Derek Nicholas Blackwell and Charles Basil Blackwell as Executors and Trustees of The Estate of Ross Winston Blackwell v Edmonds Judd

• Jurisdiction: New Zealand
• Judge: Elias CJ,William Young,Glazebrook,Arnold,O'Regan JJ
• Judgment Date: 22 April 2016
• Neutral Citation: [2016] NZSC 40
• Docket Number: SC 30/2015
• Court: Supreme Court
• Date: 22 April 2016

Between

Derek Nicholas Blackwell And Charles Basil Blackwell As Executors And Trustees Of The Estate Of Ross Winston Blackwell

Appellants

and

Edmonds Judd

Respondent

[2016] NZSC 40

Court:

Elias CJ, William Young, Glazebrook, Arnold and O'Regan JJ

SC 30/2015

IN THE SUPREME COURT OF NEW ZEALAND

Appeal against the Court of Appeal's (CA) decision that the respondent law firm's negligence in respect of an option to purchase farm land had not caused loss to the appellant — the appellant had been diagnosed with an inoperable brain tumour — he entered into a lease and an option to purchase with his neighbour — in order to make the farm affordable, he agreed to a discounted fixed price for the option — the option was varied and renewed without valuations and without including a clause that it not be exercised during the appellant's lifetime — the agreed option price was less than half the current market value — the respondent law firm acted for both parties — the CA said that the respondent firm's negligence in advising on the option was not a material and substantial cause of, or had not had a real influence on, the loss suffered by the appellant as he would still have acted in the same way even if he had received competent advice — whether the appellant would have acted differently had he been properly advised.

Counsel:

C T Gudsell QC for Appellants

M R Ring QC and J R Parker for Respondent

JUDGMENT OF THE COURT

• A The appeal is allowed. Judgment is given for the appellants in the sum of $1,000,000.

• B Interest of five per cent is ordered from the date of settlement by Mr and Mrs Chick of the purchase of the farm.

• C The respondent is to pay costs of $25,000 to the appellants plus all reasonable disbursements, to be fixed if necessary by the Registrar.

• D The costs order in the Court of Appeal (CA476/2013) is set aside. Costs in that Court and in the High Court should be set by those Courts in light of this judgment.

REASONS

(Given by Glazebrook J)

Table of Contents

	Para
Introduction	[1]
Factual background	[5]
The farm and marriage	[6]
Health	[8]
The lease	[11]
Lease renewal and option	[14]
Variation in 2005	[26]
Lease renewal in 2007	[31]
Later events	[33]
High Court findings on negligence	[34]
Lease renewal and option	[37]
The 2005 variation	[39]
The 2007 renewal	[42]
The Court of Appeal judgment	[44]
Our assessment	[51]
Lease renewal and option	[55]
2005 Variation	[72]
2007 Renewal	[74]
Conclusion on the option exercise price	[79]
Result and costs	[86]

Introduction

1 The late Mr Ross Blackwell 1 owned a dry stock farm (known as Haupouri) at Arohena, near Te Awamutu. He was diagnosed with an inoperable brain tumour in June 2000. After his diagnosis, he leased the farm to his neighbours, Leith and Rosemary Chick, and granted them a right of first refusal and later an option to purchase the farm.

2 When the Chicks gave notice that they wished to exercise the option in March 2010, the agreed option price was less than half the current market value.

The agreed rental for the farm was also below market rates. 2 Ross' brothers, Derek and Charles (in their capacity as Ross' attorneys), refused to settle the purchase. The Chicks applied to the High Court for an order of specific performance. The Court ordered Ross to perform the agreement. 3

3 Ross also made a third party claim against Edmonds Judd for negligent advice with regard to the transactions. 4 The High Court held that the negligence of Edmonds Judd (the solicitors for both the Chicks and Ross) with regard to the lease agreement and the option caused him loss. 5 The Court awarded damages of the difference between the agreed sale price and the market value of the farm, as well as rental shortfalls from 1 May 2007 (a total of $1,831,700). 6 The Court of Appeal overturned that decision, holding that the firm's negligence had not caused loss. 7

4 On 19 June 2015 leave to appeal was granted by this Court on whether the Court of Appeal was correct to find that Edmonds Judd's negligence had caused no loss. 8 In order to assess this issue, we first set out the factual background in more detail. We then analyse the High Court findings on negligence and the reasons the Court of Appeal gave for overturning those findings.

Factual background

5 For the purposes of this appeal the facts as found in the High Court were not challenged. We have therefore taken our summary largely from the High Court judgment.

The farm and marriage

6 Ross purchased Haupouri in 1979 when he was aged 21. The Chicks purchased a neighbouring dry stock farm in 1984. Ross and the Chicks became good friends and the Chicks' eldest son, Adam, had a lot to do with Ross as he was growing up. 9

7 In 1993 Ross married Margaret Catchpole and, in the same year, purchased additional land adjacent to his farm. Margaret, however, did not take to farm life and in 1996 the couple moved into Te Awamutu where they bought a house. Ross commuted to the farm on a daily basis. 10

Health

8 As noted above, in June 2000 Ross was diagnosed with an inoperable brain tumour. The neurologist who saw Ross said that it appeared to him that Ross was under the impression that his life expectancy might be as short as a few months or as long as a couple of years. The neurologist's evidence was that the medical literature suggested a median survival rate with treatment of two and a half years with a five year survival rate of 30 per cent. 11

9 In October and November 2000 Ross underwent a course of high dose radiotherapy. Ross and his wife were told that the purpose of the radiotherapy was to control the tumour and that a full cure would be impossible. 12 During 2001 and 2002 Ross was on medication to control seizures but there was a progressive shrinkage of the tumour. 13 Apart from an episode of “bizarre behaviour” in February 2005, 14 Ross was reasonably well and active with only minor memory

difficulties, up to 2008. In that year, Ross had a minor stroke. 15 The finding of the High Court was that, up to that point, Ross was competent to manage his affairs. 16

10 In July 2000, Ross had executed an enduring power of attorney in favour of his brothers, Derek and Charles. In December 2000 he executed a will appointing Derek and Charles as his executors and trustees. His wife, Margaret, was given a life interest in the estate and on her death the residue was to be divided equally between his brothers. 17

The lease

11 Around the time of his diagnosis, Ross approached the Chicks to ask if they wanted to lease Haupouri. 18 He arranged a market valuation which set a market rental for the farm (including the farmhouse) of $65,900. By agreement dated 16 November 2000, Ross agreed to lease his farm to the Chicks. Rent was set at $63,000. The discount from the valuation was because the farmhouse was not needed by the Chicks. It appears also that Ross was concerned to set the rental at a level that would enable the farm to return a reasonable profit. Mr Chick's calculations had confirmed that the farm could stand the proposed rental. 19

12 The lease was for a three year term beginning on 1 April 2001, with a right of renewal for a further three years. There was also a right of first refusal granted at Mr Chick's request. Mr Chick was aware that Ross could die at any time. As he was investing some $250,000 in extra stock, 20 Mr Chick wanted certainty that, if Ross died, the farm would not be sold to his detriment. 21 Mr Brown of Edmonds Judd acted for Ross on the lease arrangements. Mr Gray of the same firm acted for the Chicks.

13 The Chicks took over the management of Ross' farm but Ross continued to go to the farm every day and most days he would do some work 22 and join the Chicks for lunch. In August 2002 the Chicks' son, Adam, and his partner Jana (later his wife) moved into the farmhouse on Ross' farm. 23

Lease renewal and option

14 In early February 2004 Mr Chick spoke to Ross about the renewal of the lease. They agreed to a renewal for a further three years with the rent increasing to $65,900. This was based on the 2000 market rental assessment. 24 There was to be a further right of renewal for three years. 25

15 In February 2004, while Mr and Mrs Chick were away in the South Island, Ross suggested to Adam and Jana that they could buy the farm. 26 Adam was surprised as he had assumed Ross' brothers would get the farm. Ross said that he did not want to talk about the reasons but would tell him one day. In August 2007 he told Adam that the reason he wanted Adam to have the farm was because his brothers and their families had been “horrible” to his wife, Margaret. 27

16 When Mr and Mrs Chick returned from the South Island, Ross said that he would like to leave the farm to Adam in his will. Mr Chick told Ross that he could not do that as he had Margaret to consider and the will could be challenged. Ross then asked how it should be done. Mr Chick suggested Ross grant him an option to purchase. According to Mr Chick, Ross made it clear that he wanted to continue owning the farm while he was still alive but that, in the end, he would like Adam to have it. Mr Chick was to be “the caretaker”. 28

17 They discussed a suitable purchase price. Ross told Mr Chick that he had spoken to the valuer who had previously valued the lease and he had estimated the current market value for the farm at $1.8m. 29 Ross was concerned that the farm should be affordable for Adam and suggested a price of $900,000 based on the productive worth of the land. Mr Chick considered that to be too low and, after discussion, an option price of $1.5m was agreed. 30 The Judge said that affordability was measured by reference to borrowings that the farm could support and an affordable rental was set in light of expected income from...