Shabor Ltd v Graham

• Jurisdiction: New Zealand
• Judge: Courtney J
• Judgment Date: 15 September 2021
• Neutral Citation: [2021] NZCA 448
• Docket Number: CA193/2020
• Court: Court of Appeal

Between

Shabor Limited

Appellant

and

Robert Graham

First Respondent

Pine Ridge Trustee Company Limited

Second Respondent

[2021] NZCA 448

Court:

Brown, Courtney and Collins JJ

CA193/2020

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Contract, Fair Trading — appeal against a High Court decision which held that although the first respondent had misrepresented the carrying capacity of the farm, a “no reliance” clause in the sale agreement was conclusive as between the parties for the purposes of the misrepresentation claim and broke the chain of causation of the purposes of the claim under the Fair Trading Act 1986-reduction in damages for contributory conduct — when it would be fair and reasonable for a no-reliance clause to be conclusive — Contract and Commercial Law Act 2017

Counsel:

K M Quinn and C B Pearce for Appellant

D M O'Neill and P A Depledge for Respondents

• A The appeal is allowed in part.

• B Judgment is entered for Shabor on the Fair Trading Act cause of action for $371,000 together with interest at 5 per cent from 3 June 2014.

• C The costs judgment is set aside and the matter is remitted to the High Court for reconsideration of costs.

• D Shabor is entitled to costs in this Court for a standard appeal on a band A basis, with usual disbursements and certification for second counsel.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Courtney J)

Table of Contents

	Para No.
INTRODUCTION	[1]
Factual background
Shabor purchases the farm	[7]
The statement as to carrying capacity was a misrepresentation	[16]
THE FAIR TRADING ACT CLAIM
The parties' positions	[26]
Did the Judge err in finding that cl 27.3 broke the chain of causation?
The Judge's finding on causation	[32]
The ground of appeal	[36]
Discussion	[41]
What was Shabor's loss?
The Judge's indication	[58]
Quantum of loss	[62]
Contributory conduct	[68]
THE MISREPRESENTATION CLAIM
The issues	[84]
Did cl 27.3 preclude inquiry into reliance on the misrepresentation?	[86]
Was it fair and reasonable for cl 27.3 to be conclusive between the parties?
Section 50 of the CCLA	[91]
The Judge's conclusion	[97]
Was there error by the Judge?	[100]
The subject matter and value of the transaction and the nature of the parties	[101]
Mr Graham's conduct and Mr Sharp's and Mr Borland's lack of care	[108]
Was Mr Graham's conduct fraudulent?	[112]
The contractual context, including the failure to insert a due diligence clause	[119]
Effect of cl 27.3	[126]
The Judge's conclusion was correct	[127]
RESULT	[132]

Introduction

1 In 2014 Robert Graham advertised his sheep and beef farm for sale by tender. 1 The advertisement stated that the farm “comfortably winters 7,500 plus stock units

with capacity for more”. The closing date for tenders was 10 April 2014. Mr Sharp and Mr Borland saw the advertisement. They inspected the farm and thought it would be suitable for deer farming. They submitted a tender of $5,250,110, which was calculated on the basis of the Stock Unit figure in the advertisement. Shabor Ltd (which was incorporated a few weeks later) was the nominated purchaser

2 The tender was accepted. Clause 27.3 of the sale and purchase agreement contained a “no-reliance clause” which provided that:

The Purchaser shall be deemed to have purchased the property acting solely in reliance on the Purchaser's own judgement and upon its own inspection of the property and all other information regarding the property, and not in reliance upon any representative [sic] or warranty made by the Vendor, the Vendor's Agent or Managers other than as expressly set out in this Agreement.

3 Within a short time of taking over the farm Shabor found that the farm could not carry 7,500 Stock Units over winter. It began work to improve the farm's carrying capacity.

4 Shabor brought proceedings against Mr Graham for misrepresentation and breach of the Fair Trading Act 1986 ( FTA). 2 Both causes of action failed. 3 Fitzgerald J found that although Mr Graham had misrepresented the carrying capacity of the farm, cl 27.3 was conclusive as between the parties for the purposes of the misrepresentation claim and broke the chain of causation for the purposes of the FTA claim. 4 In a separate judgment the Judge awarded costs to Mr Graham. 5

5 Shabor appeals. The issues on the appeal are:

• (a) In respect of the FTA cause of action:

  • (i) Did cl 27.3 of the sale and purchase agreement break the chain of causation between Mr Graham's conduct and Shabor's loss (as held by the Judge) for the purposes of ss 9 and 43?

  • (ii) If not, what is the correct quantum of damages under the FTA cause of action?

  • (iii) Was the Judge correct to reduce damages by 40 per cent on account of Shabor's own conduct?

• (b) On the misrepresentation cause of action:

  • (i) Did cl 27.3 on its terms purport to preclude reliance on the capacity representation, as held by the Judge?

  • (ii) If so, is it fair and reasonable for the purposes of s 50 of the Contract and Commercial Law Act 2017 (CCLA) that cl 27.3 be conclusive between the parties, having regard to all the circumstances of the case?

  • (iii) If it is not fair and reasonable for cl 27.3 to be conclusive, was the Judge correct to disallow estimated labour costs for fencing and therefore to reduce the quantum of damages by $106,122?

6 If the appeal succeeds, Shabor seeks to have the issue of costs revisited in the High Court.

Factual background

Shabor purchases the farm

7 Mr Borland, an engineer by occupation, had been involved in deer farming for more than 25 years and farming full time since 2008. Mr Sharp had farmed on his own account since 1976, mainly cattle and sheep but with a focus on deer farming since 1989. The two men wanted to buy a property and farm together.

8 Mr Sharp and Mr Borland saw Mr Graham's advertisement for the farm on or about 1 April 2014. They thought it looked attractive based on the advertising material and the property information memorandum (PIM). The reported soil test results showed fertiliser levels that were below optimum, but they viewed this as an opportunity to increase carrying capacity beyond the stated 7,500 stock units through improving soil fertility levels.

9 Mr Sharp and Mr Borland visited the property on 7 April 2014, only three days before tenders closed on 10 April 2014. Their banker, Mr Murphy, accompanied them. The three had already discussed the basis of any price they might offer. It was expected that any price would be calculated on a per Stock Unit basis. Mr Murphy advised that sale prices for farms in the area ranged from $500 to $1,000 per Stock Unit.

10 Mr Borland, Mr Sharp and Mr Murphy went to the farm to meet Mr Graham and his real estate agent, Mr Gudsell. Accompanied by Mr Gudsell, Mr Sharp, Mr Borland and Mr Murphy toured the property for about two hours. During that time the question of carrying capacity was raised, with Mr Gudsell assuring them of the carrying capacity of 7,500 Stock Units.

11 After leaving the property Mr Borland, Mr Sharp and Mr Murphy went to a local café to discuss the property. Mr Sharp and Mr Borland calculated a price based on 7,500 Stock Units as represented, multiplied by $700 (based on Mr Murphy's advice about farm sale prices). This produced a price of $5,250,000, to which they added $110 as a precaution against other tenderers who might be using the same figures. They went to a Bayleys office to collect the tender documents.

12 On 10 April 2014 Mr Borland and Mr Sharp visited their lawyer. They discussed the tender conditions. These took the form of a standard sale and purchase agreement wording with attached “further terms”. The further terms included the no-reliance clause as part of a general limitation of liability in cl 27:

27.0 Limitations of liability

The Vendor does not warrant:

27.1 The accuracy of any matter, fact or statement in any report or other information on the property prepared or provided by the Vendor's [sic] or its Managers or Agents (including information contained in Schedules to this Agreement), any advertising of the sale of the property or any statement made except in relation to any specific warranty given in this Agreement or

27.2 Any other matter relating to the property or its use or nature or the state of the property in any respect other than expressly set out in this Agreement.

27.3 The Purchaser shall be deemed to have purchased the property acting solely in reliance on the Purchaser's own judgement and upon its own inspection of the property and all other information regarding the property, and not in reliance upon any representative [sic] or warranty made by the Vendor, the Vendor's Agent or Managers other than as expressly set out in this Agreement.

13 Mr Borland and Mr Sharp made some minor changes to the further conditions, including adding chattels to the chattels list, and submitted an unconditional tender on those terms. They did not seek to make any change to cl 27. The fact that the tender was unconditional was notable; Mr Gudsell gave unchallenged evidence that an unconditional tender for a farm property was rare; in his experience, 90 per cent of tenders are conditional on completion of due diligence. The tender was accepted and the agreement was declared unconditional on 17 April 2014 with settlement due on 3 June 2014. Shabor was the nominated purchaser.

14 The agreement conferred an option to purchase stock and Mr Borland and Mr Sharp attended the property in late May 2014 to observe the valuation of the stock. Alarm bells began to ring at that point. The number of animals on offer was low and some were in poor condition. The day before settlement Shabor's solicitor...