SAYES v TAMATEKAPUA COA CA181/2011

SAYES v TAMATEKAPUA COA CA181/2011 [9 November 2012]IN THE COURT OF APPEAL OF NEW ZEALANDCA181/2011[2012] NZCA 524BETWEEN GERRARD WENTWORTH SAYESAppellantAND PRUDENCE JANE TAMATEKAPUAFirst RespondentAND SHELLEY ANN SAYESSecond RespondentAND JULIE BELLE GREERThird RespondentAND KENSINGTON SWANFourth RespondentAND WALTERS WILLIAMS & COFifth RespondentAND KENNETH JOHN CROSSON AND JOHNBEVANSixth RespondentsAND NIGEL GREER AND MATTHEWCARSONSeventh RespondentsAND COLIN JAMES WRIGHTEighth RespondentAND MICHAEL WENTWORTH SAYESNinth RespondentAND SAYES FAMILY TRUSTEE COMPANYLIMITEDTenth RespondentHearing: 27 September 2012Court: Hammond, Arnold and White JJCounsel: S H Barter for Appellant No appearances for RespondentsJudgment: 9 November 2012 at 3.00 pmJUDGMENT OF THE COURTA The appeal is dismissed.B There is no order for costs, though the appellant must pay usual disbursements to the ninth respondent, if necessary as fixed by the Registrar.____________________________________________________________________REASONS OF THE COURT(Given by White J)Introduction[1] The issue on this appeal is whether, in terms of a deed of settlement, a property is to be transferred to the ninth respondent, Michael Sayes (Michael), or his nominee at a value that includes or excludes GST.[2] If the value is GST inclusive it will be $4,849,875. If, however, the value is GST exclusive it will be $4,311,000.[3] As the value is to be used in the calculation of Michael's share in the estatesof his late parents, he argues for the lower, GST exclusive value, while the appellant, Gerrard Sayes (Michael's brother) argues for the higher, GST inclusive value.Background[4] The issue arises in the context of ongoing disputes between the children of the late Beau and Peggy Sayes as to the distribution of the assets in their estates, inparticular some fourteen properties, including 106 Holden's Road, Clevedon, the property to be transferred to Michael or his nominee under the settlement deed.[5] Michael, who had been in occupation of the property for many years, was not registered for GST.[6] The settlement deed was originally entered into by all parties, other than Michael, in June 2008 after a judicial settlement conference. Michael, however, subsequently agreed to be bound by the settlement deed after the commencement of a High Court trial and consent orders made on 21 November 2008.[7] The relevant paragraphs of the settlement deed are:9 That the property at 106 Holden's Road be transferred to Michael orhis nominee or resettled on trust for the benefit of Michael's childrensuch transfer or resettlement being on account of his one quarter share of the properties set out in paragraph [8] herein. It shall beMichael's sole election as to whom this transfer is made. Irrespectiveof the party to whom the transfer is made the value of the property shall be deducted from the balance due to Michael in ascertaining the balance due to him pursuant to this settlement. In the event that this clause has the effect of Michael exceeding his entitlement as set out in paragraph [8] any adjustment shall be paid on settlement.14 in the event any tax or gift duty shall be levied on any personwhether as a transferor, transferee, trustee or executor/executrix in respect of any transfer(s) whether made pursuant to this deed orotherwise then Michael, Shelley, Gerrard and Julie, shall, asamong themselves share equally among them the cost of such tax or duty, and whosoever shall be liable to pay such tax or taxes, or duty or duties shall be indemnified by each of the others as to one quarterof any such liability 15 That the properties be valued as to their current market value as at the same date by a registered valuer 16 The valuer shall be Seagar & Partners and its valuation instructions shall be given in writing in agreed form no later than 7 days from thedate of this agreement [8] As envisaged by cl 16, Seagar & Partners, registered valuers and property consultants, had valued the property and issued a valuation report dated 8 August 2008 stating that its "Current Market Value (excluding GST)" was "$4,311,000." The report also stated that it had been prepared "for the specific purpose stated."[9] By letter dated 6 March 2009 Glaister Ennor, the solicitors for the trustees ofthe Sayes' family trust, wrote to the solicitors for the other parties about a number of issues, including the GST issue. They commented on this issue as follows:There is an issue as to whether GST forms part of the value of the property for the purposes of assessing the value at which it is transferred to Michael. The valuer has valued the property on a GST exclusive basis, but it is a rural residential property and accordingly would normally be valued on a GST inclusive basis. The issue is whether Michael pays the GST or whether the four siblings pay the GST pursuant to clause 14 of the Deed of Settlement.[10] As a number of issues, including this one, were not resolved, the trustees applied to the High Court for directions. The application was heard by Lang J who decided that the current market value was $4,311,000 exclusive of GST.1[11] In his judgment Lang J recorded the argument for the trustees and his reasons for rejecting it as follows:[18] The argument for the trustees, and supported by parties other than Michael, is based on the fact that Michael is not registered for GST. If he has the property transferred to him and then sells to a party that is registered for GST, they say that he will be able to obtain a better sale price because, provided the purchasing party is registered for GST, that party will be able to claim a GST input credit in respect of the purchase.[19] This argument is based on two assumptions. The first is that it is likely that Michael will, in fact, sell the property to a party that is registered for GST. That, of course, is entirely speculative. There is no suggestion at this stage that the property is particularly suitable for commercial uses. It is entirely possible that any eventual purchaser will, like Michael, be a person who is not registered for GST. If a notional allowance was to be made for GST as is suggested, it could lead to injustice for Michael because he might receive a property that is worth much more than he could obtain if he sells it to an unregistered purchaser.[20] Secondly, it assumes that a purchaser who is registered for GST would be prepared to pay 15 per cent more than market value because of the availability of an input tax credit in respect of the purchase. I do not accept, on the evidence adduced in this case, that that is a sustainable assumption. I1 Sayes v Tamatekapua HC Auckland CIV-2007-404-516, 2 March 2011.consider that prospective purchasers are likely to pay market value for the property whether or not they are registered for GST.[21] None of the properties to be taken by other parties have been treated in this way. Gerrard, for example, has received properties that have been zero rated for GST purposes because they are going concerns. They are going concerns because they are currently subject to commercial leases. It is, however, entirely possible that those properties could be sold by Gerrard in an unregistered capacity. If that should occur then he, too, might be able to obtain some form of advantage because the purchaser might be registered for GST. I consider that the just way of dealing with this issue is that all of the properties should be valued using the same methodology.[22] The valuation that Seagar & Partners has produced values the property at $4,311,000 exclusive of GST. I take that to be the current market value of the property.Appellant's case[12] In support of Gerrard's appeal against Lang J's judgment, Mr Barter madethree submissions. First, the Judge erred in holding that Michael might obtain a"better sale price" if the purchasing party is registered for GST. Rather the priceMichael could obtain is the GST inclusive value of $4,849,875, regardless of whether the purchaser could claim a GST input credit or not. The GST inclusiveprice is not a "better price" that would be obtained if the sale was to a registeredperson, rather the GST inclusive price is the market price. In support of this submission, Mr Barter:(a) relied on the evidence of John Leonard, a forensic accountant, whose expert opinion was that the price a purchaser would be willing to pay for the property was the GST inclusive amount;(b) described the evidence to the contrary of Keith Turner, a tax lawyer, which appeared to have been relied on by the Judge, as qualified because its foundation had not been set out and Mr Turner was not asked to comment on what would have happened in a sale to an unregistered person; and(c) pointed out, in reliance on Minister of Lands v Nutsford-Cumming,22 Minister of Lands v Nutsford-Cumming HC Auckland AP83SD02, 17 March 2003 at [24].that there could not be two market values depending on the GST status of the purchaser.[13] Mr Barter's second submission was that the Judge's assumption that Gerrard could sell properties in an unregistered capacity and obtain a GST advantage was incorrect. If Gerrard were to deregister for GST in order to allow him to sell his properties in an unregistered capacity he would have to pay output tax on the open market value of the properties at the time of deregistration.3 Accordingly, if Gerrard were to deregister, the output tax he would have to pay would cancel out any advantage he gained as an unregistered vendor. It would be unfair to value all the properties as GST exclusive because that failed to take into account Gerrard being registered for GST and Michael being unregistered.[14] Mr Barter's third submission was that under the settlement deed theproperties should be valued according to their value to the person to whom theproperty is transferred. The value used to apportion each party's share in the settlement should be based on "the actual value of each property in light of that party's circumstances". On this basis the value ascribed to Michael should be theGST inclusive value and the value ascribed to Gerrard the GST exclusive value.[15] Gerrard also seeks indemnity costs from the estates on the ground that if he succeeds in his appeal he should not have to bear the full costs involved when the other beneficiaries, apart from Michael, will also benefit from the outcome.Respondents' position[16] The trustees of the estates and the other members of the family, apart from Michael, abide the decision of the Court on the GST issue.[17] Michael, who is now representing himself, filed a memorandum setting out his submissions supporting the judgment under appeal and opposing the submissions for Gerrard.3 Goods and Services Tax Act 1985, s 5(3); and Thompson v Commissioner of Inland Revenue[2011] NZCA 132, (2011) 25 NZTC 20–041 at [19].Discussion[18] We are able to determine the issue raised on this appeal relatively shortly because in our view it involves a straightforward matter of contractual interpretation and the application of well-established principles.[19] The starting point is to recognise that the requirement for the valuation of the property appears in a deed of settlement. It is therefore a matter of interpreting the relevant clauses of the deed of settlement, particularly cls 15 and 16. Those clauses must be interpreted according to the objective approach set out by the Supreme Court in Vector Gas Ltd v Bay of Plenty Energy Ltd.4 We accept that, in accordance with the approach in Vector, 5 the deed must be interpreted in its context. But in this case, as we go on to demonstrate, the surrounding circumstances indicate that theplain meaning of "current market value" is the correct interpretation.[20] Clause 15 required the property at 106 Holden's Road to be valued as to its "current market value" and cl 16 stipulated that the valuer was to be Seagar &Partners. Acting in accordance with these provisions, Seagar & Partners valued the"current market value" of the property "excluding GST" at $4,311,000.[21] The meaning of the expression "current market value" is well-established. It means the price at which a willing but not anxious vendor would sell and a willing but not anxious purchaser would buy.6 A hypothetical sale of the property in question is to be assumed, disregarding the personal desires or sentiments of any parties, but approaching the matter as a practical question not overlaid by philosophical niceties.7[22] In the present case there was no suggestion that Seagar & Partners had failedto value 106 Holden's Road in accordance with the correct approach. The valuation4 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.5 At [4]–[6], [19]–[24], [57]–[66] and [151].6 Holt v Holt [1990] 3 NZLR 401 (PC) at 402; and Alan Hyam The Law Affecting Valuation ofLand in Australia (4th ed, The Federation Press, Sydney, 2009) at 53–55.7 Hatrick v Commissioner of Inland Revenue [1963] NZLR 641 (CA) at 661; Gus Properties Ltd vTower Corporation [1992] 2 NZLR 678 (CA) at 690; West Coast Settlement Reserve LesseesAssociation Inc v Valuation Committee for the West Coast Settlement Reserves [1997] 1 NZLR413 (CA) at 431.was not challenged and the Seagar & Partners valuers who signed the valuation report were not called for cross-examination on their report or to explain their valuation. No evidence was adduced for Gerrard to suggest that the valuation wasnot the "current market value" of the property.[23] Instead Mr Leonard gave evidence for Gerrard that in his opinion a purchaser would be willing to pay a GST inclusive amount for the property. Mr Leonard was not, however, the valuer nominated in cl 16 of the settlement deed. In terms of the deed his opinion is therefore of no relevance, especially in the absence of anychallenge to the "GST exclusive" valuation of Seagar & Partners.[24] The requirement for Seagar & Partners to approach the valuation of theproperty on the basis of a hypothetical sale provides the answer to Mr Barter'ssecond and third submissions for Gerrard, which focussed on the differences in GST status between Gerrard and Michael. There was no suggestion that Seagar & Partners had erred in determining the price that hypothetical parties would have reached for the property at 106 Holden's Road, rather than the price that another purchaser might have been prepared to pay Gerrard for another property.[25] Our view that Seagar & Partners were correct to value the current market value of 106 Holden's Road exclusive of GST is also supported by the provisions ofthe settlement deed relating to the transfer of other properties and cl 14, which expressly provided for the four children to share equally the cost of any tax that might be payable.[26] Mr Barter's submission that the value ought to be the value to the particularbeneficiary may be paraphrased as "market value means the GST exclusive valueunless, because of the appellant's tax status, the person may be able to gain morethan the GST exclusive value by selling it". Such a definition of market value wouldbe unworkable. The trustees could not know in advance how the tax status of thevarious beneficiaries might play out in any future sale. On an objectiveinterpretation of the deed the parties cannot be taken to have meant the interpretationof market value for which Mr Barter contends.[27] Accordingly, determining what would be a fair way to value the propertieswould undermine the parties' agreement to be bound by the Seagar & Partnersvaluation and the parties' agreed and unambiguous instructions to the valuers. Itmay be that there are unforeseen tax advantages and disadvantages in the way theparties have structured their affairs, but it is not for the Court to seek to rearrange theparties' agreement now. While Michael may get a tax advantage relative to Gerrardif he were to sell the property he obtained under the settlement, that is simply aconsequence of his GST status. That status will have particular benefits and burdensin particular situations, just as Gerrard's registered status will be advantageous tohim in some situations and not in others.[28] Mr Barter's reference to the decision of the High Court in Minister of Lands vNutsford-Cumming was appropriate, but it does not support Gerrard's appeal. Thatcase involved an appeal from the Auckland Land Valuation Tribunal concerning therelevance of GST to the assessment of market value in circumstances where the priceis assessed using the hypothetical subdivision methodology for the purpose ofdetermining compensation for land taken under the Public Works Act 1981. Theapproach of the High Court, which decided to remit the case to the Tribunal forfurther consideration, was explained in the judgment of Salmon J and J W Charters:8[21] It is not immediately apparent from the decision of the Tribunal that its focus was on fixing the market value of the land. A person whose land is taken is entitled to market value for the land, not market value plus GST. In fact the Tribunal appears to have recognised this. Before the Tribunal the appellant argued that if an allowance is made in the hypothetical subdivision budget for GST this would result in two different market values, depending on whether or not the vendor was required to pay GST. The Tribunal said that was not so, the market value does not alter, what alters is the net return to the vendor. That, of course, is correct, but in its calculations the Tribunal has added GST to the before and after hypothetical subdivision value....[24] At the end of the day, however, the market value cannot be different depending on whether or not GST is payable or claimable by the purchaser. If GST is to be included in the market value, that can only be because a willing purchaser would add back the amount of the GST refund to the hypothetical subdivision calculation knowing that unless he was prepared to do so, the price he was offering would not be a competitive one on the market.8 Emphasis added.[29] We agree with the High Court in that case that where a person is entitled to"market value" the entitlement is to "market value" not "market value plus GST".Similarly, we agree that at the end of the day the market value cannot be different depending on whether or not GST is payable or claimable by the purchaser.Indemnity costs?[30] In view of the decision we have reached, Gerrard's claim for an order forindemnity costs from the estates is moot.Result[31] For the reasons we have given the appeal is dismissed.[32] As Michael represented himself, there is no order for costs, though Michael is entitled to payment by the appellant of usual disbursements, if necessary as fixed by the Registrar.[33] We trust that the parties, who have been engaged in protracted and unnecessarily involved litigation, will be able to resolve any remaining disputes without further recourse to the courts.Solicitors:Barter & Co, Auckland for AppellantGlaister Ennor, Auckland for Second, Third and Tenth Respondents