22.06.2023

Where the Consequences End – Fair Trading Act, Negligent Misstatements, and Recoverable Loss

It is a common idiom that ‘mistakes have consequences’, and when it comes to the Fair Trading Act 1986 (“FTA”), it appears the idiom is ‘misrepresentations bring damages’.

But how much is too much? Should a single misrepresentation mean all the misfortunes that followed be put on the representer’s head?

A recent case helpfully clarifies recoverable losses following a breach of the FTA or a negligent misstatement — helpfully distinguishing between claimable losses and those that are too remote.

In Routhan v PGG Wrightson Real Estate Ltd [2021] NZHC 3585, the High Court had awarded the Routhans over $2.1 million in damages for losses from their decision to purchase a dairy farm, a decision which would not have been made if the real estate agent had accurately represented the farm’s average production volume (103,000kg vs an actual 98,729kg). This effectively put all the loss that flowed from their decision (less 20% for contributory negligence) onto the real estate agent.

However, on recent appeal (PGG Wrightson Real Estate Ltd v Routhan [2023] NZCA 123), the Court of Appeal reconsidered the recoverable loss flowing from an FTA or negligent misstatement claim and reduced the damages to $300,000.

The Court of Appeal said the test for recoverable loss in these cases is whether the loss occurred as a result of the purpose for which the information was sought. It helpfully commented (at [115] and [144]):

“[The agent] assumed a responsibility to provide accurate information and is liable for the consequences of negligently supplying incorrect information (only).”

“The loss for which [the agent] is liable must be confined to the information it was responsible for, isolated from the wide range of factors contributing to the [Routhans’] purchase decision and its subsequent loss.”

Essentially, the Court took a scalpel to each claimed loss and analysed whether the loss resulted from inaccurate information or whether it was a consequence of other factors and poor decision-making. It separated out the losses resulting from:

(a)   Capital improvements to the farm while the Routhans owned it;

(b)   The forced sale of the farm by the bank in 2021; and

(c)   The forced sale of a run-off property in 2021.

The Routhans argued these losses were the result of efforts to determine the reason for the farm not meeting the misrepresented production volumes, i.e. they took significant finance to improve the farm and its productivity, and they cancelled the lease they had on existing cows in favour of leasing better cows. Although the Court took notice of this, it also noted that the Routhans’ inexperience in the farming industry, poor financial decision-making, and the falling price of milk were significant factors that could not be ignored as contributing to the losses listed above. For example, the Routhans’ cancellation of the lease of the cows resulted in a costly arbitration award against them, and the Routhans’ inability to meet repayments was the reason the bank forced the sale of the farm and run-off property.

The only recoverable loss ended up being the difference between the purchase price and the estimated price the farm would have been valued at with the correctly represented production volumes.

As an aside, the Court noted that expectation damages (costs incurred to achieve a promised expectation) are only recoverable against a contractual counterparty for breach of warranty or for a misrepresentation inducing the contract, not in tort (negligence) or for breach of the FTA.

If you have any questions about the Fair Trading Act or negligent misstatements, please get in touch with our Disputes Team or your usual contact at Hesketh Henry.

 

Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.

Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
Kerry
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

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