Sanli Group Limited v Zhang - [2023] NZHC 374

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-001658

[2023] NZHC 374

BETWEEN
SANLI GROUP LIMITED

Plaintiff

AND

CHENG ZHANG, JIN KUK JUNG and PILL SOON SO

Defendants

Hearing: 10 October 2022

Appearances:

K Crossland for the Plaintiff

J Strauss for the Second and Third Named Defendants

Judgment:

10 March 2023

JUDGMENT OF ASSOCIATE JUDGE GARDINER

This judgment was delivered by me on 10 March 2023 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Shieff Angland, Auckland JC Legal, Auckland

J Strauss, Auckland

SANLI GROUP LTD v ZHANG [2023] NZHC 374 [10 March 2023]

Introduction

[1] Cheng Zhang, Jin Kuk Jung and Pill Soon So (the defendants) sold a property to the plaintiff, Sanli Group Limited (Sanli Group), for a price inclusive of GST.

[2] In the sale and purchase agreement (the agreement), the defendants warranted that they were not registered for GST under the Goods and Services Tax Act 1985 (the Act) and would not be so registered at settlement. After settlement, Sanli Group lodged with the Inland Revenue Department (IRD) a GST return in which it claimed a GST credit adjustment of $1,304,347.83 in relation to the purchase of the property. The IRD advised Sanli Group that it was not entitled to claim that adjustment because, in its view, the defendants were conducting a GST taxable activity in respect of the property sale. This meant that the supply was zero-rated under the Act, and no GST credit could be claimed.

[3] Sanli Group brought proceedings against the defendants for breach of warranty, claiming damages of $1,304,347.83 for the GST credit adjustment it was unable to obtain, accounting fees of $17,200 it incurred trying to resolve the issue with the IRD, interest and costs. Sanli Group applies for summary judgment of its claim.

[4] The first-named defendant, Mr Zhang, has taken no steps in the proceeding. Mr Jung and Mr So oppose summary judgment on the grounds they did not breach the warranty as they were not registered for GST or liable to be registered for GST at settlement. In essence, their defence is that the IRD did not deem them to be GST registered under the ‘forced’ registration provision in the Act.1

[5] The defendants also say that any claim Sanli Group may have had against them is barred by a Deed of Settlement in which Sanli Group and the defendants agreed to settle all present and future issues between them.

[6] The summary judgment hearing took place on 10 October 2022, and judgment was reserved. After the hearing, on 31 October 2022, the IRD paid a GST refund to Sanli Group based on its claimed GST credit adjustment of $1,304,347.83.

1 Goods and Services Tax Act 1985, s 51(4)(b).

Accordingly, Sanli Group does not now seek damages in this amount. Sanli Group still seeks summary judgment for the interest…

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: [2023] NZHC 374
Decision Date: 10 March 2023

CaseChat Overview and Summary

The case before the High Court of New Zealand concerns a dispute between Sanli Group Limited and Cheng Zhang, Jin Kuk Jung, and Pill Soon So regarding the sale of a property. Sanli Group claims that the defendants breached a warranty in the sale and purchase agreement that they were not registered for GST at the time of settlement. Sanli Group sought summary judgment for damages related to a GST credit adjustment it was unable to claim, along with interest and costs. The defendants argued that they did not breach the warranty because the Inland Revenue Department (IRD) did not deem them to be GST registered. Additionally, they claimed that any claim Sanli Group had against them was barred by a Deed of Settlement. The court had to decide whether the defendants had an arguable defence against the breach of warranty claim, whether the Deed of Settlement precluded Sanli Group from bringing a claim, and whether the statement of claim should be struck out.

The court found that the defendants had a reasonably arguable defence that the IRD had not deemed them to be GST registered. The IRD's letters to Sanli Group were addressed to them and were equivocal, expressing a view rather than a final decision. Additionally, the terms of the Notice of Proposed Adjustment (NOPA) suggested that a final decision had not been reached in respect of Sanli Group's claim to a GST credit adjustment. The court also concluded that the statement of claim should not be struck out, as there was a possibility that Sanli Group might be able to argue on amended pleadings that they were robbed of the full benefit of the contractual warranty due to the considerable delay. The application for summary judgment was dismissed, and the informal application to strike out the statement of claim was also dismissed. The court invited Sanli Group and the defendants to make submissions on costs within a specified timeframe.

Orders