JANUS NOMINEES LTD V TIMOTHY AND MARGARET FAIRHALL CA CA336/2008

JANUS NOMINEES LTD V TIMOTHY AND MARGARET FAIRHALL CA CA336/2008 2 July 2009IN THE COURT OF APPEAL OF NEW ZEALAND CA336/2008 [2009] NZCA 280BETWEEN JANUS NOMINEES LIMITED Appellant AND TIMOTHY AND MARGARET FAIRHALL Respondents Hearing: 29 April 2009 Court: Glazebrook, O'Regan and Arnold JJ Counsel: I Millard QC and J A Langford for Appellant P R Jagose and E S K Dalzell for Respondents Judgment: 2 July 2009 at 3 pmJUDGMENT OF THE COURT A The appeal is allowed. The respondents must pay the appellant $172,000 plus interest. If the parties are unable to agree the form of the order, there is leave to apply further. B The respondents must pay the appellant costs for a standard appeal on a band A basis. REASONS OF THE COURT(Given by Arnold J)[1] The respondents, Mr and Mrs Fairhall (the Fairhalls), agreed to buy all the shares in a company called Courageous Holdings Limited (Courageous) from the appellant, Janus Nominees Limited (Janus). The only significant asset of Courageous was a tenanted residential property situated in Oriental Bay, Wellington, which Courageous proposed to develop. Unbeknown to the Fairhalls, Courageous was registered for goods and services tax (GST) under the Goods and Services Tax Act 1985 (the GST Act) and had received a GST refund on the price it had paid for the property. [2] After the transaction had settled, a dispute arose between Janus and the Fairhalls as to liability for GST that would become payable by Courageous at some point in the future. The Fairhalls crystallised the GST liability by procuring Courageous to sell the property to their family trust, and withheld the amount of GST on that transaction from the final payment due on the original transaction with Janus. When Janus sued for the balance, the Fairhalls counterclaimed on various bases, including under s 9 of the Fair Trading Act 1986 (the FTA). Dobson J found for the Fairhalls on their FTA counterclaim: HC WN CIV 2005-085-679 26 May 2008. Janus has appealed from that decision.Factual background[3] Mr Fairhall is an experienced accountant, having been a partner in a major accounting firm, PricewaterhouseCoopers, for many years and President of the Institute of Chartered Accountants of New Zealand for a period. He and his wife were interested in acquiring a residential property in Oriental Bay. Courageous, a wholly owned subsidiary of Janus, owned such a property, which it had purchased in September 2002 for $2,025,000. Courageous was registered for GST and claimed an input credit for the purchase price, receiving a GST refund of $222,142.02 in November 2002. [4] Courageous was intending to redevelop the property, which was subject to several residential tenancies, by demolishing the existing dwelling and erecting two upmarket apartments in its place. Although physical work on the development had not begun, Courageous had undertaken some preliminary work, including havingconcept plans prepared. It had also prepared a marketing brochure and commenced marketing efforts through local real estate agents. [5] A real estate agent thought that the Fairhalls might be interested in acquiring one of the apartments and introduced them to one of the principals behind the development, Mr Peter Savage. Mr Savage and his business partner in the development, Mr Graeme Cromie, were both experienced property developers. They had several meetings with the Fairhalls, beginning on 29 October 2002. At some point the Fairhalls were given a copy of the brochure. [6] At an early stage, Mr Savage advised the Fairhalls that he was thinking of purchasing one of the apartments himself. In the course of the discussions the Fairhalls raised the possibility of their builder completing the interior fit-out of whichever apartment they purchased, and went so far as to ask what credit they would receive if they chose that option. They also asked their builder to give them a price for the fit-out. [7] On 7 November 2002, the real estate agent sent a draft agreement for sale and purchase by facsimile to Mr Savage. Courageous was noted as the vendor. The purchase price was to be determined, and the agreement was to be conditional on the parties reaching agreement on certain values. Mr Savage considered that this was unacceptable as it was virtually an option to purchase, and it was not completed. [8] Then, on 13 November 2002 Mr Savage, on behalf of Courageous, wrote to the real estate agent advising what credit would be allowed if the Fairhalls decided to have their builder fit out the apartment. The following day there was a discussion between Mr Savage and Mr Fairhall, which Mr Savage confirmed in writing. The Fairhalls were about to go overseas until mid-December and wanted to be sure that if Courageous received an offer for one of the apartments they would be given the opportunity to make a matching offer. Courageous agreed to that. [9] However, when the Fairhalls returned to New Zealand in mid-December 2002 an alternative possibility emerged. The Fairhalls indicated that they were interested in buying the whole property "as is". This option was discussed at ameeting between Messrs Cromie, Savage and Fairhall on 23 December 2002, where Messrs Cromie and Savage indicated that a sale of the property was a possibility and that the price would be $2.8 million. (There is some dispute as to whether this was the total figure or certain sums had to be added to it, but that is not something that we need to determine.) The Fairhalls indicated that this figure was unacceptable, although they emailed Messrs Cromie and Savage on 25 December 2002 expressing a keen interest in the proposal. In that email the Fairhalls indicated that if they acquired the property they were unlikely to proceed with the two apartment development (their thinking was that they would replace the existing dwelling with a new one). But if they did not acquire the property, they were still interested in buying one of the apartments. [10] In his evidence, Mr Savage said that he and Mr Cromie had several concerns arising out of the proposal. First, the terms on which Courageous had purchased the property meant that if it attempted to resell it in an undeveloped state within a certain period after the purchase it would have to offer the property back to the original vendor. To avoid this, any transaction had to be pushed out beyond 31 March 2003. Second, Mr Savage said that that they were concerned about the income tax implications of a simple sale of the property by Courageous. [11] Initially, they proposed that the transaction be structured as the grant of an option by the Fairhalls to purchase the property from Courageous, which Courageous could exercise no earlier than 3 April 2003. This addressed the first of the concerns noted above. A draft of such an option was prepared on 28 December 2002 by the (then) solicitor for Courageous, Mr Crawford. It did not contain a price. [12] Then there were two further developments: (a) The parties agreed that the price would be $2.65m. (b) The parties agreed that the transaction would be effected by Janus selling the shares in Courageous to the Fairhalls. (The shares in Janus were owned by family trusts associated with Messrs Cromie andSavage, and with Mr Savage's brother.) The impetus for this change was to avoid the income tax concern just mentioned. Mr Savage said that the shareholders in Janus understood that if they sold the shares in Courageous that was "to our capital account". The Fairhalls were, for a small payment, to grant an option enabling Janus to require them to purchase the shares. [13] As to the order in which these two developments occurred: (a) Mr Fairhall's affidavit in opposition to Janus' application for summary judgment suggested that the form of the transaction was agreed prior to the agreement on price. However, his brief of evidence at trial states that the form of the transaction occurred after the price was agreed. (b) Mr Savage in his brief of evidence suggests that the price was agreed after the form of the transaction was agreed, and says that he and Mr Cromie would never have agreed to the $2.65m price if their interests were to be responsible for the GST payment in dispute. (c) Although Dobson J seems to suggest at one point (at [4]) that the price was agreed before the form of the transaction was agreed, in his outline of the dealings between the parties he states that the sequence was the other way round – the agreement on price came before the agreement as to form (at [19]). We return to this aspect below. [14] On 23 January 2003 the solicitor for Courageous wrote to Courageous' financial advisors, PricewaterhouseCoopers, attaching a copy of a draft option agreement reflecting the modified transaction for their review. The draft provided that the purchase price for the shares in Courageous was to be $2.65 million. The draft also contained the following clause concerning the obligations of the grantee, Janus:7 Obligations of Grantee7.1 The Grantee warrants that both as at the date of this Agreement and also upon settlement:- 7.1.1 that Courageous is the sole owner of the property both at law and in equity; 7.1.2 that Courageous has no assets other than the Property; 7.1.3 that Courageous has never traded except only to acquire the property; 7.1.4 that Courageous has no present or contingent liability for tax or any other obligation other than GST.[15] There are two features of this draft of cl 7.1.4 that require mention. First, it referred to present or contingent liabilities. Second, it acknowledged an obligation on the part of Courageous to pay GST. [16] Following that, on 27 January 2003 Mr Crawford sent a revised version of the draft to PricewaterhouseCoopers. His covering letter said in part:Subsequent to our meeting Graeme Cromie asked me to reinstate clause 7.1.4 but in a modified form referring only to current liability.In its modified form, cl 7 was identical to the draft refered to at [14] above, except in relation to cl 7.1.4, which read:7.1.4 that Courageous has no current liability for income tax or (following the capitalisation referred to in clause 1.2) any other debt.So the two features of the draft mentioned at [15] above no longer appear in the revised draft of cl 7.1.4. [17] The original version of the draft was not forwarded to the Fairhalls or their legal advisers, Chapman Tripp, but the revised draft was. The Fairhalls made a number of suggestions on it, the most important for present purposes relating to cl 7. They asked that cl 7.1.4 be modified to read:7.1.4 that Courageous has no tax liability of any kind or (following the capitalisation referred to in clause 1.2) any other debt or liability.[18] This was not accepted, however, and in the agreement finally executed on 12 February 2009 cl 7.1.4 read:7.1.4 that Courageous has no current tax liability of any kind or (following the capitalisation referred to in clause 1.2) any other debt or liability.[19] The transaction proceeded as planned. Janus exercised the option and the Fairhalls purchased the shares in Courageous. In accordance with the agreement they made a payment of $2.35 million on settlement, with the remaining $300,000 to be paid one year after the date of settlement, interest free. They did not conduct due diligence on Courageous. [20] After settlement, Mr Fairhall was provided with all the documentation relating to Courageous, including the concept plans and other material in relation to the proposed development of the property. At that point he realised that Courageous was registered for GST and that Courageous had received a GST refund in respect of the price it paid for the property. As a consequence, Courageous would be liable for GST even if the property was developed as a private residence. [21] Mr Fairhall immediately took the matter up with Messrs Cromie and Savage, and some discussion took place. Mr Fairhall said that Mr Savage was not surprised at Mr Fairhall's raising the matter, and at no time protested that the Fairhalls must have been aware of the position. In the course of these discussions, Messrs Cromie and Savage offered to reverse the transaction by having Janus buy the shares in Courageous back at the same price as the Fairhalls had paid, but the Fairhalls were not prepared to accept that proposal. [22] Before the balance of the purchase price ($300,000) was payable in June 2004, the Fairhalls decided to crystallise the GST liability by arranging for Courageous to sell the property to their family trust. Courageous sold the property to the trust for $1,550,000, which reflected a current valuation. The sale triggered a GST liability of $172,778, which Courageous paid. The Fairhalls then paid Janus $128,000 of the remaining $300,000 of the purchase price, withholding $172,000 on the basis that it represented the amount that Courageous had been required to pay by way of output tax to offset the input credit which it had received earlier.The High Court proceedings[23] Janus did not accept that it had any liability in relation to the GST, and commenced proceedings against the Fairhalls for the $172,000 and applied for summary judgment. The proceedings were initially commenced in the District Court but were transferred to the High Court. [24] The Fairhalls denied that they were liable to pay the $172,000. They counterclaimed, raising four causes of action: (a) Breach of the express warranty in cl 7.1.4 that Courageous did not have any current tax liability of any kind, or any other debt or liability. (b) Breach of an implied representation to the effect that the activities of Courageous were exempt from tax under the GST Act. (c) Breach of s 9 of the FTA, in that there was a representation that the activities of Courageous were exempt from tax under the GST Act and this was misleading or deceptive, or likely to mislead or deceive. (d) A claim for relief under the Contractual Mistakes Act 1977, alleging that the Fairhalls were materially influenced to enter the agreement by their belief that Courageous undertook GST exempt activities, that Janus knew of their mistake and that there was a substantially unequal exchange of values. [25] The application for summary judgment did not proceed and the matter went to trial. Dobson J made the following determinations in relation to the four causes of action: (a) There had been no breach of warranty in relation to the GST liability on the resale of the property as that did not fall within the words "current tax liability" in cl 7.1.4. However, the Judge found that theclause was breached "albeit in a technical or literal sense" in relation to the rental payments that Courageous received from the tenants of the property, because it did have a current liability to account for GST on those. Although there was no claim in relation to this, it could be taken into account when considering the other claims. (b) There was no actionable misrepresentation because the representations relied upon did convey the essence of the alleged misrepresentation, and the representations were not made by Janus to induce entry into the contract. (c) The claim under s 9 of the Fair Trading Act was made out. We set out the reasons for this in more detail below. (d) The claim under the Contractual Mistakes Act failed, because although the Fairhalls were mistaken as to the nature of the transaction, believing it to be the equivalent of a straightforward property purchase, and Janus was aware of this, there was not an unequal exchange of values. The Judge was reinforced in this view by the Fairhalls' election to continue after discovering their mistake and being offered the opportunity by Janus to reverse the transaction.Basis of appeal[26] Janus has appealed against the finding of liability under the FTA. Mr Millard QC's submissions can be summarised under four heads: (a) There was no misleading conduct. (b) It was unreasonable for the Fairhalls to have been misled. (c) Janus was not "in trade". (d) There was no recoverable loss.[27] The Fairhalls have not cross-appealed or given notice to support the judgment on other grounds. Rather, they argue that the Judge was correct in his findings.Discussion[28] As Mr Millard submitted, in AMP Finance Ltd v Heaven (1997) 8 TCLR 144 at 152 this Court identified the following three questions for consideration in cases where a breach of s 9 of the FTA was alleged: (a) Was the conduct capable of misleading? (b) Was the person to whom the conduct was directed in fact misled? (c) Was it reasonable for him or her to be misled? [29] There is no dispute about the second requirement, in the sense that it was accepted that the Fairhalls did not appreciate that Courageous would have to account for GST at some point in the future. The argument centred on the first and third issues. To some extent they overlap, so we will deal with them together. There are, in addition, the other points raised by Mr Millard, namely whether Janus was acting "in trade" and whether the Fairhalls suffered any loss given the buy-back offer. [30] The Fairhalls' pleading identified the misleading or deceptive conduct as being a representation that Courageous undertook activities that were exempt from GST. This representation was to be implied on the basis of the following particulars:Particulars10.1 In conversations between the plaintiff's agent, Peter Henry Savage and the defendants, in about October and/or November 2002, in LJ Hooker's offices at Oriental Bay, that one of two homes [Courageous] had planned to build on the site was intended for Mr Savage's personal use. This statement – confirmed previous statements by the plaintiff's agent, Lindsay Park of LJ Hooker, and was made in the presence of Ms Park and Tim Whitehead also of LJ Hooker; and 10.2 In subsequent conversations between Mr Savage and the defendants about the option of a sale of shares in CHL, in about January 2003,that [Courageous] had not traded (save to let the Property to residential tenants); and 10.3 In the same conversations, that [Courageous] was an off-the-shelf company and had been acquired to own the Property; and 10.4 In exchanging drafts of the Contract from about 27 January 2003, that, as to tax, the defendants' requested wording of the 7.1.4 Warranty, being "no tax liability of any kind", raised no issue with the plaintiff (emphasis added).[31] In relation to the FTA claim, the Judge found that the evolution of the tax warranty in cl 7.1.4 (the particular in paragraph 10.4) was critical. Before we address that, however, we will briefly summarise the way in which the Judge addressed the four particulars when dealing with the misrepresentation claim. [32] The Judge took little from the first particular. He noted that it was apparent to Mr Fairhall that "Mr Savage would have to buy the apartment from Courageous, and would have to deal with Mr Cromie to do so": at [46]. However, he accepted that there were connotations of a "private" element to the development which "could lead persons in the Fairhalls' position further away from considering the prospect that a GST input had been claimed": at [48]. [33] As to the second particular, the Judge noted that it was in different terms to cl 7.1.3 (ie, Courageous had not traded except to "let the property to residential tenants" as opposed to "except to acquire the property"). He said that the extent of the work carried out by Courageous in relation to the property would have been obvious, and said "these preliminary development activities must be taken as implicitly falling outside what the parties treated as relevant 'trading' for the purposes of the warranty": at [50]. While the Judge considered it was reasonable that the Fairhalls would link "not traded" with an expectation that Courageous' activities were GST exempt (at [51]), he concluded that, on its own (at [54]):the effect of all the vendor's conduct as to the non-trading status of Courageous might well contribute to a representation that its activities were GST exempt, but is hardly sufficient on its own to justify the attribution of that representation to them.[34] In relation to the third representation that Courageous was an "off the shelf" company acquired to own the property, the Judge said that while it might strengthenthe Fairhalls' impression that Courageous' activities were exempt from GST, standing alone it did not convey anything about its GST status: at [55]. [35] In relation to the fourth particular, the evolution of the tax warranty, the contention was that the absence of any response on the vendor's behalf to the wording the Fairhalls proposed (ie, "no tax liability of any kind") contributed to the representation that Courageous carried on GST exempt activities. Having considered the history of the negotiations about cl 7.1.4, the Judge noted that the rejection of the Fairhalls' wording meant that Janus "was not prepared to give the extent of warranty they sought": at [63]. He considered, however, that the warranty that there was no current tax liability might promote an assumption that Courageous was not registered to pay GST, was in a period of inactivity or was undertaking GST exempt activities: at [64]. [36] The Judge concluded that the combined effect of all of the particulars was sufficient to "draw the Fairhalls' minds away from considering the need to contemplate GST": at [65]. By contrast, Mr Savage was aware that the GST liability would arise, and that structuring the transaction as a sale of shares in Courageous "would avoid triggering collection and return of GST on the extent of the sale price of the property": at [66]. However, as we have said, he did not consider that there was an actionable misrepresentation. [37] Turning then to the FTA claim, the Judge noted that the transaction had been entered into in the form it was at the request of Janus. He said (at [72]):From the time when a sale of the shares, instead of a straight property transaction, was requested, it was implicit that the different form of transaction was intended to produce the same substantive outcome.He went on to say:[73] I find the evolution of the tax warranty critical on this cause of action. Its first iteration (not seen by the Fairhalls) specified GST as an exception to the absence of tax liabilities, so that a positive GST liability was certainly within the contemplation of the draftsman. Messrs Savage and Cromie contemplated not offering a tax warranty at all, but then offered a warranty that Courageous had no current liability for income tax, thereby avoiding any warranty in respect of GST liabilities. They dealt with the Fairhalls' proposal to make that a comprehensive warranty as to the absenceof all tax liabilities, by confining it, without explanation, to "current" tax liabilities. All of this dialogue occurred in the context of the vendor's proposed alternative form for the transaction to sell 286 Oriental Parade to the Fairhalls. The series of warranties in clause 7.1 would reasonably have given the Fairhalls comfort that the vendor's preferred form of transaction involving a sale of shares would not have any different consequences, from their own original proposal to simply acquire the property. [74] The vendor's wish to restructure the form of the transaction arose where the Fairhalls intended the differences in form to be immaterial to the substance of the transaction, but where in fact there was a material difference. The vendor's failure to identify that material difference when negotiating the "fine print" of the tax warranty was capable of misleading the Fairhalls. First, the transaction related to the shares in a company that could well have been exempt from GST. Secondly, a warranty that it had no current liability for GST was capable of misleading the recipient of that warranty into believing that the company was indeed only undertaking activities which were exempt from GST. An acknowledgement of any GST liability, however modest, would have transformed the expectation of GST- exempt status that had evolved in the Fairhalls' minds. Any acknowledgement of GST liability on the rentals received could reasonably be expected to trigger a train of enquiry about all the GST records. It would certainly disabuse the assumption that the company's activities were GST exempt. [75] That aspect is enough on its own to make out conduct that is capable of misleading. It becomes even more likely when assessed in the context of other aspects of the dealings, such as characterisation of Courageous as a "clean" company in the sense that the vendors had used a shelf company which had not otherwise traded, and that it had no other assets. When there were no other "triggers" that might alert the Fairhalls to at least enquire about GST, with evident reliance on the warranties in substitution for any due diligence of the records of Courageous, the prospect of this conduct being capable of misleading is clearly made out. I have already found that the Fairhalls were misled by the cumulative impression of all this conduct into completing the contract on the assumption that acquisition of the shares would not expose them to any output tax liability on the value of the property.[38] The Judge held that it was reasonable for the Fairhalls to have been misled, despite the fact that Mr Fairhall was an accountant and had been legally advised on the transaction: at [77] – [78]. He also rejected Mr Millard's argument that Janus was not acting in trade: at [80]. [39] To recapitulate, the allegation against Janus was that it had made a representation that Courageous undertook activities that were exempt from GST and this was false or misleading. The representation was to be implied from the four particulars (see [30] above), although the Judge found that the evolution of the tax warranty was critical, particularly in this context.[40] Central to the Judge's analysis concerning the evolution of the tax warranty was the proposition that Janus should have disclosed to the Fairhalls the GST implications of effecting the transaction by means of a sale of the shares in Courageous rather than by a direct sale of the property. Mr Millard challenges this reasoning on the basis that caveat emptor applied. This was a transaction between sophisticated commercial people who were independently advised. Not only was there nothing capable of being misleading or deceptive, but it was unreasonable for the Fairhalls to have been misled. [41] "Engaging in conduct" is defined in s 2(2) of the FTA to include "omitting to do an act". So an omission to act is, in principle, capable of constituting misleading or deceptive conduct under s 9. As Elias J pointed out in Des Forges v Wright[1996] 2 NZLR 759 (HC), conduct not misleading or deceptive may become so by an omission to inform arising out of altered circumstances, and an omission to inform may give rise to liability even though there is no duty to provide information (ie, outside the standards arising under the FTA): at 764. But Elias J also emphasised that caution should be exercised in cases of commercial dealing between parties at arms length. She said that s 9 "was not to be turned into a general warranty by a vendor of the expectations of the purchaser" (at 764) and later that the FTA "is not designed to provide a guarantee to purchasers who fail to look after their own interests in a manner that is reasonable in the circumstances": at 765. This Court made similar observations in Premium Real Estate Ltd v Stevens [2009] 1 NZLR 148 at [48]. [42] Turning to the facts of the present case, we make four observations. [43] First, the wording of the tax warranty in cl 7.1.4 does not cover future liability for GST. Accordingly, as the Judge found, it was not breached in relation to the GST paid by Courageous when it on-sold the property to the Fairhalls' family trust. The fact that the warranty which the parties negotiated does not extend to the GST liability at issue is, in the circumstances of this case, a factor against imposing liability.[44] Second, the wording of the warranty that the Fairhalls sought to include (that Courageous had no tax liability of any kind) would not have covered a future GST liability either. In that sense it was not "comprehensive", to use the Judge's term. Ignoring for the moment the question of GST payable on the rent received from the tenants, Courageous had no liability for GST at the time the agreement was entered into or when the transaction was settled. The proposed wording cannot be interpreted to apply to a liability that might (or even would) arise at some indeterminate point in the future. [45] Accordingly we do not give the significance that the Judge did to the rejection by Janus of the Fairhalls' proposed wording (see [73] of the judgment quoted at [37] above). The Judge said that Janus' failure identify the material differences between a sale of the property and a sale of the shares in Courageous when negotiating the tax warranty was capable of misleading the Fairhalls: at [74]. But if the proposed wording was never capable of addressing the present GST issue, it is difficult to see the logic of that analysis. [46] Further, it is noteworthy that in his evidence Mr Fairhall said that he viewed this transaction as a private one from the vendor's perspective and did not expect that it would have GST implications. Apparently, although he knew that Messrs Cromie and Savage were developers, Mr Fairhall did not think that they were acting as such in respect of this development. He accepted that he did not turn his mind to the GST issue at all. It was, as he put it, "never a consideration", and was never discussed. [47] Courageous did, of course, have an ongoing GST liability in relation to the rental payments. (We say "ongoing" because, as we understand it, although the existing tenants were given notices to quit as part of the transaction, the Fairhalls intended to continue to tenant the property, at least for a period.) In that sense the warranty in cl 7.1.4 was inaccurate, and it may be, as the Judge said, that reference to this would have triggered further enquiry by the Fairhalls: at [74]. But, as the Judge also noted, that was not pleaded as part of the misleading and deceptive conduct: at [70]. This is important because what might have happened had this information been disclosed was not explored at trial.[48] As a consequence, we do not see the evolution of the tax warranty as providing support for the implied representation. No version of the warranty discussed by Janus and the Fairhalls addressed the GST at issue or the GST status of Courageous, directly or by implication. [49] Third, the Fairhalls were interested in buying the property outright. Messrs Cromie and Savage suggested the alternative of a sale of the shares in Courageous because that was more tax efficient from their point of view (see [12](b) above). Accordingly, if the price was agreed before the restructuring was suggested, this case might be analysed as one where there was: (a) a change of circumstance (that is, the restructuring of the transaction at the request of Messrs Cromie and Savage); (b) in a situation giving rise to an obligation to disclose (that is, a prior agreement by the parties as to price for an outright sale and purchase of the property); (c) information that would affect the Fairhalls' assessment of the price they had previously agreed to pay (that is, the GST implications of the restructuring). What the Judge says at [74] of his judgment has this flavour. But a difficulty with this analysis is that it is not clear when the price was agreed relative to the structure of the transaction being agreed (see [13] above). [50] If there was no agreement as to price before the structure was agreed, or at least no indication from the Fairhalls of their best price, it is difficult to see that Janus had any obligation to point out to the Fairhalls the GST implications of their proposal. As Mr Millard said, these were sophisticated parties, independently advised, and they had included a specific tax warranty in their agreement which did not cover the liability at issue. In this context, it must be remembered that Mr Savage gave evidence that he and Mr Cromie would not have agreed to sell for$2.65m if they had to meet the GST liability and was not challenged on the point in cross-examination. [51] On the other hand, if the price was agreed before the structure of the transaction was finalised, the case for liability is much stronger. Against the background of an agreed price, it is easy enough to see that a vendor requesting a change in the form of a transaction should disclose any known element or consequence of the proposed change that would effectively increase the price for the purchaser, thus altering the parties' bargain. [52] But the case was not pleaded in this way, and it was not the basis of the Judge's finding of liability. He appears to have approached the matter on a broader basis, namely: (a) The Fairhalls wanted to purchase the property outright. (b) For their own reasons Messrs Cromie and Savage wanted a different structure for the transaction. (c) Accordingly, they had an obligation to point out to the Fairhalls any adverse implications of that structure, including the GST implications. (d) By not so doing, they fostered the Fairhall's belief that there were no implications and the transaction as finally structured was not materially different from a simple purchase. In short, the Fairhalls treated the transaction as the equivalent of the straight property purchase that they had originally proposed. Janus knew that it was not, and had to disclose this to the Fairhalls. [53] As we have indicated, we do not consider that evolution of the tax warranty and the other particulars support the implied representation alleged. Further, even if they did, we consider that it was not reasonable for the Fairhalls (and their advisers) to assume that Courageous undertook activities that were GST exempt. In reachingthis assessment we accept that, although he is a well-experienced accountant, Mr Fairhall is not expert in GST, although he had access to legal advice. [54] The Fairhalls were initially interested in buying an apartment from the property's developer, Courageous. Clearly, as the developer Courageous would have had a GST liability when it sold the apartments because it would be making taxable supplies over the relevant threshold. It had begun actively marketing the apartments as soon as it had the concept drawings. Against this background, it was inevitable that Courageous would register for GST and claim the input tax. In our view, it did not require any particular expertise in GST to appreciate that. The fact that Mr Savage said that he was interested in acquiring the other apartment for himself does not affect this point as, even if he had acquired the other apartment, that could not affect the developer's liability for GST. It follows from this that we do not see how it could reasonably have been thought that the activities Courageous was undertaking were exempt from GST, and we do not agree with the Judge's observations to that effect (see [74] quoted at [37] above). [55] It was suggested that the Fairhalls did not realise that Courageous (as opposed to some other entity) was the developer for various reasons, including the warranties in cl 7. But the Fairhalls received material in the pre-Christmas period which indicated that Courageous was the developer, for example the brochure and the letter dealing with the costs that would be saved if the Fairhalls' builder were to do the interior fitout of the apartment. [56] Further, Mr Savage advised Mr Fairhall that he and Mr Cromie suggested the share sale arrangement because it was tax efficient from their perspective (although Mr Savage said in evidence that this related to income tax, not GST). This should have caused the Fairhalls and their advisors to look more closely at the proposed transaction to ensure that it had no adverse taxation implications for them. For the Fairhalls, Mr Jagose submitted that the tax warranty was an alternative to due diligence in this context. But, as we have said, that warranty was not comprehensive, and did not expose what an effective due diligence process would have.[57] In the result, then, we consider that it should have been apparent that Courageous would have had a latent GST liability in relation to the property. As a consequence we consider that the Fairhalls and their advisors should have turned their minds to that issue before the Fairhalls agreed to purchase the shares in Courageous. They apparently overlooked the point, and it may be that Messrs Cromie and Savage took advantage of their oversight. We say "may be" because Mr Fairhall said that he wanted access to all the preliminary work that had been undertaken on the development, so it was possible that Courageous would complete the development although Mr Fairhall said that was unlikely (see [9] above). Further, in this context it must not be forgotten that Messrs Cromie and Savage did offer to reverse the transaction when Mr Fairhall complained after the GST problem had emerged. [58] But on the assumption that Messrs Cromie and Savage did realise the Fairhalls' mistake and did take advantage of it, that does not give rise to liability under s 9 of the FTA, even though it may be unattractive. As we noted earlier (see [41] above), s 9 does not provide a guarantee to purchasers who fail to look after their own interests. This was a transaction between sophisticated parties who were independently advised. To impose liability under s 9 in a case such as this would cut deeply into the principle of caveat emptor. [59] In light of this conclusion we do not need to address the "not in trade" and "no loss" arguments. It is sufficient to say that we were not attracted to the argument that Janus was not "in trade" when selling the property, for the reasons given by the Judge. But we considered that there was some force in the argument that the Fairhalls had suffered no loss, having rejected the offer from Janus to reverse the transaction by re-acquiring the property and paying back the $2.65m purchase price.Decision[60] The appeal is allowed. The respondents must pay the outstanding $172,000, plus interest. If the parties are unable to agree the form of the order, there is leave to apply further. The respondents must pay the appellant costs for a standard appeal on a band A basis, plus usual disbursements.Solicitors: Langford Law, Wellington for Appellant Chapman Tripp, Wellington for Respondents