Putting your money where your mouth is – developments in the law of negligent misstatement

The Supreme Court has issued its long-awaited judgment in Routhan v PGG Wrightson Real Estate Ltd [2025] NZSC 68 clarifying how the SAAMCO cap applies in New Zealand.

 

What you need to know

1. The case centred on a real estate agent’s misrepresentation of a dairy farm’s production levels, which induced the purchase.
2. The Supreme Court held by a 3:2 majority that liability may extend beyond overpayment to include consequential losses – such as costs incurred trying to meet the falsely represented production.
3. In cases where negligent misstatement is alleged, and when considering the duty owed by a professional, the court must consider the defendant's position at the time of the alleged negligence, and assess the risks adopted by the defendant, as well as whether that was a fair allocation of risk. The underlying policy is that a defendant should only be liable for the portion of the loss that the defendant's advice was sought in order to guard against.
4. As a consequence, professionals should be careful to define the extent and nature of their relationship with a client before providing information or advice. While this won't be determinative of the scope of an assumed duty, it will be useful in determining the degree of reliance and foreseeability of any loss arising from a negligent misstatement. Equally, when seeking professional advice or information, it is prudent to make clear the purpose and extent to which the advice will be relied upon for subsequent decision-making.
5. This decision will have legs. While it has clarified the duty analysis in some respects, there are three fairly long and detailed judgments, each with differing views on the precise place of the scope of duty analysis in New Zealand law. In borderline cases, there will be plenty of scope for disagreement on what this case stands for.
6. For the legal nerds – a majority of the Court has confirmed (with Kós J dissenting) that South Australia Asset Management Corp v York Montague Limited [1997] AC 191 (HL) (SAAMCO) is good law in New Zealand for the proposition that professional's liability will be limited to risks within the scope of their assumed responsibility.
7. Kós J found that the scope of duty analysis was better located within the causation and remoteness analysis, rather than duty analysis. His view was that the defendant's assumption of risk was a useful indicator to ensure that liability is not more onerous than the risk actually adopted by the defendant.
8. Nonetheless, the majority held that the SAAMCO cap, where the defendant's liability is limited to the foreseeable consequences of providing incorrect information, is not the normal measure of damages in New Zealand. A minority of Winkelmann CJ and Ellen France J considered that it can be a “useful tool or cross-check”.
9. If you would like to read further on English jurisprudence following SAAMCO, we recommend our UK colleagues' update on the UK Supreme Court's decision in Manchester Building Society v Grant Thornton [2021] UKSC 20.

 

Background – the Routhans' farm

In 2010, Mr and Mrs Routhan, as trustees of the Kaniere Family Trust, purchased a West Cost farm in the Kokatahi/Kowhtirangi Valley area, imaginatively named Farm 258. PGG Wrightson (PGG) was engaged to help them find a suitable farm for the Routhans to purchase and run themselves. In the process of purchasing Farm 258, the Routhans were provided with a brochure stating that the farm had averaged 103,000 kilograms of milk solids for the previous three seasons. PGG Wrightson confirmed to the Routhans that this figure was accurate, despite the vendor saying that it was not his practice to give out production figures, and that those should be sought from the dairy company. The brochure additionally represented that 260 cows were milked when in fact it was 237.

Having been provided with this information, the Routhans purchased Farm 258 for USD2.8 million. The farm's recent production had been substantially less than what was represented, and was declining, which the Routhans later discovered. By September 2017, and after significant effort to increase the farm's production, the Kaniere Trust's bank insisted that its properties be put on the market where they sold for a significant loss.

The Routhans subsequently brought proceedings against PGG Wrightson.

 

Proceedings in the lower courts

In 2021, Dunningham J in the High Court found PGG liable for damages of USD1,697,000, reflecting losses from the forced slae, lost investment in capital improvements, and a 20% reduction for contributory negligence in the form of unnecessary capital expenditure.

The Court of Appeal reduced the award to USD300,000 in 2023 finding that PGG's duty to the Routhans was limited to providing information so that they did not pay too much money for the farm. On that basis and applying SAAMCO. PGG's duty did not extend to the downstream consequences of their decision and so was only liable for the difference between the price the Routhans paid, and the true market value of the farm, less a deduction for the Routhans contribution to the overpayment.

The Supreme Court granted leave to appeal on the question of whether the Court of Appeal was correct in varying the damages awarded in the High Court. The Court also considered if, and how, SAAMCO should be applied in New Zealand.

 

Supreme Court

A majority of the Supreme Court found that SAAMCO applies in New Zealand insofar as it stands for the proposition that part of the duty analysis should include the scope of the duty and nature of the risk assumed. A defendant will only be liable for loss relating to the particular risk.

On that basis, the majority found that PGG was liable for the amount overpaid for the farm and wasted attempts to improve the farm's output which were within PGG's breach of duty. Losses associated with revenue shortfall, debt servicing, supplementary feed and capital investments were outside the scope of PGG's duty and therefore not recoverable.  The Routhans' appeal was allowed with damages fixed at USD780,500 plus interest.