Cockburn and Others v Cs Development No 2 Ltd

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeEllen France J
Judgment Date26 March 2013
Neutral Citation[2013] NZCA 78
Docket NumberCA297/2011
Date26 March 2013

[2013] NZCA 78

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

Ellen France, Randerson and French JJ

CA297/2011

CA419 2011

BETWEEN
Aldwyn John Cockburn Janet Elizabeth Cockburn and Keith Ian Jefferies
Appellants
and
Cs Development No 2 Limited
Respondent
Counsel:

C R Carruthers QC and R P Harley for Appellants

H B Rennie QC for Respondent

Appeal from a High Court decision that the appellant pay as damages, the interest costs on GST that the respondent would have avoided had the appellants supplied the respondent with a GST invoice on settlement of sale of a property with a cafe operating on it – dispute as to whether the sale was of a going concern and therefore zero-rated for GST purposes pursuant to the Goods and Services Tax Act 1985 — contract did not provide for payment of interest – whether there was a basis for an award of damages calculated as interest — whether the High Court correctly determined the sum payable — whether relief could be granted under s164A Judicature Act 1908 (power to award damages as well as, or in substitution for specific performance).

The issues were: whether relief interest could be granted under s164A JA; whether there was a basis for an award of damages calculated as interest; and whether the HC correctly determined the sum payable.

Held: CS Development had sought an order for delivery of a GST invoice and judgment for interest on the GST component of the purchase price from the date on which CS Development would (but for the default of C) have received payment of the GST credit. The order had sought specific performance and was a specific pleading for interest as damages. The usual principles of foreseeability in general applied. Both were commercial parties with legal representation. It could be inferred that both parties were aware of the need to deal with GST issues. It would have been within the reasonable contemplation of the parties that if C was required and failed to provide a tax invoice, CS Development could not receive a tax credit and would be out of pocket.

C argued that CS Development was not able to prove a loss because C&s GST return to the Commissioner did not have a corresponding effect on CS Development&s ability to receive any refund — it did not have an entitlement based on C&s tax position. This overlooked the fact that CS Development&s ability to claim a GST refund arose because it paid GST as part of the purchase price and the sale was not of a going concern. Its ability to claim the refund was triggered by C providing a correct tax invoice. The same could be said in response to the related submission that because the invoice based on a zero-rated transaction was initially accepted as correct, there was no period over which CS Development was without a refund.

It was evident that the Commissioner had made the refund determination promptly. The fact that the Commissioner had not found any issue with the tax credit in 2010 meant that there was no evidence to suggest, and no reasonable inference could be sustained, that the Commissioner would not have made his determination promptly in 2008. There was a basis for an award of interest as damages.

The appropriate amount of interest payable was that which would have been avoided had the judgment sum available. The HC had been right to start the period from the point when the credit would have been received if the correct invoice had been provided at the time it was due. However, the position was altered slightly by the fact that the settlement took place on 2 April 2008. On that basis, the invoice would not have been included in the GST return for March 2008. Under s16(2)(c)GSTA (taxable period returns — return required by subsection (1) must be provided on or before 7 May, if the month following the end of the taxable period was April), the GST return for that month would have been due on 7 May 2008. The latest date the refund could have been given was therefore 28 May 2009. Therefore, the relevant start date would be a month later than the date adopted by the HC, that is, 31 May 2008. The damages award was amended to reflect that one month&s difference.

It was not necessary for the Court to have the GST return as evidence because the failure to provide the correct invoice meant that the sum in issue would have either operated to provide a full credit or a part credit. In either situation, the economic impact on CS Development was the same. CS Development was out of pocket for the full amount of the GST it paid from the time of the payment to the Commissioner until the time CS Development would have obtained a refund if C had provided a GST invoice when it was required.

The appeal was allowed in part. The amount of interest payable by C was reduced from $110,031 to $104,987.

  • A The appeal is allowed in part. The amount of interest payable by the appellants is reduced from $110,031.35 to $104,987.34.

  • B The appellants 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.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Ellen France J)

Table of Contents

Para No

Introduction

[1]

Background

[2]

The liability judgment

[11]

The interest judgment

[18]

The issues on the appeal

[21]

Should interest as damages have been awarded?

[22]

Applicability of s 16A of the Judicature Act?

[24]

A pleadings point

[27]

Foreseeability?

[30]

The ability to establish loss

[36]

Conclusion on basis for an award

[48]

Assessment of damages

[50]

Rate

[51]

The period over which interest is calculated

[54]

The evidential basis for the award

[58]

Result

[62]

Introduction
1

The appellants (the Cockburn trustees) did not provide the respondent (CS Development) with a GST invoice as they were required to do on settlement of an agreement for sale and purchase between the parties. The issue on appeal is whether Associate Judge Gendall was correct to order that the Cockburn trustees pay CS Development $110,031.35 as damages reflecting the interest costs that would have been avoided by CS Development had the correct GST invoice been made available on settlement. 1 The parties' contract made no provision for the payment of interest in that event.

Background
2

The matter has a protracted history. The background is set out in detail in this Court's earlier judgment in the proceeding 2 and in Associate Judge Gendall's judgment determining that damages as interest were payable (the liability judgment). The relevant events for present purposes can be summarised as set out below.

3

The Cockburn trustees owned a property at 148 Oriental Parade, Wellington. A business known as the Parade Cafe had operated there for some time. The trustees agreed to sell the property to a company or its nominee. CS Development was nominated as the purchaser. The sale price ($5 million, reduced following a variation from $5.5 million) was GST inclusive. 3 The agreement for sale and purchase was on the Real Estate Institute of New Zealand and Auckland District Law Society standard form Agreement for Sale and Purchase of Real Estate. 4

4

There was a dispute between the parties as to whether the sale was of a going concern and therefore zero-rated for GST purposes pursuant to the Goods and Services Tax Act 1985 (the GST Act), as the Cockburn trustees contended, or not, as CS Development argued. Settlement took place on 2 April 2008, without prejudice to the GST issue. The Cockburn trustees issued a zero-rated GST invoice. That invoice was accepted by the Commissioner of Inland Revenue.

5

Subsequently, each party sought summary judgment against the other. Associate Judge Gendall found in favour of CS Development. 5 The Associate Judge ordered the Cockburn trustees to deliver a GST invoice reflecting GST payable of

$555,555.56 by 7 August 2009. He also determined that the Cockburn trustees would be liable for interest on the GST amount for a period and rate yet to be determined. Associate Judge Gendall dismissed the Cockburn trustees' summary judgment application and awarded costs to CS Development.

6

The Cockburn trustees appealed to this Court. The Court upheld the decision of Associate Judge Gendall that the Cockburn trustees ought to have supplied a tax invoice to CS Development reflecting a supply on which GST was payable at 12.5 per cent. The Court accordingly rejected the Cockburn trustees' argument that the sale was of a going concern and therefore zero-rated for GST purposes. 6

7

However, the appeal was successful in respect of interest. The Court said this:

[99] We are unable to discern the basis on which interest was awarded in this case. The interest provision in the agreement for sale and purchase appears not to apply to the present situation. The matter has to be remitted to the High Court for quantification of interest anyway. In those circumstances, we consider [the] appropriate appellate response is to allow the appeal on this ground and remit the matter to the High Court for determination as to whether interest is payable, and, if so, from what date and at what rate.

8

The Cockburn trustees issued a GST invoice on 26 November 2010 and that was accepted by CS Development as correct. CS Development received its tax credit on 20 December 2010. The Cockburn trustees filed the trust's GST return in respect of the 26 November 2010 tax invoice on 15 January 2011.

9

The matter then went back to Associate Judge Gendall. CS Development filed further particulars of the claim for interest and costs on 14 February 2011. In the liability judgment, the Associate Judge concluded that interest was payable but directed further submissions on the date of commencement and on the rate.

10

An affidavit by an accountant (Christopher Morrison) was filed on behalf of CS...

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2 cases
  • Bethell v Bethell
    • New Zealand
    • High Court
    • 20 December 2013
    ...in relation to the second cause of action. The origins of s 16A lie in the Lord Cairns’ Act 1858 (UK). Cockburn v CS Development No 2 Ltd [2013] NZCA 78 at [24]; [2013] 2 NZLR 413, to J A Jolowicz “Damages in Equity – A Study of Lord Cairns’ Act” (1975) 34 CLJ 224 at 224225 and Geoff McLay ......
  • Grindlay v Memelink
    • New Zealand
    • Court of Appeal
    • 16 November 2017
    ...do not express any views. 30 See Judicature Act 1908, s 16A; Senior Courts Act 2016, s 13; and Cockburn v CS Development No 2 Ltd [2013] NZCA 78, [2013] 2 NZLR Was the role played by the McKenzie friend prejudicial? [61] As mentioned, Mr Memelink represented himself at the hearing before Co......

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