The Supreme Court's recent decision in Routhan v PGG Wrightson Real Estate Ltd [2025] NZSC 68 provided critical guidance on how damages are assessed in negligent misstatement cases under New Zealand law. The Court clarified that recoverable loss is not determined solely by causation and remoteness, but also by examining the 'scope of duty' (whether the loss relates to a risk the defendant fairly assumed responsibility for). The decision refined the influential principles from South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 (HL) (SAAMCO) and will be of particular interest to professionals whose advice may influence another's decision-making.
Background
In 2010, the Routhans purchased a farm near Hokitika for $2.8 million. PGG Wrightson Real Estate Ltd (PGG) marketed the farm as high yielding, claiming an average milk production of 103,000 kgMS per season. The Routhans relied on this representation when deciding to purchase the property.
The representation proved to be inaccurate. Actual milk production was significantly lower and in decline. Despite substantial investments in land improvement, the Routhans never achieved the expected yields. Their business became unsustainable, leading to a forced sale during a market downturn, resulting in significant losses. They brought claims against PGG for negligent misstatement and breach of the Fair Trading Act 1986.
Decisions of the lower courts
The High Court awarded over $2.1 million in damages and effectively held that all losses resulted from the Routhans' decision to purchase the farm based on PGG's misrepresentation.
The Court of Appeal then reduced the award to $300,000, being the difference between the price paid and the true value of the farm based on actual production. The Court found that the other losses were not a result of the misrepresentation.
Supreme Court Analysis
The Supreme Court used this case to provide authoritative guidance on how the principles from SAAMCO apply in the context of negligent misstatement under New Zealand negligence law; particularly the role of the scope of duty analysis and the use of the SAAMCO cap when assessing recoverable loss.
Scope of Duty
A majority of Chief Justice Winkelmann, and Justices Glazebrook, France and Miller confirmed that the scope of duty principle is part of New Zealand's negligence law. This means that recoverable losses are limited not just by causation and remoteness, but also by asking what risks the defendant took responsibility for when making the representation. This is a forward-looking inquiry, based on the position when the duty was assumed.
The test is:
- What risk(s) did the defendant take responsibility for at the time of the representation?
- Was it fair to expect the defendant to bear those risks in the circumstances?
This analysis helps to ensure that defendants are only liable for the type of harm they had a duty to guard against, not every loss the claimant may suffer.
In dissent, Justice Kós disagreed with treating the scope of duty as a discrete forward-looking step in determining the duty. He argued that this approach is still unsettled in the UK and has not been adopted in Australia or Canada. Instead, he preferred to use the scope of duty analysis as a backward-looking crosscheck, alongside causation and remoteness, to ensure that liability has not extended beyond risks assumed by the defendant, an analytical distinction.
SAAMCO Cap
The SAAMCO cap asks: would the claimant have suffered the same loss even if the representation had been correct? If yes, the loss is generally not recoverable.
Addressed as a separate matter, a different majority comprising of Glazebrook, Kos and Miller JJ found that the Court of Appeal erred in using this cap as the "normal" measure of damages. They cautioned against turning it into a rigid test that encourages hypothetical and speculative reasoning about what would have happened if the information were accurate.
In dissent, Winkelmann CJ and France J agreed that the SAAMCO cap should not be treated as mandatory, but considered it a useful tool for assessing whether a particular loss falls within the scope of the duty, especially when compared to a simple but-for test. However, they concluded that the forward-looking scope of duty analysis already performs this function effectively.
Supreme Court Decision
The Court held that PGG had a duty to protect against the risk that:
- the farm was not worth what was paid for it; and
- its production would not match the represented milk production average.
That duty extended to both the overpayment and some of the losses linked to the Routhans' reliance on the misstatement. However, not all claimed losses were recoverable. The Court assessed each loss individually and concluded that:
- $480,500 was the amount overpaid by the Routhans due to the representation;
- $300,000 in wasted land improvement costs was a consequential loss within the scope of PGG's duty; and
- losses from revenue shortfall, herd management, and the forced sale fell outside the scope of PGG's duty and were therefore not recoverable.
Comments
The decision reinforces that professionals who give advice or information may be liable for consequential losses that fall within the scope of the duty they fairly assumed. The split judgment underscores that the application of the 'scope of duty' principle can be ambiguous and will be context specific.
Therefore, professionals should take proactive steps to manage their liability risk including:
- clearly defining the scope of their engagement;
- qualifying statements where appropriate; and
- including express disclaimers and limitation of liability clauses in contracts, reports or other communications.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
