Aldwyn John Cockburn, Janet Elizabeth Cockburn and Keith Ian Jefferies v C S Development No 2 Ltd Ca

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeO'Regan,Baragwanath JJ,O'Regan J,Mr Carruthers,William Young,Regan,Baragwanath
Judgment Date16 Aug 2010
Neutral Citation[2010] NZCA 373
Docket NumberCA455/2009

[2010] NZCA 373

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

William Young P

Regan and Baragwanath JJ

CA455/2009

BETWEEN
Aldwyn John Cockburn, Janet Elizabeth Cockburn and Keith Ian Jefferies
Appellants
and
C S Development No 2 Limited
Respondent
Counsel

C R Carruthers QC and R P Harley for Appellants

H B Rennie QC for Respondent

Appeal concerning a dispute about the GST implications of an agreement for sale and purchase. After a property had been purchased the vendors initially submitted a settlement statement which provided for GST on top of the purchase price and after it was challenged, submitted one that provided for a zero rated supply. The terms of the agreement for sale and purchase set out that the purchase price was inclusive of GST–whether the sale was of a going concern and therefore attracted the zero rated GST, or whether the GST was included in the purchase price.

Held: Section 109 TAA provided that no disputable decision could be disputed in a Court or any proceedings on any ground whatsoever except in challenge proceedings under Part 8A TAA. Section 109 was not engaged because this was not a challenge to a GST assessment. The challengewas to the legal obligations of the C's under the ASP.

Section 11(1) GSTA provided that a supply of goods was zero rated in particular circumstances, such as in s11(1)(m): when it was the supply of a “taxable activity” that was a “going concern” The taxable activity in these circumstances was the activity of leasing the premises. The legislative history of s11(1)(m) showed that in the context of real property, the time of supply would normally be when the deposit had been paid to the vendor. There was no doubt that if the business of leasing the cafe building was supplied under the ASP it was capable of being operated by the purchaser as a going concern but the ASP, as it was varied in writing, provided for the transfer of the property with vacant possession. This happened even though a new lease with Torta commenced immediately after. This was an insurmountable problem for the C's.

The ASP variation did not amount to an agreement in writing that the supply of the property was the supply of a going concern, but rather agreed to the “vacant possession” of the property, which meant that the s78E GSTA argument failed at the first hurdle. It would also have failed because the supply of the property came within s11(1)(m) as above. Appeal dismissed (majority).

William Young P agreed with the approach to s109 TAA but was of the view that the sale was the supply of a going concern and would have allowed the appeal, entering summary judgment for the C's. The concept of the supply of a taxable activity as a going concern needed to be approached holistically in a way that gave effect to all the relevant statutory provisions. The sale of a commercial building could be treated as the supply of a taxable activity independently of whether any tenancies were to be assigned. It was the fact that the property was tenanted at the time of supply which was critical rather than what was to happen at settlement.

JUDGMENT OF THE COURT
  • A The appeal is dismissed, except to the limited extent set out at B below.

  • B The appeal against the award of interest made in the High Court is allowed and the award of interest is quashed. The proceeding is remitted to the High Court for determination as to whether interest is payable and, if so, from what date and at what rate.

  • C The appellant must pay the respondent costs calculated at 90 per cent of costs for a standard appeal on a band A basis plus 90 per cent of usual disbursements.

REASONS

O'Regan and Baragwanath JJ

[1]

William Young P (dissenting)

[102]

O'Regan and Baragwanath JJ

(Given by O'Regan J)

Table of Contents

Para No

Introduction

[1]

Factual background

[4]

Issues

[19]

Summary judgment criteria

[26]

Section 109 of the TAA

[28]

Construction of the agreement

Relevant provisions of the GST Act

[36]

Capable of being a going concern

[52]

Written agreement

[60]

Mutual intention

[82]

Supply of a separately operable taxable activity

[83]

Supply of all necessary goods or services

[84]

Conclusion

[87]

Section 78E of the GST Act

[88]

Interest

[95]

Conclusion

[100]

Costs

[101]

Introduction
1

This appeal and cross-appeal concern a dispute about the GST implications of an agreement for sale and purchase of a property in Oriental Bay, Wellington. The sale price was $5,000,000, including GST. A dispute has arisen between the parties as to whether the property was sold as a going concern and therefore zero rated for GST purposes, as the appellants (whom we will call the Cockburn trustees) contend, or not, as the respondent, C S Development No 2 Ltd (C S Development), contends. If C S Development is right, the Cockburn trustees are required to provide C S Development with a tax invoice reflecting a GST component of 12.5 per cent of the purchase price, so that C S Development may obtain a GST refund. The Cockburn trustees will need to pay GST of $555,555.56, thereby reducing the net amount received by them for the property to $4,444,444.44.

2

In the High Court, each party sought summary judgment against the other. Associate Judge Gendall found in favour of C S Development and ordered the Cockburn trustees to deliver a GST invoice reflecting GST payable of $555,555.56. 1 He also noted that the Cockburn trustees would be liable for interest on the GST amount for a period and a rate yet to be determined. He dismissed the Cockburn trustees' summary judgment application and awarded costs to C S Development.

3

In essence the parties renewed in this Court the positions they took in the High Court. In addition, the Cockburn trustees sought to introduce a new argument in this Court. As an understanding of the facts is required to understand the nature of the issues before us, we briefly summarise the factual background before setting out the issues which we are required to address.

Factual background
4

The Cockburn trustees owned a property at 148 Oriental Parade, Wellington, from which a business known as The Parade Cafe had operated for some time. On 26 May 2007, they agreed to sell that property to Hodge Properties Ltd or nominee for $5,500,000. The agreement was in the standard form agreement for sale and purchase of real estate issued by the Real Estate Institute of New Zealand and the Auckland District Law Society, 7th edition. The purchase price was specified to be $5,500,000. In the section of the front page of the contract dealing with GST, the following words appear:

Plus GST (if any) OR Inclusive of GST (if any).

If neither is deleted the purchase price includes GST (if any).

5

In the present case neither was deleted, so the effect of the provision was that the price was a GST inclusive price.

6

The property had been subject to a lease from the Cockburn trustees to a company called Torta Holdings Ltd, which was associated with the Cockburn trustees. The lease had been assigned to Torta by the then tenants, the A J and J E Cockburn Partnership, in August 2004. The lease expired on 23 May 2007, three days before the agreement for sale and purchase was entered into. In the section on the front page of the agreement for sale and purchase headed “TENANCIES (if any)” the detail “Name of Tenant” was filled in as “A J and J E Cockburn Partnership trading as Parade CafÉ” and the item headed “Term” was filled in as “Expiry Date 23 May 2007”. The headings “Bond”, “Rent”, and “Right of Renewal” were not filled in. In fact, the lease had been assigned by A J and C E Cockburn to Torta nearly three years earlier so the name of the tenant was wrong.

7

Although the lease had gone past its expiry date by the time the agreement for sale and purchase was entered into, there was a holding over provision in the lease and so it continued as a monthly tenancy.

8

The fact that the tenancies section on the front page of the agreement for sale and purchase was completed is significant, because cl 13 of the standard form section of the agreement provides as follows:

13.0 Supply of a going concern

13.1 If this agreement relates to the sale of tenanted property (not being an exempt supply within the meaning of the Goods and Services Tax 1985) [ “the Act”] then, unless otherwise expressly stated herein:

  • (a) each party warrants that it is a “registered person” within the meaning of the Act; and

  • (b) the parties agree that the supply made pursuant to this agreement is the supply of a going concern on which GST is chargeable at zero per cent.

13.2 If it subsequently transpires that GST is payable in respect of the supply and if this agreement provides for the purchaser to pay (in addition to the purchase price without GST) any GST which is payable in respect of the supply made under this agreement then the provisions of clause 12.0 of this agreement shall apply.

9

Clause 12 requires, among other things, that the vendor will deliver a tax invoice to the purchaser. The obligation was to do this at settlement. A similar obligation exists under s 24 of the Goods and Services Tax Act 1985 (GST Act). C S Development successfully enforced the obligation under cl 12 in the High Court.

10

At the end of the printed form, a number of pages appeared containing “further terms of sale” which had been agreed by the parties. The first of these was cl 15.0, which provided that, where there was a conflict between “these special conditions” and the general conditions of sale, the special conditions applied. This is somewhat oblique because there are no “special conditions” as such: the additional terms are “further terms of sale”. But it is obvious from the context that the intention was that “these special conditions” meant the typed clauses 15–20 appearing after the printed clauses. It is less...

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