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Act In Haste, Repent At Leisure

Do your homework before purchasing – that is the message which has been reinforced in a recent case which came before the High Court.

In Shabor Ltd v Graham, the purchaser of a large farm in the Waikato sued the vendor for misrepresentation under the Fair Trading Act after the purchaser discovered that the farm did not hold the stock numbers advertised in the marketing material.

The farm was advertised as being able to winter 7,500 stock, with capacity for more.  This information had been provided to the agent by the vendor.  The purchaser submitted an unconditional offer at $5.25m after just a two-hour visit to the farm, and the purchaser’s offer was accepted by the vendor.

Sure enough, the purchaser found after settlement that the farm’s true carrying capacity was significantly less than that advertised. The purchaser’s view was that the farm could carry no more than 5,500 stock.

The purchaser argued that it had relied on the vendor’s misrepresentation in pitching its offer, and as a result had paid $1.4m more than it should have to buy the land.

The agreement, however, included a “non-reliance clause”, which expressed that the vendor did not warrant the accuracy of any advertising of the sale of the property, and that the purchaser in signing the agreement would be deemed to have relied on its own judgment and not in reliance on any statement or representation made by or on behalf of the vendor.

The question before the Court, then, was whether it was fair and reasonable for the non-reliance clause in the agreement to be treated as conclusive between the parties, having regard to the facts of the case.

The Court found that, although the carrying capacity was materially less than the figure advertised, the wording of the agreement made it clear that the vendor was not giving a contractual warranty in relation to the farm’s capacity, and, considering all the facts of the case, that it was fair and reasonable for the non-reliance clause to be treated as conclusive between the parties.

In making its decision, the Court noted that the purchasers were experienced farmers, that the bargaining power between the parties was evenly weighted, and that the purchasers had clearly undertaken insufficient due diligence before submitting their offer. The Court also found that the vendor genuinely believed its own stock capacity representation, and was satisfied that there was no fraud or deceit on the part of the vendor.

In summary, it is advisable to:

  1. Always seek legal advice before entering into an agreement;
  2. As a purchaser, to avoid signing an agreement which includes a “no reliance” or “entire agreement” clause, unless you are making an informed decision to contract out of the provisions of the Fair Trading Act;
  3. Seek to include an express warranty from a vendor on any matter which has influenced your decision to purchase, or the value of your offer;
  4. Always undertake comprehensive due diligence before proceeding with a purchase.

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.

For further information

Greg Thomas - Harkness Henry Associate

Greg Thomas

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