Biscuit Creek Forest Limited v Vallance [2021] NZCA 577 (1 November 2021)

Last Updated: 9 November 2021

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA233/2021 [2021] NZCA 577

	BETWEEN	BISCUIT CREEK FOREST LIMITED Appellant
	AND	SIMON FREDERICK VALLANCE AND ROSA VALLANCE Respondents

Hearing:	28 September 2021
Court:	Miller, Brown and Collins JJ
Counsel:	W A McCartney for Appellant M G Colson QC and M C McCarthy for Respondents
Judgment:	1 November 2021 at 11.00 am

JUDGMENT OF THE COURT

A The appeal is dismissed.

B The cross-appeal is dismissed.
C Costs are reserved.
____________________________________________________________________

REASONS OF THE COURT

(Given by Miller J)

• [1] This appeal concerns a very short agreement for sale of a right to a 44.7 per cent share in proceeds of logs felled under a registered forestry right. The right is described as “the Owner’s share” and the agreement as “the OS Agreement”. The principal question is whether the Owner’s share was owned by the respondents, Simon and Rosa Vallance, in their personal capacity or by their family trust, the Vallance Winkeleer Trust. The Trust owned the land on which the plantation stood and Simon and Rosa numbered two of the three trustees.
• [2] The appellant, Biscuit Creek Forest Ltd, is a company controlled by Andrew Vallance, an accountant and neighbouring farmer. Andrew is a cousin of Simon Vallance and a former friend.
• [3] If, as the trial judge found, the Owner’s share was owned by the Trust, it is agreed that the parties entered the agreement under the influence of a common mistake.^[1] In that case we must answer a second question: whether Simon and Rosa ought to be excused liability or required to pay compensation.
• [4] The dispute has commercial substance. Simon and Rosa were not registered for GST but the Trust was. It is common ground that had the Trust been the vendor, the agreed sale price would have been plus GST. It was instead specified as GST‑inclusive because the parties believed Simon and Rosa need not account for GST. The difference was $174,913.04.
• [5] There is a further question, relevant to compensation: whether the transaction would have proceeded at all but for the mistake. Biscuit Creek acted in what it now accepts was Andrew’s mistaken belief that it could claim a GST input credit without a matching obligation to the vendors. It obtained finance on the basis that the GST credit would be used to repay part of the debt.

Narrative facts

• [6] We are indebted to Mallon J for her thorough recounting of the facts. She had to traverse a number of issues which are not now controversial. Reference should be made to her judgment for a fuller account.
• [7] For our purposes the narrative begins in 1993. At that time Simon and Rosa owned Te Kanuka Station, a Wairarapa farm. They decided to create a forestry right over approximately 200 ha of the property and sell the right to the Te Kanuka Station Partnership. The Partnership, established by deed, comprised investors, three of whom (Phillip Guscott, Richard Birch and John Gold) were appointed custodian trustees. Simon was appointed manager. Simon and Rosa were not among the original partners, but sometime between 1 August 1993 (when the Partnership commenced) and 2000 the Trust acquired one of the 25 shares in the Partnership capital.
• [8] The forestry right was registered against the title to the farm under a memorandum of transfer executed on 30 September 1994.^[2] The transfer conferred on the Partnership rights for a 30-year term to enter the land to plant, maintain and harvest a plantation of trees. The Partnership undertook to exercise these rights without undue delay. Pinus radiata were planted in 1992, 1993 and 1994, with the Partnership paying or reimbursing the costs involved. The trees would mature between 2017 and 2022.
• [9] The memorandum of transfer also conferred a suite of rights on the “Owner”, defined as Simon and Rosa together with their successors in title. One of those rights was the Owner’s share of “gross stumpage value”, meaning the price received for all sales of forest produce less the actual costs of logging and cartage to the nearest export port or established utilisation centre. The transfer provided that when cutting and felling commenced the Partnership would “[p]ay to the Owner ... the Owner’s share of the calculated gross stumpage” at the end of every quarter, and it defined the “Owner’s share” as 44.7 per cent of the calculated gross stumpage. It is the right to a share of calculated gross stumpage, rather than a share of the forestry right itself, that is the subject of this proceeding. The forestry right ran with the land; the Owner’s share, which the parties now agree was a chose in action rather than a species of forestry right in itself, did not.
• [10] In January 2000 Simon and Rosa transferred the farm to the Trust. The third trustee is Timothy Bunny. The transaction, which we will call “the 2000 Agreement”, was effected under an ADLS agreement for sale and purchase which recited the legal description, specifying that the land was sold “together with and subject to” various easements and encumbrances, including “B.418877.1 Transfer granting forestry right”. The agreement provided that “the vendor sells and the purchaser purchases” the property so described. The purchase price was $1,234,095, which was apportioned between “land and buildings” and “plant equipment and motor vehicles”. No value was expressly assigned to the forestry interests. Simon’s and Rosa’s lawyer at the time, John Gold, advised that the transaction had been put through as the sale of a going concern and was therefore zero‑rated for GST purposes. Mallon J found that this agreement incorporated the forestry right, with its associated benefits and burdens; that is to say, the agreement was effective to transfer the Owner’s share from Simon and Rosa to the Trust.^[3]
• [11] In 2003 Andrew sought to purchase Te Kanuka Station and the forestry interest. Unsuccessful negotiations, to which we must return, included the preparation of draft contracts by Andrew’s lawyer at the time. Some of these documents treated the Trust as owner of the land and Simon and Rosa as (inaccurately) “owner of a 44.7% share in the Forestry Right”. The agreements contemplated that the land and the share of the “forestry right” would be sold together or not at all. There is evidence that Andrew was concerned about GST at the time; he inquired of a tax adviser whether a second‑hand goods credit could be claimed on a forestry right and was given to understood that it could. Presumably for that reason, it evidently was important to him to characterise the Owner’s share as a forestry right. Not until the appeal in this Court did he accept that it was not a forestry right at all but a chose in action and a service rather than a good for GST purposes. This was an important error. It does much to explain this regrettable litigation.
• [12] By 2016 Simon and Rosa wanted to retire, which meant selling the land and their forestry interests. They inquired in early April whether Andrew was interested. He was. On 7 April they met at the farm. Simon had prepared notes under which he had calculated a price of $5,883,360, comprising $4,476,000 for the land and homestead, $1,341,000 being 44.7 per cent of gross stumpage of $3 million over the 200 ha of trees, and $66,360 for the Partnership share. These figures were agreed, though there was a disagreement among the witnesses about exactly how the price was reached.
• [13] It is common ground that liability for GST was discussed. Andrew’s evidence was that he asked Simon and Rosa whether they were registered for GST; this mattered to him because if they were registered the price for the Owner’s share would be plus GST, but if they were not the price would include GST. He still believed he could claim a second-hand goods GST credit. Simon and Rosa understood that the Trust owned the forestry interests as well as the land, and they told him so. However, Andrew stated that they would definitely remember if the Owner’s share had been transferred to the Trust because they would have paid a significant amount of tax on the sale. He had checked the draft 2003 contracts and it appeared to him that nothing had changed since then. They were persuaded that he must be correct.
• [14] Andrew had his solicitor prepare two agreements, one for the sale and purchase of the land (“the Land Agreement”) and the other the OS Agreement. The 1/25th Partnership share was left to one side. There was a difference at trial about why, Simon saying that it was left for later because it was worth a smaller amount and Andrew that he did not want to buy it at all. When we inquired why he did not want it, we were given to understand that the reason had to do with tax.
• [15] The two agreements were not interdependent; that is, each was not conditional on the other being completed.
• [16] The OS Agreement provided that Simon and Rosa were the vendors of “all the estate and interest of the vendors in the Forestry Right No. B418877.1 registered over Certificate of Title WN57B/755 (“Forestry Right”), being a 44.7% share in the Forestry Right (including the capital and assets and future profit)”. Mallon J accepted that this confused language was intended to refer to the Owner’s share only and not the Partnership share.^[4] It may have been written in that way because, as we have explained, the input credit depended on the Owner’s share being a forestry right which would be deemed a second-hand good for GST purposes. The purchase price was $1,341,000, GST-inclusive.
• [17] Simon and Rosa signed the OS Agreement, relying on Andrew’s opinion that they rather than the Trust owned the Owner’s share. They did not take legal advice at that time. We must return to the question of responsibility for the parties’ mistake. The Land Agreement was signed some time later, when Mr Bunny was available.
• [18] Both agreements were subject to finance, to be confirmed by 8 July 2016 (in the case of the OS Agreement) and 11 July 2016 (in the case of the Land Agreement), and to settle on 31 January 2017. Andrew was unable to secure finance. He nonetheless confirmed the OS Agreement on 8 July 2016. He sought to renegotiate the Land Agreement and sought an extension of a due diligence clause, but was refused. The trustees remained willing to sell to him, but they were losing confidence in his ability to secure finance. At a meeting on 12 July 2016, Simon told him that the farm and forestry interests would be placed on the market after August unless a deal was concluded.
• [19] Shortly after the 12 July meeting Simon took advice from his solicitor, Brett Gould, who told him that the Trust owned the Owner’s share. This came as a shock to Simon, who felt Andrew had misled him. Mr Gould advised Andrew’s solicitor, Debbie van Zyl, that the vendor was now the Trust and so the price for the Owner’s share had to be plus GST. Andrew ignored her request for instructions. He did not assert that the Trust was unable to sell the Owner’s share because the OS Agreement was still on foot. He chose instead to keep his own counsel and pursue negotiations to buy the land as well as the Owner’s share. He continued his efforts to obtain finance and he attempted to have the Partnership agree to a pre-harvest sale of the plantation, which would have generated funds to assist the land purchase.
• [20] In September the Trust took steps to market the land and forestry interests. Three offers were received when tenders closed on 14 December 2016. One was from Andrew and Biscuit Creek and another from John McFadzean. The latter was for the land only, excluding the forestry interests. It was accepted on 11 January 2017, at which time Andrew was still pursuing his attempts to raise finance for both purchases.
• [21] In his offer Andrew also sought to buy the land only, but his offer included a term to the effect that the parties acknowledged the OS Agreement was still live. There followed an exchange of correspondence, commenced by Ms van Zyl on 20 December 2016, in which Mr Gould took the point that the Owner’s share was held by the Trust and maintained that the OS Agreement was accordingly invalid. He appears to have held this view because the forestry right ran with the land, which the Trust undoubtedly owned. Ms van Zyl maintained that Simon and Rosa were the owners, and even if they were not they had agreed to sell the Owner’s share and must procure the Trust to transfer it to Andrew.
• [22] Andrew sought to settle the OS Agreement on 31 January 2017, tendering a bank cheque, which Mr Gould rejected. We return later to the way he financed the tender of settlement. Ms van Zyl also tendered documents under which the Partnership would agree to a variation of the memorandum of transfer, substituting Biscuit Creek as owner for purposes of the Owner’s share and including it as another owner for purposes of covenants which protected or went to the value of the Owner’s share.^[5] These documents are relied on by Simon and Rosa to advance an argument, rejected by Mallon J,^[6] that the OS Agreement was uncertain for want of essential terms and hence unenforceable.
• [23] In anticipation of settlement of the land sale in May 2017, the Trust entered negotiations with Mr McFadzean to ensure continued access to the plantation. The Trust agreed to pay his nominee as purchaser, Band of Brothers Ltd, $47,250 plus GST per annum.
• [24] Later the same year the Partnership sold the Forestry Right for $3,600,000 on the open market. The purchase was zero-rated for GST and the purchaser agreed to pay the rental to Band of Brothers. After accounting for the rental obligation and the costs of sale the Trust was paid $1,443,378.20 as its 44.7 per cent share of the proceeds. Andrew accepts the sale price for the forestry right but maintains that the rental obligation ought to be excluded when calculating compensation on an expectation measure. He maintains that had he acquired the Owner’s share he would not have agreed to pay rent to Band of Brothers, which in his view assumed in return no obligations additional to those already in the registered memorandum of transfer.

Who owned the Owner’s share at April 2016?

• [25] Mallon J examined the forestry right in detail, concluding that the Owner’s share was not a separate forestry right in itself, as Andrew contended, but a benefit associated with the forestry right, as Simon and Rosa contended.^[7] She concluded that its legal classification did not matter; what mattered was that it would pass with the land unless expressly severed:^[8]

... categorising the Owner’s Share as a “forestry right” does not alter whether it can be severed from the forestry right created. It can be, but it must be done expressly. Otherwise the land will be subject to the forestry right on the terms that it has been granted. In this case the land was subject to a forestry right that provided for “the Owner’s Share”. The more relevant question than whether the Owner’s Share is a forestry right in and of itself, is who is the “Owner” referred to in the Memorandum of Transfer ...

• [26] This conclusion was not in dispute before us, and for that reason we need not review the Judge’s analysis of the forestry right or the legislation. Mr McCartney, for Biscuit Creek, accepted that “Owner” was defined in the memorandum of transfer to include successors in title, that is, the Trust. He accepted that the entire forestry right, including the Owner’s share, would pass to a successor in title unless the Owner’s share was expressly severed. The land was transferred to the Trust under the 2000 Agreement. So the question is whether there was an express agreement, written or oral, to sever the Owner’s share and leave it with Simon and Rosa.
• [27] In our opinion the Judge correctly concluded that the 2000 Agreement included the vendor’s interest in the forestry right, including the Owner’s share. Mallon J reasoned that this conclusion followed from transfer of the land, in the absence of any agreement excluding the Owner’s share.^[9] We prefer the view that the 2000 Agreement expressly incorporated the rights and obligations of the Owner under the forestry right. It did so because the legal description was not merely descriptive of the property as it stood. As noted at [10] above, under the 2000 Agreement the parties bought and sold “the above described property”, which included the “transfer granting forestry right”. There is no reason to suppose that this language incorporated only the burdens of the Owner under the transfer and not the benefits. (The Partnership share, by contrast, was not an interest conferred on the Owner under the transfer; it was conferred under the Partnership deed and was an interest in the forestry right itself, as a member of the Partnership.)
• [28] Andrew’s argument that there was an agreement severing the Owner’s share rested on three points: the 2000 Agreement did not expressly deal with the forestry interest by assigning a value to it as part of the purchase price, it was never recorded as an asset in the Trust’s financial statements, and there is evidence of subsequent conduct, in the form of the 2003 and 2016 negotiations, showing that Simon and Rosa retained the Owner’s share.
• [29] As to the first of these points, we agree with Mallon J that there was no need to expressly provide for the consideration for the Owner’s share.^[10] The consideration breakdown appears to have involved deducting from the gross price specified sums for plant and equipment and motor vehicles, to arrive at consideration for land and buildings. The land was subject to the forestry right, and so incorporated in the consideration for land and buildings.
• [30] As to the second point, Mallon J heard evidence from an accountant who acted for the Trust between 2007 and 2016. His opinion was that the valuer should have assigned a value to the “forestry rights” for inclusion in the 2000 Agreement. The Judge regarded this evidence as no more than an opinion as to best practice, and hence unpersuasive when it came to the question whether the Owner’s share was acquired by the Trust as part of the bundle of rights and obligations it assumed under the 2000 Agreement.^[11] We agree. We observe that the Partnership share, which on the evidence was owned by the Trust, did not appear in the accounts either.
• [31] As to the third point, we accept, following Bathurst Resources Ltd v L & M Coal Holdings Ltd, that evidence of subsequent conduct is admissible to interpret a contract, where it proves something relevant to the contract’s objective meaning.^[12] The Supreme Court suggested that seldom is evidence of subsequent conduct relevant and hence admissible.^[13]
• [32] No objection having been taken, we proceed on the basis, without deciding, that the evidence of subsequent conduct is admissible. Mr McCartney focused his argument on the 2003 negotiations, as mentioned above. He characterised them as evidence of considered joint conduct, informed on both sides by legal advice. However, Mallon J found the evidence unpersuasive. She found that it is not clear from the documentation whether Mr Gold, who died before the 2016 negotiations, approved any of the versions of the draft agreements.^[14] The evidence establishes rather that Andrew’s solicitor and the real estate agent acting for the vendors were involved in the draft agreements.^[15] As Mr Colson remarked in argument, the draft agreements were full of infelicities, perhaps because the parties were never close to reaching agreement on price. They wrongly described the interest as a 44.7 per cent interest in the forestry right, and wrongly recorded that Simon and Rosa, rather than the Trust, were selling the farm. The agreement for sale of the Owner’s share was on a standard ADLS form for real estate, although it was a chose in action, and not land, that was being sold.
• [33] The Judge’s findings were as follows:

[126] All of this is far short of evidence that Mr Gold approved the draft agreements for signature if a price was eventually agreed. And none of it is evidence that Simon and Rosa approved any of the drafts, or were aware that they were recorded in the drafts as the vendor for the sale of the Owner’s Share, or had taken specific advice about this. Further, Mr Murray’s [the real estate agent’s] diary notes confirm that the parties were never close to agreeing a price. His entry for 21 November 2003 recorded that Simon’s “bottom line is $4.1M” and he was “[n]ot prepared to sell without including the forestry rights”. I acknowledge Mr Murray said in evidence that he believed his instructions that there were to be two vendors came from Simon and Rosa. But the documentation just discussed does not bear this out.

[127] What it does show is that Mr Murray and Andrew were aware that the drafts were prepared on the basis that Simon and Rosa were the vendors of the Owner’s Share. As noted earlier, it is apparent that Andrew was already considering the GST advantage to him if Simon and Rosa were the owners of the Owner’s Share. Andrew made handwritten notes about this and received advice from [Andrew’s GST adviser] on 29 October 2003 that he would be able to claim a second hands good credit. He accepted in evidence he was aware of this advantage in 2003.

(Footnote omitted.)

We are not persuaded that the Judge was wrong. On the contrary, we agree with her that the 2003 negotiations are not probative of Andrew’s claim that ownership still lay with Simon and Rosa. What they do confirm is that it mattered to him that they were the owners.

• [34] There is also a question whether the transfer of the Owner’s share from Simon and Rosa to the Trust would have attracted liability for tax. Andrew is an experienced accountant, and we have explained that it was because he believed the sale would be taxable that he was convinced they retained ownership. If he were correct about the tax liability, the failure to account for tax could be evidence that the Owner’s share was never sold. Mr McCartney took this point in argument before us. However, the evidence about tax liability is very unsatisfactory. No witness explained it. When we inquired we were told from the bar that the tax he had in mind was income tax, presumably on a deemed harvest of the tree crop, but there is no evidence to show that it was in fact payable in the circumstances, still less to exclude the possibility that the obligation to pay it was overlooked in what was treated as a going concern sale.
• [35] Turning to the 2016 negotiations, Mr McCartney argued that the evidence warrants an inference that Simon and Rosa realised Andrew was right in his opinion that they retained the Owner’s share because they would remember paying tax had they sold it. He saw it as a point in Andrew’s favour that Simon and Rosa were “easily persuaded”. In our view, that confirms rather that they placed their trust in him as an accountant and as a friend and family member. It is of some moment that they knew and approved of his proposal to on-sell part of the land to other family members. They signed the OS Agreement without taking legal advice. Their evidence was that he told them that lawyers were an unnecessary expense. Andrew denied saying this and the Judge did not make an express finding about it, but she did find that Andrew persuaded them they must have been wrong in their belief that the Trust owned the forestry interests, including the Owner’s share.^[16] Having been persuaded, they told their solicitor, Mr Gould, that they owned it, and it was not until he checked the forestry right that he realised the Owner’s share must have been transferred to the Trust along with the land. Thereafter, through their solicitor they insisted that the Trust was the owner. In short, the 2016 negotiations are not evidence that Simon and Rosa retained the Owner’s share at that time. Rather, the negotiations are evidence that Andrew persuaded them that they did.
• [36] Mr McCartney also argued that what actually led to the dispute was a valuation, received on 19 December 2016, which indicated that the plantation was worth more than the value on which the OS Agreement was based. This submission should be put in context. It prays in aid the December 2016 valuation to establish the meaning of the 2000 Agreement for sale and purchase of the farm; alternatively, to establish the existence of an unwritten contract at that time to sever the Owner’s share from the land. The point of the submission, as we understand it, is that the coincidence of the December valuation and Mr Gould’s claim the next day that the OS Agreement was ineffective shows that Simon and Rosa knew all along that they, rather than the Trust, owned the Owner’s share.
• [37] We reiterate that subsequent conduct is not ordinarily probative, and hence admissible, to interpret a contract; and especially so where the conduct occurs after a dispute has arisen.^[17] Seldom does such evidence amount to much, especially where it goes to a party’s state of mind. This example proves the point. The objective or agreed evidence does not support Andrew’s argument. If anything it is rather to the contrary. It establishes that Simon and Rosa told Andrew in April 2016 that the Trust was the owner and accepted his opinion that they must be wrong about that. There is no reason to doubt that they sincerely believed the mistake invalidated the OS Agreement. When they became aware of the mistake in July 2016, Andrew was told immediately but ignored his solicitor’s requests for instructions. He then allowed the Trust to market the Owner’s share along with the land, hoping that he could secure finance and buy both by agreement. Not until he submitted his tender in December 2016 did he disclose his position that the OS Agreement remained on foot. That stance, rather than the coincidence of timing of the new valuation, is the far more likely explanation for Mr Gould advising Ms van Zyl that the OS Agreement was invalid. There is no reason to doubt he would have said the same thing in September had Andrew disclosed his position then instead of remaining silent. The evidence also suggests that the valuation, which was about 17.5 per cent higher than the value on which the OS Agreement price was calculated, came as no surprise to the trustees.
• [38] In our opinion Mallon J was correct to find that the Trust owned the Owner’s share as at 2016.

Mistake

• [39] Having reached that conclusion, we turn to the consequences of the parties’ common mistake. They agree for purposes of the Contract and Commercial Law Act 2017 that the same mistake influenced them both to enter into the OS Agreement, and further that the mistake resulted, at the time of the agreement, in a substantially unequal exchange of values for a benefit or obligation that was, in all the circumstances, disproportionate to the consideration.^[18] This is to say that they agree the Court has jurisdiction to grant relief under s 28, which provides relevantly that:

28 Nature of relief

(1) If, under sections 24 to 26, the court has power to grant relief, the court may make any order that it thinks just.

(2) In particular, but without limiting subsection (1), the court may do 1 or more of the following things:

(a) declare the contract to be valid and subsisting in whole or in part or for any particular purpose:

(b) cancel the contract:

(c) grant relief by way of variation of the contract:

(d) grant relief by way of restitution or compensation.

...

(5) An order may be made on the terms and conditions that the court thinks fit.

• [40] Mallon J accepted that the parties’ mistake was a mistake as to a state of affairs rather than a mistake of law.^[19] It had its genesis in the 2003 negotiations, in which Andrew seems to have had formed the view that Simon and Rosa still held the Owner’s share. She found that he was interested in that question because he believed the Owner’s share was a forestry right and as such could be treated as second-hand goods for GST purposes, meaning he could secure an input credit.^[20]
• [41] The Judge expressly accepted Simon’s evidence that Andrew persuaded him in 2016 that he was wrong in his belief that the Trust owned the Owner’s share.^[21] She also found, and it is not now in dispute, that but for the mistake the price would have been plus GST. That she found, mattered to both parties. The GST input credit would have been a substantial discount on the purchase price for Andrew, for whom financing the purchase of the farm was always going to be “challenging”.^[22]
• [42] Section 27 of the Act provides that the extent to which the party seeking relief caused the mistake is one of the considerations that must be taken into account in deciding whether to grant relief under s 28. Addressing that question, Mallon J recorded Andrew’s submission that relief should be denied to Simon and Rosa:

[155] Andrew also submits that relief should be declined as a matter of discretion. This is because the Court is required to take into account the extent to which a party seeking relief has caused the mistake in deciding whether to grant relief. He says that Simon and Rosa caused the mistake because they did not document the transfer of the Owner’s Share, they did not record the Owner’s Share in the Trust’s financial accounts, and they represented to Andrew and [Biscuit Creek] in the 2003 negotiations that they, not the Trust, owned the Owner’s Share.

(Footnote omitted.)

• [43] The Judge rejected that submission and found that Andrew more directly caused the mistake:

[156] I do not accept this submission. It was not necessary to document the transfer of the Owner’s Share because the Trust was the “Owner” under cl 6 of the Memorandum of Transfer to which the land was subject once it became the owner of the land. How the Trust accounted for tax on that sale was of no relevance to Andrew other than that he erroneously considered it meant the Trust did not have the benefit of the Owner’s Share. However, whether the Trust did or did not have that benefit was a legal question about which he took no advice when negotiating with Simon in 2016. Simon did not represent anything to [Biscuit Creek] in 2003. The purchaser in the draft agreements was Andrew “or nominee”. Nor is there evidence that Simon represented to Andrew in 2003 that he and Rosa had retained the Owner’s Share. As discussed above, the evidence is that Andrew’s own lawyer, Mr Ogilvie, was involved throughout in the various drafts.

[157] In my view it was Andrew who more directly caused the mistake. Simon had thought the Trust owned the Owner’s Share but Andrew persuaded them otherwise. Both of them should have sought legal advice about this in 2016 before they entered into the OS Agreement. Neither did. Had it been necessary to grant relief for a mistake (and it is not because I have found that there was no obligation under the OS Agreement requiring performance) the appropriate relief would be an order declaring that the OS Agreement was of no effect from the date it was entered into.

(Footnote omitted.)

• [44] It will be seen that Mallon J decided relief was not necessary because the OS Agreement did not oblige Simon and Rosa to deliver up what they did not own. She reasoned that the OS Agreement contained no warranty as to title and no obligation to procure the Owner’s share if it turned out that the Trust held it.^[23] We do not find it necessary to decide that issue. We approach the appeal on the basis that, as Mr McCartney argued, a person may contract to sell something to which they do not have title at the time of the contract and may be liable in damages for non‑performance.
• [45] It does not appear that the jurisdiction to grant relief under s 28 has been discussed in any previous case, but because we did not hear argument on it we will say only what is strictly necessary for decision in this case. The Act states that it is a revision Act and is not intended to change existing law, except as expressly provided.^[24] Schedule 2 specifies the changes that are intended. It does not include any relevant change to what is now s 28. The language is not identical to the Contractual Mistakes Act 1977; it no longer speaks of a “discretion” to grant relief. But the court may still make any order that it thinks just.
• [46] The jurisdiction is broad and flexible. We accept that on appeal, this Court should substitute its own view if satisfied that the trial judge was wrong — that is to say, appellate jurisdiction should not be exercised on May v May principles^[25] — but the appellant bears the persuasive burden of showing that she was.
• [47] We are not persuaded. The relief that Mallon J would have granted had she not concluded the Agreement did not require Simon and Rosa to obtain the Owner’s share was a declaration that the OS Agreement was ineffective from inception.^[26] We prefer the view that cancellation under s 28(2)(b) is the appropriate remedy, but the effect is the same. The parties are restored to the legal position they were in before the OS Agreement was entered. That is an appropriate response in a case where but for the mistake a substantially different bargain, or none, would have been struck.
• [48] We do not accept Mr McCartney’s submission that the need to protect the general security of contractual relationships, which must guide the exercise of jurisdiction,^[27] requires that Simon and Rosa be held in some degree to their mistaken bargain. We agree with the Judge that Andrew more directly caused the mistake. Simon and Rosa could have avoided the mistake had they taken legal advice before executing the contract, and we accept that may be taken into account when attributing responsibility. But they acted as they did because they trusted Andrew. We decline to hold that against them in the circumstances.
• [49] That brings us to a further reason why cancellation is the appropriate remedy. We doubt the OS Agreement would have been entered at all, or if entered that it would have been completed, in circumstances where Andrew could not lawfully claim a GST input credit in the absence of a matching obligation to the vendor. As explained above, there is now no doubt that he was not entitled to the second-hand good exemption on which he relied, for the Owner’s share was not a second-hand good for GST purposes.
• [50] As the Judge found, raising finance would have been challenging for Andrew.^[28] He spent many months attempting to do so, without success. Mr McCartney argued that that was because he was trying to buy the farm as well as the Owner’s share, but we do not see how that explains his persistent and plainly serious problems; had he bought the farm he would have had the land available as security.
• [51] The evidence is that in January 2017 Andrew financed the entire purchase price for the Owner’s share at short notice in the expectation that he would obtain the GST input credit and could then realise the Owner’s share when the Partnership sold the plantation (as he knew it planned to do). That is recorded in an email of 30 January 2017 to his bankers explaining what he now had to support a “bridging loan”. Other investors would pay $1,108,560 into his solicitor’s trust account. Not all of that money would be available on settlement. The bank would advance the entire purchase price less the amount of investors’ money available on settlement. It would be repaid in part when the other investors’ money came through, following which the GST refund would be “used to repay debt”. It will be seen that Andrew’s nominee, Biscuit Creek, was contributing nothing to the purchase, except the GST refund. We cannot know whether the transaction would have proceeded but for the mistake; that would depend on the willingness of the bank to advance the purchase price without the GST refund and also on whether the investors were willing and able to finance the purchase in the absence of any contribution from Biscuit Creek. Their stance would presumably depend on the difference between the effective purchase price and what they would gain when the plantation was sold by the Partnership. As to these matters there is no evidence.
• [52] We debated with counsel who bears the onus on this issue. Mr McCartney argued that while the pleadings asserted that the finance clause was for the benefit of both parties, Biscuit Creek’s ability to raise finance was not squarely put in issue; that being so, no legal or evidential burden of proof fell on the plaintiff.^[29] We observe that this is not a case in which a purchaser is justifying cancellation for failure to obtain finance. Biscuit Creek sought expectation losses, which were denied in the statement of defence, and it bore the onus of showing that those losses were incurred. The question whether it was entitled to a GST input credit was in issue at trial. On the view we take of the case, we need not decide whether the transaction would have been completed, though we doubt it for the reasons just given.

Compensation

• [53] It is not necessary to examine the claim for compensation. Specifically, we need not consider whether the transaction would have been completed but for the mistake, as just mentioned, or whether Biscuit Creek would have assumed an obligation to pay rent to Band of Brothers. The latter proposition would seem to depend on whether, as Mr Colson suggested, the agreement of Band of Brothers to the sale of the forestry right was required under a non-assignment clause in the registered memorandum of transfer.

Outcome

• [54] The appeal is dismissed.

Other matters

• [55] Simon and Rosa cross-appealed, arguing that if they owned the Owner’s share then the OS Agreement did not contain all the essential terms, and that it terminated on 8 July 2016 as the purchaser had not in fact arranged finance by that date. On the view we take of the case, the cross-appeal is redundant and we do not need to decide it. It is formally dismissed.
• [56] Counsel asked us to reserve costs, signalling that they might wish to be heard. We reserve costs accordingly, but we indicate that we would ordinarily award costs to Simon and Rosa, as the successful party, for a standard appeal on a band A basis, with provision for second counsel, and with usual disbursements. We would make no deduction for the cross-appeal. Judgment may be sealed accordingly if counsel do not wish to be heard. If they do wish to be heard, they should advise the Registrar within seven days of this judgment.

Solicitors:
Carson Fox Legal, Auckland for Appellant
Thomas Dewar Sziranyi Letts, Lower Hutt for Respondents

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^[1] Biscuit Creek Forest Ltd v Vallance [2021] NZHC 640 [Judgment under appeal].

^[2] Pursuant to the Forestry Rights Registration Act 1983.

^[3] Judgment under appeal, above n 1, at [121].

^[4] Judgment under appeal, above n 1, at [135].

^[5] These covenants included obligations to render the plantation productive, not to mortgage the forestry right, to arrange insurance, to permit access and to confer as to the time of harvesting.

^[6] Judgment under appeal, above n 1, at [195].

^[7] Judgment under appeal, above n 1, at [111]–[113].

^[8] At [113].

^[9] At [121]–[122].

^[10] Judgment under appeal, above n 1, at [122].

^[11] At [128].

^[12] Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85 at [89].

^[13] At [90].

^[14] Judgment under appeal, above n 1, at [123].

^[15] At [124].

^[16] Judgment under appeal, above n 1, at [149].

^[17] Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 12, at [90].

^[18] Contract and Commercial Law Act 2017, s 24.

^[19] Judgment under appeal, above n 12, at [147].

^[20] At [148].

^[21] At [149].

^[22] At [150].

^[23] At [140]–[141].

^[24] Contract and Commercial Law Act, s 4.

^[25] May v May (1982) 1 NZFLR 165 at 169–170. It follows that we disagree with the comments in David Blacktop and others (ed) Gault on Commercial Law (online ed, Thomson Reuters) at [CCL28.01].

^[26] Judgment under appeal, above n 1, at [157].

^[27] Contract and Commercial Law Act, s 21(2)(b).

^[28] Judgment under appeal, above n 1, at [150].

^[29] Strack v Grey [2019] NZCA 432, (2019) 20 NZCPR 408 at [63]–[67].