Deer farmers Steve Borland and Bob Sharp recovered $371,000 damages following purchase of their Oparau farm, near Kawhia. Vendor Robert Graham misrepresented the farm’s carrying capacity on sale.
The Court of Appeal was told the two inspected the property just three days before tenders closed in April 2014. Their unconditional offer to buy at $5.25 million was based on sales information stating the property had a carrying capacity of 7500 stock units. Doubts were later raised; the number of animals on changeover were low and some were in poor condition. A lawyer’s letter followed, indicating they were looking for compensation. In the winter following purchase, the property supported only 5000 stock units. Mr Graham said the property had previously supported up to 7500 units, but recent carrying capacity had been badly affected by droughts in two successive years. To say carrying capacity at time of sale was 7500 stock units was a misrepresentation, the High Court decided.
When sued under the Fair Trading Act, Mr Graham pointed to a clause in the sale agreement acknowledging Borland and Sharp had purchased ‘acting solely on [their own] judgement’ and that there was no reliance on any representations made by the vendor.
The Court of Appeal ruled ‘no reliance’ clauses are of no effect in Fair Trading claims if they are overwhelmed by evidence to the contrary. In fact, the purchasers had relied almost totally on the stated carrying capacity, the court ruled. Carrying capacity was specific and central to advertising. As intending purchasers, they spent barely two hours inspecting the property. They did not negotiate a ‘due diligence’ clause in their agreement. The offered price of $5.25 million was a multiple of 7500 stock units by $700, being their assessment of then current farm prices.
Damages were assessed at the difference in value between the price paid and the actual farm value: $530,000. This figure was reduced by thirty per cent to acknowledge they should have protected their own interests by requiring a due diligence clause. There was industry evidence that farm purchasers almost without exception require due diligence clauses in farm sale agreements.
Shabor Ltd v. Graham – Court of Appeal (15.09.21)
21.155