YL NZ Investment Ltd v Ling
[2017] NZHC 1793
•7 August 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2017-404-444 [2017] NZHC 1793
BETWEEN YL NZ INVESTMENT LIMITED
Plaintiff
AND
LOUISE LING Defendant
Hearing: 7 August 2017 Appearances:
J L Foster for the Plaintiff
G M Illingworth QC for the DefendantJudgment:
7 August 2017
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Ben Liu & Co, Mt Albert, Auckland, for the Plaintiff
Hong Hu Lawyers, Auckland, for the Defendant
Counsel:Jody L Foster, Auckland, for the Plaintiff
Grant M Illingworth QC for the Defendant
YL NZ INVESTMENT LIMITED v LOUISE LING [2017] NZHC 1793 [7 August 2017]
[1] YL NZ Investment Ltd, the nominee under an agreement dated 21 December
2015 to buy a property at 170 Station Road, Pukekohe, settled the purchase on 13 June
2016. Under the agreement, the purchase price was $3.5 million inclusive of GST. YL NZ Investment Ltd was registered under the Goods and Service Tax Act 1985. The vendor, Louise Ling, gave a warranty that she was not. When YL NZ Investment Ltd made a claim for an input tax refund, the Inland Revenue turned it down. It said that while Ms Ling was not registered for GST, she should have been. In September 2016 it registered her for GST with effect from 8 May 2015. Because of that, the supply under the agreement of 21 December 2015 was zero-rated under s 11(1)(mb) of the Goods and Services Tax Act. Because of that zero-rating YL NZ Investment Ltd could not claim the input tax refund which it had calculated at $365,869.57. In reaching that figure it had taken into account a house and curtilage.
[2] It sues Ms Ling as vendor for breach of warranty. It says that if she had been correct in her warranty that she was not registered for GST it would have received the refund of $365,869.57. It also claims professional fees for $5,314.00 incurred in dealing with the Inland Revenue’s rejection of its claim for an input tax credit. It has applied for summary judgment.
[3] In opposition, Ms Ling says that she did not breach the warranty under the agreement because as a matter of fact she was not registered for GST. She notes that at relevant times the only director of YL NZ Investment Ltd did not live in New Zealand so as to satisfy the requirement of s 10(d) of the Companies Act 1993. She says that because of that failure to comply with the Companies Act, YL NZ Investment Ltd arguably was not entitled to register for GST and that any damages claimed are tainted with illegality. She invokes the ex turpi causa doctrine.
[4] There is no dispute as to the principles applied in summary judgment applications.1
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26]-[27].
Facts
[5] Ms Ling made an agreement to buy the property at 170 Station Road, Pukekohe, on 2 July 2015. The property, 4.6089 hectares in area, has a house on it. It apparently has been used in the past for equestrian purposes, although the price of the property it was sold for suggests that both parties in this case were interested in buying it for future development. She became registered proprietor on 5 February 2016.
[6] On 21 December 2015 Ms Ling as vendor made the agreement in this case. The purchaser is WHC Holding Ltd Holdings Ltd and/or nominee. The agreement identifies the director of WHC Holding Ltd Holdings Ltd as Judson Jianjun Li. The parties used the agreement for sale and purchase of real estate approved by the Real Estate Institute of New Zealand and the Auckland District Law Society, ninth edition 2012(2). The agreement provided that there were no tenancies. The purchase price was $3.5 million inclusive of GST. The settlement date was 31 May 2016. The deposit was $500,000 with $400,000 payable on 22 December 2015 and $100,000 payable on 26 January
2016.
[7] Because this case concerns GST, the provisions as to GST need to be noted. On the front page of the agreement is the statement:
The vendor is registered under the GST Act in respect of the transaction evidenced by this agreement and/or will be so registered at settlement: Yes/No.
“No” has been circled beside that statement.
[8] The definitions in the general terms of sale include the following:
1.1
(1) Unless the context requires a different interpretation, words and phrases not otherwise defined have the same meanings ascribed to those words and phrases in the Goods and Services Tax Act 1985, the Property Law Act 2007, the Resource Management Act 1991 or the Unit Titles Act
2010.
…
(8) “GST” means Goods and Services Tax arising pursuant to the Goods and Services Tax Act 1985 and “GST Act” means the Goods and Services Tax Act 1985.
…
(28) The terms “going concern”, “goods”, “principal place of residence”, “recipient”, “registered person”, “registration number”, “supply” and “taxable activity” have the meanings ascribed to those in the GST Act.
[9] Clause 14 of the agreement deals with zero-rating. There are also clauses dealing with goods and services tax (cl 13) and supply of a going concern (cl 15), but they are not relevant. Clause 14 says:
14.0 Zero-rating
14.1 The vendor warrants that the statement on the front page regarding the vendor’s GST registration status in respect of the supply under this agreement is correct at the date of this agreement.
14.2 The purchaser warrants that any particulars stated by the purchaser in Schedule 2 are correct at the date of this agreement.
14.3 Where the particulars stated on the front page and in Schedule 2 indicate that:
(i) the vendor is and/or will be at settlement a registered person in respect of the supply under this agreement; and
(ii) the recipient is and/or will be at settlement a registered person;
(iii) the recipient intends at settlement to use the property for making taxable supplies; and
(iv) 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 s 2A(1)(c) of the GST Act -–
GST will be chargeable on the supply under this agreement at zero per cent pursuant to section 11(1)(mb) of the GST Act
14.4 If GST is chargeable on the supply under this agreement at zero per cent, 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.
14.5 if 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.
14.6 If the particulars stated in Schedule 2 indicate that the recipient intends to use part of the property as a principal place of residence by the recipient or a person associated with the recipient under s 2A(1)(c) of the GST Act, the reference in clauses 14.3 and 14.4 to “the supply under this agreement” shall be deemed to mean the supply under the agreement of the remainder of the property, excluding that part. The supply of that part of the property intended to used as a principal place of residence will comprise a separate supply in accordance with section 5(15)(a) of the GST Act.
[10] Schedule 2 to the agreement is headed “GST information” – see clause 14.0.)
and says:
This Schedule must be completed if the vendor has stated on the front page that the vendor is registered under the GST Act in respect of the transaction evidenced by this agreement and/or will be so registered at settlement. Otherwise there is no need to complete it.
Notwithstanding that, parts of the schedule were filled in. The part for “vendor’s registration number” is left blank but there are affirmative answers that the purchaser is registered under the GST Act and will be so registered at settlement, and that at settlement the purchaser intends to use the property for making taxable supplies. The purchaser is identified as WHC Holding Ltd and its GST registration number is given.
[11] The answer “No” is given to these:
The purchaser intends at settlement to use the property as a principal place of residence by the purchaser or a person associated with the purchaser under section 2A(1)(c) of the GST Act (connected by blood relationship, marriage, civil union, de facto relationship or adoption).
and
The purchaser intends at settlement to use part of the property as a principal place of residence by the purchaser or a person associated with the purchaser under section 2A(1)(c) of the GST Act.
[12] The rest of the schedule, which deals with nomination, has been left blank. If the purchaser intends to nominate further information as to the nominee’s address and registration number is required.
[13] Ms Ling did not live at the Station Road address. Her home was in Auckland. Likewise, Mr Li has not used the property as a principal place of residence, nor has anyone associated with YL NZ Investment Ltd. That company was incorporated on 25
May 2016. At incorporation, its sole director was Yong Zhang who lives in Auckland. He does not live at the same address as Judson Li, the director of WHC Holding Ltd.
[14] Despite what the agreement said, the sale of the Station Road property did not settle on 31 May 2016 but on 13 June 2016. By deed dated 10 June 2016, WHC Holding Ltd nominated YL NZ Investment Ltd as nominee. The deed provides for the nominee to have the full benefit and burden of the covenants in the agreement as if it were a party to the agreement. Ms Ling is not a party to the deed of nomination. The lawyers who were acting for WHC Holding Ltd and for YL NZ Investment Ltd on the purchase gave notice of the nomination to Ms Ling’s lawyers on 10 June 2016. There is no evidence that at the time they advised Ms Ling’s lawyers of the GST status of YL NZ Investment Ltd.
[15] Mr Li explains the background to the nomination. He wanted to purchase the Station Road as an investment and he intended to use WHC Holding Ltd as a vehicle for this. He had problems with funding. He approached Yong Zhang for assistance. Together they incorporated YL NZ Investment Ltd. Yong Zhang also had funding difficulties. Mr Li then contacted his brother, Zhijie Li, who lives in China. Zhijie Li was appointed director in place of Yong Zhang on 1 June 2016. The sale settled on 13
June 2016 as I have indicated. Ms Ling’s lawyers’ settlement statement to “WHC Holding Ltd and/or nominee” refers to a property at 330 Bremner Road, Karaka, but that seems to be a mistake.
[16] YL NZ Investment Ltd became registered proprietor on 13 June 2016. On
24 August 2016, Judson Li became the sole director of YL NZ Investment Ltd in place of his brother. He says that YL NZ Investment Ltd submitted a GST return claiming the input tax refund of $365,869.57 for the purchase of Station Road. There is no challenge to the amount of the credit claimed. The Inland Revenue queried the transaction. Mr Li provided further information on 25 August 2016 in a letter explaining the background. Some of that information is given above.
[17] On 15 September 2016 the Inland Revenue gave notice to Ms Ling that she was now registered for GST as from 8 May 2015. She was given a GST registration number. As a result of Ms Li being GST registered from a date well before the supply on 13 June 2016, the supply was zero-rated under s 11(1)(mb) of the Goods and Services Tax Act. That led to YL NZ Investment Ltd entering into an agreement with the Inland Revenue to amend the assessment for the tax period ending 30 June 2016. YL NZ Investment Ltd’s failure to obtain the refund as a result of the compulsory zero- rating of the supply is the basis for the claim in this case. YL NZ Investment Ltd says that Ms Ling breached the warranty under cl 14.1 of the agreement for sale and purchase. If the warranty had been correct, the purchaser would have been entitled to claim a GST refund.
[18] Mr Li’s evidence includes invoices from his normal accountant and also from tax specialists for their work in dealing with the GST refund issue. There is no dispute that the charges net of GST come to $5,314.00.
Compulsory zero-rating under s 11(1)(mb) of the Goods and Services Tax Act
[19] Before 2011 the GST Act treated the supply of land in the same way as any other supply of goods. A registered person selling land generally paid output tax (unless it was a supply as part of a going concern under s 11(1)(m)). A registered person buying land from an unregistered person could potentially claim input tax taxed based on the land being second-hand goods. There is risk to the Inland Revenue if the person selling the land did not pay the output tax – the Inland Revenue would still have to pay the purchaser their input tax. That was seen as a structural imperfection under the GST
regime.2 Section 11(1)(mb) is the response:
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 per cent in the following situations:
…
(mb) The supply wholly or partly consists of land, being a supply –
2 “GST in New Zealand” 2017 edition, Thomson Reuters, at para 26.1.
(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); …
[20] The three features of compulsory zero-rating under this sub-section are: (a) the supply consists wholly or in part of land;
(b)the supply is made by one registered person to another registered person who acquires the land with the intention of using it for making taxable supplies; and
(c) the land supplied is not intended to be used as a principal place of residence by the recipient or anyone associated with them.
[21] Registration is a key feature of the GST regime. That is to enable the Inland Revenue to identify all GST-registered taxpayers who are liable to account for GST. It is also important for authenticating tax invoices which allow other registered persons to claim deductions. Taxpayers registered under the GST Act must file tax returns with the Inland Revenue and pay the net amount of tax due. Section 51 of the Act deals with registration. It requires registration by those who carry on taxable activities as defined. The primary registration provision is s 51(1) and (2). Section 51(4) deals with what is commonly called “forced” registration:
51Persons making supplies in course of taxable activity to be registered
…
(4) Where any person has—
...
(b) not made application for registration pursuant to subsection (2), and the Commissioner is satisfied that that person is liable to be registered under this Act, that person shall be a registered person for the purposes of this Act with effect from the date on which that person first became liable to be registered under this Act:
provided that the Commissioner may, having regard to the circumstances of the case, determine that person to be a registered person from such later date as the Commissioner considers equitable.
[22] Clause 14 of the agreement for sale and purchase was inserted to deal with compulsory zero-rating under s 11(1)(mb) of the Goods and Services Tax Act. It requires the parties to state their GST position. It is important for each side of the transaction that the other state their GST position correctly. The vendor needs to know whether the purchaser is registered for GST. If the purchaser is not registered for GST the vendor will have to pay standard-rated output tax on the supply. Equally, it is important for a purchaser who is GST registered to know whether the vendor is GST registered. If the vendor is not registered for GST, the purchaser (registered for GST) will be able to claim an input tax credit.
[23] In dealing with cl 14 of the agreement, there is guidance from decisions cited by Ms Foster dealing with zero-rated transactions on the supply of a business as a going concern. Some of the dicta in those decisions are of assistance in understanding cl 14 – even though s11(1)(mb) had not been enacted at the time of those decisions.
[24] In Fatac Ltd (in liq) v Commissioner of Inland Revenue, the Court of Appeal said:3
[78] Finally, we accept Mr Beck’s submission that the history and wording of s 11(1)(c)(ii)of the Goods and Services Tax Act indicates a legislative desire for certainty. The introduction of a requirement that the supply be “agreed by the supplier and the recipient in writing, to be the supply of a going concern” was remedial. Its implied purpose was to remove the confusion and uncertainty that tended to occur before its introduction, the purchaser seeking an input tax credit, and the vendor seeking to resist an output tax credit.
[79] In the present case the vendor has attempted to transfer the dissension and uncertainty that preceded the legislation from an argument over the supply of a going concern to an equivalent argument over the question whether the parties had agreed on that point in writing…
3 Fatac Ltd (in liq) v Commissioner of Inland Revenue [2002] 3 NZLR 648 (CA) at [78]-[79].
[25] The problem referred to there can be seen at play in this case, with Ms Ling declaring that she was not GST registered so as to avoid any output tax credit but with YL NZ Investment Ltd, as a registered person, seeking an input tax credit.
[26] To similar effect, in Starrenburg v Mortre Holdings Ltd the Court of Appeal said (in relation to the clause that corresponds with cl 15 in the current agreement - the supply of a going concern):4
In this legislative context, the role of cl 13 is to ensure that transactions entered into on the basis of the standard form involving tenanted property, such as those between the parties to the appeal, meet the requirements of the Act to be zero rated for GST under what is now s 11(1)(m). The requirement that the recipient is a registered person is provided for in the agreement by clause 13.1(a), by which each party warrants that it is registered. The requirement of a written agreement by the supplier and recipient that the supply is of a going concern is met by the provision in those terms in cl
13.1(b). The effect of zero rating is that the purchaser cannot seek an input tax credit and the vendor is not charged an output tax debit. It is the
commercial purpose of clause 13 to achieve this result for the transaction.
The important requirement of an expressly stated contrary intention has the purpose of avoiding any confusion as to the GST liability position of the
parties.
Interpretation of the warranty and cl 14.1 of the agreement
[27] Ms Ling is sued for breaching the warranty in cl 14.1. There is a dispute as to interpretation. Ms Ling says that the statement she made on the front page was factually correct in that she was not registered under the GST Act in respect of the transaction evidenced by the agreement, and she would not be so registered at settlement. The argument for YL NZ Investment Ltd is that Ms Ling is to be treated as a registered person under the warranty because she was force registered by the Inland Revenue under s 51(4) of the GST Act. In my view the better interpretation is the plaintiff’s. I give these reasons for it.
[28] First, this is a private dictionary case where the parties have adopted as a term of art the words “registered person” under the GST Act, so that terms used in that act apply to the parties. The statement on the front page of the agreement as to whether the
vendor is “registered” goes not only to whether she is in fact registered but also as to
4 Starrenburg v Mortre Holdings Ltd (2004) 6 NZCPR 193 (CA) at [30].
whether she is liable to be registered in terms of the definition of “registered person”
under the Goods and Services Tax Act:
2 “Registered person” means a person who is registered or is liable to
be registered under this Act.
[29] Because the parties have expressly adopted as part of their private dictionary the terminology of the GST Act, the statement as to registration under the GST Act on the front page of the agreement addresses whether the vendor is registered under the Act and also whether she is liable to be registered. When the answer “No” was circled, Ms Ling said not only that she was not in fact registered but also that she was not liable to be registered. She stated that she was outside the definition of a “registered person” under s 2 of the Act. That follows from the definitions in the agreement for sale and purchase.
[30] Mr Illingworth QC submitted that the words “registered person” were not used on the front page of the agreement. I disagree. The words “The vendor is registered under the GST Act” go directly to the question whether she is a registered person for the GST Act. It is a quibble to say that the actual words “registered person” are not in fact used. That is reinforced when regard is had to cl 14. The warranty under cl 14.1 regards the statement on the front page as going to the vendor’s registration status. “GST registration status” in cl 14.1 refers to whether the vendor is a registered person. The words “registered person” are also used in cl 14.3(1) which deals with whether a vendor is registered.
[31] Second, even if the definitions in the agreement did not expressly adopt the statutory meanings, I would still find that registration under the GST Act means registration in terms of the statutory definition. That is because cl 14 is meant to apply contractually between the parties in the same way that the statute applies to the parties. Clause 14 would be out of kilter with s 11(1)(mb) if it were to be interpreted in a way that runs counter to the legislation. To that end, the warranty is important in terms of s
11(1)(mb) in establishing the vendor’s status under the GST Act. When entering into the agreement, the purchaser needs to know the GST implications of the transaction. It is no good for the purchaser to be told that the vendor is not registered if in fact the transaction turns out to be compulsory zero-rated because the Inland Revenue
determines that the vendor was carrying on taxable activities in respect of the property the subject of the supply so as to bring her within the GST Act.
[32] It was objected for Ms Ling that if the parties had intended to require that, they should have changed the agreement and said so specifically. With respect, the intent of the agreement is clear. Those who prepared the agreement, knowing it was going to be used widely throughout New Zealand for any number of real estate transactions for a wide variety of properties, could not have made themselves clearer that GST registration for this agreement meant not only whether a person was in fact registered but whether they were liable to be registered.
[33] Third, consider what would happen if Ms Ling’s interpretation were applied as a matter of general course in property transactions. That interpretation is that a vendor is required only to state whether they are in fact registered but do not need to turn their minds to the question whether they are liable to be registered. Purchasers who are informed that the vendor is not registered but are given no information as to whether a vendor is liable to be registered will be at risk. They will not know how to structure their transaction, whether to enter into the transaction, or what the revenue implications of the transaction may be. That will introduce uncertainty into the transaction when cl
14 is clearly intended to remove uncertainty. A purchaser left wondering as to the vendor’s liability for registration may have a difficult task to deal with the risk. The purchaser might interrogate the vendor as to their business activities in relation to the property to be sold. One can imagine the vendor becoming testy and saying “Why are you bothering me with these questions? Look at the agreement. I have already said I’m not registered.” leaving the purchaser to be satisfied with the warranty given. Barring such clumsy interrogation, it is hard to see how the purchaser could avoid the risk.
The breach of warranty
[34] It was submitted for Ms Ling that YL NZ Investment Ltd had to establish for summary judgment purposes that Ms Ling was in fact liable to be registered. That has been established by the Inland Revenue’s forced registration under s 51(4). Ms Ling has not challenged that decision. She has accepted that she is registered for GST with effect from May 2015. She has not invoked any of the procedures under the Tax
Administration Act to challenge the decision of the Inland Revenue. The decision to force-register her is a disputable decision under the Tax Administration Act. She is now out of time for giving any notice of proposed adjustment under Part 4A of that Act. The effect of the forced registration is to treat her as having carried out taxable activities in relation to the Station Road property resulting in a liability for tax in terms of s 8(1) of the GST Act.
[35] In any event, the circumstances of the case clearly show Ms Ling carried on a taxable activity. She made an agreement to buy the property in July 2015. She settled the purchase in February 2016. She had already on-sold the property before she became the registered proprietor, and she completed the sale of the property about four months after becoming the registered proprietor. Leaving aside the effects of the bright-line legislation for income tax, she was clearly carrying on a taxable activity in the purchase and re-sale of the property. That in itself is a taxable activity. It is unsurprising that the Inland Revenue saw a red flag when YL NZ Investment Ltd claimed an input tax credit following a purchase from someone alleging that they were not registered (or registerable) under the Goods and Services Tax Act when they had been the owner of the property for only a short period of time.
[36] Accordingly, I find that Ms Ling breached the warranty under cl 14.1 of the agreement for sale and purchase.
The nomination point
[37] Ms Ling says however that YL NZ Investment Ltd cannot sue her for breach of the warranty because of other disqualifying matters. She accepts that if WHC Holding Ltd had remained the purchaser throughout, it would be entitled to look to her under the warranty. But she says her position has changed with WHC Holding Ltd being replaced by YL NZ Investment Ltd as nominee. She accepts that the nomination was effective. That is understandable, given the decisions of high authority that under an agreement such as this, which expressly contemplated nomination – see cl 1.4 – a purchaser may direct the transfer to another person as transferee even though the vendor may not be a
party to the nomination.5 The nominee is entitled to enforce provisions in its favour
5 Laidlaw v Parsonage [2009] NZCA 291, [2010] 1 NZLR 286; affirmed when refusing leave to
under ss 4 and 8 of the Contracts (Privity) Act 1981. That applies to YL NZ Investment Ltd even though it was not incorporated at the time of the agreement. Section 4 applies to entities that may not be in existence at the time of the contract.
[38] Ms Ling says however that she cannot be liable to YL NZ Investment Ltd because at the time of supply the company did not have a New Zealand-resident director and did not meet the essential requirements under s 10(d) of the Companies Act 1993. As to the facts, YL NZ Investment Ltd does not dispute them. It accepts that at the time of the supply the brother in China was the only director of the company. It points out that that matter was remedied in August 2016. Ms Ling accepts that a company with a New Zealand director may register under the GST Act but she speculates that because the brother in China was the only director at the time of supply that would have disqualified the company from being registered for GST. She also speculates that this has led to some fraud on the revenue, which disqualifies YL NZ Investment Ltd from any recovery.
[39] The fact that the only director of the company lived overseas is not such a gross transgression as to disqualify YL NZ Investment Ltd from recovery in this proceeding. Section 10 of the Companies Act sets out the essential requirements of a company to be incorporated. If those essential requirements are met, the company is incorporated and it remains in existence until it is removed from the register. While it is in existence, the company is able to carry on its business – unless of course it is put into insolvency administration, such as liquidation, administration or receivership, or the like. Even then it may still carry on business. The fact that the company’s only director is outside New Zealand may give grounds for an application for liquidation under the Companies
Act.6 But the fact that a liquidation application may be started does not by itself mean
that the company is unable to carry on business while it remains in existence. In short, I see nothing in the Companies Act that suggests that the absence of a New Zealand- resident director is a matter that disqualifies the company from the protection of the law and from exercising such powers and rights as are available to it under the law
generally.
appeal in Laidlaw v Parsonage [2009] NZSC 98, [2010] 1 NZLR 286.
6 Companies Act 1993, s 241(4)(c).
[40] It was speculatively suggested that the registration of the company when it did not have a New Zealand resident director involved some kind of fraud on the revenue. I emphasise the speculative nature of that submission. Allegations of fraud should not be raised speculatively. Even so, I am satisfied that there is no reasonable basis for fraud. The company was intending to carry on a taxable activity in New Zealand. It was required to be registered under the GST Act if it wished to carry on its taxable activity. Registration was required whether it had a New Zealand resident director or not. Any registration during the period when the brother in China was the sole director does not alter the validity or the effectiveness of the registration under the GST Act.
[41] The submission for Ms Ling was developed in two ways. The first was that the damages sought to be recovered were not within the reasonable contemplation of the parties and, second, that the damages sought arose ex turpi causa. I am satisfied that the damages were within reasonable contemplation. If there had been no nomination WHC Holding Ltd would be able to recover damages for breach of warranty and those damages would be within the reasonable contemplation of the parties given the evident purpose of cl 14.1. The fact a nominee with rights under the Contracts (Privity) Act took title does not alter that. The damage suffered by that person is just as much within the contemplation of the parties as damages suffered by the original purchaser.
[42] Next, it was put that the doctrine of ex turpi causa disentitled YL NZ Investment Ltd from recovering damages. There was no submission that this was an illegal contract under the Illegal Contracts Act 1970. The agreement for sale and purchase was legal when it was made. The contract was performed legally as well. The contract does not fall under ss 3 and 5 of the Illegal Contracts Act. Instead, the argument ran that the damages sought were not recoverable on the ground that that was relief to which YL NZ Investment Ltd was not entitled.
[43] I do not accept that submission. I rely on the basic proposition I have already set out. A company is entitled to all the protections of the law and is able to exercise powers and enforce rights under the law generally, even if it temporarily does not have a director or temporarily has a director who lives outside New Zealand but no New Zealand resident-director. The object of the Companies Act would not be promoted by disqualifying director-less companies or companies without New Zealand resident
directors from the protections of New Zealand law. The remedies for lacking a New
Zealand resident director lie elsewhere. I see no merit in the ex turpi causa point.
Outcome
[44] I am satisfied that the breach of warranty has caused a loss to YL NZ Investment Ltd. The contract as entered into would have provided the company with an input tax credit of $365,869.57. In the event it has not obtained that credit. Its inability to obtain that credit results from the breach of warranty by Ms Ling under cl 14.1. I am also satisfied that the company acted reasonably in engaging professionals to deal with its GST position. The $5,314 represents charges reasonably incurred in dealing with the problem presented by Ms Ling’s breach of warranty. I accordingly find the monetary claims proved.
[45] YL NZ Investment Ltd also seeks a declaration that Ms Ling may be liable to it in the future because of any liabilities it might come under by virtue of s 20(3J) of the Goods and Services Tax Act 1985:
(3J) For a supply to which section 11(1)(mb) applies, the recipient must,—
(a) on acquisition,—
(i) identify the nominal amount of tax (the nominal GST component) that would be chargeable on the value of the supply, as if the value were equal to the consideration charged for the supply, at the rate set out in section 8(1); and
(ii) determine the extent to which they intend to use the goods or services as described in subsection (3G); and
(iii) treat as output tax, for attribution to a taxable period under section 20(4), an amount that is the same proportion of the nominal GST component as the proportion of the use of the goods and services that is non-taxable use; and
(b) for later adjustment periods, make adjustments under the apportionment rules set out in sections 20G and 21 to 21H in relation to the taxable supply referred to in paragraph (a).
[46] I decline to make the declaration sought. I recognise an arguable case – but no more than that – for YL NZ Investment Ltd that it might incur possible liabilities in the future to the Commissioner of Inland Revenue as a result of the breach of cl 14.1. A declaration as to potential future liability does not serve any useful purpose. I recognise, however, that YL NZ Investment Ltd wishes to keep the door open for other possible claims under that head. To that end, while I will grant monetary relief for the breaches of contract to date, that will not be the final disposition of this proceeding. I adjourn the proceeding to be brought on later if YL NZ Investment Ltd shows that it has suffered further losses arising out of the breach of cl 14.1 of the agreement.
[47] Accordingly, I give judgment as follows:
(a) YL NZ Investment Ltd will have judgment against Ms Ling for
$390,044.04 for the amounts claimed plus interest. I adopt Ms Foster’s
interest rates, periods of interest and calculations.
(b)Leave is reserved to YL NZ Investment Ltd to continue the proceeding if it is able to show that it has a claim for further liabilities arising under s 20(3J) of the Goods and Services Act Tax 1985.
(c) YL NZ Investment Ltd is also entitled to costs. This is a category 2 proceeding. While I am confident counsel will be able to agree costs, memoranda may be filed if they cannot.
……………………………………...
Associate Judge R M Bell
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