to achieve pasture growth to support 7,500 Stock Units. But an average of 18 is approaching the optimum levels of Olsen P for the type of soil on the Property.

126 Marlborough District Council v Altimarloch Joint Venture Ltd, above n 99, at [161] per Tipping J.

[219]          Mr Beetham also estimates costs of $82,201 to create further subdivision on the Property and water reticulation. This was assessed by use of the Farmax model as to the average paddock sizes needed to run 7,500 Stock Units. Mr Beetham acknowledged, however, that approaches and polices to the level of subdivision required to support carrying capacity is variable.

[220]          Mr Sharp’s evidence was that, prior to purchase, he and Mr Borland did see an opportunity to lift carrying capacity to even more than 7,500 Stock Units through further subdivision. Mr Matheson did not address Mr Beetham’s calculation. But I have found that it is likely the Property could carry around 7,500 Stock Units in the past, which was obviously possible without the further subdivision envisaged. Shabor has also undertaken a process of converting the Property to a deer farm, being a quite different use to that when Mr Graham owned it.

[221]          I am accordingly not satisfied that Shabor, bearing the onus of proof on its damages claim, has made out this aspect of its claim. The evidence of Mr Beetham was at a very high level only. Shabor’s closing submissions did not address this aspect of its damages calculation. And there is no clear evidence that further subdivision costs of this nature or quantum are likely to be incurred by Shabor in any event. I would not, therefore, have included this element of the claim in any damages award.

[222]          As to fencing, Mr Beetham’s damages claim included a sum of $212,245 for fencing work carried out by Shabor since settlement and which has improved carrying capacity, as well as estimated costs to complete. The total is made up of new sheep fences to replace all dilapidated fences at settlement ($68,651) (category 1); total new deer fencing, 70 per cent of which was replacing dilapidated fences at settlement, but priced on the basis of “conventional fence” ($117,075) (category 2); and rewiring sheep fencing ($26,520) (category 3). These totals excluded the cost to “top up” existing fences to make them deer proof and other costs associated with new deer facilities.

[223]          In terms of the calculation of these costs, Mr Matheson took no issue. However, Mr Borland confirmed in cross-examination that other than in the first three months of owning the Property, the fencing work has in fact been carried out by Shabor

itself; that is, not a third party to whom a fee has been paid. It was agreed that the conventional fencing costs adopted by Mr Beetham ($15 per metre) were split about 50:50 between labour and materials. Mr Graham’s position was, therefore, that any damages award in respect of fencing should “back out” of it the labour component, given no actual dollar cost was incurred by Shabor for this.

[224]          Mr Matheson also removed from his analysis the total category 2 fencing cost (being $117,075), on the basis this remedied dilapidated fencing which would have been evident on inspection on 7 April 2014. However, he accepted in cross- examination that if the Property’s carrying capacity was materially lower  than  7,500 Stock Units, then fixing dilapidated fences in order to lift carrying capacity was valid expenditure, regardless of whether a purchaser knew the fences were dilapidated at purchase. Or to put the matter another way, had the Property in fact already comfortably carried 7,500 Stock Units in its existing condition (including the dilapidated fences), that expenditure would either not have been needed, or if it had been incurred, it would have lifted carrying capacity beyond 7,500 Stock Units, and thus lifted the Property’s economic return to an even higher level.

[225]          I would therefore have included the three cost categories for fencing identified by Mr Beetham. But I consider it appropriate to remove from them the labour element, which was agreed at around half the $15 per metre. Mr Quinn submitted that to do so ignores the fact that damages are being assessed on the contractual measure, to compensate for loss of expectations. Thus, “if all the fencing work remained to be undertaken, instead of just part of it, it seems the Defendants would take no issue with Mr Beetham’s calculation of fencing costs.”

[226]          While in theory that might be correct, the evidence nevertheless confirms that the majority of the fencing work has been carried out by Shabor itself. Accordingly, in terms of fencing costs to date, it has not incurred a labour element of approximately 50 per cent of $15 per metre. Its only actual costs have been materials. As Tipping J observed in Altimarloch, “the key purpose when assessing damages is to reflect the extent of the loss actually and reasonably suffered by the plaintiff.”127 And in terms

127   Marlborough District Council v Altimarloch Joint Venture Ltd, above n 99, at [156].

of fencing work yet to be done, there was no suggestion this would be completed by third parties. It is thus reasonable to assume that work to complete dilapidated fencing will also be carried out by Shabor itself, and labour costs not paid to an external party. Again, as Tipping J noted in Altimarloch in relation to future costs to cure:128

Of course the plaintiff must have a genuine intention to expend the damages to protect the performance interest. If that is not so, it would hardly be reasonable to award damages according to the performance measure.

[227]          Had I awarded damages in Shabor’s favour, I would have therefore reduced the fencing element of the damages calculation by 50 per cent to remove the estimated external labour cost.

[228]          On this basis, therefore, Shabor’s damages award on the CCLA cause of action would have been $812,648 ($653,966 to lift Olsen P levels, plus $52,560 lime application, plus $106,122 fencing costs). I do not consider this to be disproportionate compared to the diminution in value of around $530,000.

[229]          I will now briefly address the damages claim under the Fair Trading Act cause of action.

[230]          Damages under s 43 of the Act are calculated on the tort measure of damages.129 Thus, rather than compensation to secure performance of 7,500 Stock Units, damages are (generally) calculated as if the misrepresentation had not been made.130 In those circumstances, “[t]he normal measure of damages is the value transferred, generally represented by the contract price, less the value received, whether of property or of services or of money.”131

[231]          Mr McLaughlin assess the difference in value of the Property on the basis it carried 7,500 Stock Units and 5,500 Stock Units to be approximately $530,000. As noted at [212(e)] above, I do not accept Mr Coakley’s evidence that with this level of difference in carrying capacity, there would have been no material difference in value.

128   At [161], citing Tito v Waddell (No 2) [1977] Ch 106 (Ch) at 332 per Megarry V-C.

129   Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15 (CA).

130   At 25 per Henry J.

131   James Edelman McGregor on Damages (20th ed, Sweet & Maxwell, London, 2018) at [49–028] and [49-058].

[232]          Shabor also claimed operating losses of approximately $450,000 attributable to the lower carrying capacity of the Property. This figure was based on Shabor’s accountant’s evidence, Mr Gray. He said that Shabor suffered a net loss of $472,209 in the 2014 financial year, and that almost all of that was attributable to the operations at the Property.132

[233]          Mr Matheson did not comment on Mr Gray’s evidence. But even accepting for present purposes the total of Mr McLaughlin’s diminution in value and Mr Gray’s operating loss (given a total of $980,000), I would have reduced the Fair Trading Act damages award to reflect what I consider to be Shabor’s own conduct contributing significantly to that loss. As discussed earlier, despite the significance of the transaction, its entry into the Agreement was hasty; I accept the experts’ evidence that more due diligence ought to have been carried out; Mr Sharp and Mr Borland placed wholesale reliance on a carrying capacity set out in advertising materials expressed in Stock Unit terms, without ascertaining the basis upon which that had been calculated; and failed to take steps available to it to protect its position, such as negotiating appropriate clauses in the Agreement or making its tender conditional on due diligence.

[234]          The author of “Entire Agreement (And Acknowledgement) Clauses, Misrepresentation and the Fair Trading Act” states:133

The plaintiff’s conduct, then, remains relevant under the Red Eagle approach. But, rather than barring recovery altogether, it means that the courts will apportion damages according to the contribution of the defendant and plaintiff to the damage suffered by the latter. It is theoretically possible that the courts might reduce the entirety of the damages by reason of the plaintiff’s conduct. However, if it is shown that the defendant’s conduct was misleading, that it actually misled the plaintiff and that it caused him or her significant loss, it is unlikely that this will be entirely negated by the plaintiff’s unreasonableness. A much more likely result is for the courts, upon finding that both parties contributed significantly to the loss, to award a proportion (usually half) of the damages. This was the outcome in Red Eagle.

132   Shabor having other business interests at that time.

133   Matthew Barber “Entire Agreement (And Acknowledgement) Clauses, Misrepresentation and the Fair Trading Act” (2011) 17 NZBLQ 393 at 403–404 (footnotes omitted).

[235]          In Red Eagle, the Supreme Court stated that any reduction to reflect the plaintiff’s own conduct was “necessarily a broad-brush assessment”.134 Having found that the plaintiff was very neglectful of his own interests, the Supreme Court stated that it had been open to the High Court Judge to make a 50:50 apportionment of blame. In Poplawski v Pryde, a misleading communication from the defendant was an “effective cause” of the plaintiff’s decision to invest, though the High Court Judge had found that the plaintiffs ought to have pursued the transaction with more care.135 The Judge’s finding that he would have reduced the damages award by 50 per cent was upheld on appeal.136 In WaikatoLink v Comvita, Harrison J reduced the damages award under the Fair Trading Act by 50 per cent for a “hasty and ill-conceived commercial decision”.137

[236]          Taking the broad brush assessment outlined above, I would have reduced the Fair Trading Act damages award by 40 per cent to reflect Shabor’s own conduct. On any view, therefore, and even adopting the highpoint of Shabor’s damages claim under the Fair Trading Act, any damages award under this Act would have been significantly less than the damages awarded under the CCLA.

Result and costs

Result

[237]I have made the following findings:

(a)The Capacity Representation was false and misleading. As at June 2014, the Property could not comfortably winter at least 7,500 Stock Units.

(b)The Property’s actual carrying capacity at June 2014 was likely to be around 5,500 to 6,000 Stock Units.

134   Red Eagle Corporation Ltd v Ellis, above n 82, at [39].

135   Poplawski v Pryde [2012] NZHC 2011 at [64].

136   Poplawski v Pryde [2013] NZCA 229, (2013) 13 TCLR 565 at [72].

137   WaikatoLink Ltd v Comvita New Zealand Ltd, above n 61, at [169].

(c)It is fair and reasonable for cl 27.3 of the Agreement to be conclusive between the parties for the purposes of s 50 of the CCLA. It similarly broke the chain of causation for the purposes of Shabor’s claim under s 43 of the Fair Trading Act.

(d)Shabor’s causes of action are accordingly dismissed.

(e)Had it been necessary to determine, I would not have found Shabor’s reliance on the Capacity Representation unreasonable (for the purposes of the CCLA claim).

(f)Had I awarded damages to Shabor under the CCLA, I would have awarded a sum of $812,648 (on a costs to cure basis).

(g)Any damages award under the Fair Trading Act would have been reduced by 40 per cent, to reflect that Shabor’s own actions contributed significantly to its loss.

Costs

[238]          I invite the parties to seek to agree costs. At least on the basis of the materials presently before the Court, I cannot see any reason for increased or indemnity costs.

[239]          If the parties cannot agree costs, Mr Graham is to file and serve a costs memorandum within 15 working days of the date of this judgment. Shabor may then file a memorandum in response within a further 5 working days. No memorandum is to be longer than five pages in length. I will thereafter determine costs on the papers.

Fitzgerald J

Solicitors: