Janus Nominees Ltd v Fairhall - [2009] NZCA 280

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IN THE COURT OF APPEAL OF NEW ZEALAND
CA336/2008
[2009] NZCA 280
BETWEENJANUS NOMINEES LIMITED

Appellant

ANDTIMOTHY AND MARGARET FAIRHALL

Respondents

Hearing:29 April 2009

Court:Glazebrook, O'Regan and Arnold JJ
Counsel:I Millard QC and J A Langford for Appellant

P R Jagose and E S K Dalzell for Respondents

Judgment:2 July 2009 at 3 pm

JUDGMENT OF THE COURT

AThe appeal is allowed. The respondents must pay the appellant $172,000 plus interest. If the parties are unable to agree the form of the order, there is leave to apply further.
B The respondents must pay the appellant costs for a standard appeal on a band A basis.

REASONS OF THE COURT
(Given by Arnold J)
[1]       The respondents, Mr and Mrs Fairhall (the Fairhalls), agreed to buy all the shares in a company called Courageous Holdings Limited (Courageous) from the appellant, Janus Nominees Limited (Janus). The only significant asset of Courageous was a tenanted residential property situated in Oriental Bay, Wellington, which Courageous proposed to develop. Unbeknown to the Fairhalls, Courageous was registered for goods and services tax (GST) under the Goods and Services Tax Act 1985 (the GST Act) and had received a GST refund on the price it had paid for the property.
[2]       After the transaction had settled, a dispute arose between Janus and the Fairhalls as to liability for GST that would become payable by Courageous at some point in the future. The Fairhalls crystallised the GST liability by procuring Courageous to sell the property to their family trust, and withheld the amount of GST on that transaction from the final payment due on the original transaction with Janus. When Janus sued for the balance, the Fairhalls counterclaimed on various bases, including under s 9 of the Fair Trading Act 1986 (the FTA). Dobson J found for the Fairhalls on their FTA counterclaim: HC WN CIV 2005-085-679 26 May 2008. Janus has appealed from that decision.
Factual background
[3]       Mr Fairhall is an experienced accountant, having been a partner in a major accounting firm, PricewaterhouseCoopers, for many years and President of the Institute of Chartered Accountants of New Zealand for a period. He and his wife were interested in acquiring a residential property in Oriental Bay. Courageous, a wholly owned subsidiary of Janus, owned such a property, which it had purchased in September 2002 for $2,025,000. Courageous was registered for GST and claimed an input credit for the purchase price, receiving a GST refund of $222,142.02 in November 2002.
[4]       Courageous was intending to redevelop the property, which was subject to several residential tenancies, by demolishing the existing dwelling and erecting two upmarket apartments in its place. Although physical work on the development had not begun, Courageous had undertaken some preliminary work, including having concept plans prepared. It had also prepared a marketing brochure and commenced marketing efforts through local real estate agents.
[5]       A real estate agent thought that the Fairhalls might be interested in…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2009] NZCA 280
Decision Date: 2 July 2009

CaseChat Overview and Summary

In the case of Janus Nominees Limited v Fairhall, the Court of Appeal of New Zealand considered an appeal by Janus against a High Court decision that found Janus liable under the Fair Trading Act 1986 for misleading or deceptive conduct. The dispute arose from a transaction where Janus sold the shares of Courageous Holdings Limited, a company that owned a residential property in Wellington, to the Fairhalls. The Fairhalls were unaware that the property was registered for goods and services tax (GST), and that a GST refund had been received by Courageous on the price paid for the property. This meant that Courageous would have to account for GST at some point in the future. The Fairhalls sought to crystallise the GST liability by having Courageous sell the property to their family trust, and withheld the amount of GST from the final payment due on the original transaction with Janus. The High Court found in favour of the Fairhalls on their claim under the Fair Trading Act. Janus appealed the decision.

The appeal centred on whether Janus' conduct was capable of misleading and whether it was reasonable for the Fairhalls to have been misled. The Court of Appeal found that the Fairhalls' assumption that Courageous' activities were GST exempt was not reasonable. The Court considered that it should have been apparent that Courageous would have had a latent GST liability in relation to the property. The Court concluded that the Fair Trading Act does not provide a guarantee to purchasers who fail to look after their own interests, and that imposing liability in this case would cut deeply into the principle of caveat emptor.

Accordingly, the appeal was allowed. The respondents, Mr and Mrs Fairhall, must pay the outstanding $172,000, plus interest, to the appellant, Janus Nominees Limited. The respondents are also required to pay the appellant's costs for the standard appeal on a band A basis, plus usual disbursements.

Orders