Bad legal advice costs law firm more than $1m

The Supreme Court's five justices awarded $1 million, plus interest, to the estate. Photo / iStock

A law firm must reimburse a deceased Waikato farmer's estate more than $1 million to make good on financial losses the Supreme Court ruled were a result of bad legal advice.

The late Ross Blackwell owned a dry-stock farm near Te Awamutu. After he had been diagnosed with an inoperable brain tumour in 2000, he leased the farm to neighbours Leith and Rosemary Chick and gave them a right of first refusal to buy it.

In 2004, Mr Blackwell changed the right to an option to buy the farm for $1.5 million, $300,000 less than its valuation, if the purchase occurred before April 30, 2007. After that date, the market price would apply. There was an informal understanding between the neighbours that the Chicks would not activate their legal right to buy the farm while Mr Blackwell was alive.

Mr Blackwell's aims were to retain ownership and to help the Chicks' son, Adam. He also wanted to keep the farm running as a dry-stock unit rather than allowing its conversion to dairying.

He told Adam in 2007 that he wanted him to have the farm, "because his brothers and their families had been 'horrible' to his wife, Margaret", the Supreme Court said in its verdict, released yesterday.

Mr Blackwell gave powers of attorney to his brothers, Derek and Charles, and they are the executors and trustees of his estate.

In 2005, Ross Blackwell extended the option to buy at $1.5 million to 2010. But when Mr Blackwell in 2010 agreed to renew the Chicks' lease and extend the option, his brothers intervened. When the Chicks realised the lease would not be renewed, they sought to buy the farm under their option, even though Mr Blackwell was still alive. They went to the High Court, which enforced the sale.

The option price of $1.5 million was less than half the 2010 market value of $3,222,500.

The case went to the Court of Appeal before being settled in the Supreme Court.

The Supreme Court's five justices said that if Mr Blackwell had received competent advice from law firm Edmonds Judd in 2004, the option-to-buy deal would have stated that it would not be exercised in his lifetime.

"... the parties would have agreed, after the initial three-year period, that the option price would be at a discount of between 15 and 25 per cent on market value."

The five judges also ruled that the 2005 variation would not have occurred; the option would have been extended on the same terms in 2007 past April 30, 2010, but with the ability to use the option then if the lease was not renewed, even if Mr Blackwell was still alive.

They said a discount of 20 per cent would have made the price around $2.5 million, awarding $1 million, plus interest, to the estate.