ROOSE v DUTHIE [2016] NZCA 600

ROOSE v DUTHIE [2016] NZCA 600 [15 December 2016]IN THE COURT OF APPEAL OF NEW ZEALANDCA538/2015[2016] NZCA 600BETWEEN DENISE MICHELLE ROOSEFirst AppellantDENISE DEVELOPMENTS LIMITEDSecond AppellantDMR DEVELOPMENT LIMITEDThird AppellantAND CRAIG DUTHIE AND KIRSTENTAYLOR-RUITERMANFirst RespondentsDRK CHARTERED ACCOUNTANTSLIMITEDSecond RespondentHearing: 3 August 2016Court: Wild, Mallon and J Williams JJCounsel: K J Crossland and J S Langston for the AppellantsG D Pearson and L M Pelly for the RespondentsJudgment: 15 December 2016 at 10.30 amJUDGMENT OF THE COURTA The appeal is allowed.B The determinations in paragraph [119(a), (b) and (c)] of the judgment of the High Court are set aside.C The proceeding is remitted to the High Court for directions as to the filing of an amended statement of claim.D The respondents are to pay the appellants costs for a standard appeal on a band A basis plus usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Mallon J)Introduction[1] This appeal concerns whether claims arising from alleged negligent advice were commenced too late. In the High Court Toogood J found they were and therefore could not proceed for determination at trial.1[2] The context is a property transaction that attracted tax liability. The transaction involved the sale of property by one entity, Denise Developments Ltd (DDL), owned and controlled by Ms Roose to another entity, DMR Development Ltd (DMR), also owned and controlled by Ms Roose. Ms Roose claims the transaction was entered into because the respondents gave negligent advice that it would not attract tax liability. She claims the transaction would not have been entered into had the negligent advice not been given.[3] There are two issues in this appeal:(a) The first is whether the High Court was correct to find the cause of action in tort accrued when the agreement between DDL and DML was entered into, or whether it accrued when that agreement was settled. If it is the former, then it is common ground that the tortious cause of action is time-barred.(b) The second issue is whether the High Court was correct to find that the time for bringing the contract and tort causes of action was not deferred on the basis the respondents had failed to disclose a conflict1 Roose v Duthie [2015] NZHC 2035.of interest once the Inland Revenue Department (the IRD) began investigating the transaction.Background[4] The High Court judgment arose from the appellants' application fordetermination of a separate question, namely the date their causes of action arose. It proceeded on the basis of the facts as pleaded, in the same way as would have been the case on a strike-out application.[5] The Denise Roose Butcher Family Trust owned a property in Pukekohe. Ms Roose was a trustee of the trust. Mr Duthie was also a trustee. He was an accountant and partner in Duthie Taylor Ruiterman (the first respondents are sued in their capacity as partners of the firm), which later became DRK Chartered Accountants Limited (the second respondent).[6] Ms Roose wished to buy a 1.9560 hectare property that adjoined the trust'sproperty. This property had previously been owned by her forebears. On or about 28 October 2005 Ms Roose contacted Mr Duthie by telephone about that possible purchase. Ms Roose asked Mr Duthie to advise her on the most suitable ownership structure for that purchase. There is a dispute between them about what Ms Roose told Mr Duthie her intentions for the property were.[7] Ms Roose says she told Mr Duthie she wished to reclaim part of the property, landscape it to create a walkway and park with a commemorative plaque celebrating her forebears, adjust the boundary between the two properties, build a new home for her own use and graze stock in the interim. She says Mr Duthie advised her that a company would be the best entity to purchase the property and, because Ms Roose was intending to graze stock, the company could claim GST on the purchase.[8] Mr Duthie says Ms Roose told her she intended to subdivide the property and sell the lots for profit. He says he took advice from an accounting firm that had tax expertise. That firm advised him the IRD would tax any sale of the land if Ms Roose were to develop it. Therefore she should purchase the property through a company to minimise the tax liability she would incur.[9] On 21 December 2005 DDL, with Ms Roose as its sole director, wasincorporated in order to purchase the property. Mr Duthie's firm registered DDL forGST. In the GST registration form Mr Duthie recorded DDL as being in the business of property development. On 27 January 2006 DDL purchased the property.2 A GST return was filed seeking a GST refund on the purchase. Mr Duthie completed the 2006 financial accounts, in which he recorded DDL as a property developer.[10] In December 2006 DDL applied to the local council for approval to create a public reserve, adjust the boundary between the two properties and subdivide the property into 11 sections. The council granted consent to a subdivision into seven sections and declined the proposal to create a public reserve.[11] In early 2008 Ms Roose wished to protect the property from any relationship property claims. She sought advice from Mr Duthie about the tax implications of transferring the property from DDL to a trust. Mr Duthie advised the transfer would not attract income tax and the sale would be zero rated for GST purposes. Following this advice:(a) DMR and DMR Development Trust (the Trust) were established. DMR was the trustee company for the Trust and Ms Roose wasDMR's sole director. The beneficiaries of the Trust were Ms Rooseand her family trust.(b) On 14 April 2008 Ms Roose, on behalf of DDL and DMR, executed an agreement under which DDL sold the property to DMR for $1,950,000 (GST inclusive). This price was based on a registered market valuation.(c) On the same date Ms Roose, on behalf of DDL and DMR, signed an Acknowledgement of Debt in favour of DDL for the purchase price.2 We do not have details of the purchase price.(d) Under the 14 April 2008 agreement settlement was to take place on 21 April 2008. This was subsequently varied to occur on 2 May 2008. The transfer took place on this date.[12] Mr Duthie completed the 2009 financial statements and tax returns for DDLand the Trust. These financial statements recorded DDL's and the Trust's businessesas being property development. They recorded the sale and purchase of the propertyat $1,733,333 with a GST refund due to the Trust of $216,667. DDL's tax returnrecorded zero tax on zero taxable activity.[13] As part of a review, on 27 April 2010 the IRD wrote to Mr Duthie seeking confirmation of, amongst other things, the taxable activity of DDL and DMR, andthe reason for DDL's claim for the GST refund in 2006. Mr Duthie responded byletter dated 19 May 2010 confirming, amongst other things, the taxable activity of DDL was property development. Ms Roose says she did not have the opportunity to review the letter before it was sent.[14] On 13 July 2010 the IRD commenced an audit of DDL, DMR and another related entity, DMR Property Investment Ltd. On that date the IRD wrote to Mr Duthie seeking financial statements and other information. Mr Duthie replied byletter dated 6 September 2010. He said the GST payable on DDL's sale to DMR hadbeen overlooked and DMR should not have been registered for GST. Ms Roose says she did not review this letter before it was sent. In February 2011, in response to a request from the IRD, Mr Duthie provided the DDL financial statements for 2006 to 2009.[15] On 13 April 2011 the IRD interviewed Mr Duthie and Ms Roose. Mr Duthie said DDL purchased the property to hold it indefinitely, graze some cattle and carryout a boundary adjustment. He also said DDL's taxable activity was cattle grazingand, at the time of the sale to DMR, DDL was not carrying out any taxable activity. Following further correspondence, Mr Duthie said the long-term intention was to develop the property into a lifestyle block, and in the meantime to run livestock and receive grazing income. Ms Roose says she did not review this letter before it was sent.[16] The IRD audit was completed on 29 September 2011. The IRD determinedDDL's taxable activity was property development, reassessed DDL's income tax forthe 2009 year and imposed a shortfall penalty. On 12 July 2012 DDL and the IRD agreed to settle matters by payment of a sum less than the 29 September 2011 reassessment. Ms Roose says she was forced to sell three sections of the property, which she had intended to hold on to as an investment, in order to meet this reassessment.[17] On 1 May 2014 Ms Roose, DDL and DMR filed their proceeding against the respondents. They brought a number of causes of action alleging:(a) a failure to advise her on the adverse tax implications of the transfer from DDL to DMR before that transaction took place on 2 May 2008;(b) failures in completing the DDL 2009 financial statements, including incorrectly recording DDL's business activity as propertydevelopment and, before submitting the accounts, failing to advise Ms Roose that the transfer to DMR would give rise to income tax obligations;(c) failures in relation to the IRD review and audit, including failing toobtain Ms Roose's consent to Mr Duthie's correspondence with the IRD and failing to advise Ms Roose of Mr Duthie's conflict ofinterest; and(d) a claim under the Contractual Mistakes Act 1977.[18] For present purposes it is the first of these that is relevant. The appellants contend the failure to advise on the adverse tax implications of the transfer from DDL to DMR — before that transaction took place on 2 May 2008 — breached the retainer between Ms Roose/DDL and the first respondents, breached a duty of care in tort, and breached fiduciary duties.[19] The appellants claim loss as follows:(a) Ms Roose: accounting fees to address the IRD audit ($39,588);(b) DDL: the amount paid to the IRD pursuant to the settlement ($413,506. 55); and(c) DMR: loss suffered from selling the three sections at "firesale"($786,957) and accounting fees relating to the audit ($9,265).High Court decision[20] The issue in the High Court on the contract cause of action was whether the respondents were under a continuing duty to correct erroneous tax advice. The Judge concluded there was no such duty and therefore the contract claim was brought too late.3[21] In relation to the tort cause of action, the limitation period commenced from the time the loss was first suffered. The respondents submitted this was on 14 April 2008 when DDL entered into an unconditional agreement to sell the land to DMR. They submitted at this point DMR was legally obliged to complete the purchase and this triggered its liability to pay tax (under the Income Tax Act 2007, s CB14(1)).They submitted this was in accordance with the Supreme Court's decision in Thom v Davys Burton.4[22] The appellants submitted loss was first suffered when the liability to pay income tax arose. This was on 2 May 2008 because this was when income was derived from disposing of the land (under the Income Tax Act, ss CB6 or CB14). The appellants submitted this was supported by Gasparin v Commissioner of Taxation and Ruddenklau v Charlesworth.5[23] The Judge considered the position was governed by Thom v Davys Burton. That case concerned a matrimonial property agreement. The Judge noted the Supreme Court was unanimous in deciding the loss arose when the agreement was3 Roose v Duthie, above n 1, at [55]–[61].4 Thom v Davys Burton [2008] NZSC 65, [2009] 1 NZLR 437.5 Gasparin v Commissioner of Taxation [1994] FCA 1057, (1994) 28 ATR 130 and Ruddenklau v Charlesworth [1925] NZLR 161 (SC).signed and not when the marriage failed a number of years later. On this basis he held that the limitation period began to run when DDL entered into the agreement on 14 April 2008. He viewed the loss as arising with the agreement. He considered that, although the agreement might have been unwound prior to 2 May 2008, the appellants would have incurred legal costs in doing so, and to that extent there would have been actionable loss.6[24] The appellants also contended s 28 of the Limitation Act 1950 applied to extend the time period for bringing the contract and tort claims. Under that section, where a cause of action is concealed by fraud, the limitation period does not begin to run until the plaintiff has discovered the fraud or could with reasonable diligence have discovered it. The appellants contended Mr Duthie must have realised he had made a mistake in his tax advice during the IRD review and audit and he was under a fiduciary duty to disclose this to Ms Roose. The appellants said this would have enabled Ms Roose to seek legal advice and therefore bring her claim earlier. The respondents accepted, as did the Judge, that this would provide a new and separate cause of action, but would not defer the dates on which the limitation period commenced for the pleaded contract and tort claims.[25] The Judge therefore held the contract and tort causes of action relating to the failure to advise of the adverse tax implications of the transfer of the property from DDL to DMR could not proceed.[26] As to the claim for breach of fiduciary duty, the appellants acknowledged this cause of action was not well drafted. The Judge granted the appellants leave to amend the breach of fiduciary duty claim. He declined to restrict this to errors occurring after 1 May 2008. He noted that the granting of leave did not indicate any view on the merits of such a claim.76 Roose v Duthie, above n 1, at [82]–[86].7 The Judge also determined the Contractual Mistakes Act 1977 claim was misconceived and could not succeed. There is no appeal from that last determination. The other causes of action related to matters arising after 1 May 2008 and so did not raise Limitation Act issues.Issue 1: when loss was first sufferedThe law[27] A claim in tort must be brought within six years from the date on which the cause of action accrued.8 A cause of action accrues when every fact exists that it would be necessary for the plaintiff to prove in order to support their right to the judgment of the court.9 Negligence is actionable on proof of damage. Whether damage has occurred is a question of fact.10 In cases where the damage is purely financial (also referred to as economic loss) it is not always easy to determine when loss is first suffered, so as to complete the cause of action.11[28] Negligent professional advice can give rise to purely financial loss. The general measure of recoverable loss is the cost of putting the plaintiff in the position they would have been in had the defendant fulfilled their duty.12 The cause of actioncommences the "moment at which the comparison first reveals a loss" and "willdepend on the facts of each case".13 Where damage is purely contingent (that is, subject to a contingency that may or may not occur) the cause of action accrues only when the contingency occurs giving rise to some loss.14[29] A distinction can be drawn in cases of negligent professional advice between"flawed transaction" and "no transaction" cases.[30] In "flawed transaction" cases, in the absence of the breach of duty, thetransaction would still have been entered into. The comparison for the purposes of determining when loss first arises is between the position the plaintiff would have8 Limitation Act 1950, s 4(1).9 Stephen Todd (ed) The Law of Torts in New Zealand (7th ed, Thomson Reuters, Wellington, 2016) at [26.5.06(1)].10 At [26.5.06(1)].11 At [26.5.06(2)].12 At [26.5.06(2)]; Thom v Davys Burton, above n 4, at [16] per Elias CJ (concurring).13 At [16], citing Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627 (HL) at 1632.14 Maharaj v Johnson [2015] UKPC 28 at [28]; Thom v Davys Burton, above n 4, at [46] per Wilson, Tipping and McGrath JJ; Todd, above n 9, at [26.5.06(2)]. An example of this kind isLaw Society v Sephton & Co [2006] UKHL 22, [2006] 2 AC 543. The Law Society's loss arising from negligent reports by accountants, which did not uncover a solicitor's fraud of hisclient, did not first arise until clients made claims for compensation from the Law Society'sfunds.been under the transaction if there had been no breach of duty, and the position the plaintiff is in under the flawed transaction.[31] In "no transaction" cases, the plaintiff contends the transaction would not have been entered into at all in the absence of the breach of duty. In the"no transaction" case the comparison is between the plaintiff's position under thetransaction entered into, and their position if they had not entered into the transactionat all. The loss first arises when the plaintiff's financial position is "measurably worse" than if they had not entered into the transaction.15[32] These categories of cases are discussed in Maharaj v Johnson, a Privy Council decision delivered before the High Court decision in the present case but after the hearing.16 Describing the categories of cases in this way was not new— earlier decisions of the Court of Appeal of England and Wales had described the cases in this way.17 The Privy Council in Maharaj regarded the distinction as "ahelpful sign-post to the relevant principles".18 The difference in concept between"flawed transactions" and "no transactions" dictates a different inquiry as to whenthe plaintiff first suffered loss.19 In other words, the different concepts enable theproper comparison to be made between (a) the plaintiff's position if the defendant had performed their duty; and (b) the plaintiff's actual position.20[33] Maharaj was itself a "flawed transaction" case. The solicitor's breach ofduty meant that the purchasers, Mr and Mrs Maharaj, did not obtain legal title to property. Twenty two years later they entered into an agreement to sell the property to developers, who subsequently cancelled the agreement when they discovered the defect in title. The defect in title was rectified by the solicitor, who located the original vendor in Venezuela, but this occurred too late to save the agreement. Mr and Mrs Maharaj brought a claim against the solicitor for damages arising from15 Maharaj v Johnson, above n 14, at [19].16 At [19].17 See Pegasus Management Holdings SCA v Ernst and Young [2010] EWCA Civ 181, [2010] 3 All ER 297 at [28]; and Axa Insurance Ltd v Akther and Darby [2009] EWCA Civ 1166, [2010] 1 WLR 1662, followed in, for example, Green v Eadie [2012] Ch 363, [2012] 2 WLR 510.18 Maharaj v Johnson, above n 14, at [19].19 At [19].20 The comparison is set out in these terms in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2), above n 13, at 1631.the cancelled sale (the market value of the property had fallen substantially after the agreement with the developers was entered into).[34] The Privy Council said the mere fact that a transaction is flawed does not mean by itself that the plaintiff suffered actual damage on entry into it.21 Immediate damage on entry may be relatively easy to infer because the plaintiffs did not receive what they should have received. However, this was no substitute for considering the particular facts and deciding whether such an inference is properly to be drawn from them.22[35] The relevant inquiry in that case was whether the value of a full equitable interest in the land (what Mr and Mrs Maharaj received under the flawed transaction) was measurably less than the value of a full legal and equitable interest in the land (what Mr and Mrs Maharaj would have received if the solicitor had performed his duty). The Privy Council considered it was measurably less. This was because it would present obstacles in the event that Mr and Mrs Maharaj wished to use the landas security or to sell it. The Privy Council held "[i]t was not even in the power of the [purchasers] or of the [solicitor] to remedy the flaw by themselves."23 It was dependent on locating the original vendor and her cooperation and there were risks, and potentially costs, involved in that.24 The cause of action therefore commenced 22 years earlier when Mr and Mrs Maharaj purchased the property and the proceeding had been brought out of time.[36] Thom v Davys Burton was a "flawed transaction" case and the approach ofthe Supreme Court to the issue of when loss was first suffered was the same as inMaharaj, although the Court did not discuss the flawed transaction/no transaction distinction.25 The case involved a matrimonial property agreement prepared for21 Maharaj v Johnson, above n 14, at [26]. Statements in earlier cases, such as Pegasus Management Holdings SCA v Ernst and Young, above n 17, (and, we could add, Axa Insurance Ltd v Akther and Darby and Green v Eadie, both above n 17) to this effect were regarded as going too far.22 At [26].23 At [27].24 At [27].25 Thom v Davys Burton, above n 4, Wilson, Tipping and McGrath JJ at [49] discuss the case asinvolving a "damaged asset". Without expressly referring to the "flawed transaction" categoryof case, they do however also say "the product which [Mr Thom] instructed his solicitors to procure for him was created with an inherent flaw."Mr Thom by his solicitor. The agreement provided that a house Mr Thom owned would remain his separate property even if the couple moved into the property as the matrimonial home. To be enforceable it was necessary that a solicitor certify he had explained the effect of the agreement to Mrs Thom before she signed it. This requirement was not attended to. The couple later moved into the house and some years after that they separated. The Family Court held the agreement to be invalid.26[37] The issue was whether any loss was suffered when the agreement was entered into or whether it was suffered only when the Family Court determined the agreement to be invalid. This was because the Court retained a discretion under the relevant legislation, whether or not the agreement was properly certified. If the agreement was properly certified, the Court had the power to set it aside as unjust.27If the agreement was not properly certified, the Court had the power to give the agreement effect if it was demonstrated there was no material prejudice arising from the failure to comply with the certification requirements.28 Whether Mr Thomsuffered loss from the solicitor's breach of duty was therefore contingent on how theCourt exercised its discretion in the event the couple moved into the house and later separated.[38] Nevertheless the Supreme Court held that Mr Thom's loss was suffered at thetime the agreement was entered into.29 At that time, he did not receive the protection for his property which he would have received if his lawyer had performed his duty.30 Or, to put it another way, he received a less valuable asset than he would have received if his lawyer had performed his duty.31 The protection he obtained (or the value of the asset he received) was less because there was no symmetry in theCourt's discretion under the legislation as between complying and non-complying26 Thom v Thom (1999) 19 FRNZ 29 (FC) at 34–35.27 Property (Relationships) Act 1976, s 21J.28 Section 21H.29 In Thom v Davys Burton, above n 4, the agreement was entered effectively contemporaneously with the marriage. It was therefore not necessary to focus on whether the cause of action arose at the time the agreement was entered into or when the marriage occurred. The Chief Justice at [24] refers to the cause of action arising when the agreement was entered into and the couple married. The majority (Wilson, Tipping and McGrath JJ) at [47] regard the loss as first arising on entry into the agreement because the value of the agreement was less immediately upon Mr Thom's entering into it.30 At [24] and [25] per Elias CJ and [49] per Wilson, Tipping and McGrath JJ.31 At [47] and [49] per Wilson, Tipping and McGrath JJ.agreements (the "unjust" test for setting aside complying agreements was a highhurdle).32[39] There was quantifiable loss from the moment of entry because, even if Mr Thom had discovered the problem before marrying his wife and moving into the house, he would have incurred legal costs in obtaining an effective agreement (if his wife was willing to cooperate in that).33 The contingencies (moving into the house, asubsequent separation and the Court's discretion) were relevant to the extent of lossthat ultimately might be suffered, but the moment quantifiable loss was first suffered was on entry.34[40] The situation in Thom v Davys Burton was therefore like that in Maharaj. Mr Thom, like Mr and Mrs Maharaj, would have proceeded with the agreement if there had been no breach of duty. The breach of duty resulted in Mr Thom receiving a less valuable asset on entry into that agreement than would have been the case if the agreement had been prepared non-negligently. The loss from receiving that asset (compared with the asset he would have received) was quantifiable on entry. Actual damage therefore arose at that point, the cause of action was complete and the limitation period began to run.[41] Turning then to the "no transaction" cases, a simple example is given byLord Nicholls in Nykredit Plc v Edward Erman Ltd (No 2) as follows:35A purchaser buys a house which has been negligently overvalued or which issubject to a local land charge not noticed by the purchaser's solicitor. Hadhe known the true position the purchaser would not have bought. In such acase the purchaser's cause of action in tort accrues when he completes the purchase. He suffers actual damage by parting with his money and receiving in exchange property worth less than the price he paid.(Our emphasis.)[42] The "moment at which the comparison first reveals a loss will depend on thefacts."36 Nykredit was an example of a "no transaction" case. The judgments of32 At [24] per Elias CJ.33 At [26] per Elias CJ and [47] per Wilson, Tipping and McGrath JJ.34 At [25] per Elias CJ and [47] per Wilson, Tipping and McGrath JJ.35 Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2), above n 13, at 1630. As Lord Nicholls notes, this could cause unfairness but has been remedied by legislative amendment (Latent Damage Act 1986 (UK), s 1).Lord Nicholls and Lord Hoffman give examples of when that might occur depending on different factual scenarios. However, in that case the borrower defaulted almost immediately and the loan had at all times exceeded the true value of the property andso the cause of action arose at the time it was entered into "or thereabouts".37 The plaintiffs advanced money on the security of a property relying on the defendants'valuation, which negligently overvalued that property. The plaintiffs would not have advanced the money had they known the true value of the property. The cause of action arose when the lender first suffered any loss in consequence of entering the transaction. The comparison was between (a) the money advanced by the plaintiff that he would still have had in the absence of the loan transaction, plus interest; and(b) the value of the rights acquired under the borrower's covenant and the true valueof the property.38The facts in this case[43] In this case Ms Roose says she would not have entered into the sale of the property from DDL to DMR had she been advised of the adverse tax implications. Whether that is so will be a matter for evidence at the trial.39 If that is established, in contrast with Thom v Davys Burton, this is not a "flawed transaction" case. It is a "no transaction" case. For determining when loss was first suffered the relevant comparison is therefore between (a) what DDL's position would have been if thetransfer had not taken place; and (b) DDL's position under the transfer of theproperty to DMR. The moment that comparison reveals an actual quantifiable loss, the cause of action in tort is complete and the limitation period begins to run.[44] The agreement was made on the basis of a registered valuation. DDL therefore suffered no loss in that respect. The transfer from DDL to DMR resulted in tax liability that DDL would not have incurred in the absence of the transfer. The parties have therefore focussed on when DDL's tax liability arose.36 At 1632.37 At 1635.38 At 1631.39 We note Ms Roose entered into the transaction in order to protect the property from relationship property claims.[45] The tax was assessed under s CB 14 of the Income Tax Act 2007. It providesthat "[a]n amount that a person derives from disposing of land is income of the person" if the qualifying criteria set out in that section are met. The question thatarises is whether an amount is "derived" for the purposes of this section when a saleagreement becomes unconditional or when the sale is completed.[46] This question was considered in Gasparin v Commissioner of Taxation.40That case involved the sale of several allotments. The majority of the agreements became unconditional before the end of the financial year (30 June 1985) and were settled sometime after that date. The Commissioner took the view that the income from the sales was derived in the year ending 30 June 1985. The Full Federal Court of Appeal disagreed. Income was derived at settlement when the purchase price became due as a debt to the vendor. Up until settlement the vendor had equitable interests and a right to sue for specific performance but no debt was due. The critical consideration was the time the debt arose.41[47] Prior to this decision the IRD in New Zealand had taken the view that income was derived from a sale of land when the agreement for sale and purchase became unconditional. That view was consistent with Mills v Commissioner of Inland Revenue although the focus in that case was different context.42 It was concernedwith whether property sales were "made" before or after a change in the law thatmade the profits of property sales assessable income. The issue was whether sales had been made when conditional contracts were entered into (before the law change) or when those contracts became unconditional (after the law change). The High Court held the sales were "made" only when the contracts becameunconditional.[48] However the Gasparin approach was consistent with the earlier New Zealand case of Ruddenklau v Charlesworth.43 In that case the Court determined derivation on the basis of when the vendor was entitled to sue the purchaser for the purchase money as a debt, and in the usual case the purchaser could merely sue for specific40 Gasparin v Commissioner of Taxation, above n 5.41 At [21].42 Mills v Commissioner of Inland Revenue (1985) 7 NZTC 5,025 (HC).43 Ruddenklau v Charlesworth, above n 5.performance or damages for loss of the bargain prior to settlement. Subsequent toGasparin, and relying on the reasoning in Gasparin and Ruddenklau v Charlesworth,the IRD changed its view about when income was derived from a sale of land. It issued a Tax Information Bulletin notifying taxpayers that derivation occurs whenthe income "comes home" to the taxpayer. This occurs when the taxpayer has anability to sue on the debt.44[49] On this approach DDL's tax liability arose on 2 May 2008 when the transfer from DDL to DMR took place. Up until that point DDL had not derived income from the disposal of land and so CB14 was not triggered. Until it was triggered DDL had suffered no loss. The moment the tax liability was triggered, there was loss under the transaction. The cause of action therefore arose at that time (2 May 2008) and the claim in tort was brought in time.[50] The respondents resist this conclusion on the basis that once the agreement was entered into (on 14 April 2008) the tax implications became inevitable. Theargument is that this would amount to the parties treating DMR's acknowledgementof debt as worthless. In that event the transaction would be caught by the provisions that deem transactions to have occurred at market value.45 We do not accept this submission. Parties to an agreement that has not been performed may agree to discharge the contract.46 We do not accept that deciding not to proceed with a sale of land likely, or even certain, to result in a tax liability if settled would amount to tax evasion, as the respondent submitted. The respondents did not support this submission with any relevant authority.[51] The respondents also rely on Thom v Davys Burton to resist the conclusion that the cause of action arose on 2 May 2008. The respondents submit there would be costs to Ms Roose/DDL in unwinding the transaction because she would need to seek legal advice as to how to achieve that without incurring tax liability. As we have explained, however, Thom v Davys Burton was a different kind of case. The loss arising from the flawed transaction (the invalid matrimonial property44 Inland Revenue Department Tax Information Bulletin Vol 16 No 5 (June 2004) at 34.45 The respondents referred to subpart GC of the Income Tax Act 2007.46 John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (5th ed, LexisNexis, Wellington, 2016) at [19.2.1].agreement) arose immediately, even if its full extent did not become apparent until much later. But the reduced value of the asset (the invalid agreement) was immediately at least the cost of obtaining a valid agreement (had the invalidity been discovered). At the point of entry into the agreement actual loss had therefore been suffered.[52] In contrast, in the present case no loss was suffered unless and until a tax liability arose. Up until that point damage could be anticipated if the transaction proceeded, but had not been incurred. It is comparable to the example given inNykredit of the purchaser who buys land that has been negligently overvalued, when they would not have bought the land had it been properly valued. There the loss arises when the purchase is completed and the plaintiff parts with their money. The purchaser may anticipate loss prior to completion but they have not sustained it until they have parted with the purchase price.[53] In any event, we do not agree there would have been more than nominal costs to unwind the transaction here. If Ms Roose had become aware between 14 April 2008 and 2 May 2008 of the tax liability that would accrue upon settlement on 2 May 2008, all she had to do was abandon the transaction. No transfer would have been registered from DDL to DMR. If she wanted to keep a record of herchange of mind, she could simply have written "cancelled" on the agreement and signed and dated that cancellation. As she controlled both parties to the agreement this was entirely within her power, unlike the situation in Maharaj and Thom v Davys Burton. Had she cancelled, no tax liability would have arisen as no income would have been derived.Issue 2: postponement of limitation period[54] Section 28 of the Limitation Act provides:28 Postponement of limitation period in case of fraud or mistakeWhere, in the case of any action for which a period of limitation is prescribed by this Act, either—(b) the right of action is concealed by the fraud of any such person as aforesaid;the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it:[55] The appellants submit that "fraud" in this context embraces equitable fraud.They say Mr Duthie must have known his advice about the tax implications of the transfer from DDL to DMR was wrong during the IRD review and audit. They say the respondents breached a fiduciary duty when Mr Duthie continued to act for the appellants without disclosing that he had a conflict of interest because of his earlier advice. The High Court considered this arguably gave rise to a new cause of action based on equitable fraud but did not defer the limitation period.[56] We agree with the appellants that this was not correct. The position is explained in Matai Industries Ltd v Jensen.47 The meaning of "fraud" in s 28 covers "not only common law fraud, [that is] actual fraud or deceit, but also equitable fraud."48 In either case the concealment must be wilful. Passive non-disclosure, as opposed to active dishonest concealment, does not amount to fraudulent concealment"unless there is a duty of disclosure created either by fiduciary status or by a special condition, express or implied, in the relevant contract or relationship."49[57] In Matai Industries the limitation period was not postponed under s 28 because the defendants had no duty of disclosure based on either a fiduciary status or by any special condition in the relationship. That was also the case in Murray v Morel & Co Ltd.50 There was no tenable basis for an allegation of fraudulent concealment.5147 Matai Industries Ltd v Jensen [1989] 1 NZLR 525 (HC). Tipping J agrees with the meaning discussed in Inca Ltd v Autoscript (New Zealand) Ltd [1979] 2 NZLR 700 (SC).48 At 534.49 At 536, citing Inca Ltd v Autoscript, above n 47, at 711.50 Murray v Morel and Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721.51 At [28].[58] Fraudulent concealment arises where the defendant has a duty of disclosure and the failure to disclose is wilful. To be wilful, the defendant must know the essential facts constituting the cause of action.52 It is not necessary for the fraudulent concealment of the cause of action to coincide with the accrual of the cause of action. Therefore s 28 also applies to fraudulent concealment occurring at a later time.53 If there is fraudulent concealment, the limitation period does not begin to run until the plaintiff has discovered the fraud or could have discovered it with reasonable diligence.54[59] In this case the claim for breach of fiduciary duty was not only a new cause of action, but might also provide the basis for postponing the start of the limitation period for the contract and tort claims. Whether that is arguable will depend on the pleading and, ultimately, the evidence at trial. At present there is no pleading before the Court. Whether such a pleading will be fairly arguable must await that pleading. However, in our view the Judge was not correct to find that a failure to disclose a conflict of interest during the IRD review and audit could give rise only to a new cause action and could not postpone the contract and tort limitation periods under s 28.Result[60] The appeal is allowed. The Judge's determinations at paragraph [119(a), (b)and (c)] of the judgment are accordingly set aside. In particular:(a) At this stage it cannot be said that the tort cause of action for negligent advice on the tax implications of the transfer from DDL to DMR is outside the limitation period. That will depend on the evidence at trial as to when the loss was first suffered. If the loss under the transaction is first suffered because of the tax liability, that loss was suffered on 2 May 2008 and the claim was brought in time.52 Matai Industries Ltd v Jensen, above n 47, at 536.53 This is also the position in England: see Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd[1996] 1 AC 102 (HL) at 140–141 and 14554 See, for example, Calvert v Reynolds [2016] NZCA 151 at [47].(b) Whether the limitation period for the contract and tort claims was potentially postponed by s 28 of the Limitation Act will depend on the pleadings and the evidence at trial.[61] The respondents are to pay the appellants costs for a standard appeal on a band A basis plus usual disbursements.Solicitors:Shieff Angland, Auckland for AppellantsDuncan Cotterill, Wellington for Respondents