Y&P NZ LIMITED v WANG [2017] NZCA 280

Y&P NZ LIMITED v WANG [2017] NZCA 280 [3 July 2017]IN THE COURT OF APPEAL OF NEW ZEALANDCA58/2017[2017] NZCA 280BETWEEN Y&P NZ LIMITEDAppellantAND YANG WANG AND CHEN ZHANGRespondentsHearing: 11 May 2017Court: Cooper, Mallon and Wylie JJCounsel: B P Rooney for AppellantG P Blanchard for RespondentsS J Leslie and M T Szymanik for Attorney-General asIntervenerJudgment: 3 July 2017 at 10.30 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay the respondents costs for a standard appeal on a band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Mallon J)Introduction[1] The appellant owns four adjoining properties. On 2 May 2016 it entered into agreements to sell these properties to the respondents. Settlement date was agreed to be 28 July 2016. The purchase price was $2,430,000 "[p]lus GST (if any)".Schedule 2 to the agreements recorded that the respondents were not, and atsettlement would not be, registered for GST and that they did not intend at settlement to use the properties for making taxable supplies. This meant that GST at 15 per cent was payable on the purchase price.[2] A dispute arose at settlement about whether the respondents had provided proper notice to the appellant of a change to their GST position which meant GST on the purchase would be zero-rated. The appellant insisted there had not been proper notice and refused to settle the purchase unless the respondents paid GST at 15 per cent. The respondents issued summary judgment proceedings seeking an order that the appellant settle on the zero-rated basis. They also sought an order that caveats they had lodged against the properties not lapse.[3] In the High Court Associate Judge Sargisson held summary judgment was not appropriate.1 She accepted, however, that it was reasonably arguable the appellant was not entitled to insist on settlement with GST payable at 15 per cent. She therefore made an order sustaining the caveats. The appellant appeals this latter decision.The GST legislation[4] Payment of GST is governed by the Goods and Services Tax Act 1985 (the GST Act).2 The general position under the GST Act is that GST is payable at a rate of 15 per cent. However, under certain circumstances GST must be zero-rated. One of those circumstances is set out in s 11(1)(mb), which, at the relevant time, provided as follows:311 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—1 Wang v Y & P New Zealand Ltd [2016] NZHC 3173.2 The Goods and Services Tax Act 1985 as it stood between 1 April 2011 and 2 June 2016 is relevant for present purposes.3 The definition of "goods" in s 2 includes real property.(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);[5] Where there is a sale (supply) of land, the purchaser (recipient) is required to notify the vendor (the supplier) of their GST position. At the relevant time this notice requirement was as follows: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 provide a statement in writing to 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.[6] Section 14C of the Tax Administration Act 1994 provided that notice may be given by electronic means, personal delivery of a document or by post.[7] There are provisions to correct the position when the parties have incorrectly zero-rated the transaction. The recipient is deemed to be the supplier giving rise to atax liability.4 Debit and credit notes may be issued and tax returns may be corrected.5The agreements[8] Four sale and purchase agreements were entered into for the four properties.The purchase price in all four agreements was stated to be "[p]lus GST (if any)".Apart from the purchase price and the deposit amounts, the agreements were in identical terms. These agreements were in the standard Real Estate Institute of New Zealand Inc and Auckland District Law Society Inc form (the third version of the ninth edition 2012).[9] The front pages of the agreements asked whether the appellant vendor was registered under the GST Act for the transaction. This was answered "yes" in two ofthe four agreements. The other two were left blank. This meant it was necessary to complete sch 2 to the agreements. The schedule in all four of the agreements stated the respondent purchasers were not registered under the GST Act and would not be so registered at settlement, and did not intend to use the properties for making taxable supplies. No answer was given to the question about whether the respondent purchasers were using part of the properties as a principal place of residence.[10] Clause 13 of the agreements applied if the agreements required the respondent purchasers to pay GST in respect of the purchase. It required them to pay the appellant vendor GST on the GST date (which in this case was the settlement date).6 Where the sale was a taxable supply, it also required the appellant vendor to deliver to the purchaser, on or before the GST date, a GST invoice.7[11] Clause 14 provided for the position when the supply was zero-rated as follows:14.0 Zero-rating4 Goods and Services Tax Act, s 5(23).5 Section 25(1)(ab).6 Clause 13.1(1) and (2).7 Clause 13.2.14.2 The purchaser warrants that any particulars stated by the purchaser in Schedule 2 are correct at the date of this agreement.14.3 Where the particulars stated on the front page and in Schedule 2 indicate that:(1) the vendor is and/or will be at settlement a registered person in respect of the supply under this agreement;(2) the recipient is and/or will be at settlement a registered person;(3) the recipient intends at settlement to use the property for making taxable supplies; and(4) the recipient does not intend at settlement to use the property as a principal place of residence by the recipient or a person associated with the recipient under section 2A(1)(c) of the GST Act,GST will be chargeable on the supply under this agreement at 0% pursuant to section 11(1)(mb) of the GST Act.14.4 If GST is chargeable on the supply under this agreement at 0% pursuant to section 11(1)(mb) of the GST Act, then on or before settlement the purchaser will provide the vendor withthe recipient's name, address, and registration number if any of those details are not included in Schedule 2 or they have altered.14.5 If any of the particulars stated by the purchaser in Schedule 2 should alter between the date of this agreement and settlement, the purchaser shall notify the vendor of the altered particulars and of any other relevant particulars in Schedule 2 which may not have been completed by the purchaser as soon as practicable and in any event no later than two working days before settlement. The purchaser warrants that any altered or added particulars will be correctas at the date of the purchaser's notification. If the GSTtreatment of the supply under this agreement should be altered as a result of the altered or added particulars, the vendor shall prepare and deliver to the purchaser or thepurchaser's lawyer an amended settlement statement if thevendor has already tendered a settlement statement, and a credit note or a debit note, as the case may be, if the vendor has already issued a tax invoice.[12] Clause 1.3(1) provided that all notices must be served in writing.What happened in this case[13] On 25 July 2016 the appellant's solicitors (Park Legal) sent settlement statements to the respondents' solicitors (Yang Lawyers) on the basis that GST waspayable on the purchase price at 15 per cent.[14] On 27 July 2016 Ms Xia, a legal executive from Yang Lawyers, and Ms Deng, a legal executive from Park Legal, had a telephone conversation about the GST position. Ms Xia says she told Ms Deng that the respondents had become registered for GST, intended to use the properties for making taxable supplies, and did not intend to use the properties as a principal place of residence. Ms Deng disputes this. She accepts only that she was told that the respondents were registered for GST. The parties agree Ms Xia asked for amended settlement statements showing GST at zero per cent.[15] Following this telephone conversation, Park Legal emailed to Yang Lawyers amended settlement statements showing the purchase price with zero-rated GST. They also asked Yang Lawyers to advise the respondents' GST numbers so that they could prepare tax invoices for settlement. Yang Lawyers provided the respondents'GST numbers by email later on 27 July 2016.[16] On 28 July 2016 Park Legal advised Yang Lawyers that the appellant required settlement to be in accordance with the original settlement statements sent on 25 July 2016, with GST payable at 15 per cent. This was because sch 2 stated the respondents were not GST registered and, under cl 14.5 of the agreements, any change to GST needed to be notified no later than two working days before settlement. Yang Lawyers did not accept this position.8 Park Legal repliedreiterating the requirement for two working days' notice and added that under cl 1.3of the agreements all notices must be served in writing. They advised the appellant insisted on settlement with GST at 15 per cent. Yang Lawyers replied that the requirement for two working days notice had been waived when the amended settlement statements were provided the day before.8 In their initial response they were of the (erroneous) view that cl 14.5 did not apply because it was open to them to nominate a purchaser who was GST registered.[17] Correspondence between the solicitors continued over the following days. They continued to disagree over whether settlement was to be on a GST zero-rated or 15 per cent basis. On 4 August 2016 the respondents lodged caveats to protect their position. On 11 August 2016 the respondents applied to the High Court for summary judgment seeking specific performance by the appellant. On 17 August 2016 the appellant gave notice purporting to cancel the agreements. On 23 September 2016 the respondents applied to the High Court for orders sustaining the caveats.The High Court decision[18] The Associate Judge considered that if the respondent purchasers failed to provide written notification of the matters under s 78F(2) of the GST Act, the appellant vendor was entitled to proceed on the basis that GST at 15 per cent applied. However, she considered the requirement under s 14C of the Tax Administration Act for written notice could be waived. This was because she regarded the notice requirement as being for the convenience of the vendor, so that the vendor could easily determine the correct GST treatment. She had the same view of thecontractual obligation to provide written notice of any change to the purchasers' GSTstatus.[19] Having expressed those views, the Associate Judge considered that it was not appropriate to grant summary judgment. This was because she considered the pleading in the statement of claim was defective in two ways. First, although the respondents had given evidence that they informed the appellant they did not intend to use the land as a principal place of residence, they had not included this in their pleading. Secondly, they had not pleaded they were ready, willing and able to settle.[20] The Associate Judge considered an order sustaining the caveats was appropriate. This was because it was reasonably arguable that in issuing zero-rated settlement statements, the appellant had waived its right to timely written notice of the relevant GST information. If so, the appellant was not entitled to insist on settlement on the basis of GST at 15 per cent, its settlement notices issued on that basis would be invalid, and the agreements would remain on foot.The appeal[21] The appellant submits the Associate Judge was wrong to find there was a reasonably arguable basis for sustaining the caveats. It submits the statutory requirement for written notice of the s 78F(2) matters cannot be waived by a vendor. It accepts the vendor could waive the contractual requirement for notice at least two working days before settlement. It says there was no such waiver here because a purchaser is required to provide written notice of all of the s 78F(2) matters and the respondents did not do so. The only written information the respondents had provided at settlement date was that in sch 2 of the agreements and their GST numbers provided by Yang Lawyers in the email dated 27 July 2016.[22] The Attorney-General, who was joined to this appeal as intervener, supportsthe appellant's submission that the requirement for notice of the s 78F(2) matters cannot be waived. He submits s 78F exists primarily for the benefit of the tax base and to enable the efficient functioning of the GST system. As such, its requirements cannot be waived by a vendor. He also submits that s 11(1)(mb) has mandatory effect. Regardless of what the vendor knows at settlement, GST is zero-rated if the criteria in s 11(1)(mb) are met. Where the wrong rate of GST is applied at settlement, there are provisions to correct the position.9[23] For the purposes of the application to sustain the caveat the respondents must establish a reasonably arguable case that they have a relevant interest in the properties.10 The dispute between Ms Xia and Ms Deng about the content of their telephone conversation does not matter. What is relevant is that Park Legal, throughMs Deng, was alerted to a change in the respondents' GST tax position and that as aresult they were seeking amended settlement statements showing zero-rated GST. Following that conversation Ms Xia received settlement statements showing the purchase price with zero-rated GST, and this was followed by a request for therespondents' GST numbers, which were then provided.9 Goods and Services Tax Act, ss 5(23) and 25.10 See generally New Zealand Limousin Cattle Breeders Soc Inc v Robertson [1984] 1 NZLR 41 (CA); and Sims v Lowe [1988] 1 NZLR 656 (CA).[24] We consider it is arguable that the provision of the amended settlement statements with zero-rated GST, together with a request for the GST numbers, which were provided, was a waiver of the contractual requirement for written notice at least two working days before settlement. We consider it is also arguable there was no effective withdrawal of that waiver. The respondents had proceeded on the basis that settlement would be on a zero-rated GST basis. The appellant then sought to insist on the contractual provisions on the day of settlement as though there had never been any waiver.[25] The issue of statutory waiver does not arise. That is because the statute requires the notice to be given by or on settlement. The respondents could have complied with the statute by giving notice on the day of settlement. They were not given the opportunity to do so because of the appellant's insistence that thesettlement take place at the 15 per cent GST rate. We do, however, have reservationsabout the Associate Judge's view that the statutory provision could be waived.Although it is not necessary for us to decide the point, we consider there is force in the Attorney-General's submission that the provision is for the benefit of the tax baseand not for the sole benefit of the vendor.[26] It follows that the respondents arguably have a caveatable interest in the properties. The order made in the High Court that the caveats are to stand remains.Result[27] The appeal is dismissed.[28] The appellant is to pay the respondents costs for a standard appeal on a band A basis and usual disbursements.Solicitors:Park Legal Barristers & Solicitors, Auckland for AppellantYang Lawyers, Auckland for RespondentsCrown Law Office, Wellington for Intervener