Ko v Sher HC Auckland Cp621-Im00

[2001] NZHC 766

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY CP621-IM00

BETWEEN MYONG GWON KO, YON SUN KO, SUK SOO KIM and JUNG SOON KIM
Plaintiffs

AND ALI SHER
Defendant

Hearing: 7 May 2001

Counsel: M I S Phillipps for the Plaintiffs
A J H Witten-Hannah for the Defendant

Judgment: 17 August 2001

(RESERVED) JUDGMENT OF MASTER KENNEDY-GRANT

Solicitors: M I S Phillipps, DX CP 20546, Auckland for the Plaintiffs, Fax [phone]
A J H Witten-Hannah, DX BP 66023, for the Defendant, Fax [phone]

Introduction

[1] The plaintiffs have applied for summary judgment for specific performance by the defendant of a contract for the sale and purchase of land entered into between the parties on 28 June 2000.

The brief facts

[2] As is normal in such transactions, the first party to sign the agreement for sale and purchase (which used the REINZ-ADLS 7th ed printed form) was the defendant, as purchaser. At that stage, the document provided (so far as is material to this case) as follows:

(a) So far as the purchase price is concerned:

“PURCHASE PRICE

Purchase Price: $425,000 Plus GST (if any) OR Inclusive of GST (if any)
If neither is deleted the purchase price includes GST (if any)”

(b) So far as tenancies were concerned, the document was blank.

[3] The plaintiffs were not prepared to sell the property for $425,000 and instructed their agent to put forward a counter-offer of $440,000. The agent crossed out the figure of $425,000 and inserted the figure of $440,000 above it.

[4] The defendant, as purchaser, further counter-offered at $427,000. The agent crossed out the figure of $440,000 and substituted, below the original figure of $425,000, the figure of $427,000.

[5] When the agreement for sale and purchase was presented to the plaintiffs again, in addition to the substitution of $427,000 as the purchase price for the property, the words “GOING CONCERN” had been written above the printed words “Plus GST (if any) OR inclusive of GST (if any). If neither is deleted the purchase price includes GST (if any).” The agent told the plaintiffs that these words had been inserted at the request of the purchaser who “wanted to make the transaction zero rated as a going concern.” (This is denied by the defendant). The plaintiffs said they were unsure about the implications of the addition of those words and the agent suggested that, to protect their position, he insert a further clause in the agreement under the heading “Further Terms of Sale”, in the following terms:

“G.S.T (GOING CONCERN)

This agreement is conditional upon the vendor receiving satisfactory advice regarding the GST content of this agreement within 3 working days.”

The added clause was then initialled by the defendant.

[6] The agreement for sale and purchase, whatever its terms, was entered into on 28 June 2000. There was at that time no tenancy of the property. The plaintiffs entered into a tenancy with one of their number on 30 June 2000 for a period of two months.

[7] On 30 June 2000 (whether before or after the creation of the lease does not appear on the evidence before me) the defendant’s solicitor wrote the following letter (only the material part is quoted) to the plaintiffs’ solicitor:

“I note your telephone advice that your clients require the purchase price to be plus GST. My client was told by your client’s [sic] that it would be a going concern with no GST payable.

I have discussed the GST implications with my client and my client does not wish to proceed, unless the transaction is zero rated or inclusive of GST.

Please advise if the Agreement is at an end.”

[8] On 5 July 2000 the period within which the plaintiffs were to have obtained advice “regarding the GST content of this agreement”, in terms of the clause referred to in paragraph [5] of this judgment having been extended to that date, the plaintiffs’ solicitor wrote to the defendant’s solicitor as follows:

“We have been instructed by our clients that there is a commercial Lease in respect of the above property which means that it can be sold as a going concern between registered parties.

The Lease will expire on 31 August 2000.

We will send you a copy of the Lease when it is available.

Please confirm that the special conditions have been satisfied and the agreement is unconditional.”

[9] On the same date the defendant’s solicitor wrote two letters, one requesting a copy of the lease and the other stating:

“On the basis that this is a zero rated transaction for GST purposes, the contract is unconditional.”

[10] On 2 August 2000 the defendant’s solicitor wrote again to the plaintiffs’ solicitor, as follows:

“You will recall that the above contract was made unconditional on the basis that the transaction is zero rated for GST purposes. I note that I have not received a copy of the Lease that you have referred to, and prior to settlement, I require confirmation from the Inland Revenue Department that the transaction will be zero rated. I confirm my client is registered for GST.”

[11] On 3 August 2000 the plaintiffs’ solicitor forwarded a copy of the lease to the defendant’s solicitor and, under cover of a separate letter, enclosed the plaintiffs’ settlement statement.

[12] On the same day the defendant’s solicitor wrote to the plaintiffs’ solicitor expressing the view that, because the lease was entered into after the agreement for sale and purchase, the certificates of non-revocation provided were both dated subsequent to the lease and the property had been vacant, the lease would not meet the Inland Revenue Department’s requirements. He continued:

“The Agreement was made unconditional on the basis that the transaction would be zero rated for GST purposes. That clearly is not possible and my client will only proceed if the settlement is on the basis of the purchase price of $427,000.00 inclusive of GST. Alternatively, my client will agree to the contract being cancelled, provided his deposit of $40,000 is fully refunded.”

[13] On 4 August 2000 there was an inconclusive exchange of correspondence.

[14] On 10 August 2000 the defendant’s solicitor wrote as follows to the plaintiffs’ solicitor:

“Further to the above matter, I confirm that I have discussed with my client the proposals on a without prejudice basis, and as advised in my letter of 8 August 2000, my client’s accountant has advised against settling on any other basis except GST inclusive.

Accordingly, I am ready to settle on that basis and please confirm if settlement is to proceed today.

I note that you have served a settlement notice and as your client has not been able to comply with the requirements of the agreement to provide a going concern then your notice is invalid.

My settlement notice will follow.”

[15] On the same day the defendant’s solicitor wrote a further letter enclosing the defendant’s settlement notice. The letter (so far as is material) read as follows:

“My client has always approached this agreement with the intention of paying the purchase price inclusive of GST. When it became clear that my client would not pay GST, your clients advised there was a “commercial Lease” which could make the transaction zero rated.

I have previously advised why my client does not accept that the lease satisfies the Inland Revenue Department requirements for the transaction to be zero rated. Accordingly, as “plus GST’ has not been deleted from the contract the purchase price is inclusive of GST.

. . .

My client requires settlement to proceed on a GST inclusive basis as provided in the agreement.”

[16] On 30 August 2000 the defendant’s solicitor gave notice cancelling the sale and purchase agreement.

[17] On the same day the plaintiffs’ solicitor wrote acknowledging the defendant’s solicitor’s letter “purporting to cancel the . . . agreement” and disputing the defendant’s right to do so.

[18] Also on the same date the plaintiffs’ solicitor wrote to the Inland Revenue Department requesting a ruling as to whether the sale and purchase agreement qualified as a zero rated contract under the Goods and Services Tax Act 1985.

[19] On 31 October 2000 the Inland Revenue Department replied as follows:

“Your request for a ruling of the sale of 84E Colwill Road, Massey, qualifying as a going concern, will be acceptable to Inland Revenue if both parties are in agreement that the transaction falls within the criteria of a going concern.

The criteria for transactions qualifying as a going concern is defined under “Going concern” section 2(1) of the GST Act 1985.”

[20] After the institution of this proceeding, the defendant’s solicitor sought advice from the Inland Revenue Department as to whether the Department’s letter of 27 October 2000 was a ruling. On 22 January 2001, the same officer of the Inland Revenue Department as had written to the plaintiffs’ solicitors on 27 October 2000, wrote to the defendant’s solicitor as follows:

“I refer to our telephone conversation of 18 January 2001, during which you referred to my letter addressed to Mr McGuire of 27 October 2000, a copy of which was provided to you by him.

I confirm that my letter of 27 October 2000 was not a ruling, and did not intend to give the impression that any judgement had been made regarding the circumstances of a particular transaction. Its purpose was to outline the criteria for transactions to qualifying as going concerns”

The principles applicable to summary judgment applications

[21] I approach my decision in this case on the basis of the following passage from the judgment of Somers J in Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3/49-4/17:

“At the end of the day R136 requires that the plaintiff “satisfies the Court that a defendant has no defence”. In this context the words “no defence” have reference to the absence of any real question to be tried. That notion has been expressed in a variety of ways, as for example, no bona fide defence, no reasonable ground of defence, no fairly arguable defence. See eg Wallingford v Mutual Society (1880) 5 App Cas 685, 693; Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, 99; Orme v De Boyette [1981] 1 NZLR 576. On this the plaintiff is to satisfy the Court; he has the persuasive burden. Satisfaction here indicates that the Court is confident, sure, convinced, is persuaded to the point of belief, is left without any real doubt or uncertainty.

Where the defence raises questions of fact upon which the outcome of the case may turn it will not often be right to enter summary judgment. There may however be cases in which the Court can be confident - that is to say, satisfied - that the defendant’s statements as to matters of fact are baseless. The need to scrutinise affidavits, to see that they pass the threshold of credibility, is referred to in EngMee Yong v Letchumanan [1980] AC 331, 341 and in the judgment of Greig J in Attorney-General v Rakiura Holdings Ltd (Wellington, CP 23/86, 8 April 1986).”

Rival arguments

[22] Mr Phillips, for the plaintiffs, submits that the sale and purchase agreement entered into by the plaintiffs and the defendant is a binding and unconditional contract, that the defendant is in default, and that the plaintiffs are entitled to an order for specific performance. He contends that, on the face of the agreement, it was entered into on the basis that it involved the sale of a “going concern.” He submits that this term was clearly part of the contract entered into by the defendant because the latter has initialled the special condition referred to in paragraph [5] of this judgment. It follows that it does not matter at whose request or suggestion the words “going concern” and the special condition were added.

[23] Mr Witten-Hannah, for the defendant, submits

(a) That the sale and purchase agreement was not in fact the sale of a going concern because there was no lease in existence at the time that the agreement was entered into;

(b) That, there being no particulars of tenancies included in the agreement, the property was sold with vacant possession and the plaintiffs were obliged so to yield the property on the possession date, in terms of clause 3.1 of the REINZ-ADLS form.

(c) The plaintiffs were in default of their obligation to give vacant possession on settlement date and the defendant was entitled to, and did, cancel the contract accordingly.

My findings

[24] Applying the approach to the determination of summary judgment applications identified in paragraph [21] of this judgment, I decline to grant summary judgment in this case.

[25] I do so for the following reasons:

(a) The possession date under the contract was 4 August 2000. The parties not having substituted an alternative date for that date, it was open to the defendant to serve a settlement notice on the plaintiffs, as he did.

(b) There being no particulars of tenancies in the agreement, the plaintiffs were arguably obliged to settle with vacant possession in response to the defendant’s settlement notice. They were unable to do so, because of the existence of the lease created on 30 June 2000.

(c) Because the agreement is on its face inconsistent - the reference to “going concern” in the purchase price section of the document and the inclusion of the special condition suggest that the parties entered into the contract on the basis of there being a lease (whether sham or not is another matter) whereas the absence of particulars of tenancies (because of the very obvious reason that the tenancy did not then exist) suggests to the contrary - it would not, in my view, be safe to determine the basis on which the contract was entered into without the advantage of oral evidence.

[26] I therefore make the following orders:

(a) The plaintiffs’ application for summary judgment is dismissed;

(b) The proceeding is transferred to the standard track;

(c) The proceeding is adjourned to the Chambers List on 14 September 2001 at 10 am, for the making of timetable and other orders as appropriate;

(d) The costs of the plaintiffs’ summary judgment application are reserved.

[27] This judgment is signed at 12.57pm on 17 August, 2001.