SHERWIN CHAN & WALSHE LIMITED (IN LIQUIDATION) V SIR ROBERT JONES AND YORGEN HOLDINGS LIMITED COA CA505/2011

SHERWIN CHAN & WALSHE LIMITED (IN LIQUIDATION) V SIR ROBERT JONES AND YORGEN HOLDINGS LIMITED COA CA505/2011 [15 October 2012]IN THE COURT OF APPEAL OF NEW ZEALANDCA505/2011[2012] NZCA 474BETWEEN SHERWIN CHAN & WALSHE LIMITED(IN LIQUIDATION)First AppellantAND WHK (NZ) LIMITEDSecond AppellantAND SIR ROBERT JONES AND YORGENHOLDINGS LIMITEDRespondentsHearing: 31 July and 1 August 2012Court: Ellen France, Harrison and White JJCounsel: L J Taylor, O M Meech and J M Peterson for AppellantsM P Reed QC and M G Colson for RespondentsJudgment: 15 October 2012at 10 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellants must pay the respondents costs for a standard appeal on a band A basis and usual disbursements. We certify for two counsel.REASONS OF THE COURT(Given by Harrison J)Table of ContentsPara NoIntroduction [1]Background [5]Issues [31]Causation [31](a) SCWL's case [31](b) Legal principles [35](c) Factual inquiry [42](d) Voluntary disclosure [47](e) Taxation liability [65]Costs [71](a) SCWL's case [71](b) Legal principles [74](c) Factual analysis [77]Benefits [82](a) SCWL's case [82](b) High Court [87](c) Legal principles [88](d) No benefit [95]Result [101]Introduction[1] This appeal, on largely uncontested facts, raises issues of causation and liability for damages for negligent provision of tax advice.[2] Sir Robert Jones and Yorgen Holdings Ltd are the trustees of the Tirohanga Family Trust (the Trust), the beneficial owner of companies within what is known as the Robert Jones Group (the Group). Sherwin Chan & Walshe Ltd (SCWL) acted on a retainer as accountant and tax adviser for both entities for some years. The firm does not dispute that it performed its professional services negligently in: (a) failing continually to advise the Trust about the effect of a discrete taxation regime upon annual increases in intercompany debt; and (b) advising the Trust to enter into a corporate restructuring transaction designed to eliminate that debt. In the result, the Trust incurred a substantial and unexpected tax liability.[3] The Trust sued SCWL for breach of contract, effectively seeking an indemnity against its tax liability. SCWL admitted its negligence but denied liability. Following a trial in the High Court, Whata J found for the Trust. He entered judgment for damages of $4.285 million1 and separately for interest and costs of $899,635.2[4] SCWL accepts that before exercising rights of set-off it is liable for $3.454million of the Trust's losses being its liability to tax on the corporate restructuring transaction. However, on appeal to this Court the firm challenges the damages judgment on these three separate grounds:(a) First, the Trust unnecessarily incurred an extra liability to tax on the annual increases in intercompany debt of $1.667 million,3 being the balance of the damages judgment above $3.454 million, as a result of reliance upon unreasonable, negligent or wrongful advice from its new tax adviser, Ernst & Young (EY) which is attributable to theTrust. Alternatively, EY's unreasonableness or negligence severed thechain of causation between SCWL's negligence and the Trust'sadjusted liability to tax.(b) Second, if SCWL had given timely advice to the Trust of its potential taxation liability, the Trust would necessarily have incurred costs of $1.286 million in eliminating its taxation exposure which must be offset against that liability.(c) Third, the Trust obtained a benefit from the restructuring transaction which completely offset its total tax liability of $4.285 million.1 Jones v WHK Sherwin Chan & Walshe HC Wellington CIV-2009-485-1324, 25 July 2011; in thisjudgment all denominations are in New Zealand dollars unless otherwise stated.2 Jones v WHK Sherwin Chan & Walshe HC Wellington CIV-2009-485-1324, 31 October 2011and 5 December 2011.3 At [12] and [25] below.Background[5] The facts are set out comprehensively in Whata J's judgment. However,those which are relevant to the issues can be reduced to more summary form as follows.[6] Sir Robert Jones is the beneficial owner of and driving force behind the Group. The Trust is his primary ownership vehicle. He has participated in commercial property development in Australasia for more than 50 years. The Group is a low geared property investor, using its cash flow to acquire new buildings or enhance existing ones. Between 2004 and 2011 New Zealand companies in the Group acquired about $250 million worth of commercial buildings in Auckland and Wellington. For most of that time SCWL provided taxation advice and accountancy services to the Trust, including preparation of annual accounts for companies within the Group.[7] The Group comprises a number of Australasian companies. Two are particularly relevant. One is Robert Jones Holdings Ltd (Holdings), a New Zealand company formed in 2006 following an amalgamation of Sofia Ltd and Featherston Assets Ltd. The other is Pamiers Pty Ltd, an Australian company. The Trust through intermediary companies owns Holdings and, equally with Holdings, it owns Pamiers.[8] From February 2003 Pamiers made frequent and escalating advances to Holdings on what we are satisfied was a current or running account. Pamiers'accountants in Australia were concerned about the taxation effect of this indebtedness. In October 2006 SCWL advised Sir Robert on what in its opinion was a tax efficient method of eliminating the loan. Its proposal was that Pamiers should acquire 20 per cent of Holdings, with part of the purchase price to be paid byoffsetting Holdings' current account liability. By restructuring itself in this way,SCWL advised, the Trust would minimise the risk of incurring taxation liability in New Zealand on funds transferred here which had already been the subject of Australian taxation.[9] The Trust implemented this advice on 13 March 2007. Pamiers' advances toHoldings were then $10.24 million. This amount was offset against the total purchase price of $16.2 million. However, a balance of AUD 42,049 still remained due and owing by Holdings to Pamiers on 13 March 2007 – this fact assumed significance at trial and in argument on appeal.[10] SCWL now accepts that when advising Sir Robert to implement the restructuring transaction it failed to take into account the attributed repatriation rules within the controlled foreign company (CFC) rules then in force under the Income Tax Act 2004.4 The CFC rules were introduced to counteract the ability of New Zealand companies to defer New Zealand income tax by using off-shore companies. The statutory purpose was to attribute to New Zealand shareholders for income tax purposes income earned by off-shore companies under their ownership and control even though the income was not actually distributed to them. The attributed repatriation rules operate to attribute as income any increase in value of New Zealand property held by a CFC in an accounting year to the extent that the increased investment was less than the unrepatriated income.[11] Two elements of the CFC rules are relevant to this appeal. First, the CFC rules treated Pamiers' purchase of the Holdings' shares as a financial arrangement constituting "an investment in New Zealand property". The acquisition represented an increase in Pamiers' associated party equity (that is, in its New Zealand property). The CFC rules deemed this increase to be an attributed repatriation dividend payable by Pamiers equally to its two shareholders which wastaxable accordingly. On this basis, the Trust's taxable income was $8.1 million, being the 50 per cent of Pamiers' purchase price attributable to its shareholding.[12] Second, the intra-group lending between 2003 and 2007 was arguably also afinancial arrangement within the CFC regime. If so, increases in Holdings' loan balance in any of Pamiers accounting years represented an increase in Pamiers'associated party debt (also in its New Zealand property). As with increases in4 The attributed repatriation rules are contained in ss CF2(16) to (19) and CG8 of the Income TaxAct 1994; ss CD13 and CD34 to CD41 of the Income Tax Act 2004; and ss CD21 and CD45 toCD52 of the Income Tax Act 2007.associated party equity, the increase in Pamiers' New Zealand property was treated as an attributed repatriation dividend payable by Pamiers to its shareholders in equalproportions. This provision was the basis for the Trust's additional taxation liability of $1.667 million.5 However, the financial arrangement would be disregarded for the purposes of the attributed repatriation rules if it matured within five years of the date it was entered into. This relief provision also assumed importance at trial and in argument on appeal.[13] On 23 September 2008 the Commissioner of Inland Revenue advised SCWL of his intention to audit the financial activities of the Trust and the New Zealand companies in the Group in the period between 2003 and 2007. This advice followed his letter dated 26 May 2008 notifying his commencement of a risk review. On 9 October 2008 he requested SCWL to provide information about the Grouprestructuring transaction. In November, when reviewing the Group's positionfollowing receipt of the Commissioner's notice, SCWL discovered its erroneousadvice to the Trust on the restructuring transaction.[14] However, SCWL did not disclose its error to Sir Robert until February 2009.In the firm's assessment, the Trust's taxation liability on the restructuring transaction was $2.673 million, being a 50 per cent share of the attributed dividend at the rate of 33 per cent. Additionally, use of money interest would be payable at 14.24 per cent– possibly up to $540,000.[15] The Trust immediately terminated SCWL's retainer and engaged EY as its accountant and tax adviser. In EY's opinion, given on 9 March 2009, the intra- company lending from Pamiers to Holdings between 2003 and 2007 was itself a single financial arrangement in the nature of increased associated party debt.6 Thatwas because Pamiers' loan account showed increases in Holdings' indebtedness ineach financial year in the relevant period. Accordingly, the deemed dividends shouldhave been included annually as taxable income in the Group's returns.5 At [25] below.6 At [12] above.[16] EY assessed the Trust's core tax liability for the period from 2004 to 2008 at$3,041,917. Interest and other penalties would also be incurred. But they could not be quantified until the Commissioner issued amended assessments, considered the shortfall penalty position and the Trust made full payment of the core tax.[17] Shortly afterwards, EY advised Sir Robert to make a voluntary disclosure tothe Commissioner about the Trust's tax liabilities on both the intercompany loan andthe restructuring transactions. A voluntary disclosure is a statutorily sanctioned process allowing a taxpayer to disclose information to the Commissioner for the purpose of obtaining an entitlement to a reduction in a shortfall penalty.7 The process can be implemented after notice to a taxpayer of a pending audit. It is designed as an incentive to taxpayers to determine their correct tax liability. The Commissioner has issued rules for this purpose, recognising the savings available from voluntary admissions of irregularities.8 Voluntary disclosure can also avoid a prosecution.[18] On 30 April 2009 EY prepared a draft letter disclosing to the Commissioner what in its opinion was the incorrect past income treatment of deemed dividendsattributable to the Trust from (a) Pamiers' intercompany lending to Holdingsbetween 2003 and 2007 (the increase in Pamiers' associated party debt) and (b) therestructuring transaction itself (the increase in Pamiers' associated party equity). EYcalculated an amended assessment of the Trust's taxation liability.[19] Since February 2009 the Trust through EY and its solicitors had been in frequent contact with SCWL and its solicitors, Minter Ellison. There was a detailedexchange of views about liability. While admitting SCWL's negligence in a letterdated 6 March 2009, Minter Ellison denied liability for any loss suffered by the Trust. The solicitors raised the tax savings defence prospectively available as a complete set-off to any claim.9 Minter Ellison maintained this position in subsequent correspondence.7 Sections 141G or 141J of the Tax Administration Act 1994.8 Standard Practice Statement 09/02: Voluntary disclosures.9 At [4(c)] above.[20] On 5 May 2009 the Trust's solicitors sent a copy of EY's draft letter ofdisclosure to Minter Ellison and invited comment by 9 May. By letter dated 12 MayMinter Ellison advised that SCWL opposed EY's proposal to make disclosure,stating:2. We do not intend to get involved in a debate as to the most appropriate way in which your client should handle the ongoing Inland Revenue audit. The audit is a matter for your client and its advisers to manage at their own risk. We reject any suggestion that our clients are responsible for any tax consequences associated with the intercompany loans between Pamiers and RJHL/Sofia in the relevant years. Our clients had no involvement in the transfer of funds that gave rise to those loans and their advice was not sought in relation to them.3. In any event, were such liability to be established, we consider that the proposed voluntary disclosure would not be consistent with yourclient's obligations to manage the tax audit in a commerciallyprudent and sensible manner. In our view, it would not be reasonable for the Trust to make the proposed voluntary disclosure because:(a) the immediate effect of the disclosure would be to invite Inland Revenue to issue reassessments for the relevant years in circumstances where there are cogent (and we believe compelling) reasons why no tax liability should arise; and(b) there is no advantage to be gained from making the voluntary disclosure (we understand from WHK Sherwin Chan & Walshe that all of the relevant income years are already under audit by Inland Revenue, with the result that the reduction in penalty for voluntary disclosure under section 141G of the Tax Administration Act 1994 is not available).[21] On 5 May EY separately advised the Trust of its exposure to shortfall penalties of $262,492 for failing to include in its returns taxable income from deemed dividends in the 2004 to 2007 years. A copy of that confidential letter was not sent to Minter Ellison. A shortfall penalty is defined as a penalty for taking an incorrect or abusive tax position.10 EY advised:... the making of a voluntary disclosure of a tax shortfall has now become standard practice in terms of mitigating penalty risk. The reduced penalty consequence and maintenance of tax profile integrity with the Commissioner are contributory reasons for taxpayers to make voluntary disclosures of tax shortfalls when such circumstances arise. For these reasons, we would10 Tax Administration Act 1994, s 3(1).recommend that the trustees voluntarily disclose the above tax shortfalls [for the years from 2004–2007] to the Commissioner in order to mitigate its tax costs in relation to the same.[22] In a letter dated 7 May Lindsay McKay, a leading tax barrister engagedindependently by the Trust, advised the Trust of his agreement with EY's advicegiven in its 5 May letter. In particular Mr McKay was satisfied that the Trust had derived dividends from attributed repatriations for the 2004 to 2007 income years and took an incorrect tax position in failing to return them. As a result it was potentially liable for shortfall penalties. He affirmatively advised the Trust to make voluntary disclosure of the attributed repatriation tax shortfalls. On 14 May Mr McKay advised the Trust of his disagreement with Minter Ellison's viewsexpressed in its 12 May letter and repeated his advice to make disclosure.[23] On 15 May EY on the Trust's instructions sent a letter of voluntary disclosure to the Commissioner. In summary, the disclosure repeated EY's earlier opinion onthe tax consequences of the intra-group lending. Thus the Trust had incorrectly accounted for income between 2004 and 2007 by failing to declare the deemed dividends. EY calculated the total tax shortfall payable for these years at $1,312,461.[24] However, EY included in its letter an argument in mitigation earlier raised by Minter Ellison in its 12 May letter. It was that Sofia effectively repaid the intercompany lending on 13 March 2007 which was within the five year maturity period.11 The small balance then owing of AUD 42,04912 was not intended to effect the purpose of the restructuring transaction as constituting a full repayment ofHoldings' indebtedness. Accordingly, while deemed dividends arose in each of therespective years, the loan could be disregarded because it matured within five years of its date of entry. EY did not include in its letter an argument separately raised by Minter Ellison on 12 May that each amount drawn down by Sofia was a separate financial instrument.11 At [12] above.12 At [9] above.[25] On 20 October 2009 the Commissioner advised EY of his rejection of this mitigation argument; he treated the loan as a financial arrangement which had not matured on 13 March 2007 or at any other relevant time. He required the Trust to amend its income tax returns for the years 2004 to 2007 to include deemed dividend income. He issued an amended adjustment following negotiations between the parties. In the result the Trust agreed to pay these adjusted amounts:(a) Loans from 2004 to 2007 and 2009 $1,667,911(b) Restructuring $1,523,990(c) Use of money interest $1,930,407[26] The Trust's taxation liabilities for restructuring and use of money interest of $1,523,990 and $1,930,407 respectively do not correlate with SCWL's higherassessment of $2,673,540 and about $540,000. The difference appears to beexplained by EY's view of the attributed repatriation in 2008. Ultimately, nothing turns on this difference.[27] Sir Robert's unchallenged position at trial was that the Trust would have acted differently if SCWL had given timely and proper advice. It would have directed Pamiers to cease remitting funds from Australia to New Zealand as early as 2003. Instead, Holdings would have borrowed externally in New Zealand or used New Zealand cash surpluses to repay the Pamiers loan. And the restructuring transaction would not have proceeded in 2007.[28] The Trust's claim for damages against SCWL was based on numerous causes of action principally in contract or tort. After a trial in the High Court, Whata J was satisfied that the firm's breaches of its professional duties gave rise to concurrent liability in contract and in tort.13 While the Judge found that EY wrongly advised the Trust that the financial arrangement constituted by the intercompany lending had not13 Jones v WHK Sherwin Chan & Walshe, above n 1, at [109].matured, he rejected SCWL's causation defences. Judgment was entered for a totalof $4.285 million.14[29] We add that at the close of the trial SCWL applied for leave to amend its statement of defence to plead contributory negligence based upon EY's advice to theTrust. Whata J dismissed its application.15 SCWL appealed against this decision but in argument Mr Taylor did not press the point. And, given our conclusions on liability, it is unnecessary to consider the subject further.[30] We will now address each of SCWL's three grounds of appeal.IssuesCausation(a) SCWL's case[31] First, Mr Taylor submits that the Trust unnecessarily incurred an additional taxation liability of $1.667 million16 on annual repatriated dividend payments. His submission postulates two alternatives. One is that EY acted unreasonably, wrongfully or negligently in: (a) advising the Trust to make voluntary disclosure to the Commissioner on the terms made; (b) failing to pursue arguments available toreduce the Trust's liability with more force; and (c) failing to advise the Trust to challenge the Commissioner's reassessment if necessary by litigation. As a result,EY's unreasonableness, wrongfulness or negligence must be attributed to the Trust. The alternative proposition is that EY's unreasonableness severed the chain of causation between SCWL's negligence and the Trust's adjusted liability for taxpayable on Pamiers' loans to Holdings.[32] We propose to approach Mr Taylor's submission by first examining the causal relationship between SCWL's negligence and the Trust's loss of14 See above at [25].15 At [79]–[88].16 See above at [25].$1.677 million before considering whether the Trust's actions taken on EY's advicehad any supervening effect on liability.[33] At the heart of both alternatives postulated by Mr Taylor is SCWL's assertionthat EY itself acted unreasonably, negligently or wrongly. Mr Taylor did not distinguish in argument before us between negligent or wrongful advice or unreasonable conduct – he used the terms interchangeably. In the High Court, where Mr Taylor had apparently adopted the same approach,17 Whata J framed SCWL'sargument as being that, first, EY's advice about the tax liability was wrong and, second, the advice gave rise to a separate cause of loss.18 In support of this argument on appeal Mr Taylor relies on Whata J's affirmative finding that EY wrongly advisedthat the financial arrangement constituted by the intercompany lending had not matured within the five year period.19 Mr Taylor says the Judge erred, however, infinding that the firm's wrongful advice was not a supervening act which broke thechain of causation.20[34] In the High Court, SCWL concurrently defended the claim on the ground that the Trust had failed to take reasonable steps to mitigate its loss. Whata J dismissed this defence21 and Mr Taylor did not press it in this Court. He did, nevertheless, rely on some of the authorities in this area to support his first ground of appeal.22 Those decisions have not assisted us because they apply settled legal principles to factualsituations very different from this case. In any event, our examination of SCWL'ssubmission that EY acted unreasonably or negligently will apply analogous principles to those adopted in the mitigation of loss context. Reasonableness is at the heart of both inquiries, although as we shall explain our inquiry will be into the conduct of the Trust, not EY.17 At [121].18 At [124].19 At [139].20 At [143]–[150].21 At [151]–[166].22 Skandia Property UK Ltd v Thames Water Utilities Ltd [1999] BLR 338 (CA); McGlinn vNorthern Waltham Contractors Ltd (No 3) [2007] EWHC 149 (TCC); and Linklaters BusinessServices v Sir Robert McAlpine Ltd [2010] EWHC 2931 (TCC).[35] We are satisfied that SCWL's focus on the Trust's voluntary disclosure ismisplaced. The issue is not whether EY's advice to make the voluntary disclosure was wrong, negligent or unreasonable. The issue is whether the Trust's additionaltax liability of $1.667 million was caused by or is attributable to SCWL's negligence.In determining that issue, it will be necessary to evaluate whether or to what extentthe Trust's subsequent conduct might have operated as an intervening or independentcause, breaking the chain of causation triggered by SCWL's breach.23(b) Legal principles[36] In Bank of New Zealand v New Zealand Guardian Trust Co Ltd,24 this Court approved a composite test for determining liability in performing professional services. Two corresponding elements are relevant: one is identification of the scope of the duty; the other is identification of the risk against which the professional had a duty to protect the client. In adopting this approach, the Court was influenced bySouth Australia Asset Management Corp v York Montague Ltd.25 The House of Lords there drew a distinction within the causation inquiry between an assumption of a positive duty to advise on a course of action and a lesser duty to inform. In the former case the professional is responsible for all the foreseeable consequences of his or her negligence; in the latter the professional is responsible only for the consequences attributable to the wrongful information.[37] In policy terms this approach is designed to ensure that the wrongdoer is not liable for losses arising from an independent cause in circumstances where the breach of duty simply creates or allows an opportunity for loss.26 This is sometimesreferred to as the "but for" or distant nexus test, postulating liability for an eventwhich would not have happened without the originating negligence. It is not normally a sufficient basis for fixing liability in contract.27 However, labels can23 M'Kew v Holland & Hannen & Cubitts (Scotland) Ltd 1970 SC (HL) 20 at 25, applied inFleming v Securities Commission [1995] 2 NZLR 514 (CA) at 524.24 Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664 (CA) at 682–684.25 South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 (HL) at 214.26 Price Waterhouse v Kwan [2000] 3 NZLR 39 (CA) at [27]–[28].27 Sew Hoy & Sons Ltd v Coopers & Lybrand [1996] 1 NZLR 392 (CA) at 403; Bank of NewZealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 213 (HC).mislead. The principle is not absolute in an area where the ultimate inquiry is shaped by the particular facts. So, where the professional assumes an affirmative duty to advise on the appropriate course of action, rather than simply to inform, a modified"but for" test may be appropriate, buttressed by a requirement that the negligence hasa real influence on the cause of loss.28[38] An example is provided by Sew Hoy & Sons Ltd v Coopers & Lybrand.29This Court refused to strike out a claim by a company against an allegedly negligent auditor for losses which it asserted were the inevitable result of continuing to trade when it was unaware of ongoing trading losses. As Thomas J noted, it was arguablethat the professional's negligence caused the company to refrain from taking steps toavoid losses.30[39] Another example of a modified "but for" approach to causation is providedby Aneco Reinsurance Underwriting Ltd v Johnson & Higgins Ltd.31 The House of Lords there held a negligent insurance broker liable for all the losses suffered by an insurer which it would have avoided by not entering into an insurance contract if the broker had properly reported on the availability of reinsurance. The basis for imposing liability was a finding that the broker undertook to advise about the particular transaction.[40] By contrast, in South Australia Asset Management Corp and Bank of New Zealand the valuer and trustee respectively were found to have assumed the more limited duty to provide information and were liable only for the losses attributable to the particular failure. The financial consequences of applying each approach, reflected in the extent of liability imposed on the negligent professional, can be substantial.28 Price Waterhouse at [28].29 Sew Hoy & Sons Ltd v Coopers & Lybrand [1996] 1 NZLR 392 (CA).30 At 411–412.31 Aneco Reinsurance Underwriting Ltd v Johnson & Higgins Ltd [2001] UKHL 51, [2002] 1Lloyd's Rep 157.[41] Thus we propose to approach the factual inquiry into causation by applying the principles settled by the leading authorities, focussing on the nature and scope ofSCWL's duty and the influence of its breaches on the Trust's loss.(c) Factual inquiry[42] SCWL does not challenge Whata J's finding that the scope of its duty was(a) to prepare the Trust's financial accounts from 2003 to 2007; (b) to provide taxadvice and prepare and file tax returns in the same period; and (c) to provide structural advice including on the proposal to restructure in March 2007.32 Inparticular, SCWL assumed the specific task of managing the Trust's financialaccounting including tax33 to ensure tax efficiency and compliance with relevant tax legislation.34 In other words, SCWL's obligation under its retainer was of a proactivenature.[43] The Judge found that the nature of SCWL's breach was not limited to anisolated transaction or provision of information but permeated the entire financial accounting of the Trust and the Group from 2003.35 SCWL's breach had threerelated components – failing (a) to advise about the effect of the CFC regime relating to both the loan arrangements and the restructuring; (b) to record the correct financial position; and (c) to lodge the correct annual tax returns.36 This breach was aggravated by a failure to present the accounts in a manner which coherently and legitimately enabled the Trust to claim exemptions from the application of the CFC regime.37 In the Judge's words, the nature of the breach was "a systemic failure toadvise and to position the Trust so as to legitimately minimise its potential taxliability".38[44] In terms of the causation inquiry we are satisfied that in the context of its retainer the scope of SCWL's duty was of the wider kind: it was to advise the Trust32 At [103].33 At [104].34 At [106].35 At [110].36 At [111].37 At [112].38 At [114].on the best course of action to efficiently manage its taxation liability. Correspondingly, its obligation was to protect the Trust against the risk of paying more tax than it might otherwise have been liable to pay. It is undisputed that, but for SCWL's breach of duty, the Trust would have avoided this risk if the firm hadacted competently from 2003.[45] In affirmative causation language, SCWL's negligent failure to advise caused the companies to continue from 2003 with the same type of lending arrangement and escalating levels of indebtedness, incurring a taxation liability which would not havebeen otherwise imposed. In this sense the firm's negligence had a real influence onthe occurrence of the Trust's loss. It was also a foreseeable consequence of that negligence that the Commissioner would reassess the intercompany lending to taxand adjust the Trust's liability according to the relevant statutory provisions. It follows that we reject Mr Taylor's submission that SCWL's negligence merelyprovided the opportunity for the Trust to incur further loss.[46] On this analysis the conditions of liability for this head of loss are satisfied. That conclusion should be the end of the inquiry.[47] However, SCWL seeks to ascribe causative potency to EY's advice to theTrust that the intercompany lending was a financial arrangement which had not matured within the five year statutory period. It says that advice was wrongful and independently operated to cause the Trust's liability to tax of $1.667 million – either when voluntary disclosure was made on its terms, which was the primary thrust of Mr Taylor's argument, or later when the Commissioner reassessed the Trust'sliability to tax.(d) Voluntary disclosure[48] The starting point for considering Mr Taylor's argument is our satisfactionthat it was likely if not inevitable by 15 May 2009 that the Commissioner wouldindependently reassess the Trust's taxation liability under the CFC regime on the intercompany lending irrespective of any voluntary disclosure made by the Trust.While a taxpayer may challenge the Commissioner's assessment and theCommissioner may settle a challenge proceeding,39 he or she must genuinely ascertain a taxpayer's liability in accordance with the relevant taxation statutes40 and will not be deterred from doing so merely because of a challenge. The amended assessment process undertaken by the Commissioner was the machinery forquantifying and fixing the Trust's liability. As Richardson J observed inCommissioner of Inland Revenue v Canterbury Frozen Meat Co Ltd:41An assessment is the quantification by the Commissioner of the statutorily imposed liability of the particular taxpayer to tax for the year in question. The making of an assessment including an amended assessment requires the exercise of judgment on the part of the Commissioner in quantifying thatliability on the information then in the Commissioner's possession. It involves the "ascertainment" of the taxable income and of the resulting taxliability just as it does under the Australian definition of "assessment" whichuses the expression ascertainment. So, as Kitto J said in Batagol v Federal Commissioner of Taxation of the Commonwealth of Australia (1963) 109 CLR 243, 251-252, it is "the completion of the process by which theprovisions of the Act relating to a liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case".[49] Once these principles are kept in mind, the legal effect of the Trust'svoluntary disclosure falls into perspective. It was a material step in the reassessmentprocess but no more. The trigger was the Commissioner's letter to SCWL on 9 October 2008. He specifically requested loan documents relating to the agreementbetween Pamiers and Holdings. He identified the Trust's capital gain of$16.2 million (the sale price of Holdings' shares) during the 2008 income tax period.On 25 November 2008 he asked for a "full transaction history of the debt account[between Pamiers and Holdings] from time of inception", noting an intercompanybalance on 31 March 2006 of $10.186 million.[50] The second or a consequential step in the continuum was the Trust'svoluntary disclosure on 15 May 2009. By way of brief background, the results ofSCWL's systemic negligence justify emphasis. The Trust had failed in its tax returns39 Sections 6, 6A and 89C(d) of the Tax Administration Act 1994; Accent Management Ltd vCommissioner of Inland Revenue [2007] NZCA 231, (2007) 23 NZTC 21, 366 at [10]–[16]; andAuckland Gas Company v Commissioner of Inland Revenue [1999] 2 NZLR 409 (CA) at 417.40 Reckitt and Colman (NZ) Ltd v Taxation Board of Review [1966] NZLR 1031 (CA) at 1034;Whitney v Commissioners of Inland Revenue [1926] AC 37 (HL) at 52; and Golden Bay CementCo Ltd v Commissioner of Inland Revenue [1999] 1 NZLR 385 (PC) at 389.41 Commissioner of Inland Revenue v Canterbury Frozen Meat Co Ltd [1994] 2 NZLR 681 (CA) at690.to 31 March 2007 to declare tax payable on the deemed dividend arising from the sale of its shares in Pamiers. And arguably it had failed to declare tax payable for previous years for attributed repatriations arising through increased associated party debt on the loan.[51] SCWL's belated admission of its systemic negligence in early 2009 placed the Trust in a difficult position. The Trust was on notice that it had failed through no fault of its own to pay a substantial tax liability or liabilities. It was also by then thesubject of the Commissioner's audit, focussing on the very transaction giving rise to the liability which it had failed to declare. The Trust was forced to engage a new accountant and tax adviser which had to familiarise itself at short order with theTrust's complex financial and taxation affairs.[52] Moreover, Minter Ellison had unequivocally warned the Trust on 17 February 2009 that if it failed to meet its undeclared liability on the restructuring transaction immediately from its own financial resources – a liability caused by SCWL'snegligence – SCWL would not be liable for any penal consequences. But SCWL was not offering to pay the substantial amount plainly due as the consequence of itsnegligence. The firm had not only created but compounded the Trust's dilemma byfailing to provide constructive assistance towards its resolution. It was always open to SCWL in March 2009 to offer to indemnify the Trust against its liability for shortfall penalties and any other financial costs which might be imposed by the Commissioner consequent upon acceptance of SCWL's position that voluntary disclosure was unnecessary. The firm's omission to take this step following itsadmission of negligence is relevant to an assessment of whether the Trust acted reasonably in making disclosure.[53] Geoffrey Blaikie, the EY partner responsible for advising the Trust in 2009, believed that a failure to disclose what in his opinion was the incorrect tax positionmight damage the Trust's risk profile with the Commissioner for future audit orinvestigation. Its integrity may be compromised by pursuing an argument which was neither compelling nor sustainable. Plainly, voluntary disclosure of the associated party equity liability was necessary. His view that disclosure was necessary wascontemporaneously supported by Mr McKay's independent advice to the Trust to take that step.[54] The advice given by EY and Mr McKay was supported by Richard Green, an experienced tax barrister called by the Trust, who gave evidence at trial that disclosure of the associated party debt liability was a responsible step. Mr Green, whose opinion on reasonable practice was relevant and admissible, said this when discussing a suggestion that the Trust should not have made voluntary disclosure:... in terms of s 141G of the TAA [Tax Administration Act], in order to constitute a voluntary disclosure, including a post notification voluntary disclosure such as was made, the disclosure must be full and contain all the details of the tax shortfall. The disclosure must set out information as required by the Commissioner and be in proper form. See Standard PracticeStatement 09/02, "Dealing with Voluntary Disclosures".Mr Green's opinion, which we accept, was reinforced by EY's earlier identification of the Trust's risk of incurring shortfall penalties of $262,492.[55] The third step in the reassessment continuum was the Commissioner's letter dated 20 October 2009 which (a) rejected Minter Ellison's argument advanced by EY that Holdings' loan was repaid on 13 March 2007, noting that the loan balancehad increased progressively from AUD 42,049 to AUD 2.084 million on 30 June 2007;42 (b) concluded that the financial arrangement was a single instrument which had not matured, not multiple instruments as Minter Ellison had suggested; and (c) proposed an amendment to the Trust's income tax return to include all deemeddividend income for the relevant period.[56] Correspondence and discussions followed between the Commissioner andEY. In the result the Trust's income tax assessments were formally reopened on thebasis that it had not disclosed income of a particular nature and its source.43Adjusted tax of $1.504 million was agreed for the years from 31 March 2004 to 31 March 2007.42 At [25] above.43 Tax Administration Act 1994, s 108(2)(b).[57] In summary, we repeat, the Trust's voluntary disclosure had no materialcausative effect on its loss. It was one step in a process which culminated in theCommissioner's decision to adjust the Trust's liability to tax.(e) Taxation liability[58] While the adjusted figure was agreed, it was nevertheless a liability imposed by law in an amount fixed by the Commissioner in exercising his statutory obligation to fix its quantum. This was the final or operative step in the process. By signing the agreed adjustment notice, the Trust acknowledged that it had no further reason to dispute its liability.44 Significantly also the Commissioner agreed, as a result of EY'srepresentations, to waive all shortfall penalties.[59] The question then is whether the Trust's decision to accept – or its failure to dispute – liability was an intervening operative cause of its loss. The inquiry must be directed towards the conduct of the wronged party which is forced to take remedialsteps in consequence of the wrongdoer's negligence. While it will frequently seekand act on advice in an area of specialist knowledge, the test remains whether the wronged party itself has foreseeably taken an unreasonable risk at the wrongdoer'scost.45 If so, the loss is not the natural and probable result of the wrongdoer'soriginating negligence; if not, the chain of causation remains unbroken.[60] Mr Taylor submits that when applying this test we should attribute what hesays is EY's unreasonable or negligent advice to the Trust. In this sense he means that the two entities are so closely identified that EY's advice which the Trustaccepted must in law be ascribed to the Trust.[61] However, we cannot see a reason to apply the attribution principle here. Attribution is a legal fiction of limited application, most distinctively in consideration of corporate liability, and applies where a principal is held vicariously liable for the wrongful acts or omissions of its agent causing loss to a third party: the two are treated as if they were one and the same for this purpose. It is true that EY44 Tax Administration Act, s 89I.45 Fleming v Securities Commission, above n 23, at 524.performed an agency function in filing the Trust's tax return. But no questions of third party liability arise in that respect. What is decisive is that EY acted independently of the Trust in giving advice within its area of speciality and expertise.[62] Mr Taylor did not cite authority directly on point. Instead, he relied by analogy on O'Hagen v Body Corporate 189855.46 However, O'Hagen was decided in the different context of the Contributory Negligence Act 1947. In attributing tothe client a solicitor's negligence in failing to obtain a LIM report and reducing a damages award payable to a successful plaintiff, this Court acknowledged thatvicarious liability for an agent's conduct within the discrete confines of acontributory negligence defence would only be imposed in limited circumstances. Policy considerations dictated the result in O'Hagen.47 However, there can be no policy rationale for introducing an attribution principle where the inquiry is into thereasonableness of the wronged party's conduct, not its agent's advice.[63] Within this inquiry, the fact that a wronged party relies on expert advice will always be significant. But, as Mr Taylor emphasises, that factor is not on its own in every case sufficient to establish that the Trust has acted reasonably. Situations may arise where the party is itself placed on notice or should be on inquiry that the adviser is wrong. Or the party is independently in possession of information which might throw the advice into question. In such a case it may be arguable that the party was not entitled to rely on the advice.[64] Thus SCWL's argument must reduce to a proposition that the Trust should not have agreed to the Commissioner's taxation adjustment because it was or shouldhave been obvious to it that that liability was not one imposed by law. Mr Taylor characterises it as a non-existent tax liability. Accordingly, he says, the Trust acting reasonably in protecting its interests in 2009 should have disputed liability on the grounds that: (a) the intercompany lending was not a single financial arrangement but a series of loans;48 (b) the loan matured on 13 March 2007 even though a balance46 O'Hagen v Body Corporate 189855 (Byron Avenue) [2010] NZCA 65, [2010] 3 NZLR 445 at[99], [100], [139]–[145] and [190].47 See also the Supreme Court's decision in Hickman v Turner [2012] NZSC 72 at [94]–[98],emphasising the importance of policy considerations in applying the attribution principle.48 At [24] above.of AUD 42,049 remained owing;49 or (c) the loan matured on 31 March 2007 on payment of a scheduled management fee of AUD 151,250.[65] In effect, SCWL says the Trust acted unreasonably by accepting EY's advice not to challenge the Commissioner's reassessment on the first two grounds and infailing to identify the third. In order to succeed the firm must establish that the Trust should have rejected EY's advice. Extensive argument and some inadmissible evidence from tax experts50 were directed to the substance and quality of EY'sadvice at trial in the High Court.[66] Whata J upheld SCWL's third ground – he was satisfied that the loan matured on 31 March 2007 when Pamiers paid the management fee.51 But he was not satisfied that it operated as an intervening cause of loss. We doubt whether theJudge's first finding was correct but ultimately that will not be decisive. Objectivelyconstrued, the primary documents are equally consistent with a conclusion thatHoldings' loan balance went briefly into credit on 31 March 2007, not by design butby a fortuity, and that the management fee was not paid for the express or intended purpose of terminating the existing loan.[67] In this respect, as Mr Reed QC notes, the management fee accrued quarterly through the intercompany current account. It was paid automatically, regardless of the level owing. We agree with him that in these circumstances and in the absence of a documented agreement it is artificial to characterise the fee as a payment madeintentionally to bring about the loan's maturity or as the last payment contingent onthe arrangement. By 2 April 2007 Holdings was back into debt on the same running account, escalating as the Commissioner noted to AUD 2,084,674 by 30 June 2007. Its pattern of borrowing from Pamiers on the equivalent of a bank overdraft facility continued as before 31 March 2007.[68] We return to the underlying issue of whether the Trust, not EY, acted unreasonably in not disputing liability on any of the three grounds now identified. In49 At [24] above.50 Penny v Commissioner of Inland Revenue [2010] NZSC 95, [2012] 1 NZLR 433 at [32].51 At [128]–[130].our judgment the Trust could not reasonably be required to challenge theCommissioner's adjusted assessment by litigating arguments which in its adviser'sview were unsustainable, thereby exposing itself to the real risk of incurring shortfall penalties, statutory interest liability and costs, not to mention damage to reputation.52Nor did the Trust have reason to second guess or question EY's specialist advice in atechnical and problematic area of law. And nor did the Trust have reason to prefer the conflicting opinions of its former adviser which was admittedly negligent in failing to advise over a number of years on the taxation effects of the intercompany lending – the very issue that was the subject of the Commissioner's adjustment.[69] Even if contrary to our view the reasonableness inquiry extended to theadviser's conduct and Whata J was correct that EY erred in advising the Trust that the loan had not matured:(a) EY was exercising its professional judgment. The fact that its opinion might later be proved wrong does not equate with negligence or unreasonableness.53(b) It was well open to the Trust, acting on advice, to regard the first two grounds raised by SCWL at the time of disclosure as unlikely to succeed. And, while EY did not identify the third ground, we are not satisfied that it should have been raised or that it would have carried the day in disputed litigation.(c) Moreover, as Mr Reed properly emphasises, SCWL can hardly say the Trust acted unreasonably in 2009 in failing to dispute liability on this third ground when SCWL itself, which had had direct access to the ledgers and primary accounting documents, did not identify it when its solicitors were consulted by EY about the terms of a voluntary disclosure. SCWL's argument was then limited to the first and secondgrounds suggested by Mr Taylor – that the intercompany lending was52 Marlborough District Council v Altimarloch Joint Venture Ltd [2010] NZSC 11, [2012] 2 NZLR726 at [55], [68] and [201].53 Lai v Chamberlains [2006] NZSC 70, [2007] 2 NZLR 7 at [77]–[78].a series of loans or financial arrangements and the loan effectively matured on 13 March 2007. Both were properly rejected by Whata J.[70] In summary, SCWL has not satisfied us that the Trust took an unreasonable risk at its expense in accepting liability for additional tax of $1.667 million. SCWL'snegligence was, in our judgment, the operative or proximate cause of the Trust incurring that liability. The chain of liability was not broken by later events. This ground of appeal must fail.Costs(a) SCWL's case[71] Second or alternatively, Mr Taylor submits that SCWL's liability should bereduced by $1.286 million. This sum is said to represent the costs which the Trustwould have incurred by taking alternative steps to eliminate Holdings' indebtednessto Pamiers if SCWL had correctly advised on the effects of the CFC regime in early 2003. Its argument is based upon acceptance of what is called a counterfactual in this context: that is, a reconstructed or hypothetical set of facts contrary to what actually occurred.[72] SCWL's defence relies on the evidence of Grant Graham, an experienced accountant and financial adviser. His assessment accepts Sir Robert's evidence thatHoldings would have borrowed externally in New Zealand to repay its indebtedness to Pamiers in early 2003. But it ignores Sir Robert's alternative that Holdings wouldhave repaid the loan with surplus funds available from cash flow in New Zealand.(b) Legal principles[73] Mr Taylor emphasises that Mr Graham's evidence was not answered. Hepoints to Whata J's observation, when dismissing SCWL's argument, that:5454 At [207].I note for completeness that I was initially troubled by the lack of evidence from [the Trust] on the counterfactual. I have had to resort to the general evidence to be satisfied that such costs would have been avoided. But I amsatisfied overall that [SCWL's] counterfactual lacked a proper evidentialfoundation.[74] We do not share the Judge's initial doubts. The inquiry into this line ofdefence was essentially of a factual nature. Mr Taylor is correct that the Trust bore the burden of proving that it would have acted differently if it had been properly advised.55 It is common ground that the Trust has discharged that burden: SCWL does not challenge Sir Robert's evidence that the Trust would have ceased remittingfunds from Australia in early 2003, repaid the loans from Pamiers to Holdings and not undertaken the restructuring transaction.[75] However, Mr Taylor errs in his consequential proposition that the Trust assumed an additional burden of proving overall loss after taking into account anycosts on what he calls the "claimed counterfactual scenario". In the High Court the Trust calculated its loss according to the orthodox measure56 of (a) the excess tax paid as a result of entering into the restructuring transaction together with interest; and (b) the amount of tax for which it would not have been liable if SCWL had properly advised it of its repatriation liabilities on the intra-group lending.[76] The Trust was not obliged to go further in this case and prove a negative –that is, that it would not have incurred costs to be offset against this loss. Nor was it bound to lead its own evidence to disprove a contingent hypothetical. The Trust was entitled to take the view that it would not have incurred any costs which SCWL might properly set off against the normal measure. SCWL was, of course, entitled to call evidence if it wished to challenge the measure of loss adopted by the Trust by showing that it was not proved on the balance of probabilities.55 Benton v Miller & Poulgrain (a firm) [2005] 1 NZLR 66 (CA) at [48].56 J L Powell and R Stewart (eds) Jackson & Powell on Professional Liability (7th ed, Sweet &Maxwell, London, 2012) at [17-082].(c) Factual analysis[77] Bearing these principles in mind, SCWL's argument can be addressed shortly.Mr Graham carried out a detailed analysis. It was designed to establish that the Group, not the Trust, would have incurred additional net financing costs of $1.1 million based upon remedial steps which would have been taken in early 2003. This sum was the difference between: (a) the after tax returns on investment the Group would have incurred if Pamiers had placed its surplus funds on core deposit in Australia earning compounding interest; and (b) interest expenses the Group would have incurred by borrowing in New Zealand. The base figures taken from the Group ledgers are the actual movements of funds between 2003 and 2007.[78] This analysis, Mr Taylor says, rests on the simple logic that if the intercompany lending had not occurred the restructuring transaction would not have proceeded – but the New Zealand Group entities and associated parties would still have engaged in the same activities and incurred the same expenditure.[79] However, the latter part of this proposition appears to encapsulate its fallacy. It is contrary to Sir Robert's unchallenged evidence that the Trust and its companieswould not have engaged in internal lending on the terms that they actually did after early 2003. Thus the events represented by funds movements recorded in the Group ledgers would never have occurred. Nevertheless, those movements are the evidential foundation for Mr Graham's counterfactual assessment. An expertopinion based upon what did occur does not provide a reliable factual foundation for a conclusion premised upon what would not have occurred: a counterfactual founded upon the factual is of no evidential value in this case.[80] Furthermore, as Mr Colson emphasises, Mr Graham's evidence is flawedbecause:(a) His assessment ignores the contingency that the Trust would not have incurred any borrowing costs. Instead it would simply have used surplus funds in New Zealand to discharge Pamiers' indebtednessinstead of applying them towards the purchase of another building. Inexplanation for this omission Mr Graham says at and after early 2003 the Group had no surplus cash available for this purpose. But again this explanation is flawed because it relies on the factual in circumstances where the Trust may have decided, for example, to forego another investment to ensure funds were available.(b) Mr Graham's assessment also assumes that Pamiers would haveregularly placed all surplus funds on fixed term deposit in Australia when it never followed this practice. Instead, it used surplus funds there to purchase properties.(c) Holdings could have borrowed externally more cheaply in early 2003 (at a rate of between 7.6 to 7.7 per cent) rather than paying the intra- group lending rate to Pamiers of 11.93 per cent.[81] This ground of appeal must fail.Benefits(a) SCWL's case[82] Third, Mr Taylor submits that the 2007 restructuring transaction actually resulted in a benefit in the nature of a tax saving to the Trust of $5.339 million.Thus, the Trust's claim against SCWL is completely offset and the damages claimmust fail. We note that this argument proceeds on a contrary factual premise from the previous cost based hypothetical.[83] The firm's argument relies on the evidence of Michael Lennard. He wasformerly Head of Legal Services at the IRD and now practices as a specialist tax barrister in Wellington. Mr Lennard has assessed a saving for the Trust of $5.339 million comprising (a) Sir Robert's opportunity to extract $4.938 millionfrom Pamiers free of tax on the basis that if tax had been paid on this sum it would have amounted to $1.629 million; and (b) $3.71 million being tax payable on a dividend of $11.261 million – the actual amount the Trust loaned back to Holdings.On Mr Lennard's thesis, this latter sum was prima facie taxable as a dividend. But,because of the restructuring, it was able to be taken out tax free as consideration for the sale of shares; the fact that the cash was advanced back to the Group and remainsoutstanding as a shareholder's loan does not affect the timing or the amount of thetax benefit. Geoffrey Harley, also an experienced tax barrister, supported Mr Lennard's opinion that the transaction had tax benefits although on slightlydifferent grounds.[84] In order to understand SCWL's argument it is necessary to set out therestructuring transaction in more detail as follows:(a) the Trust made two loans – to Holdings of $10.186 million and to Pamiers of $1.074 million;(b) the BNZ loaned Pamiers $4.938 million;(c) Holdings paid Pamiers $10.186 million (the amount advanced to it by the Trust); and(d) Pamiers bought 20 per cent of Holdings for $16.2 million ($10.186 million + $4.938 million + $1.074 million).[85] The restructuring transaction was effected primarily by intra-group funds movements. Only $4.938 million of new cash was injected – BNZ's loan to Pamiers.When considered in this light, Mr Taylor's proposition that the Trust gained a taxsaving greater than the amount Pamiers borrowed appears to justify Mr Colson's rejoinder that it had to be "too good to be true".[86] The principled basis for Mr Taylor's argument is that if the Trust obtained ataxation benefit as a result of SCWL's negligence:(a) The benefit must be taken into account in assessing damages; if not, the Trust would be in a better position than if properly advised.(b) The benefit in the form of a tax free payment was of exactly the same kind, and arose at exactly the same time and from exactly the same transaction, as the one which caused the unexpected tax liability. The same mechanism used for assessing the timing and quantum of the tax loss suffered on the restructuring transaction can also be used for measuring the timing and quantum of the benefit.(c) Just as the restructuring triggered a tax liability that would not otherwise have been payable, it also resulted in an actual payment of cash from Pamiers to the Trust that would have been taxable but for the restructuring transaction.(b) High Court[87] In rejecting SCWL's defence on this ground, Whata J accepted that a remedyshould not over compensate a plaintiff.57 However, he found that any benefits obtained by the Trust were inherent in SCWL's advice – that is they were part of the performance of the contract of services and it would be perverse to apply them to remedy a breach of the same contract.58 In any event, the Judge found that the restructuring did not result in a current or real net gain. At best, any benefit was "too inchoate to set off against the actual tax paid".59 Mr Taylor submits that the Judge was wrong on both counts.(c) Legal principles[88] While SCWL's argument must ultimately fail because of our satisfaction that the restructuring transaction did not yield a tax saving benefit to the Trust, we record that Mr Taylor's argument also appears to face a principled objection. The usualmeasure of damages for breach of contract is summarised by the authors ofMcGregor on Damages in this way:6057 At [173].58 At [183].59 At [189].60 McGregor on Damages (18th ed, Sweet & Maxwell, London, 2009) at [2-002].Contracts are concerned with the mutual rendering of benefits. If one party makes default in performing his side of the contract, then the basic loss to the other party is the market value of the benefit of which he has been deprived through the breach. Put shortly, the claimant is entitled to compensation for the loss of his bargain. That is what may best be called the normal measure of damages in contract.[89] Loss of bargain or expectation damages are designed to put a plaintiff in the position it would have enjoyed if the contract had been performed.61 The plaintiff's financial entitlement is the value of the defendant's promise. That is the benefit towhich the disappointed plaintiff is entitled. In conceptual terms, this is often referred to as an expectation interest – the right to compensation for loss of a bargain.62While these principles have been formulated and applied in assessing damages for breach of contract, there is no reason why they should not apply equally when determining an argument raised by a contractual wrongdoer for setting off the benefit inherent in the bargain against the loss for which compensation is sought.[90] In this case SCWL under its retainer contracted to provide professional services to the Trust including advice on the best ways of managing its taxation liability. In particular it promised to exercise reasonable skill and care to (a) enable the Trust to claim the benefit it now says should be set off against its entitlement to damages; and (b) exempt it from liability for tax on the restructuring transaction. That was not a guarantee of a result but a promise to exercise reasonable skill. It was the bargain inherent in the service which the adviser promised to perform. And if the promise had been performed, the Trust as the client would have been entitled to both benefits.[91] On this analysis the Trust should be entitled in principle to keep the benefit of its bargain – that is the tax saving which SCWL now asserts was the gain it enabled –while being compensated for what it lost – the payment of tax on the restructuring transaction: an innocent party claiming compensation for breach of a contractual obligation should not be expected to surrender by set-off the benefit separately promised by the wrongdoer.61 Stirling v Poulgrain [1980] 2 NZLR 402 (CA) at 419.62 Newmans Tours Ltd v Ranier Investments Ltd [1992] 2 NZLR 68 (HC) at [86] (appeal allowed inpart but not on this point: (1993) 6 TCLR 1 (CA)).[92] Mr Taylor seeks support from Professor McLauchlan's formulation of theprinciple that a benefit accruing to a plaintiff ought to be taken into account as an offsetting gain if it is received as a result of entry into the transaction for which damages are claimed and it or an equivalent benefit would likely not have been received but for that breach.63[93] While we do not question Professor McLauchlan's formulation, Mr Taylor has not satisfied us that it assists SCWL. To the contrary, its application supports theTrust's position. The firm cannot say that the alleged benefit would not have beenreceived but for its breach. Any benefit was an incident of the service which it provided, not a result of its omission to consider the CFC rules. In this sense the benefit is a separate or independent gain which is not to be offset; it was part of the bargain arrived at between the parties. Thus, if the benefit is present on the facts, it would not be attributable to the breach.[94] However, we do not finally decide this point because, in any event, we are not satisfied a tax benefit existed or was available.(d) No benefit[95] Mr Taylor submits that the Trust obtained a real and immediate tax benefit because it can possibly be converted into cash over time as Holdings reduces theTrust's loan. As he accepts, the economic position of the Group did not change as aresult of the restructuring transaction. Nevertheless, he says, the capital structure is now fundamentally different. That is because the new mixture of debt and equityallows the Trust freedom to call in shareholders' loans at any time with no further taxconsequences. In other words, a permanent change to the Group structure has been effected without incurring the usual tax liability, where the ordinary price a shareholder pays for converting equity into debt in this way is equal to the tax which would otherwise be chargeable on an equivalent dividend.63 See David McLauchlan "Some Issues in the Assessment of Expectation Damages" [2007] NZLaw Rev 563 at 627–628.[96] We reject as inherently self-contradictory Mr Taylor's submission that thealleged tax benefit is real and immediate. Whata J's description of the benefit as "too inchoate" to justify recognition in a set-off against the Trust's loss was apt.64 A court fixes damages by assessing losses – including future losses – which are quantified at the date of trial. A set-off claimed for a benefit must be determined onthe same basis. The Trust's right to extract funds out of the Group by requiringpayment of shareholder loans at some future time is speculative: it is subject to a contingency which may or may not crystallise. SCWL was required to establish that event as a probability, not a possibility. Significantly, SCWL did not attempt at trial to calculate its net present value.[97] In any event, we are not satisfied that the benefit ever existed or was available. As Mr Colson submits, profits can only be extracted from Holdings by payment of a dividend or liquidation. Either would be subject to taxation. The restructuring transaction did not introduce any new funds because the Trust applied the $4.938 million loaned by the BNZ to Pamiers and paid to Holdings in discharge of indebtedness to Sir Robert. Repayment of a loan would not be a dividend but a shifting of cash from Holdings to the Trust. This result could equally be achieved by Holdings lending money to the Trust at an arms-length rate and offsetting the interest income against its tax losses without a tax cost.[98] It is significant also that when advising the Trust about the restructuring transaction SCWL never identified the tax saving which it now asserts. In thisrespect we refer to the firm's letters of advice to Sir Robert between 6 April 2006and 3 October 2006. All set out its benefits for the Trust and the Group.[99] Mr Taylor was unable to identify within SCWL's correspondence any direct reference to the tax saving which the firm now says has accrued to the Trust. He described the particular saving as being inherent. In cross-examination, Brian Burge,SCWL's partner responsible for managing the Trust's affairs, acknowledged that henever thought about this possibility and could not recall when it arose. It is64 At [189].incomprehensible that SCWL did not highlight the alleged tax benefit in 2006 if the firm believed it existed.[100] This ground of appeal must also fail.Result[101] The appeal is dismissed.[102] SCWL must pay the Trust's costs for a standard appeal on a band A basis andusual disbursements. We certify for two counsel.Solicitors:Minter Ellison Rudd Watts, Wellington for AppellantsBell Gully, Wellington for Respondents