Y&P Nz Ltd v Wang

• Jurisdiction: New Zealand
• Judge: Gilbert,Dobson,Whata JJ
• Judgment Date: 18 December 2019
• Neutral Citation: [2019] NZCA 659
• Court: Court of Appeal
• Docket Number: CA451/2019
• Date: 18 December 2019

[2019] NZCA 659

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Court:

Gilbert, Dobson and Whata JJ

CA451/2019

Between

Y&P NZ Limited

Appellant

and

Yang Wang and Chen Zhang

Respondents

Counsel:

B P Rooney and E Y Deng for Appellant

G P Blanchard QC and J A Zwi for Respondents

Contract, Taxation — agreement for sale and purchase of land — zero-rating of goods — purchaser was GST registered with retrospective effect — whether the vendor was ready, willing and able to settle — Goods and Services Tax Act 1985

• A The appeal is dismissed.

• B The appellant must pay costs to the respondents for a standard appeal on a band A basis and usual disbursements. We certify for second counsel.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Gilbert J)

Table of Contents

Introduction	[1]
The appeal	[7]
Was the vendor ready, willing and able to settle?
Statutory provisions	[12]
Terms of the agreement	[17]
The facts	[18]
High Court judgment	[26]
Submissions	[28]
Assessment	[31]
Did the vendor waive the requirement to tender settlement?	[35]
Is there any basis to provide relief from the contractual requirement to pay interest for late settlement?	[38]
Result	[54]

Introduction

1 By four separate agreements dated 2 May 2016, the appellant, Y&P NZ Ltd, agreed to sell to Yang Wang or nominee four adjoining blocks of bare land in Henderson, Auckland. 1 The respondents were nominated as purchasers. To assist understanding, we will refer to the appellant as “the vendor” and the respondents as “the purchasers”.

2 The purchase price in each agreement was expressed to be “plus GST[ 2] (if any)”. The face page of the agreements recorded that “[t]he vendor is registered under the GST Act[ 3] in respect of the transaction evidenced by this agreement and/or will be so registered at settlement”. The GST information completed by the purchasers in schedule 2 of the agreements indicated that they were not currently registered and would not be registered at settlement. Further, they did not intend to use the property for making taxable supplies. Under cl 14 of the agreements, the vendor and purchasers warranted that their respective statements as to GST were correct at the date of the agreements. Based on this information, the transactions would attract GST at the standard rate of 15 per cent.

3 The day before the settlement date stipulated in the agreements, the purchasers advised the vendor that they were now registered for GST and the transactions should be zero-rated. The vendor ultimately took the position that it was too late to give notice of this change, relying on a clause in the agreements requiring any such notice to be given no later than two working days before settlement. The vendor insisted that the purchasers pay GST on the purchase price at the standard rate of 15 per cent. The parties were unable to resolve the issue. Both stood their ground and settlement did not occur. The vendor served settlement notices requiring payment of GST at the standard rate and subsequently purported to cancel the agreements.

4 The purchasers protected their position by registering caveats against the titles to the land and sought specific performance of the agreements in the High Court. The vendor counterclaimed for removal of the caveats and for interest at the contractual rate of 14 per cent per annum.

5 The High Court found in favour of the purchasers and made an order for specific performance of the agreements, including the obligation by the vendor to pay interest at the rate of 14 per cent. 4 This order was made despite it emerging after proceedings were issued that, unbeknown to them, the purchasers were not in fact registered for GST at the settlement date provided for in the agreements, being 28 July 2016. Prior to the trial, the purchasers became registered for GST with retrospective effect to the settlement date. In his judgment delivered on 27 August 2019, Palmer J found that the vendor was not required to enquire into the purchasers' GST status and was not justified in refusing to settle unless GST at the standard rate was paid. 5

6 The vendor appeals. Because over three years have passed since the settlement date, the interest to be set off against the combined purchase price of $2,430,000 in terms of the judgment is now of the order of $1 million.

The appeal

7 The vendor appeals on the following grounds:

• (a) The purchasers notified the vendor of their GST status in the agreements for sale and purchase. They failed to give proper notification of any change in their GST status before the settlement date. The vendor did not waive the requirement for formal notice. The purchasers were therefore in default in failing to tender settlement including payment of GST at the standard rate.

• (b) The transactions could only have been standard-rated for GST on the settlement date because the purchasers were not in fact registered for GST on that date. For this reason also, the purchasers were in default by not tendering settlement including payment of GST at the standard rate.

• (c) The order for payment of default interest at 14 per cent per annum has produced a “perverse and disproportionate result”, which was “penal, unreasonable” and “unfair”.

8 Whether the vendor validly terminated the agreements turns on whether it was entitled to insist on the purchasers paying GST at the standard rate. If not, the vendor's insistence on receiving this payment was wrong and meant it was not ready, willing and able to settle, and was not entitled to cancel the agreements.

9 However, even if the vendor was not correct on the GST issue, the purchasers were still obliged to tender settlement unless this requirement was waived.

10 The question of whether either party is entitled to interest turns on the answer to these prior questions. The further question of whether there is any principled basis to provide relief from the consequence of the contractual interest provision is a discrete issue.

11 We therefore consider the issues raised by the appeal can be conveniently dealt with under the following headings:

• (a) Was the vendor ready, willing and able to settle?

• (b) Did the vendor waive the requirement to tender settlement?

• (c) Is there any basis to provide relief from the contractual requirement to pay interest for late settlement?

Was the vendor ready, willing and able to settle?

Statutory provisions

12 Section 11(1)(mb) of the GST Act provides that the supply of goods (which is defined in s 2 to include real property) must be zero-rated in certain circumstances:

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); …

13 Section 11(8B) of the GST Act provides that “[w]hether 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”. The GST position can change between the date of the agreement and settlement.

14 In terms of s 78F of the GST Act, a purchaser of land is required to notify the vendor at or before settlement of the transaction as to whether, at the date of settlement, the purchaser is, or expects to be, a registered person, is acquiring the land with the intention of using it for making taxable supplies and does not intend to use the land as a principal place of residence. The vendor is entitled to rely on such information in determining the tax treatment of the supply:

78F Liability in relation to supplies of land

(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.

15 The means of notification under s 78F(2) is provided for in s 14C of the Tax Administration Act 1994, which allows for communication by electronic means in certain circumstances. 6

16 Part 8 of the GST Act deals with registration. Every person who becomes liable to be registered (under s 51(1)) shall apply for registration (s 51(2)). A person who intends to carry on a taxable activity from a specified date may apply to the Commissioner of Inland Revenue (the Commissioner) for registration (s 51(3)(b)). If the Commissioner is satisfied of eligibility for registration, the person shall be registered with effect from such date as the Commissioner may determine (s 51(4)(a)). Even where a person has not made an application for registration, if the Commissioner is satisfied that person is liable to be registered the person shall be registered for the purposes of the Act with effect from the date they first became liable to be registered (s 51(4)(b)).

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