Supreme Court applies scope of duty to liability in negligence

The Supreme Court today released its long-awaited decision in Routhan v PGG Wrightson, in which it addressed the scope of a defendant’s liability in negligence and under the Fair Trading Act.

The facts are classic New Zealand. After buying a farm on the West Coast, the Routhans sued the real estate agent, PGG Wrightson, claiming that it negligently misrepresented the farm’s recent milk production. The farm’s recent production was in fact much less. The business declined, the bank forced the Routhans to sell, and they lost all of their equity.

The Routhans sued the agent for: (1) the amount they say they overpaid; (2) the costs they incurred to try and improve production; (3) other post-purchase losses such as revenue shortfalls, increased debt servicing costs, additional feed, and long-term capital investments.

The agent was found liable. However, the issue for the Supreme Court was how much the agent was required to pay the Routhans, and on what basis. The decision is lengthy – 141 pages – with three judgments, none of which is a majority judgment. Here are the key points:

A defendant is only liable for losses that result from risks that come within the scope of their duty (applying the House of Lord’s SAAMCO decision, with a 4:1 majority).

The agent’s duty included the risk that the Routhans would pay too much for the farm (5:0).

The agent’s duty also included the risk that the farm would produce less than what the Routhans thought, and therefore includes associated post-purchase costs (3:2).

As a result, the agent was liable for (1) the amount the Routhans overpaid (5:0); and (2) the costs they incurred to try and improve production post-purchase (3:2); but not for other post-purchase losses (5:0).

The Court also commented on the SAAMCO liability cap: a defendant’s liability is limited to the foreseeable consequences of information provided by a defendant being wrong. However, a majority said that this is a cap on damages, and not the way to calculate damages.

There’s a lot to work through in the judgment. However, the closeness of the 3:2 decision on the facts suggests that the scope of a defendant’s duty, and the losses for which they become responsible, will continue to be hotly disputed issues.