Too many cows and not enough milk: the Supreme Court delivers its judgment in Routhan v PGG Wrightson Real Estate Ltd [2025] NZSC 68
The Supreme Court of New Zealand recently delivered its judgment in Routhan v PGG Wrightson Real Estate Ltd, a case involving negligent misstatement. The decision provides important insights into the scope of duty in negligence, and the calculation of damages.
Background
In 2010, the Routhans purchased Farm 258, a dairy farm near Hokitika, relying on representations made by PGG Wrightson Real Estate Ltd (PGG) that the farm’s rolling three-season average milk production was stable. Unfortunately, in reality the farm’s production was considerably less, and declining. The Routhans struggled to achieve the represented production levels, leading to significant financial losses. Their mortgagee eventually required the sale of the farm.
The Routhans brought proceedings against PGG on the basis that they would not have purchased the farm had they known its true production. The two key issues considered by the Supreme Court were the scope of PGG’s duty – and therefore the extent of its liability for the Routhan’s losses, and what losses were actually recoverable.
Scope of Duty
The majority confirmed that the “scope of duty” principle (discussed in a UK case called SAAMCO) forms part of New Zealand’s law of negligence. That principle requires the court to consider what kinds of risk was the defendant taking responsibility for, and whether those were fair in the circumstances. The purpose of the principle is to ensure a defendant is only liable only for harm that resulted from the risks that made the defendant’s conduct negligent in the first place.
The Court held that PGG owed a duty of care to the Routhans. PGG had assumed responsibility for the accuracy of the production figures, as it understood that it would inform business planning by the Routhans. It breached its duty of care when it carelessly represented that the production figures had been verified (PGG knew that was not the case and that they needed to be checked).
The Court found that PGG’s duty of care extended both to the risk that the Routhans would pay too much for the farm and to the risk that the farm would produce less than the represented historical average.
Findings on Damages
The practical effect of this finding was that the Routhans could recover certain post-purchase losses, such as wasted expenditure on fertiliser and re-pasturing.
The Court awarded damages totalling $780,500, comprising:
Overpayment for Farm 258. As the Routhans paid more for the farm than they should have, they could recover the difference between the price paid and the farm’s true market value based on its actual production capacity.
Wasted Expenditure:
$150,000 for additional fertiliser applied in an attempt to achieve the represented production levels.
$150,000 for re-pasturing costs incurred to improve pasture quality.
The Court unanimously declined to award damages for:
Revenue shortfalls, as these were already reflected in the overpayment calculation.
Costs associated with supplementary feed and herd replacement, as these were not sufficiently connected to PGG’s breach.
Long-term capital investments, as they were unrelated to the misrepresentation.
Conclusion
PGG’s liability extended not just to the overpayment on purchase, but also to wasted costs incurred in trying to reach the represented production. The decision is significant because it confirms that professionals can be liable for consequential losses – not just transactional overpayments – where those losses arise from risks for which they assumed responsibility.
This case serves as a reminder for professionals to clearly define the scope of their responsibilities and for purchasers to conduct thorough due diligence when relying on the representations of others.
