In a recent decision, the Supreme Court has confirmed that if a Council negligently includes incorrect information in a Land Information Memorandum, and the person who ordered the LIM relies on that incorrect information, the Council will be liable for any loss that person suffers as a result.
Facts
Altimarloch Joint Venture Limited agreed to buy some rural land in Marlborough, which it wanted to plant in grapes. Under the agreement, all water rights held by the vendors were to be transferred to the buyer. The vendors’ agent had told the buyer that the vendors owned a certain number of water rights, but after settlement, the buyer found out that the vendors only owned half as many water rights as the agent had said. The purchase was conditional on a LIM, but the LIM also stated that the vendors held twice as many water rights than they actually held.
To make up the shortfall, the buyer had to buy more water rights from third parties after settlement, and also had to construct a dam, as there were not enough water rights for sale from third parties to make up the entire shortfall.
Court decision
The Court said that a person ordering and paying for a LIM was entitled to rely on it, and the Council would be liable to that person if it was negligent and included incorrect information in the report that the recipient of the report relied on to his or her detriment. Under the relevant Act, a Council must include certain information in a LIM, but has the option whether it includes other information in the LIM. This decision only applies to the information that must be included in the LIM – the Court did not decide whether a Council would be liable if the optional information in a LIM was incorrect – it said that a Council would “possibly” not be liable if that information is not correct.
In this case, the Council had to contribute part of the amount of the loss, even though the buyer was also able to sue the vendors (the vendors were able to recover the amount they had to pay from their land agents and lawyers, as they told the buyers the incorrect number of water rights without the vendors’ knowledge).
The vendors and Council had to pay the buyer’s total loss, which was assessed as $1,055.907.16 – even though the sale price was $2,675,000, and the value of the land without water rights was $2,550,000, a difference of only $125,000. The loss was based on the cost of buying additional water rights and the cost of building a dam.
Summary
·The Courts have previously stated that they may decide that a buyer is negligent if the buyer proceeds with a purchase without first getting a LIM.
·The Courts have now said that if that is the case, a buyer should be able to rely on that LIM, so a Council will be liable for any incorrect information in the LIM that causes loss to the person buying the LIM.
·It is probable that only the person who buys the LIM will be protected. It is common for a vendor or agent to buy a LIM and give a copy to a buyer. However, if the buyer does not get their own LIM, they may not be able to recover any loss from the Council.
·As the judgment only deals with information that Councils must include in a LIM, and it is not clear whether Councils will be liable for information which they choose to include, but are not required to include, it may mean that Councils will in future only include information which they have to, and nothing more.
·Agents should not make unqualified statements to buyers based on what is contained in a LIM.
