STARRENBURG AND STARRENBURG V MORTRE HOLDINGS LIMITED CA CA52/04

STARRENBURG AND STARRENBURG V MORTRE HOLDINGS LIMITED CA CA52/04 10 August 2004IN THE COURT OF APPEAL OF NEW ZEALAND CA52/04BETWEEN JOHANNES CORNELIS JAN STARRENBURG AND BARBARA JANE STARRENBURG Appellant AND MORTRE HOLDINGS LIMITED Respondent Hearing: 12 July 2004 Coram: Anderson P McGrath J Hammond J Appearances: G N Bradford for Appellants N J Carter for Respondent Judgment: 10 August 2004JUDGMENT OF THE COURT DELIVERED BY McGRATH J Introduction[1] This appeal raises a question concerning which of the two parties to agreements in common form, for the sale and purchase of commercial properties, is liable to the other to meet the cost of goods and services tax that the vendor has paid in respect of the transactions. The contracts concerned were entered into on the standard form of agreement for the sale and purchase of real estate approved by the Real Estate Institute of New Zealand and the Auckland District Law Society (seventh edition (2) July 1999). [2] On 12 March 2003 the respondent vendor agreed to sell to the appellant purchasers three properties on which the respondent had recently developedcommercial buildings at 9, 11 and 13 Wickens Place, Warkworth. The properties were each the subject of leases for a term of ten years to Mahurangi Technical Institute Limited. A separate agreement was entered into in respect of the transaction involving each property which provided that the purchase price included GST (if any). The agreements also contained standard provisions under which the appellant and respondent each warranted that it was a registered person under the Goods and Services Tax Act 1985 and agreed that the supply under the agreement was of a going concern which was zero rated for goods and services tax (GST). In fact, the appellants were not registered for GST at the time of settlement of the agreements. The Commissioner consequentially assessed the respondent as transferor to pay output tax in respect of the three sales totalling $117,222.21. [3] The respondent's claim to be reimbursed for payment of the tax was rejected by the appellants. The respondent then brought summary judgment proceedings in the High Court alleging breach of the appellants' warranty under each agreement that they were registered persons under the Act. The respondent, who has since paid the output tax, claimed damages from the appellants for the tax that it had to pay. Summary judgment in favour of the respondent was granted by Associate Judge Lang on 9 March 2004 for the sum of $117,222.21 together with interest and costs. The appellants appeal against that judgment.The contractual terms[4] Each of the three agreements provides, in terms which for the purposes of this appeal are identical, for the sale and purchase of one of the properties. It is convenient to consider that for 9 Wickens Place. The first part of that agreement on the front page, in its final form following negotiation over the purchase price and deposit payable, reads as follows:AGREEMENT FOR SALE AND PURCHASE OF REAL ESTATEThis form is approved by the Real Estate Institute of New Zealand and by the Auckland District Law Society.DATE: 12 th March 2003VENDOR: MORTRE HOLDINGS LIMITEDPURCHASER: JOHANNES CORNELIS JAN & BARBARA JANE STARRENBURG AND OR NOMINEEProperty:Address of property: 9 Wickens Place, WarkworthEstate: FEE SIMPLE LEASEHOLD CROSSLEASE UNIT TITLE (If none is deleted fee simple)Legal description: Area 610m2 Lot: 31 DP: 314715 CT: PURCHASE PRICE: $345,000 (Three Hundred & forty five thousand dollars) Plus GST (if any) OR Inclusive of GST(if any)If neither is deleted the purchase price includes GST (if any) GST date ( refer clause 12 ) Deposit: (refer clause 2) $30,500 (Thirty thousand Five hundred dollars) Payable to (Agent's name) Trust Account on acceptance of this agreement.Balance of purchase price to be paid or satisfied as follows:IN FULL ON DATE OF POSSESSIONPossession: (refer clause 3)Possession date: 1 April 2003 Interest rate for late settlement: 12%p.a.[5] The agreement then makes provision for certain conditions, particulars of any tenancies (Mahurangi Technical Institute Limited is named as tenant) and for chattels included in the sale. At the foot of the first page the following provision appears:It is agreed that the vendor sells and the purchaser purchases the above described property, and the chattels included in the sale, on the terms set out above, and the General and Further Terms of Sale.[6] The form of agreement then sets out five pages of printed terms under the heading: GENERAL TERMS OF SALE. Clause 1.0 is sub-headed Definitions, notices and interpretation. In that clause, under "Interpretation", cl 1.3(3) provides:Where any inserted term (including any Further Terms of Sale) conflicts with the General Terms of Sale the inserted terms shall prevail.[7] The General Terms of Sale include cls 12 and 13 which concern GST and Supply of a Going Concern. They provide:12.0 Goods and Services Tax (GST)12.1 If this agreement provides for the purchaser to pay (in addition to the purchase price stated without GST) any GST which is payable in respect of the supply made under this agreement then: (1) The purchaser shall pay to the vendor the GST which is so payable in one sum on the GST date. (2) Where the GST date has not been inserted on the front page of this agreement the GST date shall be the possession date. (3) Where any GST is not so paid to the vendor the purchaser shall pay to the vendor: (a) interest at the interest rate for late settlement on the amount of GST unpaid from the GST date until payment; and (b) any default GST. (4) It shall not be a defence to a claim against the purchaser for payment to the vendor of any default GST that the vendor has failed to mitigate the vendor's damages by paying an amount of GST when it fell due under the Goods and Services Tax Act 1985 ("the Act"). (5) Any sum referred to in this clause is included in the purchase price, interest and other moneys, if any, referred to in subclause 3.7. 12.2 If the supply under this agreement is a taxable supply the vendor will deliver a tax invoice to the purchaser on or before the GST date or such earlier date as the purchaser is entitled to delivery of an invoice under the Act. 12.3 The vendor warrants that any dwelling and curtilage or part thereof supplied on sale of the property are not a supply to which section 5(16) of the Act applies. 12.4 "Default GST" means any interest, or late payment penalty, or shortfall penalty, or other sum imposed on the vendor under the Tax Administration Act 1994 by reason of non-payment of the GST payable in respect of the supply made under this agreement but does not include any such sum levied against the vendor by reason of a default by the vendor after payment of the GST to the vendor by the purchaser.13.0 Supply of a Going Concern13.1 If this agreement relates to the sale of a tenanted property (not being an exempt supply within the meaning of the Goods and Services Tax Act 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.[8] There are then provisions under the heading FURTHER TERMS OF SALE as to the purchaser being satisfied as to lease arrangements with MahurangiTechnical Institute Limited, with a report of the property to be obtained from a builder of the purchaser's choice, and giving the respondent the right to rectify any faults identified in the report. These further terms are typed or handwritten or, in the case of the provision for a report, partly printed and partly handwritten. The parties have then signed the agreement. [9] On the last page of the form there are a number of printed statements in bullet point form under the heading "BEFORE SIGNING THE AGREEMENT". The last of these reads:• If the property is sold as a "going concern", the vendor should ensure the purchase price is stated on the front pages as "PLUS GST (if any)".[10] And below that the following appears:THE ABOVE NOTES ARE NOT PART OF THIS AGREEMENT AND ARE NOT A COMPLETE LIST OF MATTERS WHICH ARE IMPORTANT IN CONSIDERING THE LEGAL CONSEQUENCES OF THIS AGREEMENT. PROFESSIONAL ADVICE SHOULD BE SOUGHT REGARDING THE EFFECT AND CONSEQUENCES OF ANY AGREEMENT ENTERED INTO BETWEEN THE PARTIES.The legislative context[11] The legislative context in which the parties contracted was s11 of the GST Act 1985 (which in its form at the time of settlement) provides: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: (m) The supply to a registered person of a taxable activity, or part of a taxable activity, that is a going concern at the time of the supply, if- (i) the supply is agreed by the supplier and the recipient, in writing, to be the supply of a going concern; and (ii) the supplier and the recipient intend that the supply is of a taxable activity, or part of a taxable activity, that is capable of being carried on as a going concern by the recipient;The terms "going concern" and "taxable activity" are respectively defined in ss2(1) and 6 of the Act. Nothing turns on those definitions.The summary judgment application[12] By its statement of claim the respondent pleaded that the sales under each agreement for sale and purchase were sales of a taxable activity, not being an exempt supply, as a going concern which would have been zero rated under the Act if the appellants as well as the respondent had been registered for GST. It asserted that the appellants were not so registered, and that they were thereby in breach of the warranty under cl 13.1(a) of each of the agreements. The Inland Revenue Department had required or in future would require the plaintiff to return and pay GST on each sale in the total amount of $117,222.21. The respondent would also be liable for interest. The respondent sought summary judgment for $117,222.21, as damages for the breach of warranty, along with any further sums payable by way of tax and interest at the statutory rate. [13] In its notice of opposition the appellants said that they had a defence to the claim. They said that they had no liability to the respondent because the agreements the parties had entered into each included a term that the purchase price they were required to pay was inclusive of GST. They further asserted that there was no provision in the agreements that the supply was of a going concern (as required by s11(1)(c)(ii) of the Act for the supply to be zero rated) and no warranties had been given by the appellants to the respondent. By way of elaboration the appellants said that cl 13 of the agreements did not apply, as the agreements expressly stated in each case that the price was GST inclusive. This provision as to price overrode cl 13, as was indicated by extrinsic evidence concerning the parties' respective conflicting declarations of intention, their negotiations and subsequent conduct which could and should be admitted at the trial of the respondent's claim.The High Court judgment[14] After discussing the principles on which applications for summary judgment should be considered, Associate Judge Lang considered the extent to which he could take into account affidavits of the parties concerning the negotiations leading up to the signing of the contracts. He was of the view that there was no ambiguity in theterms of the agreements and held that he should put to one side the parties' evidence concerning their discussions and respective subjective intentions. Nor was post contractual conduct relevant to the issues to be decided. The Associate Judge accepted however that the fact that each of the properties was subject to a long term lease was within the parties' mutual contemplation and relevant to the manner in which they dealt with the GST issue. [15] As each contract was for the sale of a tenanted property, and none involved an exempt supply under the Act, the Judge noted that GST would be payable on each supply unless it was zero rated for GST purposes. That would only be the case if each of the parties to the transaction was a registered person under the Act at the time of the supply. Although by cl 13 the appellants had warranted that they were registered persons, neither of them in fact was and they were accordingly in breach of their warranties. They were liable for damage suffered by the respondent as a result of the breach. [16] The Associate Judge then considered three arguments, advanced for the appellants, to the effect that cl 13 did not apply. The first argument was that, there being no deletion to the printed provision as to GST in the purchase price section of the contract, the contractual position was that the purchase price included GST and it followed that no warranty had been given. The Associate Judge rejected this submission on the basis that the failure to make an alteration to the purchase price provision concerning GST did not amount to an express term negating the warranty. Nor was there any other such express negativing provision in the contract. [17] Secondly, the appellants had argued in the High Court that no damages had resulted from the breach of the warranty and that payment of the purchase price, which was inclusive of GST, has discharged any GST liability. This argument was also rejected by the Associate Judge who said that the respondent's claim was not for payment under the agreement for the output tax it had incurred, but for damages for breach of the warranty. As a vendor the respondent had been entitled as against the appellants to proceed on the basis that the supply would be zero rated if it had met the other requirements of s11. The fact that there had been no alteration to the form could not negate the warranty. The Associate Judge added that cl 13.2 was notconfined to situations in which liability for GST arose as a result of the failure of one party to be registered. It might come into effect where the parties' own assessment of the taxable status of the activity had turned out to be incorrect, as would be the case if the Commissioner of Inland Revenue took the view that the supply was not of a going concern. The distinguishing feature of the present case, however, was that the appellants were in breach of their warranty that they were registered for GST. [18] Thirdly, the Associate Judge addressed an argument that in terms of cl 1.3(3) of the agreement the provision as to GST, in the contractual term as to price on the front page, was a conflicting "inserted term" which prevailed over cls 12 and 13. The Judge rejected that submission. He held that an "inserted term" was only one which was inserted to vary or to add to standard form agreements. The price provisions as to GST did not satisfy that requirement. [19] Finally, in a passage much criticised by the appellant's counsel before us, the Associate Judge noted that a principal and relevant background feature of the agreements was that the sales were of tenanted property. Against that aspect the parties had warranted that each sale was of a going concern and zero rated for GST purposes. In those circumstances the contractual provision that the sale price was inclusive of GST should be understood to be of no moment, as reasonable persons would understand the supply to be zero rated. The allocation of contractual liability for GST was accordingly irrelevant. Indeed it had only become relevant because the appellants were in breach of their warranties that they were registered persons. [20] It followed that the Associate Judge was satisfied that the loss was caused solely as a consequence of the appellants' breach of the warranty. He held that the respondent was entitled to recover the loss it had suffered and gave judgment in its favour for the tax liability it had incurred of $117,222.21, for interest, to be quantified, and costs.Submissions of the parties[21] Mr Bradford advanced a number of points in support of the appeal. They came down to two main arguments. The first was that the Associate Judge hadeffectively held that cl 13 applied to the agreements with the consequence that, under cl 13.2, the provisions in cl 12 requiring the purchaser to reimburse the vendor for any GST liability also applied. That reasoning Mr Bradford argued was in error as, under cl 13.2, cl 12 only applied if the agreement provided for the purchaser to pay any GST liability on the supply in addition to the specified purchase price, which it clearly did not. Counsel reinforced this argument by reference to the note on the back of the standard form which said that if the property was sold as a going concern the vendor should ensure that the purchase price was stated as "plus GST (if any)." There had been no deletion of the "inclusive of GST (if any)" option in the standard form provision for the purchase price. He also criticised the finding of the Associate Judge that no reasonable person would place weight on the lack of a deletion of the GST inclusive option on the first page of the agreement, pointing out that the appellants wished to call evidence of a contrary factual situation and understanding at the trial. [22] It followed according to Mr Bradford's argument that cl 12 (obliging the purchaser to pay the vendor GST) and cl 13 (providing for warranties as to registration and agreement that the supply was of a going concern) were inapplicable to the contracts. [23] Mr Bradford's second line of argument was that the warranties provision in cl 13.1 of the agreement on its terms did not apply as the agreement "otherwise expressly stated". It did so, he said, by providing that the purchase price included GST (if any) the consequence being that GST was not payable by the appellant purchasers. This excluded cl 13.1. In support of this argument Mr Bradford contended that the provision for the purchase price to include GST was an "inserted term" which, under the interpretation provision in cl 1.3(3), prevailed over the contrary provisions in the General Terms of Sale including the warranties clause, cl 13.1(a). It followed that the Associate Judge was wrong to conclude that the operation of the warranties provision "could only be prevented by an express term confirming that the purchasers did not warrant that they were registered persons under the Act". He said that the presentation by the respondent of a GST inclusive price offer required consideration only on the basis that the appellants would not incur any liability for GST.[24] It was also suggested that there had been a failure to consider evidence concerning the absence of discussion prior to execution of agreements about zero rating and going concerns. Such conflicting evidence was said to be relevant to the outcome of the case because it went to knowledge and appreciation of the GST status of the vendor. [25] For the respondent, Mr Carter submitted that cl 13.1 applied and bound the parties. The agreement was plainly one relating to the sale of a tenanted property and the supply was not exempt under the Act. The warranties by each party and the agreement that the supply was of a going concern then took effect, on the terms of cl 13.1 "unless otherwise expressly stated" in the agreement. Mr Carter argued that there is no such express negative statement to the effect that either party is not a registered person, or that the supply is not of a going concern. The appellants' true position, he said, is rather that the warranties and agreements are impliedly negatived by the provision that the purchase price is "inclusive of GST (if any)". He submits that is not sufficient to meet the stipulation requiring an express negative statement. [26] Mr Carter next submitted that, in any event, cls 13.1(a) and (b) are not impliedly negatived by the purchase price term or any other provision in the agreement. He argued that no assistance for the contrary argument of the appellants is derived from the interpretation provision cl 1.3(3), because the printed words on the first page of the standard form, concerning whether the purchase price is plus GST or inclusive of it, do not amount to an inserted term. Mr Carter pointed out that there has been no deletion of either option concerning GST liability, without conceding that if there had been this would be characterised as an inserted term. He also argued that the words "if any" in the phrase "GST (if any)" need to be given legal effect. He linked that phrase with the provision in cl 13.1(b) that GST is chargeable on the transaction at zero per cent if it involves a going concern, so that the two provisions are not in conflict. Finally, Mr Carter submitted that that as the note on the back of the agreement, recommending that the purchase price be stated on the front page to be "PLUS GST (if any)", is expressly stated not to be part of the agreement, it could not assist the appellants' argument. For these reasons the provision in the purchase price being GST inclusive does not implicitly override cl 13.1(a) and (b).[27] Finally Mr Carter referred us to this Court's judgment in Fatac Ltd (In Liquidation) v Commissioner of Inland Revenue [2002] 3 NZLR 648 at [78] in which the Court said that the purpose of s11 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.He added, making further reference to Fatac, that if the appellants' view of the transaction were correct and the parties had not intended that the taxable activity be transferred as a going concern, nothing would have been easier than for them to delete cl 13.1 from the contract.Decision[28] We start with cl 13.0. It is headed: Supply of a Going Concern. It is included to meet requirements of, now, s11(1)(m), originally enacted in a reduced form as s11(1)(c) of the Act. Section 11(1)(m) provides that a supply of goods will be zero rated if it is a supply to a registered person of a taxable activity or part of a taxable activity, that is a going concern at the time of supply, subject to two further requirements being met. The first of these requirements is that the parties agree in writing that the supply is of a going concern, and the second is that they intend the supply to be of a taxable activity that is capable of being carried on as a going concern. [29] In Fatac this Court explained the purpose of the equivalent statutory provision applicable at the time:[78] the history and wording of s11(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 debit.[30] 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 asthose between the parties to the appeal, meet the requirements of the Act to be zero rated for GST under what is now s11(1)(m). The requirement that the recipient is a registered person is provided for in the agreement by cl 13.1(a) by which each party warrants that it is registered. The requirement of 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 cl 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. [31] We next consider the appellants' principal argument which is that the contractual provision that the price is "inclusive of GST (if any)" excludes the operation of cl 13 of the agreements. An obvious difficulty with the argument is that it could only do so by implication, which is excluded by the terms of cl 13. In any event, we are satisfied that the provision as to the price payable being inclusive of any GST is not inconsistent with cl 13 so that the two terms can stand together in the agreements. The meaning of the price provision is that payment of the purchase price to the vendor by the purchaser includes payment for any GST that the vendor must pay consequent on the sale. It expresses the parties' contractual intention that the right of the vendor to be reimbursed by the purchaser for GST charged to the vendor on the transaction is addressed by the mechanism of payment by the purchaser of the specified price under the agreement. Payment of that sum discharges any obligation to reimburse the vendor for GST payable. [32] In cl 13, on the other hand, the purchaser warrants that it is registered for GST with the intended effect that the supply involved in the transactions will be zero rated. The two provisions are linked and are part of a scheme whereby the purchaser pays no more than the purchase price on account of the vendor's liability to pay GST (if it is liable), but the vendor's supply which would otherwise give rise to a GST liability is a zero rated one. The link is signalled by the qualifier "(if any)" in the term as to the purchase price and the terms of cl 13.1, compliance with which it is anticipated will secure the status of exempt supply under the Act for the transaction. Read together in this way, in the legislative context of s11(1)(m), the term as to thepurchase price being inclusive of GST and cl 13 are entirely consistent. The argument to the contrary fails to appreciate that cl 13.1(a) imports a warranty as part of a contractual scheme in relation to the incidence of GST between the parties. Being consistent with cl 13.1(a) the purchase price term in relation to GST does not override it. [33] The appellants' next argument was that cl 13 has no application in the contracts unless the purchase price is expressed to be "plus GST (if any)". In that case, under cl 13.2, if GST were payable cl 12 stipulates the manner in which the purchaser pays the vendor the sum due. The argument is, in effect, that cl 13.2 implicitly limits the scope of cl 13.1 and the warranties it provides for. It encounters the same difficulty as the first argument with the requirement that an express contrary statement is required if cl 13.1(a) and (b) are to be disapplied. But, that problem apart, cl 13.2 on its ordinary meaning is not framed as a limitation of cl 13.1, confining the circumstances in which the parties' warranties and agreement will bind them, and that is not its nature. It is rather a provision covering a situation where, despite what the parties have committed themselves to in cl 13.1 to achieve a different result, GST is subsequently found to be payable. In that case under cl 13.2 if the agreement is to pay the purchase price plus GST, the provisions for the purchaser to pay the sum charged to the vendor under cl 12 will apply. [34] One purpose of cl 13.2 is, no doubt, to facilitate recovery of GST from a purchaser who has agreed to pay a purchase price which is plus GST if it transpires, after settlement, that GST is payable. In that situation GST can be recovered by the vendor under cl 13.2 as an alternative to a damages claim against the purchaser for breach of the cl 13.1 warranty. A breach of warranty will commonly be the event that gives rise to the GST liability in such situations but cl 13.2 can be invoked if it transpires that GST is payable for another reason as long as the purchase price is plus GST. It in turn invokes cl 12 which is the contractual mechanism for recovery of the GST sum from the party which has agreed to pay it. This purpose is not inconsistent with an ability to claim separately for damages for breach of the warranty even if cl 13.2's requirements are not met or fully met. It is not surprising that there is no express provision for compensation given that the remedy of damages for breach of warranty is one well established in law.[35] Mr Bradford referred us to texts said to express a different view including Blanchard, Handbook on Agreements for Sale and Purchase of Land (4ed 1988) at 235-236. The statement he relied on relates to an earlier edition of the approved standard form which did not contain the relevant clause and is not of assistance. [36] It follows that neither the fact that the purchase price is inclusive of GST, nor that cls 12 and 13.2 have no direct application, excludes the operation of cl 13.1, and the respondent's right to claim damages for a breach of the appellants' warranty under it. [37] The appellants finally argued that the High Court judgment rejects affidavit evidence which raised a genuine dispute of fact on which the case may have turned had it gone to a trial. The submission is that as there was a genuine factual dispute the Associate Judge should not have proceeded to deal with the proceeding on a summary judgment application. [38] The affidavit evidence of Mr Starrenburg was that there had been no discussion concerning the respondent's GST status prior to contract, about zero rating for GST, or whether the transfer under the agreements was of a going concern. He says he told the respondent's real estate agent that the appellants were not presently registered for GST and he was not asked if he would obtain re-registration. There is support for what he says in the affidavit of Ms Milne. The respondents have filed affidavits from Mr Morely and Mr Woodcock to the effect that there was some discussion of zero rating and going concern matters before contracts were signed. [39] Mr Bradford submitted that the conflicting evidence is relevant to the question of the appellant's awareness of the respondent's GST status, which goes to whether there has been a default by the appellants under the agreement. He emphasised that the agreements were presented to the appellants on a GST inclusive price basis. [40] Given our findings as to the meaning of the relevant terms in the context of the whole agreements, the appellant's argument has to be that, when set against the background matrix of fact, the natural meaning of those terms is displaced, so thatthe warranties in cl 13.1(a) do not apply. The principles of Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896, 912-913 applied in Boat Park Ltd v Hutchinson [1999] 2 NZLR 74, 81-83 CA are invoked by the appellants to support this approach and are said to indicate that, depending on how the conflicting evidence concerning the parties background knowledge at the time they contracted is resolved, a different meaning of what the agreements would reasonably convey may be ascertained. The appellants say that the factual issues should accordingly be resolved at a trial. [41] We approach this argument on the principle that the respondents were entitled to summary judgment only if, despite the differences between the parties on factual matters, it is plain on the material before the Court that the appellants have no tenable defence to the respondent's cause of action for breach of warranty. In applying this principle we accept (without of course finding) that everything the appellants' witnesses say as to matters of fact in their affidavits is true. On that basis there is no reason why the true meaning of the contractual agreements should not be ascertained and the agreements applied in a summary judgment proceeding to ascertain if the appellants have a tenable defence: Pemberton v Chappell [1987] 1 NZLR 1, 4 and 8; Haines v Carter [2001] 2 NZLR 167 at [128]. [42] In applying on that basis the approach of Investors Compensation Scheme Ltdwe start with what we have concluded is the natural and ordinary meaning of clause 13.1(a) read in its context, including the particular term as to the purchase price being "inclusive of GST (if any)". On that meaning the appellants are in breach of their warranty under cl 13.1(a) that they were a "registered person" within the meaning of the Act. The question then is whether, on the appellants' affidavits, there was admissible background evidence available to the parties at the time of contract, which would affect the way that the contractual terms in question, and in particular cl 13.1(a), would have been reasonably and objectively understood by the parties. [43] We have concluded that the meaning of cl 13.1, in the context of the agreements themselves, is clear. The absence of ambiguity does not preclude the consideration of the factual matrix, but the fact that cl 13.1 provides that any derogation from its terms should be express, indicates that the matters of admissiblebackground must provide a powerful indication that the parties intended a different meaning. So does the fact that the extrinsic evidence is relied on to displace a contractual scheme in a standard form of contract that is framed around a particular provision in the GST Act and which seeks to achieve a particular result for GST treatment in terms of that provision. It also allocates the burden of any GST that is payable. The effect of what the appellants seek to use extrinsic evidence to achieve is to abrogate an essential part of that scheme as to the incidence of GST in the agreements. [44] While the Investors Compensation approach permits the Court to read words as having an effect different from their literal meaning, or even on occasion to conclude that the wrong words were used and they must be given no effect, the Court must be very cautious indeed in applying that approach where the effect is substantially to rewrite the contract. The more reconstruction that is required, the more difficult it is to displace what Lord Hoffman called "the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents" (at p913). That is the case here as the respondents seek to have the Court negate an important term in a relatively short commercial agreement. [45] The evidence of the appellants is that the respondent's agent knew the appellants were not presently registered for GST and that they had no other factual knowledge of the respondent's GST situation. A reasonable person would however assume from those facts that having agreed to warrant that they were registered, the appellants would prior to settlement do whatever was necessary to bring themselves into compliance with their obligations. As a commercial lease is not an exempt supply there was a strong likelihood of re-registration at some point by the appellants, which could easily have been effected prior to settlement of the agreements. They point to the price term as conveying a different impression but, as we have explained, a reasonable person would not have taken that to alter the contractual position. [46] Overall, accepting the appellants' version of the background facts in dispute, what they put forward does not demonstrate that the parties had a differentcontractual intention to that conveyed by the ordinary meaning of the agreements. The disputed evidence is accordingly incapable of founding a tenable defence to the warranty claim. The decision of the High Court to enter summary judgment despite the dispute over background facts accordingly falls within the principle outlined. [47] For the sake of completeness we note that the consistency of the purchase price term with cls 12 and 13 excludes any need for the application of the interpretative assistance of clause 1.3.(3). We add that we agree with Mr Carter's argument that no interpretative assistance is to be derived from the note recommending that the vendor should delete the "plus GST (if any)" option where the sale is of a going concern. The notes are not part of the contract as the printed form correctly states. [48] The question of whether this evidence could support some other cause of action against the respondent was not argued before us and accordingly, as both counsel accepted, we need not consider it.Conclusion[49] Consistent with the ordinary meaning of cl 13.1, the fact that the appellants were not registered for GST at the date of the supply has resulted in a claim for damages for breach of the warranty that is separate from and consistent with the contractual obligations as to payment of a purchase price that is inclusive of GST. The appellants have no defence to the claim. [50] The appeal is accordingly dismissed with costs to the respondent of $6,000 together with reasonable disbursements, (including the travelling and accommodation costs of counsel where appropriate) to be agreed by counsel or failing agreement to be fixed by the Registrar.Solicitors: Warkworth Law, Warkworth for Appellants Carter & Partners, Auckland for Respondent