MARR v MILLS [2021] NZCA 505

MARR v MILLS [2021] NZCA 505 [4 October 2021]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA224/2021[2021] NZCA 505BETWEEN CAROLINE DESIREE MARRApplicantAND KAREN ANN MILLS AND GRAEMEWILLIAM MILLSRespondentsCourt: Clifford and Goddard JJCounsel: S A Keall for ApplicantS A Grant for RespondentsJudgment:(On the papers)4 October 2021 at 2.00 pmJUDGMENT OF THE COURTA The application for leave to appeal is declined.B The applicant must pay costs to the respondents for a standard applicationon a band A basis, with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Goddard J)Background[1] Ms Marr sold a property to Mr and Mrs Mills. The purchase price was$1,450,000.00 inclusive of GST (if any). In the agreement for sale and purchase (ASP)Ms Marr warranted that the statement on the front page of the ASP regarding thevendor's GST registration status was correct at the date of the ASP. On the front pageof the ASP the following statement appeared:The vendor is registered under the GST Act in respect of the transactionevidenced by this Agreement and/or will be so registered at settlement.Yes/No[2] However at the date the property was sold Ms Marr was registered for GST.The warranty was therefore breached.[3] The Mills intended to live in part of the property, and to operate two businessesfrom part of the property. At the time they bought the property they were not registeredpersons under the Goods and Services Tax Act 1985. But they planned to register forGST in connection with setting up their proposed businesses. If Ms Marr had not beenregistered for GST, and the Mills had become registered for GST, they would havebeen able to claim a GST input tax credit in respect of part of the purchase price.The Mills planned to use the GST refund they would obtain in this way to fund the setup and operation of the proposed businesses.[4] However a sale of commercial property by one registered person to another iszero rated for GST purposes, so the purchaser cannot claim any input tax credit inconnection with the purchase. Because Ms Marr was registered for GST, the Millswould not have been able to claim the GST portion of the purchase price as an inputtax credit if they became registered for GST.[5] The Mills did not want to put further funding into the proposed businesses, anddid not want to borrow more money than had already been necessary to complete thepurchase. Once they became aware that Ms Marr was registered for GST, so theywould not be able to claim a GST input credit if they registered for GST, they decidednot to commence the businesses, and not to become GST registered.Claim for breach of warranty[6] The Mills issued proceedings against Ms Marr claiming damages for breach ofwarranty. The amount they claimed was the GST refund they were unable to obtainof $121,610.86 plus costs incurred by them in paying their accountants and a valuer.[7] Ms Marr accepted that she had breached the warranty. Judgment on liabilitywas entered by consent, leaving the amount of damages to be assessed at trial.District Court judgment[8] The trial took place in July 2020 before Judge Harrison.1[9] The Mills gave evidence that they intended to operate two businesses from theproperty, and that they were reliant on recovering a GST refund in respect of thepurchase price to fund the set up and operation of both businesses. If Ms Marr'swarranty had been correct the businesses would have been established, the Millswould have registered for GST, and the Mills would have obtained a GST input creditof $121,610.86.[10] The Judge referred to a decision of this Court, Ling v YL NZ Investment Ltd, inwhich a similar claim was made by the purchaser of a property.2 The vendor hadwarranted that she was not registered for GST. But the Inland Revenue Departmentlater deemed her to be registered for GST as at the date of the purchase. In theHigh Court the purchaser recovered damages equal to the GST input credit they wereunable to claim as a result of the vendor being GST registered.3 This Court upheldthat decision.4[11] The Judge also referred to the decision of the High Court inHoldaway v Ellwood.5 The District Court had declined to grant summary judgmenton a similar claim by the purchasers of a property for breach of the vendor's warranty1 Mills v Marr [2020] NZDC 13200 [District Court judgment].2 At [29]–[31], referring to Ling v YL NZ Investment Ltd [2018] NZCA 133, (2018) 20 NZCPR 830.3 YL NZ Investment Ltd v Ling [2017] NZHC 1793, (2017) 28 NZTC 23-026 at [44].4 Ling v YL NZ Investment Ltd, above n 2, at [39]–[40].5 District Court judgment, above n 1, at [32]–[36], referring to Holdaway v Ellwood [2019] NZHC792, [2019] NZAR 680.that they were not GST registered.6 The purchasers appealed. Mallon J held that therewas no defence to the claim, and that summary judgment for damages equal to theamount of GST should have been awarded in order to put the purchasers in the positionthey would have been in if the warranty had been correct.7[12] The Judge considered that these cases could not be distinguished. It wasirrelevant that the Mills had not registered for GST once they were notified thatMs Marr was a registered person. That did not affect the right of the Mills to recoverdamages for breach of warranty by Ms Marr.8[13] In particular, the Judge did not accept Ms Marr's defence that the Mills hadsuffered no loss, as a result of their decision not to commence their businesses.The Judge considered that there was clearly a loss, as confirmed in the Ling andHoldaway decisions. It was the breach of warranty by Ms Marr that caused that loss.The decision not to commence the businesses was brought about by the breach ofwarranty.9[14] The Judge recorded that reference was also made to the Mills havingsubsequently subdivided the site and sold a section. The Judge considered that did notprovide a defence. It is irrelevant to a claim for breach of warranty in connection witha sale of property that the promisee was subsequently able to sell the property ata profit.10[15] Judgment was entered against Ms Marr in favour of the Mills in the sum of$121,610.86 plus interest of $25,614, plus accountants' fees of $4,092.01.6 Holdaway v Ellwood [2018] NZDC 18487.7 Holdaway v Ellwood, above n 5, at [27].8 District Court judgment, above n 1, at [36]–[37].9 At [39].10 At [40]–[41], citing The Hut Group Ltd v Nobahar-Cookson [2014] EWHC 3842 (QB), [2014]All ER (D) 215 (Nov) at [185].High Court judgment[16] Ms Marr appealed to the High Court. The appeal was unsuccessful.11[17] On appeal Ms Marr emphasised that the Mills were not registered persons.Their eligibility to become GST registered, and recover a GST refund, depended onthem raising "an input credit linked to the conduct of and the taxable activity ofa business that never existed".12 The claim was speculative, and had not been madeout.[18] Jagose J did not accept that argument. The Mills' evidence was far fromspeculative as to their intentions. It was grounded in their prior acquisition ofcollateral required for the businesses. After the purchase they had instructed a valuerto prepare an apportioned valuation of the property for GST purposes. That instructionwas given in advance of notice of the breach of warranty. Once they discovered thebreach, the Mills were advised that if they commenced the businesses, they riskedbeing found liable to be registered under the GST Act at the time of the property'sacquisition, with the result the transaction would be zero rated. Their decision not tocommence the businesses resulted from that advice. The value to the Mills of the lossof Ms Marr's promised performance was the GST refund to provide start-up workingcapital for the businesses. The amount of that refund was recoverable as damages.13Threshold for leave to appeal[19] Section 60(1) of the Senior Courts Act 2016 provides that the decision of theHigh Court on appeal from the District Court is final unless a party obtains leaveto appeal against the decision to this Court. Leave may be granted by theHigh Court or by this Court if leave is refused by the High Court.1411 Marr v Mills [2020] NZHC 3004, (2020) 29 NZTC 24-081.12 At [13].13 At [14]–[17].14 Senior Courts Act 2016, s 60(2).[20] Ms Marr applied to the High Court for leave to appeal to this Court. Leavewas declined.15[21] Ms Marr now applies to this Court for leave to appeal under s 60 of theSenior Courts Act. As this Court said in Butch Pet Foods Ltd v Mac Motors Ltd:16[4] The test for leave to bring a second appeal to this Court is wellestablished. The proposed appeal must raise some question of law or factcapable of bona fide and serious argument, in a case involving some interest,public or private, of sufficient importance to outweigh the cost and delay ofthe further appeal. On a second appeal this Court is not engaged in the generalcorrection of error. Its primary function is to clarify the law and to determinewhether it has been properly construed and applied by the Court below.Not every alleged error of law is of such importance, either generally or to theparties, as to justify further pursuit of litigation which has already been twiceconsidered and ruled upon by a court.Ms Marr's application for leave to appeal[22] Ms Marr wishes to argue on appeal that the Mills received the value ofa GST input credit as damages, but without carrying out any correspondingeconomic activity that would give rise to an obligation to pay GST. She submits thata claimant-purchaser in this situation should have to establish they would actually havereceived a GST refund for the sum claimed, if the warranty had not been breached.The "overarching submission" for Ms Marr is that where the subject matter of a claimis missing out on a GST refund, there must be satisfactory evidence of what the GSTrefund would have been. The Court must be satisfied that any GST refund would nothave been subject to any later challenge even if paid initially. The Court mustapproach such claims as "loss of a chance" cases.[23] Ms Marr also wishes to argue that because the Mills sold part of the propertybefore trial, they did not suffer any loss. If they had been GST registered, they wouldhave had to pay GST on sale of the property. Ms Marr argues that it is one-sided fora common law claimant to receive a damages award reflective only of input creditswithout any corresponding adjustment for output credits. She says that issue has notbeen considered by the courts to date.15 Marr v Mills [2021] NZHC 603.16 Butch Pet Foods Ltd v Mac Motors Ltd [2018] NZCA 276, (2018) 24 PRNZ 500 (footnotesomitted).[24] The application for leave to appeal is opposed by the Mills. They say that theproposed appeal relates mostly to issues of fact. The relevant law is settled and wascorrectly applied to the facts as found. The prospect of success on appeal is low.There is no interest, public or private, that would outweigh the cost and delay ofa second appeal.Discussion[25] The assessment of damages is a matter of fact. As Tipping J said inMarlborough District Council v Altimarloch Joint Venture Ltd:17There are no absolute rules in this area, albeit the courts have establishedprima facie approaches in certain types of [cases] to give general guidance anda measure of predictability. The key purpose when assessing damages is toreflect the extent of the loss actually and reasonably suffered by the plaintiff.[26] Ms Marr's argument that the Mills did not establish with sufficient certaintythat they would have established their businesses, and obtained a GST input credit,does not raise any arguable question of law or fact. The legal position is clear: it wasnecessary for the Mills to establish that, but for the breach of warranty, they wouldhave established their businesses and would have obtained a GST input credit.Both the District Court and High Court found that this had been established on theevidence before the Court. Ms Marr has not identified any arguable basis forchallenging those factual findings. In the light of those findings, it is not arguable thatthe "loss of a chance" authorities are relevant.[27] Ms Marr's second argument is that the subsequent sale of part of the propertywas relevant to the assessment of damages in this case. She wishes to argue on appealthat it was incumbent on the Mills to establish that they would have ended up in a "net"better off position, taking that sale into account. She says that it is not for a defendantin a claim of this kind to establish that the plaintiff would not have ended up better offon a net basis.17 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11,[2012] 2 NZLR 726 at [156].[28] Damages are usually assessed at the time of breach. It is well established thatin assessing damages it is necessary to balance loss and gain.18 So it is in principlepossible for a benefit to a plaintiff that results from a breach to be relevant whenassessing damages for that breach. But it is also well established that wherea defendant claims that a plaintiff has derived a benefit which should be taken intoaccount when assessing damages, the defendant must prove the extent of that benefit.19Ms Marr's argument that the burden was on the Mills to show that if the warranty hadnot been breached they would have ended up in a net better off position, after takingthe subsequent sale into account, is plainly wrong as a matter of law.[29] If Ms Marr had established at trial that as a result of the breach of warranty,and the Mills' decision not to register for GST, the Mills had received more for thesale of part of the property than would otherwise have been the case, that benefit couldin principle have been taken into account in assessing damages. But in order to do soMs Marr would have needed to establish, by evidence called at the trial, that ifthe Mills had become registered for GST the subsequent sale of part of the propertywould have resulted in the Mills receiving a reduced benefit from that sale. That mighthave been the case if the evidence established that the sale would have taken place atthe same price, but the Mills would have had to account for GST. That might alsohave been the case if the evidence established that if the Mills had been GSTregistered, the section would have sold for a lower (GST-exclusive) price.[30] These are factual issues in respect of which the burden of proof fell onMs Marr. We have not been referred to any evidence about the existence, or extent, ofany benefit to the Mills as a result of not being GST registered at the time of thesubsequent partial sale. No evidence to support a finding that there was such a benefitis referred to in the judgments of the District Court or High Court, or in Ms Marr'ssubmissions in support of her application for leave to appeal. In the absence of suchevidence, there is no foundation for an argument that damages should have beenreduced to take into account a benefit associated with the subsequent sale.18 Pickering v Detection Services Ltd [2021] NZCA 382 at [58], citing British Westinghouse Electricand Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673(HL) at 688–689.19 At [59].[31] In these circumstances we do not consider that the proposed appeal raises anyquestion of law or fact that is capable of serious argument.[32] There is also considerable force in the Mills' submission that a second appealwould result in cost and delay which is unjustified in this case. The sale took place in2014. There have already been hearings in the District Court in July 2020, and in theHigh Court in October 2020. The amount in issue is relatively modest. None of theissues raised by Ms Marr could justify further pursuit of this litigation.Result[33] The application for leave to appeal is declined.[34] Costs should follow the result in the normal way. The applicant must pay therespondents costs for a standard application on a band A basis, with usualdisbursements.Solicitors:APLS Lawyers, Auckland for ApplicantDaniel Overton Goulding, Auckland for Respondents