Philip and Julie Routhan bought the Kohatahi/Kowhitirangi Valley farm owned by Nelson Cook in December 2010 for $2.8m.
Philip, a fifth-generation West Coaster, was a successful businessman who was a director of Plumbing World (NZ) Ltd and NZ Plumbers Merchants. In 1995, he was awarded “New Zealand Young Executive of the Year”. He was sacked from his position as chief executive of the Plumbers, Gasfitters and Drainlayers Board in 2009.
Cook referred to the farm as having “rock star” qualities, and PGG Wrightson Real Estate Ltd marketed the farm as producing an impressive 103,000kg of milk solids per season from 260 cows on 105 hectares.
But it turned out high production in one season was achieved by applying about two-and-a-half times the amount of recommended urea.
The average production was around 98,000kg of milk solids per season and sharply declining.
When the farm sale settled in 2010, it was on track to produce 85,000kg of milk solids per season. PGG’s agent failed to have the figures confirmed by Cook before putting them before the Routhans, who were very keen to buy.
The couple, thinking they were doing something wrong, struggled to reach the production figures represented.
They re-seeded and re-fenced the farm, bought supplementary feed and blamed their cows, spending $500,000 in their first year.
In 2020, they were forced to sell the farm and a run-off 73ha block they owned previously, both at a loss. The farm fetched only $1.5m, and they were left with nothing.
They sued PGG, claiming they would never have bought the farm if they had known its true production figure and would have bought a cheaper farm nearby. They claimed their loss was $3,184,000.
In a decision released before Christmas, Justice Rachel Dunningham ruled PGG had misrepresented the farm in breach of a duty to be accurate, given the importance of the information and the Routhans reliance on it.
She awarded the couple $2,122,000 but reduced it to $1,697,600 due to some imprudent farm spending by the Routhans.
The couple alleged misrepresentation under the Fair Trading Act 1986, negligence and deceit by PGG. PGG said the Routhans brought their misfortune on themselves, did inadequate due diligence, were inexperienced farmers and failed to mitigate their losses.
If the Routhans had lost out, the loss was only $50,000, it said.
Justice Dunningham said PGG had a duty of care to the Routhans because they knew its advice would be acted on. The information was not verified by PGG’s own processes and its agent had passed on critical but incorrect information.
“There was, as the plaintiffs claim, a breach by PGG to take reasonable care … and not to make negligent misrepresentations.
“It was clearly negligent of [the PGG agent] to have failed to contact Mr Cook himself to confirm the listing information was correct before the contract was entered into.
“He should not have assumed that either administrative staff or Mr Cook would make sure that happened. However, his action fell short of the threshold to establish deceit and this cause of action fails.”
She set the Routhans’ loss at the “additional loss of value the farm properties suffered as a consequence of the forced sale”, being $1,442,000, as well as the $680,000 of investment in infrastructure and improvements which were not reflected in the sale.
PGG claimed the Routhans had committed themselves to “extraordinary levels of expenditure” which reflected their poor business sense. Unnecessary expenditure included thousands of dollars spent on a calf shed, a cow shed and a wintering barn.
“There is some merit to the criticism that they unreasonably undertook capital expenditure which had no bearing on production or productivity,” the judge said.
The judge reduced the amount of the award by 20 per cent for contributory negligence to $1,697,600. She ordered interest to run from the date of the latest sale of the two Routhan properties.
“It is difficult not to have sympathy with the Routhans, given the circumstances they faced after acquiring Farm 258,” she said.
“They put their heart and soul into the operation of the farm and reached out for advice from a number of appropriate sources. PGG has, in my view, criticised the steps taken by the Routhans with the benefit of hindsight.”