Wang v Y&P NZ Limited
[2019] NZHC 2112
•27 August 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-1884
[2019] NZHC 2112
BETWEEN YANG WANG and CHEN ZHANG
Plaintiffs
AND
Y&P NZ LIMITED
Defendant
Hearing: 8-10 April 2019 and supplementary submissions on 9 and 16 May
2019
Appearances:
G P Blanchard QC and J A Zwi for the Plaintiffs B P Rooney and J S H Hall for the Defendant
Judgment:
27 August 2019
JUDGMENT OF PALMER J
The judgment was delivered by me on 27 August 2019 at 10.00am.
Pursuant to Rule 11.5 of the High Court Rules
……………………………… Registrar/Deputy Registrar
Counsel/Solicitors:
G P Blanchard QC and J A Zwi, Barrister, Auckland B P Rooney, Barrister, Auckland
Yang Lawyers, Auckland Park Legal, Auckland
WANG & ANOR v Y&P NZ LIMITED [2019] NZHC 2112 [27 August 2019]
Summary
[1] In 2016, Mrs Nicole (Chen) Zhang and her husband Mr Yang (Tony) Wang signed sale and purchase agreements buying four vacant properties from Y & P NZ Ltd (Y&P). Mrs Zhang and Mr Wang advised Y&P they were not registered for Goods and Services Tax (GST), so the sale would attract GST. But the day before the proposed settlement, Mrs Zhang and Mr Wang advised Y&P they were registered for GST, so the sale must be zero-rated. Y&P refused to settle on the basis the transaction would be zero-rated. Having sent through settlement forms on a zero-rated basis the day before, on the day of the proposed settlement Y&P’s lawyers objected they had not received notice in writing more than two working days before settlement as required under the standard terms in the sale and purchase agreement. Y&P subsequently purported to cancel the contract. As it turns out, Mrs Zhang and Mr Wang were not registered for GST on 28 July 2016; but they are now, with retrospective effect to that date. Mrs Zhang and Mr Wang lodged caveats over the properties and sue for specific performance of the agreements. Y&P counterclaims for removal of the caveats and for interest.
[2] I find Mrs Zhang and Mr Wang were ready, able and willing to settle their purchase of the properties on 28 July 2016 on a zero-rated basis for GST. Y&P was not willing to settle on that basis and indicated a full tender of settlement on that basis would be futile. Although Mrs Zhang and Mr Wang did not notify Y&P they were intending to use the land as a principal place of residence, they were only required to do so “[a]t or before settlement” which did not occur, so the final occasion for giving notice never arose. Y&P waived the two days’ written notice of a change in Mrs Zhang and Mr Wang’s GST status that was required under cl 14.5 of the standard form contract. Y&P was not lawfully able to refuse to settle at all. The actual tax consequences of the purchasers’ GST status were not for Y&P to inquire into. Y&P’s purported cancellation of the agreement was invalid. I order specific performance of the contracts and payment of interest.
What happened?
The sale and purchase
[3] In 2016, Y&P owned four vacant properties at 13 and 15 Lincoln Road, Henderson, Auckland. The property at 13 Lincoln Road is divided into three lots and 15 Lincoln Road is one lot. Mrs Zhang and Mr Wang signed a sale and purchase agreement dated 5 April 2016 for the four properties for $2,530,000 “Plus GST (if any)”.1 The name of the purchaser was Mr Wang “and/or nominee” (which was circled and initialled).
[4] Yang Lawyers, for Mrs Zhang and Mr Wang proposed separate agreements be completed for each of the four properties.2 On 21 April 2016, Mrs Zhang emailed four separate draft offers to her accountant, Ms Catherine Lu. In Mandarin, in the cover email, she said:3
The forwarded is a drafted agreement for the newly purchased land; about the GST part, I would like to see you again to confirm, is it “NO” for all these.
[5] The parties also signed unconditional separate sale and purchase agreements for each of the four properties dated 2 May 2016, as follows:4
(a)Mr Wang “and/or nominee” was named as the purchaser of:
(i)15 Lincoln Road for $1.5 million “Plus GST (if any)”;5
(ii)1/13 and 2/13 Lincoln Road, for $310,000 “Plus GST (if any)”, each, and on 21 July 2016, Mr Wang nominated Mrs Zhang as purchaser of 2/13 before settlement;6 and
1 Sale and Purchase Agreement for 13 and 15 Lincoln Rd, 5 April 2016, Common Bundle of Documents [CB] 192.
2 Email Ms Yang to Mrs Deng, 12 April 2016, CB 32.
3 Email Mrs Zhang to Ms Lu, 21 April 2016, CB 39; translation CB 45.
4 The sum of the purchase prices in the separate agreements was $100,000 less than in the initial single agreement because it had been discovered some of the land was vested in the local authority for a road. Brief of evidence of Shuping Chen [Chen brief], 9 April 2019, at [4]-[11].
5 Sale and Purchase Agreement for 15 Lincoln Rd, 2 May 2016, CB 185.
6 Sale and Purchase Agreement for 1/13 Lincoln Rd, 2 May 2016, CB 149; Sale and Purchase Agreement for 2/13 Lincoln Rd, 2 May 2016, CB 161; Deed of Nomination, 21 July 2016, CB 222.
(b)Mrs Zhang “and/or nominee” was named as the purchaser of 3/13 Lincoln Road, for $310,000 “Plus GST (if any)”.7
Mrs Zhang and Mr Wang’s GST status
[6] The sale and purchase agreements were in the form of the third version of the ninth (2012) edition of the Real Estate Institute of New Zealand and Auckland District Law Society (REINZ/ADLS). Clause 13.1 provides, if the agreement provides for the purchaser to pay GST, they are required to pay GST to the vendor on settlement date (unless a separate GST date is specified, which it was not here). Clause 14 was introduced in 2011 after the zero-rating GST regime came into force. It provides, relevantly:
14.0 Zero-rating
…
14.2The purchaser warrants that any particulars stated by the purchaser in Schedule 2 are correct at the date of this agreement.
14.3Where the particulars stated on the front page and in Schedule 2 indicate that:
(1)the vendor is and/or will be at settlement a registered person in respect of the supply under this agreement;
(2)the recipient is and/or will be at settlement a registered person;
(3)the recipient intends at settlement to use the property for making taxable supplies; and
(4)the recipient does not intend at settlement to use the property as a principal place of residence by the recipient or a person associated with the recipient under section 2A(1)(c) of the GST Act,
GST will be chargeable on the supply under this agreement at 0% pursuant to section 11(1)(mb) of the GST Act.
14.4If GST is chargeable on the supply under this agreement at 0% pursuant to section 11(1)(mb) of the GST Act, then on or before settlement the purchaser will provide the vendor with the recipient’s name, address, and registration number if any of those details are not included in Schedule 2 or they have altered.
7 Sale and Purchase Agreement for 3/13 Lincoln Rd, 2 May 2016, CB 173.
14.5If any of the particulars stated by the purchaser in Schedule 2 should alter between the date of this agreement and settlement, the purchaser shall notify the vendor of the altered particulars and of any other relevant particulars in Schedule 2 which may not have been completed by the purchaser as soon as practicable and in any event no later than two working days before settlement. The purchaser warrants that any altered or added particulars will be correct as at the date of the purchaser’s notification. If the GST treatment of the supply under this agreement should be altered as a result of the altered or added particulars, the vendor shall prepare and deliver to the purchaser or the purchaser’s lawyer an amended settlement statement if the vendor has already tendered a settlement statement, and a credit note or a debit note, as the case may be, if the vendor has already issued a tax invoice.
…
[7] Clause 1.3 provides that all notices must be served in writing by specified means.
[8]In schedule 2 of the agreements, the purchasers:
(a)Left “Yes/No” unmarked in answer to “Part of the property is being used as a principal place of residence at the date of this agreement” in each of the separate agreements; but they electronically crossed out both answers (so “Yes/No”) to that question in the overall agreement;
(b)Crossed out “Yes” (so “Yes/No”) to “The purchaser is registered under the GST Act and/or will be so registered at settlement” in the separate agreements but they left “Yes/No” unmarked for that question in the overall agreement; and
(c)“Crossed out “yes” (so “
Yes/No”) to “The purchaser intends at settlement to use the property for making taxable supplies” in the separate agreements but they left “Yes/No” unmarked for that question in the overall agreement.
[9] Schedule 2 of the form states that if either of the last two question is answered “No”, further questions need to be answered about whether the purchaser intends to direct the vendor to transfer title to a nominee and, if so, whether the nominee is registered under the Goods and Services Tax Act 1985 (GST Act) and/or is expected
by the purchaser to be so registered at settlement. The purchasers did not answer those questions in any of the agreements.
[10]In fact, Mr Wang’s and Mrs Zhang’s GST status changed over time as follows:
(a)On 29 January 2015 and 5 February 2015, Inland Revenue advised Mrs Zhang and Mr Wang, respectively, they were first registered for GST, in the GST period beginning 1 October 2014. They claimed a GST refund, as a second-hand goods credit, on three properties they had previously purchased in Avondale.
(b)In letters dated 14 October 2015, Inland Revenue advised it had cancelled their registrations. Inland Revenue found there was no taxable activity on the part of Mrs Zhang and Mr Wang.
(c)On 5 April and 2 May 2016, when they signed the agreements, they were not registered for GST. Their evidence is that, at that time, they did not intend to use the properties for making taxable supplies. That is the answer they gave to that question in sch 2 of the separate agreements.
(d)While they were advised to re-register for GST on the settlement date of 28 July 2016, they did not. So, at settlement, Mrs Zhang and Mr Wang were not, in fact, registered for GST; but I accept they thought they were, as explained below.
(e)When they discovered they were not, in fact, registered for GST, in February 2018, Mrs Zhang and Mr Wang applied to be re-registered for GST. On 22 February 2018 and 1 March 2018, Inland Revenue, re- registered each of them, effective from the GST period beginning 1 April 2016. So, from then on, they were (and are) retrospectively deemed by Inland Revenue to have been registered for GST including at the proposed time of settlement.
[11] In late June 2016, Mrs Zhang and Mr Wang decided they would develop the properties by building and selling apartments on the properties.8 They discussed design options with architects. In April 2017, they obtained concept draft plans from other architects.9 Their evidence is that they still have this intention.10
[12] In mid-July 2016 they took advice from their accountant with more than 20 years’ experience, Ms Catherine (Wen) Lu. She told them the purchase of the properties could be zero-rated because they were intending to use them to make taxable supplies.11 Ms Lu’s evidence was that she had arranged with Mrs Zhang and Mr Wang for them to contact her on settlement day to confirm settlement was going ahead and she would then register them for GST prior to settlement taking place.12 Her evidence is that she advised them they needed only to re-register, on the settlement date, for GST for zero rating to apply; or that they could register retrospectively.
[13] Ms Lu says her experience was that re-registration was a very quick process, involving filling out a form and sending it to Inland Revenue, and/or completing the process through Inland Revenue’s website and telephoning Inland Revenue for confirmation.13 Mr Eugen Trombitas’s expert evidence supports that was a reasonable view and I accept that.14 Mr Allan Bullot, Y&P’s expert, eventually accepted there was “a good chance” they could be registered on the proposed settlement day, though he was concerned about the risk of later deregistration.15 Ms Lu considered the advantage of waiting till settlement date was that, if settlement did not occur for some reason, they would not have to re-register.16 She considered it important to avoid the possibility of them being de-registered a second time.
[14] Mrs Zhang’s evidence is that, before the proposed settlement, she misunderstood Ms Lu to be advising that they were deemed to be re-registered for GST, with the same GST numbers, because they intended to purchase the properties
8 Brief of evidence of Chen Zhang, dated 8 April 2019, [Zhang brief] at [19].
9 Emails Ozac Architects Ltd to Mrs Zhang and Mr Wang, 28 April 2017, CB 489 and 491.
10 Zhang brief at [43].
11 Brief of evidence of Catherine (Wen) Lu, 8 April 2019 [Lu brief], at [6].
12 Supplementary brief of Catherine (Wen) Lu, 8 April 2019, at [6].
13 Notes of Evidence (NOE) at 31/5–32/15.
14 Brief of evidence of Mr Eugen Trombitas, 10 April 2019, at [9].
15 NOE 116/18–117/22.
16 Lu brief at [7].
for the purpose of making taxable supplies.17 That is consistent with what she later told Inland Revenue.18 I accept, on the balance of probabilities, she misunderstood the situation in this way. After a fair amount of mis-communication between counsel and Mrs Zhang in her cross-examination, and calling on the interpreter, Mrs Zhang’s evidence was that she did not remember making an arrangement to call Ms Lu on settlement day.19 However, she appeared to confirm that she did call Ms Lu on the proposed settlement day.20
[15] Y&P tries to make something of statements made by a broker on behalf of Mrs Zhang and Mr Wang to Westpac, in obtaining funding, that two of the properties would be “owner/occupied”. But I do not consider that is relevant to the issues I have to decide.
Non-settlement
[16] The settlement date was agreed to be Thursday 28 July 2016. Mrs Zhang’s evidence is that, on 21 July 2016, she told Yang Lawyers they were registered for GST, though Ms Haiyan Yang, of that firm, was not sure it was that date.21 On Monday 25 July 2016 Y&P’s lawyers, Park Legal, issued to Mr Wang’s and Mrs Zhang’s lawyers, Yang Lawyers, settlement statements that included GST at 15 per cent on the purchase prices payable under the agreements.
[17] On Wednesday 27 July 2016, the day before settlement, the evidence of Mrs Amanda Deng of Park Legal is that she could not pre-validate the discharges of Y&P’s mortgage because the e-dealings had not been created correctly by Yang Lawyers.22 Accordingly, Mrs Deng’s evidence is she telephoned Mrs Theresa Xia of Yang Lawyers and they spoke in Mandarin.23 Mrs Xia’s evidence is that she requested the settlement statements be amended to show GST on the transactions was zero-rated because the plaintiffs were registered for GST and would be using the properties for
17 Zhang brief at [21].
18 IRD documents relating to GST registration of Zhang and Wang Partnership, released 18 December 2018, IRD Bundle of Documents [IRDB] 1 at IRDB 55 and NOE 24/33–26/5.
19 NOE 21/25–29.
20 NOE 18/9 – 19/13.
21 NOE 23/28–24/8, 52/10–12.
22 Brief of Amanda Deng [Deng brief], 9 April 2019, at [10].
23 Deng Brief at [11]; NOE 87/14–16.
taxable supplies, and not as principal places of residence.24 She says Mrs Deng accepted it on the phone so she did not give written notice.25 Mrs Deng’s evidence is that Mrs Xia said Mrs Zhang and Mr Wang were registered for GST and wanted the settlement statements amended to be zero-rated but did not say anything about their use of the properties.26
[18] At 12.35 pm 27 July 2016, Park Legal emailed Yang Lawyers amended settlement statements with GST being zero-rated and requested advice of Mr Wang’s and Mrs Zhang’s GST numbers so they could prepare tax invoices. Mrs Xia sent the GST numbers by return email at 12.42 pm.27
[19] That afternoon, Y&P’s principal, Mrs Shuping Chen, was surprised to hear GST was to be zero-rated. She had understood Mrs Zhang and Mr Wang were not and did not intend to be registered for GST at settlement.28 My impression of her evidence is that she may have thought, if she had received the purchase price without GST, she would have to pay the GST from Y&P’s pocket.29
[20] At 12.01 pm on settlement day, Thursday 28 July 2016, Park Legal emailed Yang Lawyers advising Y&P did not now accept Mrs Zhang and Mr Wang were able to settle on the basis of being zero-rated for GST and “requires your client to settlement (sic) today as per our settlement statement dated 25 July 2016 without the deduction of GST”.30 They relied on cl 14.5 of the agreements, which required notification at least two working days before settlement.
[21] This engendered a flurry of email exchanges over the next week, as might be expected. There were disputes over the applicability of cl 14.5, the definition of “settlement” in the agreement and what Inland Revenue would accept. In particular:
24 Brief of evidence of Theresa Yan Xia, 8 April 2019 (as amended), at [4] and [6].
25 NOE 70/19–27.
26 Deng brief at [12]–[13]; NOE 82/28–83/9
27 Email Theresa Yan Xia to Amanda Deng, 27 July 2016, CB 285.
28 Chen brief at [12]–[13]; NOE 95/2–7.
29 NOE 90/13–30.
30 Email Park Legal to Yang Lawyers, 28 July 2016 at 12.01 pm, CB 307.
(a)In emails at 12.16 pm and 12.19 pm, Yang Lawyers disputed the applicability of cl 14.5.31
(b)At 12.52 pm Park Legal sent a further email saying the notice that Mrs Zhang and Mr Wang were GST registered also had to be in writing under cl 1.3(1) and: 32
Our client insists and requires your client to settle PLUS GST.
We are ready and willing to settle now. Our undertaking will be sent to you by fax soon.
If you are not able and willing to settle today as per our settlement statement dated 25 July 2016. We will charge your client penalty interest according to the agreement.
(c)Park Legal emailed settlement undertakings at 1.07 pm.33 At 3.14 pm Park Legal emailed tax invoices to Yang Lawyers on the basis GST was payable.34 Later that day, Park Legal served settlement notices requiring the plaintiffs to settle the purchases by paying the balances required, including GST.35
[22] Mrs Zhang’s evidence is that she called Ms Lu to tell her settlement was not going to proceed.36 In further emails at 1.50 pm and 2.14 pm, Yang Lawyers repeated there had been no change to the GST situation and said the transaction qualified for supply as a going concern.37 In emails at both 2.14 pm on 28 July 2016 and 3.45 pm 29 July 2016, Yang Lawyers stated Mrs Zhang and Mr Wang were ready, able and willing to settle.38 At 3.28 pm on 28 July 2019 Yang Lawyers said Y&P was not entitled to request that Mr Wang or Mrs Zhang pay GST for transactions qualifying for going concern supply and that their position was not going to change.39 At 4.04
31 Email Yang Lawyers to Park Legal, 28 July 2016 at 12.16 pm, CB 284; Email Yang Lawyers to Park Legal, 28 July 2016 at 12.19 pm, CB 305.
32 Email Park Legal to Yang Lawyers, 28 July 2016 at 12.52 pm, CB 307.
33 Email Park Legal to Yang Lawyers, 28 July 2016 at 1.07 pm, CB 368.
34 Email Park Legal to Yang Lawyers, 28 July 2016 at 3.14 pm, CB 305.
35 Settlement notices from Y & P NZ Ltd to Mrs Zhang and Mr Wang, 28 July 2016, CB 367a–d.
36 NOE 18/13–19.
37 Email Yang Lawyers to Park Legal, 28 July 2016 at 1.50 pm, CB 299; Email Yang Lawyers to Park Legal, 28 July 2016 at 2.14 pm, CB 305.
38 Email Yang Lawyers to Park Legal, 28 July 2016 at 2.14 pm, CB 305; Email Yang Lawyers to Park Legal, 29 July 2016 at 3.45 pm, CB 374.
39 Email Yang Lawyers to Park Legal, 28 July 2016 at 3.28 pm, CB 317.
pm they sent an email saying Park Legal had waived the two working days requirement by providing amended settlement statements.40 At 1.49 pm on 29 July 2016, Yang Lawyers suggested the dispute could be referred to the Law Society for determination.41 On 1 August 2016 at 5.08 pm, Yang Lawyers emailed Park Legal stating: “our clients are registered for GST and intend to use the properties for taxable supply” and “[t]he transactions qualify for zero-rated supply”.42
[23] Y&P’s position did not change. At 4.26 pm on 29 July 2016, Park Legal reiterated “Your client shall pay ‘plus GST’”.43 At 5.19 pm on 29 July 2016, Park Legal asserted “… your client is not intending to use the property for making taxable supplies, in which case zero rating cannot be applicable”.44 Park Legal reiterated the same point by email at 3.10 pm on 4 August 2016 and stated “[t]hus 15% GST must be paid by your client in accordance with our settlement statement dated 25 July 2016”.45
Caveats and subsequent sale and purchase agreement
[24] On 4 August 2016, Mrs Zhang and Mr Wang lodged caveats on the properties and Yang Lawyers advised Park Legal by email at 5.08 pm that Mrs Zhang and Mr Wang were registered for GST and had sought expert advice, which confirmed the transaction qualified for zero-rated going concern supply.46 On 17 August 2016, Y&P purported to cancel the agreements.47
[25] On 29 September 2016, Y&P signed another sale and purchase agreement for the four properties, with a third party, for $2,800,000 including GST (if any). Exclusive of GST, that amount is $2,434,782. The caveats had not lapsed by the settlement date and the agreement lapsed.
40 Email Yang Lawyers to Park Legal, 28 July 2016 at 4.04 pm, CB 367.
41 Email Yang Lawyers to Park Legal, 29 July 2016 at 1.49 pm, CB 374.
42 Email Yang Lawyers to Park Legal, 1 August 2016 at 5.08 pm, CB 443.
43 Email Park Legal to Yang Lawyers, 29 July 2016 at 4.26 pm, CB 436.
44 Email Park Legal to Yang Lawyers, 29 July 2016 at 5.19 pm, CB 435.
45 Email Park Legal to Yang Lawyers, 4 August 2016, at 3.10 pm, CB 446.
46 Email Yang Lawyers to Park Legal, 4 August 2016 at 1.37 am, CB 447.
47 Email Park Legal to Yang Lawyers, 17 August 2016, CB 455.
[26] Mrs Zhang’s evidence is that she and Mr Wang have the funds necessary to settle now and remain ready, willing and able to do so.48
The proceeding and trial
[27] Mrs Zhang and Mr Wang commenced proceedings for summary judgment. Y&P applied for the caveats to lapse and Mrs Zhang and Mr Wang applied to sustain the caveats. On 21 December 2016, Associate Judge Sargisson dismissed the application for summary judgment but granted the application to sustain the caveats.49
[28]On 3 July 2017, the Court of Appeal dismissed Y&P’s appeal stating:50
[24] We consider it is arguable that the provision of the amended settlement statements with zero-rated GST, together with a request for the GST numbers, which were provided, was a waiver of the contractual requirement for written notice at least two working days before settlement. We consider it is also arguable there was no effective withdrawal of that waiver. The respondents had proceeded on the basis that settlement would be on a zero-rated GST basis. The appellant then sought to insist on the contractual provisions on the day of settlement as though there had never been any waiver.
[25] The issue of statutory waiver does not arise. That is because the statute requires the notice to be given by or on settlement. The respondents could have complied with the statute by giving notice on the day of settlement. They were not given the opportunity to do so because of the appellant’s insistence that the settlement take place at the 15 per cent GST rate. We do, however, have reservations about the Associate Judge’s view that the statutory provision could be waived. Although it is not necessary for us to decide the point, we consider there is force in the Attorney-General’s submission that the provision is for the benefit of the tax base and not for the sole benefit of the vendor.
[29] On 22 August 2017, the Supreme Court dismissed Y&P’s application for leave to appeal.51 Of Y&P’s insistence on payment of GST, the Court said “[i]n view of the amended settlement statement, this was not a particularly meritorious point to take”.52 Y&P wanted to argue on appeal that Mrs Zhang and Mr Wang had not complied with s 78F of the GST Act by providing a statement that the conditions for zero-rating were
48 Supplementary brief of Nicole (Chen) Zhang, 8 April 2019, at [5]-[11].
49 Wang v Y & P New Zealand Ltd [2016] NZHC 3173, (2016) 7 NZ ConvC ¶96-016.
50 Y&P NZ Ltd v Wang [2017] NZCA 280, (2017) 28 NZTC ¶23-021 [Y&P NZ Ltd v Wang (Court of Appeal)].
51 Y&P NZ Ltd v Wang [2017] NZSC 126, (2017) 28 NZTC ¶23-027 [Y&P NZ Ltd v Wang (Supreme Court).
52 At [3].
satisfied. But the Court noted the Court of Appeal had pointed out the transaction never settled so the final occasion for giving such a statement never arose.53 The Court saw no reason why the proposed appeal should be determined prior to determination of the proceedings for specific performance.54
[30] The proceeding was scheduled to be tried in April 2018 but that did not occur. In late March 2018, Mr Wang’s and Mrs Zhang’s GST information was discovered, showing they were not, in fact, registered for GST. The trial was adjourned.
[31] Now, Mrs Zhang and Mr Wang press on. They seek specific performance of the 2 May 2016 agreements. Y&P counterclaims to remove the caveats. The trial was held over three days from 8 to 10 April 2019. Mr Wang’s and Mrs Zhang’s witnesses were:
(a)Mrs Nicole (Chen) Zhang, one of the plaintiffs;
(b)Ms Catherine (Wen) Lu, the plaintiffs’ accountant;
(c)Ms Haiyan Yang, the plaintiffs’ lawyer;
(d)Mrs Theresa Xia, a legal executive in Yang Lawyers; and
(e)Mr Eugen Trombitas, an expert in GST administration.
[32]Y&P’s witnesses were:
(a)Mrs Shuping Chen, a director of Y&P;
(b)Mrs Amanda Deng, a legal executive in Park Legal; and
(c)Mr Alan Bullot, an expert in GST administration.
53 At [5].
54 At [6].
[33] Ms Lin Li provided interpretation for: Mrs Chen’s evidence under cross- examination and re-examination; and some of Mrs Zhang’s evidence under cross- examination.
[34] Mrs Xia’s evidence was taken as read and she was cross-examined at the end of the day on 8 April 2019. However, she became agitated and found it difficult to hear counsel’s questions and we adjourned. The following day, by consent of the parties, Mrs Xia began by reading her evidence. In doing that she sought to make a change to paragraph 6 of her brief. I allowed that and indicated both versions of the brief would be in evidence.
[35] At the hearing, Mr Blanchard objected to the admissibility of expert evidence proposed to be called by the defendants from Mr Tim Jones, as a conveyancing law expert. I ruled Mr Jones’ proposed evidence was not admissible as, to the extent it was relevant, it dealt with issues which are properly a matter of legal submission and which could be addressed by the defendants in closing. Accordingly, the plaintiffs did not call their reply witness, Mr Peter Nolan.
Relevant law of property transactions and GST
Buying and selling property
[36]In Bahramitash v Kumar, the Supreme Court stated:55
A vendor’s settlement obligation, to convey the property, is interdependent with the purchaser’s obligation to pay in accordance with the contract. It is not an obligation to be performed in isolation. Therefore, ordinarily, a vendor will be in default in relation to that obligation only if the vendor has failed to settle when a proper tender of settlement has been made.
[37] The Court considered cl 3.7 of the second version of the seventh (1999) ADLS/REINZ standard sale and purchase form, confirmed that position. The substance of that clause was reflected in cls 3.8 and 3.9 of the standard form used in this case, including the interdependence of the parties’ obligations, though the vendor’s transfer obligations are said to arise “immediately thereafter” rather than “concurrently”. The Court went on to say:
55 Bahramitash v Kumar [2006] 1 NZLR 577 (SC) at [16].
[17] It is, however, for the purchaser to begin the process of settlement by taking or transmitting the settlement sum to the vendor – money goes to documents, as it is often put. Ordinarily, therefore, the vendor cannot be shown to have breached the contractual obligation to convey the property unless there has been a proper tender by the purchaser, and in response to that tender, the vendor has exhibited an inability or unwillingness to deliver the title and other documentation required in terms of the contract.
[18] An indication from the vendor, by words or conduct, that a contractually proper tender by the purchaser would be futile has significance in two respects. First, the vendor cannot treat the purchaser as being in default by failing to make such a tender. Secondly, the vendor will be taken to have indicated that he or she is not ready, willing and able in all material respects to perform his or her settlement obligations.
[19] The vendor may of course expressly dispense with the need for formal tender by telling the purchaser not to bother. … Tender may also be unnecessary in order to demonstrate the vendor’s default where the vendor has given an unambiguous indication of not being ready to settle. …
[20] The conclusion that going through the motions of tendering would have been a futile exercise is not one which is lightly to be drawn. It is normally prudent, save in the clearest of cases, for the purchaser to carry out a formal tender so that the issue does not arise in litigation, as it unfortunately did in the present case. It is for the purchaser to prove that tender would have been futile. It is a matter which is judged objectively at the time when tender was otherwise due. It is not enough for a purchaser’s solicitor to have subjectively concluded, however honestly, that the vendor will not perform the concurrent obligation in response to a tender of the sum which is due. The futility of the exercise must be clear; it must be shown to have been a foregone conclusion that the tender would not have been accepted or was not able to be accepted. In other words, it must be shown that without any real doubt the vendor would either have refused to settle in response to a contractually proper tender or, if willing, would not have been in a position to do so.
Goods and Services Tax
[38] GST is charged on the supply of goods and services by a registered person in the course or furtherance of a taxable activity, under s 8 of the GST Act. Under s 11 the supply of goods, in certain circumstances, is zero-rated. In 2009, in a discussion document, GST: Account for land and other high value assets, the Minister of Revenue proposed a compulsory zero-rating regime.56 The discussion paper, and the speech of the Minister of Revenue on introduction of a Bill in 2010, makes clear the purpose to protect the integrity of the taxation system and revenue base by preventing refunds of GST to purchasers where there was no corresponding GST payment by a vendor which
56 Peter Dunne, Minister of Revenue GST: Accounting for land and other high-value assets (Inland Revenue Department, November 2009).
is wound up.57 The compulsory zero-rating regime, in the Taxation (GST and Remedial Matters) Act 2010, took effect in April 2011. Section 11(1)(mb) of the GST Act provides for the compulsory zero-rating of a supply wholly or partly consisting of land and ss 5 and 78F are related to that:
11 Zero-rating of goods
(1)A supply of goods that is chargeable with tax under section 8 must be charged at the rate of 0% in the following situations:
…
(mb) the supply wholly or partly consists of land, being a supply—
(i)made by a registered person to another registered person who acquires the goods with the intention of using them for making taxable supplies; and
(ii)that is not a supply of land intended to be used as a principal place of residence of the recipient of the supply or a person associated with them under section 2A(1)(c);
…
(8B) Whether a supply of goods is zero-rated under subsection (1)(mb) is determined at the time of settlement of the transaction relating to the supply.
…
5 Meaning of term supply
…
(23) If section 11(1)(mb) is treated as applying to a supply of goods and, after the date on which the relevant transaction is settled, it is found that the provision does not apply, the recipient of the supply is treated as if they were a supplier making, on the date of settlement, a supply of those goods that is chargeable with tax under section 8(1).
…
[39] As part of the compulsory zero-rating regime, s 78F was inserted in a part of the Act entitled “General provisions”. Section 78F provides a supplier may rely on information in relation to the supplier’s liability for GST:
78F Liability in relation to supplies of land
57 (18 August 2010) 665 NZPD 13277.
(1)This section applies in relation to a supply that wholly or partly consists of land.
(2)At or before settlement of the transaction relating to the supply, the recipient is required to notify the supplier as to whether, at the date of settlement,—
(a)they are, or expect to be, a registered person; and
(b)they are acquiring the goods with the intention of using them for making taxable supplies; and
(c)they do not intend to use the land as a principal place of residence for them or a person associated with them under section 2A(1)(c).
(2B) For the purposes of subsection (2)(a), a recipient who is a registered person, or who expects to be a registered person, must provide their registration number to the supplier at or before the date of settlement.
(3)The supplier may rely on the information provided as required by subsection (2) in determining the tax treatment of the supply.
…
[40] The Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 amended the Tax Administration Act 1994 (TAA) regarding communication and notice, with effect from 2 June 2016. Section 14B enables a person to “ask”, “request” or “inform” by telephone, orally in person, by electronic means or in print. Section 14C enables a person to “notify” another person by electronic means, as long as the recipient is directly alerted to the communication (among other requirements), or in print, provided it is delivered in a specified way. The full section reads:
14C Applying or notifying
(1)This section applies when a provision in this Act, the Income Tax Act 2007, or the Goods and Services Tax Act 1985 refers to or describes person A—
(a)applying to person B for something:
(b)notifying person B about something.
(2)Person A may communicate—
(a)by electronic means, if person A complies with the provisions of the Electronic Transactions Act 2002, for an item of information delivered in a way referred to in section 14F; or
(b)in print and delivered in a way referred to in section 14F, whether the document is handwritten, typewritten, or
otherwise visibly represented, and whether copied or reproduced on paper; or
(c)in another manner permitted by the Commissioner.
(3)However, communication under this section does not include communication on the internet or by other electronic means, if person B is not directly alerted to the communication in some manner.
(4)Section 14E may apply to override the application of this section.
[41] Section 78F of the GST Act was amended to add “notify” in place of “provide a statement in writing to”. And s 75B was inserted into the GST Act to make clear that these new sections in the TAA apply, unless the context requires otherwise.
[42] Section 25 of the GST Act provides for corrections including, under s 25(1)(ab), where supplies of land are zero-rated or standard-rated under s 11(1)(mb) in error. The general effect is that the supplier issues a credit or debit note to the recipient and the tax effect is reversed, depending on whether the parties have already filed incorrect returns.
[43] Section 51(3) of the GST Act provides that every person who satisfies the Commissioner of Inland Revenue they are carrying on, or intends to carry on, a taxable activity, may apply to be registered for GST. Under s 51(4), where the Commissioner is satisfied the person is eligible, the person is registered with effect from a date determined by the Commissioner. Under s 6(2), anything done in connection with the beginning of a taxable activity is treated as being carried on in the course or furtherance of the activity.
[44] In Ling v YL NZ Investment Ltd, a purchaser stated she was not registered for GST for a property transaction. But, after settlement, Inland Revenue registered her retrospectively for a period that included the date of settlement.58 The property transaction should have been zero-rated. The Court of Appeal upheld summary judgment for the vendor against the purchaser for breach of the GST warranty, to recover the GST refund they were denied. The Court held a person will be registered for GST from the date determined by the Commissioner under s 51 of the GST Act.59
58 Ling v YL NZ Investment Ltd [2018] NZCA 133, (2018) 28 NZTC ¶23-057.
59 At [27].
The terms “registered person” and “registered under the GST Act” in the REINZ/ADLS standard form sale and purchase agreement refers to registration under the Act.60
[45] In Holdaway v Ellwood, issued in April 2019, the High Court considered a case where the vendor warranted he was not registered for GST but actually was.61 The purchasers became registered after signing the sale and purchase agreement and before settlement but did not notify the vendor of that. The purchasers applied for summary judgment against the vendor for breach of the warranty causing loss of the input credit they were denied. Mallon J found the purchasers had not breached their warranty that Schedule 2 was correct at the date of the agreement but they had breached the contractual requirement and the s 78F(1) requirement to give notice if their registration status changed.62 Mallon J held the vendor was not worse off because he did not need to account for the GST component because the transaction was zero-rated.63 But the purchasers were worse off because they had lost their input tax credit as a foreseeable effect of the vendor’s breach of his warranty.64 The purchasers were held to be entitled to summary judgment.65
Was Y&P’s cancellation valid?
Submissions
[46] Mr Blanchard, for Mrs Zhang and Mr Wang, submits they would have tendered settlement on what would have been, at the time, the legally correct basis of zero-rated GST. He submits zero-rating would have been correct because they intended to carry on a taxable activity from a specified date, the settlement date, and Ms Lu would have applied to register Mrs Zhang and Mr Wang for GST effective from the date of settlement. He relies on Ling v YL NZ Investment Ltd, and Inland Revenue’s Standard Practice Statement 18/03, for the proposition that s 11(1)(mb) zero-rates supply of land, with backdated effect. He submits the only reason they did not formally tender
60 At [29]–[30].
61 Holdaway v Ellwood [2019] NZHC 792, [2019] NZAR 680.
62 At [22]-[24].
63 At [26](a) and (b).
64 At [26](d)-(e).
65 At [27].
settlement was because Park Legal’s emails between 28 July and 4 August 2016 made it clear it was futile for them to do so. He submits Park Legal waived the two-day notice requirement by sending amended settlement statements and asking for GST numbers. He submits nothing turns on the difference in evidence between Mrs Xia and Mrs Deng but Mrs Xia’s evidence should be preferred. He relies on Holdaway v Ellwood and Ling v YL NZ Investments Ltd as confirming the correct GST position is determined objectively. He submits the final occasion for giving notice under s 78F never arose because the transaction did not settle. And he submits a supply should be zero-rated if the requirements of s 11(1)(mb) are met even if the notice requirements of s 78F and/or the terms of the contract are not. Mr Zwi submits Y&P’s purported cancellation of the sale and purchase agreements on 17 August 2016 was invalid and, because damages are not a sufficient remedy, specific performance should be ordered within 10 working days of judgment.
[47] Mr Rooney, for Y&P, submits the vendor is not required to determine, objectively, whether a transaction is zero-rated or standard-rated. He submits the transaction here was standard-rated. He submits it could not have been zero-rated because that would depend on Mrs Zhang re-registering for GST on the proposed day of settlement when she thought she was already registered. He points to there being no call by Mrs Zhang to Ms Lu until after Y&P insisted on GST being paid. Therefore, he submits, Mrs Zhang and Mr Wang were not registered when Y&P was ready to settle and they had to treat the transaction as standard-rated. He submits a purchaser was required by s 78F to provide information about their GST status in writing to the vendor. Because the plaintiffs did not give written notice of a change to the Schedule 2 information, he submits Y&P was obliged to charge and collect GST at 15 per cent. He submits that, if accepted, Mr Blanchard’s argument would require conveyancing lawyers to put themselves and/or their clients into the position of the Commissioner of Inland Revenue by objectively assessing the applicable rate of GST. He submits that is inconsistent with the notification requirements in the Act. He relies on Hollaway v Ellwood for the primacy of warranties. In addition, Mr Hall submits the Court should confine its analysis to the terms of notice and objectively observable facts known to both parties and the purpose of the requirements in s 78F for written
notice was to remove confusion.66 He also submits the written warranty in the agreement should be able to be relied upon.67
Was Y&P’s cancellation valid?
[48] Mrs Zhang and Mr Wang offered to settle on the proposed settlement date. They began the process of settlement. They did not make a full tender of settlement in that there is no evidence they transmitted the settlement sum to Y&P. However, Y&P’s communications, from Park Legal to Yang Lawyers, indicated that a full tender of settlement on a zero-rated basis would be futile. That was the clear and consistent meaning of its emails at 12.01 pm, 12.52 pm, 1.07 pm, 3.14 pm, in service of the settlement notices on 28 July 2016 and in Park Legal’s emails at 4.26 pm and 5.19 pm on 29 July 2016 and 3.10 pm on 4 August 2016. Y&P effectively indicated it was not ready, willing and able in all material respects to perform its settlement obligations on that basis.
[49] Was Y&P entitled not to settle on the basis that the purchasers would be zero- rated for GST? Y&P was registered for GST. The evidence is that Mrs Zhang and Mr Wang intended to use the properties to make taxable supplies and did not intend the land to be used as their principal place of residence. Given those circumstances, as long as they were registered, s 11(1)(mb)(i) of the GST Act required the supply of the properties to be zero-rated.
[50] Under s 78F Mrs Zhang and Mr Wang were required to notify Y&P “[a]t or before settlement” of three elements, whether, at the date of settlement, they were: registered; acquiring the properties with the intention of using them for making taxable supplies; and intending to use the land as a principal place of residence. Notification had to comply with s 14C of the TAA.
[51] The first two elements were satisfied. Yang Lawyers advised Park Legal by email on 1 August 2016 at 5.08 pm and 4 August 2016 at 5.08 pm that Mr Wang and Mrs Zhang were registered for GST. In an earlier email on 27 July 2016 at 14.42 pm,
66 Fatac Ltd (in liq) v Commissioner of Inland Revenue [2002] 3 NZLR 648 (CA).
67 Starrenburg v Mortre Holdings Ltd (2004) 6 NZCPR 193 (CA).
Yang Lawyers had provided their GST numbers, satisfying s 78F(2B). The numbers supplied match those retrospectively issued by Inland Revenue on 22 February 2018 and 1 March 2018. All three emails were sent to Mrs Deng’s email address at Park Legal, satisfying ss 14C(2)(a), 14F(4)(c) and 14G(a) of the TAA. And Yang Lawyers advised Park Legal by email on 1 August 2016 at 5.08 pm that Mr Wang and Mrs Zhang intended to use the properties for taxable supply. Again, this email was sent to Mrs Deng’s email address.
[52] However, Mr Wang and Mrs Zhang did not notify Y&P whether they intended to use the land as principal places of residence. Ms Xia says she informed Mrs Deng of this when she called her on 27 July 2016, though Mrs Deng disputes that. But, in any event, s 78F(2)(c), and s 14C of the TAA, require notice to be in writing. Mr Blanchard submits it was implicit in Yang Lawyers’ emails to Park Legal on 28 July 2016 at 2.14 pm and 1 August 2016 at 5.08 pm that the property would be used for taxable supplies. If I had to decide this point I would find that Mr Wang and Mrs Zhang did not notify Y&P of all the requisite information in s 78F(2) because they did not expressly notify, in writing, whether they intended to use the land as principle places of residence at the date of settlement. But I do not need to decide whether Mr Wang and Mrs Zhang breached s 78F because they were entitled to give notice “[a]t or before settlement”. The transactions never settled so, as the Court of Appeal and Supreme Court observed in earlier stages of this proceeding, the final occasion for giving notice under s 78F never arose.68
[53] Did Mrs Zhang and Mr Wang breach cl 14.5 by not notifying Y&P that the particulars in schedule 2 had changed? Yang Lawyers advised Park Legal that Mrs Zhang and Mr Wang were registered. The evidence is that it was reasonable to expect they could have registered on the proposed date of settlement or afterwards, with retrospective effect as they did. Y&P may have been suspicious of the registration status. But they were not required to inquire further into that. Y&P could have accepted the advice the purchasers were now zero-rated and settled on that basis, as it started to do when it issued revised settlement statements on a zero-rated basis and asked for the GST numbers on 27 July 2016, the day before the proposed date of
68 Y & P NZ Ltd v Wang (Court of Appeal), above n 50, at [25]; Y & P NZ Ltd v Wang (Supreme Court), above n 51, at [5].
settlement. I consider doing that constituted an implied waiver of the notice requirement in cl 14.5 of the agreements. If Y&P had wanted to insist on the notice requirement it could have done so, but that would only have pushed the settlement date out. It would still not have been a valid reason for Y&P to refuse to settle at all.
[54] If, as was the case at the time, Mrs Zhang and Mr Wang were not registered for GST, it would have been up to Inland Revenue to sort out the tax consequences, under ss 5(23), 25 of the GST Act or any other applicable provisions. But that would not impact on Y&P’s tax position. Y&P would not have “kept” or “lost” the GST component. And, as it turned out, Inland Revenue re-registered Mrs Zhang and Mr Wang effective before the proposed settlement date. So, as the Court of Appeal made clear in Ling v YL NZ Investment Ltd, settlement could have occurred on that date on a zero-rated basis. That is what should have happened.
[55] It follows that Y&P’s purported cancellation of the sale and purchase agreements was not valid.
Relief
[56] Following from my conclusion that the sale and purchase agreements were not validly terminated, I order Y&P NZ Ltd to settle the agreements for sale and purchase for 13 and 15 Lincoln Road, Henderson, Auckland, with GST being zero-rated, within 10 working days of the date of this judgment. Y&P NZ Ltd will pay interest for late settlement under cl 3.14(2) of the agreements until settlement occurs.
[57] On the basis of the information currently before me, I would award costs to Mrs Zhang and Mr Wang on a 2B basis. But if the parties cannot agree on costs I grant leave for Mrs Zhang and Mr Wang to file a brief memorandum within 10 working days of this judgment and for Y&P to do that same within 10 working days of that.
Palmer J
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