PGG Wrightson Real Estate was ordered to pay $1.6 million damages after one of their Hokitika sales staff negligently provided inaccurate milk production figures to a farm purchaser going so far as including the error while drafting information in support of their Rabobank loan application.
Phil and Julie Routhan bought a dairy farm on the Kaniere-Kowhitirangi Road in 2010 for $2.8 million from Nelson Cook, owner of Cooks Stud Farms Ltd. The Routhans had not wanted to show their hand when scouting for a farm. They had a Mr Daly, one of PGG Wrightson’s sales staff, approach Mr Cook. Mr Daly was working off a brochure prepared by a rival real estate firm advertising details of the Cook property. This brochure advertised the Cook property as producing an impressive 103,000 kg of milk solids per season from 260 cows off 105 hectares. Market prices for farms are governed by raw milk prices multiplied by expected milk production for a particular farm. The Kowhitirangi purchase looked attractive on the advertised production figures. The Routhans were also looking to buy a neighbouring farm with plans to merge the two. This vendor backed out at the last minute and the second purchase did not go ahead.
After taking over the Kowhitirangi farm, the Routhans found annual milk production was almost twenty per cent below what was advertised.
The High Court was told the Routhans had asked Mr Daly to verify advertised milk production figures before the purchase. Justice Dunningham ruled that Mr Cook never in fact confirmed to Mr Daly that prior production levels of 103,000 kg per season were being maintained in subsequent seasons. Mr Daly misunderstood comments made. Mr Daly did not follow up when he subsequently could not reconcile the number of Westland Dairy shares held by Mr Cook with advertised levels of production. This anomaly indicated Kowhitirangi production levels had fallen. The Routhans went ahead with their purchase unaware that advertised production levels were not being achieved in recent milking seasons.
Evidence was given that previous high levels of production had been achieved only because of high grass growth; very high levels of fertiliser had been applied and much of the stock had been wintered off site at a run-off.
Lower production levels than expected meant farming was unprofitable, given the level of borrowings taken up by the Routhans to complete their purchase. Adding to the Routhans’ financial difficulties, milk prices had fallen causing farm prices to fall. Rabobank told the Routhans they had to sell; the bank wanted its money back. The Routhans sued PGG Wrightson to recover their losses.
Wrightson was ordered to pay damages of $2.1 million reduced by twenty per cent to $1.6 million. Money the Routhans spent on capital improvements at a time when the farm was struggling financially could not be recovered.
Wrightson alleged the Routhans losses were all due to their lack of farming experience. Justice Dunningham said expert evidence showed the Routhans were achieving production levels matching industry levels for the district.
Routhan v. PGG Wrightson Real Estate – High Court (21.12.21)
22.025