Businesses might expect that by time a disputed negligence case reaches New Zealand’s highest court there would be some finality, with a measure of unanimity between five judges sitting on the Supreme Court bench setting out legal principles to guide future conduct. Not so. A dispute over financial losses suffered after a real estate agent misstated past milk production figures on sale of a West Coast dairy unit saw two judges supporting continued use of a much-criticised rule for assessing damages, two wanting to amend the rule, and one wanting to ditch it.
As Justice Kos wryly commented in the Supreme Court, negligence principles need to be coherent, not only for the benefit of lawyers and law students, but also for the very people facing liability for negligence. He wants to ditch the contentious rule.
Courts in both Australia and Canada have refused to use it.
Legal argument centred on New Zealand’s application of a 1997 ruling from England’s highest court.
The case: South Australia Asset Management Corp v. York Montague Ltd, was about valuers’ liability for overvaluation of properties on which lenders subsequently lost money.
The case has come to represent a formulaic rule that damages for negligent advice are calculated on ‘the consequence of information being inaccurate.’ One complaint is that compensation might be awarded for losses which are unrelated to any negligence.
In the South Australia Asset Case, lenders’ losses were accentuated by a fall in property values.
Equally, this formula can, in some instances, force a limit on damages.
The formula leaves unstated an earlier question: what was the deal? Or in legal terminology: what was the scope of the duty undertaken by the person now liable for negligence?
This issue was front and centre in a dispute by Phil Routhan’s family trust following its 2010 purchase of a 105 hectare dairy unit near Hokitika, where Mr Routhan was misled as to the farm’s carrying capacity.
The Court of Appeal ruled he was entitled to no more than the excessive price paid, this amount itself being disputed. His claim for damages was capped.
Wrightson real estate agent Greg Daly helped broker the purchase and complete paper work, assisting in Mr Routhan’s Rabobank financing.
In both marketing material promoting the sale and the Rabobank application, the farm’s carrying capacity and past milk production levels were overstated.
Mr Routhan sued, claiming he overpaid for his purchase and then wasted expenditure on farm improvements in a forlorn and hopeless attempt to match the supposedly possible milk production levels he had been told were achievable.
Of the five judges sitting in the Supreme Court, three ruled the ‘scope of duty’ accepted by Wrightson’s agent was verification of past milk production figures.
Wrightson was not liable because it passed on incorrect information, they said. Wrightson was liable because it carelessly led Mr Routhan to believe the vendor had verified milk production figures, when it knew he had declined to do so, saying they needed checking.
Breach of this scope of duty left Wrightson liable for both Mr Routhan’s $480,500 overpayment when buying the dairy unit in 2010, plus $300,000 spent subsequently on additional fertiliser and re-pasturing in his failed attempt to replicate supposedly potential milk production.
The court was told the vendor is an uncle of Mrs Routhan. Rabobank forced a sale of the dairy unit in 2020, under threats of a possible mortgagee sale.
Routhan v. PCG Wrightson Real Estate Ltd – Supreme Court (26.06.25)
25.148