Call 07 834 6000

Selling a farm - take great care

30 April 2019

A recent case explains the potential liability sellers of farms and real estate agents can incur if they don’t provide accurate information to prospective purchasers. In this recent case[i] the real estate agent (who was one of the defendants) applied for a Court order for the impecunious purchaser (who was the plaintiff) to provide security for the costs the purchaser could be ordered to pay the agent if the purchaser was unsuccessful with their claim. To successfully obtain the order the agent would have to show the Court that the purchaser’s claim was without merit and had little chance of success.

The inaccurate information provided by the agent

The purchaser signed an agreement to buy a dairy farm, conditional on the purchaser being satisfied with a due diligence investigation of the property. After completing the purchase the purchaser noticed production was down on the figures in a proposal prepared by the agent, which had been provided to them before they signed the agreement. The purchaser also claimed the agent had verbally confirmed the production figures in a meeting.

The claims and the defence

The purchaser sued the agent and the seller, claiming breach of the Fair Trading Act 1986, negligent misstatement and deceit resulting from agent’s alleged verbal statement.

In defence the agent denied the verbal statement about production was made to the purchaser and challenged the reasonableness of the purchaser’s reliance on the proposal because it contained a disclaimer that the agent was not liable for the accuracy of the information supplied by the seller. The agent also pointed out the purchaser’s failure to undertake proper due diligence on the farm.

Fair Trading Act

Under the Fair Trading Act the purchaser asked the Court to declare the agent had engaged in misleading conduct in trade by giving them inaccurate production statements. Although the agent denied the statements were untrue and therefore denied there had been misleading or deceptive conduct, the judge found “there would appear to be a reasonably strong case for saying that the oral statement was incorrect” and this would be a breach of the Fair Trading Act. The judge also stated that, even if it had been unreasonable to rely on the statements, that would not have cured what was otherwise misleading or deceptive conduct. However, unreasonably relying on the statements would be relevant to the amount of compensation the court might order to be paid to the purchaser.

 Negligent misstatement

The judge stated that an agent can be liable in negligent misstatement, particularly where they held themselves out as having specialised knowledge, on which they know the other party will rely. He noted that the purchaser asked for the agent’s assistance in this transaction and that the agent and his company were specialist rural real estate agents. The proposal containing the production figures stated it had been prepared for the purchaser. Therefore it was not unreasonable for the plaintiffs to rely on the proposal or the verbal statement. This was particularly so because the purchaser told the agent the proposal was required for the purchaser’s bank.

Deceit

The judge set out the elements of the deceit claim. There must be: (a) A false representation as to a past or existing fact made by a defendant who knew it to be untrue or had no belief in its truth or who was reckless as to its truth; (b) Intention that the plaintiff should act on the representation; and (c) Action by the plaintiff in reliance on the representation causing loss.

The judge found the agent’s submissions in defence of this claim were not convincing and, the judge stated it was not necessary for him to make a finding on this point in order to dismiss the agent’s application.

The result

Having found the purchaser had a reasonably arguable cause of action under the Fair Trading Act and having considered the negligent misstatement cause of action was “far from speculative”, the judge dismissed the agent’s application for security for costs. The purchaser might have won this battle, but the battle to win the war by proving their case in court now lies ahead.

[i] Routhan v PGG Wrightson Real Estate Limited [2019] NZHC 169

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.

 

Barbara McDermott