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Cockburn v C S Development No 2 Ltd [2010] NZCA 373; (2010) 24 NZTC 24,431; [2010] NZCA 373 (16 August 2010)

Last Updated: 13 January 2012


IN THE COURT OF APPEAL OF NEW ZEALAND

CA455/2009

[2010] NZCA 373


BETWEEN ALDWYN JOHN COCKBURN, JANET ELIZABETH COCKBURN AND KEITH IAN JEFFERIES
Appellants


AND C S DEVELOPMENT NO 2 LIMITED
Respondent


Hearing: 24 March 2010


Court: William Young P, O'Regan and Baragwanath JJ


Counsel: C R Carruthers QC and R P Harley for Appellants
H B Rennie QC for Respondent


Judgment: 16 August 2010 at 11.30 am


JUDGMENT OF THE COURT

A The appeal is dismissed, except to the limited extent set out at B below.

  1. 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.
  1. 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 Café 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 obvious, however, that cl 15.0 also applies to later agreed variations to the printed terms. We will revert to this issue later.
[11] Another further term of sale was cl 16, dealing with due diligence. This provided that the agreement was conditional on the purchaser being entirely satisfied with the property as a suitable commercial investment and provided for a due diligence process to occur. The open-ended nature of this provision effectively turned the agreement for sale and purchase into an option in favour of the purchaser. A two month period was provided for this due diligence process to occur.
[12] On 22 June 2007, Hodge Properties Ltd nominated an associated company, Hodge Trustee Services Ltd and/or its nominee, as purchaser under the agreement for sale and purchase. On 2 July 2007, Hodge Trustee Services and the Cockburn trustees agreed to vary the agreement for sale and purchase. This document was headed “Variation of S and P Agreement”. It provided for:

(a) the purchase price to be varied from $5,500,000 to $5,000,000;

(b) the payment of a deposit of $100,000 upon the agreement becoming unconditional;

(c) the transfer of all the chattels and equipment used in the Parade Café business to pass to the purchaser on settlement;

(d) “that settlement shall be 1 April 2008 with vacant possession” (emphasis added);

(e) that upon the signing of the variation the agreement was unconditional.

[13] The 2 July variation did not make any change to the tenancy details on the front page of the agreement for sale and purchase or to cl 13.
[14] On 4 July 2007, a further variation agreement was signed. This provided that the price was the lowest price the parties would have agreed for the sale and purchase of the property for the purposes of the accrual rules in the Income Tax Act 2004. There were two further clauses, providing that Hodge Trustee Services would have the right to use the name Parade Café in the conduct of the business from the time of settlement and that the Hodge Trustee Services would have complete access to the Parade Café business including all of its records. These appear to indicate an intention on the part of Hodge Trustee Services to operate the Parade Café itself after settlement or that it intended to lease it to a third party. However, both of these clauses were crossed out in the document that was signed by the parties. It is not clear what led to their deletion.
[15] On 5 July 2007, Hodge Trustee Services Ltd nominated C S Development as the purchaser under the agreement, in consideration for the payment to it by C S Development of $350,000 including GST.
[16] On 11 February 2008, C S Development and Torta entered into an agreement to lease, under which Torta was to lease the premises for the purposes of running the Parade Café as from the time of settlement. The lease had a demolition clause, allowing C S Development to take possession of the premises if required for demolition and redevelopment. The obligations of Torta under the lease were guaranteed by Mr Cockburn, one of the trustees.
[17] On 12 March 2008, the solicitors for the Cockburn trustees provided a settlement statement to the solicitors for C S Development, which provided for a payment of GST at 12.5 per cent on the purchase price of $5,000,000. A second settlement statement issued a week later made the same error. Once C S Development’s solicitors challenged this, the solicitors for the Cockburn trustees then submitted a settlement statement which provided for a zero rated supply, based on the argument that the property was transferred as a going concern from one GST registered party to another.
[18] Settlement took place on 2 April 2008, on a “without prejudice basis”. Proceedings by each party then came before the High Court, and each sought summary judgment.

Issues

[19] The Cockburn trustees argued that the position taken by C S Development is effectively a challenge to the GST assessment of the Cockburn trustees, arising from the Cockburn trustees having filed their GST return on the basis that a zero rated supply was made, and that return having been accepted by the Commissioner. The Cockburn trustees argued that such a challenge may be made only by the procedure mandated by Part 8A of the Tax Administration Act 1994 (the TAA) under s 109 of the TAA. That argument was rejected by Associate Judge Gendall. The first issue is whether the Associate Judge erred in that respect.
[20] The parties take differing positions on the correct construction of the agreement for sale and purchase, as amended by the variations of 2 and 4 July 2007 and the deed of nomination of 5 July 2007. The Cockburn trustees said that the agreement records that the sale of the property is intended to be the supply of a going concern for the purposes of s 11(1)(m)(i) of the GST Act. C S Development argues that the correct construction of the agreement is that it requires a transfer of the property with vacant possession, which is the antithesis of the supply of a going concern. Thus C S Development argued that the Cockburn trustees are required by cl 12.2 of the agreement for sale and purchase to deliver a GST invoice showing a supply subject to GST at 12.5 per cent. The High Court accepted the position taken by C S Development and ordered the Cockburn trustees to deliver a GST invoice in that form. The second issue is whether the Associate Judge erred in so deciding.
[21] The Cockburn trustees argued that the variation to “vacant possession” on 4 July 2007 created an ambiguity or uncertainty in the construction of the agreement for sale and purchase. They say that the resolution of that ambiguity or uncertainty requires reference to evidence of the background of the agreement which cannot be undertaken at the summary judgment stage. The third issue is whether there is such ambiguity and, if so, whether the evidence currently before the Court is sufficient to allow the Court to resolve it or whether a trial is required for that purpose.
[22] The Cockburn trustees raised a new argument in this Court that s 78E of the GST Act permits the Cockburn trustees to increase the price payable under the agreement by C S Development by the amount of GST which is payable on the purchase price. C S Development argues that the Cockburn trustees should not be permitted to make this argument for the first time in this Court and, if they are permitted to do so, that the argument fails. Thus there are two issues in relation to s 78E: whether the argument can be made at all, and if so, whether it succeeds.
[23] The Associate Judge found that C S Development was entitled to interest on the amount of GST for which C S Development would be entitled to a refund if its position on the GST issue is upheld. The Cockburn trustees dispute that finding. That is another issue requiring resolution in this Court.
[24] The Cockburn trustees argued that, if C S Development is not entitled to relief on its proceeding for summary judgment, then the Cockburn trustees should be entitled to summary judgment. This raises the issue as to whether, in that event, the Court should direct that summary judgment be entered for the Cockburn trustees or remit the matter to the High Court for a trial.
[25] We will deal with the issues in the above order. Before doing so, we briefly address the criteria for summary judgment.

Summary judgment criteria

[26] The Associate Judge correctly directed himself on the criteria for the granting of summary judgment. We are content to adopt the formulation set out in this Court’s decision in Krukziener v Hanover Finance Ltd and reproduce it here for ease of reference:[2]

The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1; (1986) 1 PRNZ 183 (CA), at p 3; p 185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331; [1979] 3 WLR 373 (PC), at p 341; p 381. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

[27] On the approach we take to the case it is not necessary for us to address the criteria for defendant summary judgment.

Section 109 of the TAA

[28] Section 109 of the TAA provides that no disputable decision may be disputed in a Court or in any proceedings on any ground whatsoever except in challenge proceedings under Part 8A of the TAA. It also provides that every disputable decision is taken to be correct in all respects.
[29] The term “disputable decision” is defined in s 3 of the TAA. Importantly for present purposes, it includes an assessment.
[30] The essence of the argument for the Cockburn trustees is that the GST return filed by the Cockburn trustees, returned on the basis that the transaction was zero rated, was accepted by the Commissioner and therefore constitutes an assessment, which is to be treated as correct for all purposes under s 109 of the TAA.
[31] The Associate Judge rejected this argument. He accepted the argument for C S Development that s 109 was irrelevant in the proceedings between the parties as to the correct interpretation of the sale and purchase agreement. He found that s 109 dealt with litigation between a taxpayer and the Commissioner only, not a dispute dealing with a contract issue between parties to the contract.
[32] In this Court, Mr Carruthers QC for the Cockburn trustees essentially rehearsed the same argument as had been rejected by the Associate Judge in the High Court. Since the High Court decision, this Court has issued its judgment in Westpac Banking Corporation v Commissioner of Inland Revenue[3] in which it said that a challenge to an assessment (an income tax assessment in that case) by a process other than challenge proceedings under Part 8A (the challenge was by way of judicial review proceedings in that case) was an abuse of process, unless there were exceptional circumstances. In all cases other than those in which there are exceptional circumstances, the only method of challenging the assessment is by challenge proceedings under Part 8A. Mr Carruthers said that the present case involved a challenge by C S Development to the assessment of the Cockburn trustees GST liability and this could be done only in proceedings against the Commissioner under Part 8A.
[33] Mr Rennie QC for C S Development disputed this. He argued that all that was at stake in the present proceeding was the proper interpretation of the agreement for sale and purchase and, in particular, whether circumstances had arisen that required the Cockburn trustees to issue a tax invoice showing a supply on which GST is to be charged at 12.5 per cent. He said this did not amount to a challenge to the assessment, but rather to the correctness of the tax invoice on which the return leading to the assessment was based. Furthermore, he argued that the return acknowledgment issued by the Commissioner did not constitute an “assessment” and thereby was not covered by s 109. Rather it was an acknowledgment of a self-assessment of GST liability by the Cockburn trustees. There was nothing in s 109 which limited C S Development’s entitlement to bring ordinary civil proceedings to enforce its contractual rights.
[34] We agree with Mr Rennie and the Associate Judge that s 109 of the TAA is not engaged in the present case. The present proceedings do not involve a challenge to a GST assessment, but rather to the legal obligations of the Cockburn trustees under the agreement for sale and purchase. Nothing in the present proceedings undermines the requirement that challenges to tax assessments be undertaken under Part 8A except in exceptional circumstances. Indeed, the Commissioner is not a party to the present proceedings.
[35] Mr Carruthers sought to convince us that C S Development could have challenged its own GST assessment for the relevant period as a means of bringing the essence of the present dispute before the Court. We do not see anything in s 109 that requires that convoluted and potentially ineffective process to be used for this purpose. This ground of appeal fails.

Construction of the agreement

Relevant provisions of the GST Act

[36] The argument about the construction of the agreement focuses on the requirements of the GST Act. The key provision is s 11(1), which provides that a supply of goods is zero rated in a number of different circumstances. Section 11(1)(m) provides one such circumstance:

(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 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.

[37] The term “taxable activity” is defined in s 6(1) of the GST Act. For present purposes the relevant part of the definition is s 6(1)(a) which defines a taxable activity as:

Any activity which is carried on continuously or regularly by any person, whether or not for pecuniary profit, and involves or is intended to involve, in whole or in part, the supply of goods and services to any other person for consideration; and includes any such activity carried on in the form of a business, trade, manufacture, profession, vocation, association or club.

[38] The term “going concern” is defined in s 2(1) of the GST Act as follows:

Going concern, in relation to a supplier and a recipient, means the situation where—

(a) there is a supply of a taxable activity, or part of a taxable activity where that part is capable of separate operation; and

(b) all the goods and services that are necessary for the continued operation of that taxable activity or that part of a taxable activity are supplied to the recipient; and

(c) the supplier carries on, or is to carry on, that taxable activity or that part of a taxable activity up to the time of its transfer to the recipient:

[39] In this case, the taxable activity carried on by the Cockburn trustees was not the operation of the Parade Café business, which was carried on by Torta as tenant, but the activity of leasing the premises.
[40] The two requirements under s 11(1)(m) are:

(a) a written agreement that the supply will be the supply of a going concern;

(b) a mutual intention that a taxable activity that is capable of being carried on as a going concern by the recipient will be supplied.

The additional requirements under the definition of going concern are:

(c) the supply of a separately operable taxable activity;

(d) supply of all the goods and services necessary for continued operation of the taxable activity;

(e) the supplier carrying on the activity till settlement.

[41] In the present case, there was no dispute about requirement (e). The lease to Torta continued till settlement.
[42] That leaves four matters for consideration: written agreement, mutual intention, the supply of a separately operable taxable activity and supply of all necessary goods and services.

Legislative history of s 11(1)(m)

[43] Before turning to those four matters, we set out the legislative history of s 11(1)(m), which assists in interpreting that provision.
[44] The predecessor to s 11(1)(m) was s 11(1)(c), which came into effect as part of the new GST Act in 1985. This provided that a supply of goods would be zerorated where:

The supply is to a registered person of a taxable activity as a going concern or of a part of a taxable activity as a going concern where that part is capable of separate operation:

[45] This section gave rise to some issues over what did or did not constitute a going concern.
[46] In order to introduce some certainty, the section was amended in 1995 to provide that the supply will be zero rated where:

The supply is—

(i) A supply to a registered person of a taxable activity, or part of a taxable activity, that is, or is to be, transferred from the supplier to the recipient as a going concern; and

(ii) Agreed by the supplier and the recipient, in writing, to be the supply of a going concern...

[47] The amending act also inserted into s 2(1) a definition of “going concern”.
[48] The current s 11 was enacted in 2000.

We have considered whether Parliamentary materials relating to the 2000 amendment assist in understanding the intent behind s 11(1)(m). There is nothing of assistance in Hansard or the Select Committee Report. However, as both the Select Committee Report and the speeches recorded in Hansard refer to the 1999 GST Review on which the Act was based, it is appropriate to look to that Review.

[49] The 1999 review proposed a policy change for going concerns that would:[4]

(a) Require the going concern test to be applied when the supply is deemed to be made.

(b) Require a business to be capable of being carried on by a purchaser for it to be transferred as a going concern.

[50] The 1999 review made clear that the time of supply was the relevant time at which to apply the “going concern” test. The previous s 11(1)(c) read “supply to a registered person of a taxable activity, that is, or is to be, transferred”. The words “is to be” suggest that the relevant time was the time of settlement, not the time of supply. The current wording is “supply... of a taxable activity that is a going concern at the time of the supply”.[5] This was intended to make clear that the relevant time was the time of supply.
[51] Previous cases, including Fatac Ltd v Commissioner of Inland Revenue,[6] and Belton v Commissioner of Inland Revenue[7] suggested that the test was to be applied as at the date of settlement. This line of cases has now been over-turned by the 2000 amendments. In the context of real property, the time of supply will normally be when the deposit has been paid to the vendor.[8]

Capable of being a going concern

[52] The second proposed change followed the decision in Pine v Commissioner of Inland Revenue.[9] That was a case involving a partnership that leased property. The partnership terminated without the landlord’s knowledge, and the first partner became the sole lessee, holding the other partner’s interest on trust for him. The landlord then sold the property to the first partner. Effectively, then the lessee and landlord merged. The Court of Appeal held that the sale of the land was the sale of a going concern, as it did not matter to the landlord that the lease and freehold title merged after the transaction.
[53] A number of cases have established that it is irrelevant what the purchaser does with the taxable activity after purchase, as long as the vendor supplies a going concern.[10]
[54] However, Pine went one step further: the Court held that there could be a going concern, even though the first partner did not and could not carry on the leasing business. The first partner’s leasehold and freehold interests merged on settlement. Thus, assuming the first partner wanted to remain in possession, he could not carry on the business of being a lessor, as that would have involved leasing the property to himself.[11]
[55] The 1999 review stated that:[12]

The policy intent behind the going concern provisions was that the taxable activity must be received as, and capable of being operated as, a going concern by the purchaser for the zero-rating provisions to apply. The taxable activity must be capable of seamless operation during its transfer, although it is not necessary that the purchaser in fact operate the taxable activity after its transfer.

[56] This objective is fulfilled by s 11(1)(m)(ii): the taxable activity being supplied must now be capable of being carried on as a going concern by the recipient.
[57] Under s 11(1)(m), therefore, there must be a supply of a taxable activity and that taxable activity must be received by the purchaser as a going concern and be capable of being operated by the purchaser as a going concern.
[58] If the business of leasing the Parade Café building was supplied under the agreement for sale and purchase, there is no doubt it would be capable of being operated by the purchaser as a going concern for the purposes of s 11(1)(m)(ii). However the other four matters mentioned above are more problematic for the appellants.[13]
[59] We now turn to those four matters.

Written agreement

[60] As mentioned above,[14] the Cockburn trustees contended that the original agreement for sale and purchase provided an agreement in writing for the supply of a going concern. They based this on the combined effect of the completion of some of the details relating to “Tenancies” on the front page of the agreement for sale and purchase and the operation of cl 13.1 of that agreement. This contention is bolstered by the terms of cl 3.1, which provides that the property conveyed under the agreement for sale and purchase is sold with vacant possession “unless particulars of a tenancy are included in this agreement”. As particulars of a tenancy were included in the agreement for sale and purchase, the obvious inference is that the present agreement was not an agreement requiring sale with vacant possession and was therefore an agreement to sell subject to the tenancy and, accordingly, to sell the property as a sale of the leasing activity as a going concern.
[61] Mr Rennie argued that the fact that the tenancy which was shown in the schedule was said to have expired prior to the agreement meant that the inclusion of the details of the tenancy did not have the effect of turning the transaction into the supply of a going concern. He said there was nothing in the agreement for sale and purchase indicating that the Cockburn trustees had any authority to create or continue any tenancy and nothing indicating an obligation on the part of the purchaser under the agreement for sale and purchase to take over a tenancy.
[62] In our view, when the entry under the heading “Tenancies” on the front page, cl 3.1 and cl 13.1 are considered against the background of the provision in the lease providing for a holding over, the strict position appears to be that cl 13 applied and the agreement amounted to a transfer of the then existing lease along with the property, which would amount to a transfer of a going concern. The requirement in s 11(1)(m)(i) that the supply be agreed by the parties in writing to be the supply of a going concern is at least arguably satisfied.
[63] However, the 2 July variation specifically required settlement with vacant possession, which is quite at odds with the position outlined above in relation to the original agreement. Although Mr Carruthers sought to persuade us that vacant possession did not necessarily negate the position pertaining under the agreement as originally signed, we do not consider that argument is sustainable. The argument that the sale was as a “going concern” depends at least in part on the combination of the completion of the “Tenancy” section on the cover page of the agreement and the operation of cl 3.1. These create the inference that, where the tenancy section is completed, the sale is not a sale with vacant possession, and that therefore the tenancy which is noted on the front page is being transferred as part of the transaction. But that inference is no longer available when the parties have agreed specifically that the transaction involves settlement with vacant possession which, by definition, means that the property cannot be subject to a tenancy and that the tenancy cannot pass to the purchaser at the time of settlement.
[64] Mr Rennie relied at least in part on cl 15, which gives priority to the typed terms over the printed terms in the standard form agreement for sale and purchase. In effect he asked us to extend the ambit of that clause to give primacy to the terms of the subsequent variations which were, of course, typed terms not standard form terms. But we do not think that is a proper interpretation of cl 15, which deals only with the priority to be given to the further terms of sale in the original agreement as against the printed form. It says nothing about priority as between variations and the original agreement. We consider that the variation of 2 July is clear in overriding cl 3.1 and providing for a transfer with vacant possession. We do not consider that the position can be characterised as ambiguous.
[65] Mr Carruthers suggested that events subsequent to the date of the variation agreement supported the proposition that the requirement for vacant possession did not mean what it appeared to mean. He said that evidence of events both before and after the signing of the variation agreement could be called to substantiate that proposition, relying on the decisions of the Supreme Court in Vector Gas Ltd v Bay of Plenty Energy Ltd[15] and Gibbons Holdings Ltd v Wholesale Distributors Ltd.[16]
[66] Mr Carruthers relied in particular on what actually transpired in the period between the signing of the 2 July variation and the eventual settlement of the contract on 1 April 2008. He pointed to the following matters:

(a) Torta continued to occupy the premises and carry on business as Parade Café;

(b) all of the plant and equipment relating to Parade Café was transferred to C S Development on settlement, which he said was consistent with the parties’ expectation that there would be a sale of a going concern;

(c) Hodge Properties Ltd and its nominees had completed due diligence, which in terms of cl 16.0 was due diligence of the property “and its occupants”, including having access to the business records of Torta.

[67] We accept that Gibbons is authority for the proposition that subsequent conduct may assist in the interpretation of a contract, but we do not see the matters pointed to by Mr Carruthers as assisting a great deal in the present situation. The question for determination is whether there was an agreement in writing at the time of supply that the Cockburn trustees would supply to C S Development a taxable activity that was a going concern.
[68] The time of supply for GST purposes is the earlier of the time an invoice is issued by the supplier or the time any payment is received by the supplier for the supply.[17] As noted earlier, the time of supply for property transactions is typically the time at which the deposit is paid, because that is the time a payment for the supply is received by the vendor.[18] This case was no exception. The deposit was paid to the Cockburn trustees on 2 July 2007, so that was the time of supply for GST purposes.
[69] Given that the point of reference is 2 July, events subsequent to that date are of doubtful relevance. Nevertheless, we accept that, under Gibbons, it may be arguable that evidence as to what the parties did subsequent to the signing of a contract may assist in interpreting the contract. We assess Mr Carruthers’ argument on that basis.
[70] The subsequent conduct in this case reveals that the tenancy referred to in the agreement for sale and purchase (albeit in the name of Torta rather than the Cockburn Partnership mentioned in the agreement for sale and purchase) continued up to settlement but terminated at that point. It does not give any indication contradicting the proposition that the Cockburn trustees contracted to supply a vacant building to C S Development.
[71] The agreement provided for settlement with vacant possession and this appears to have occurred. In particular, there was no apportionment of rent or other

expenses relating to the Torta tenancy. We accept that Torta recommenced occupation immediately after settlement under the new lease it had signed with C S Development, and continued occupying the premises. We accept that there was no break in the occupation of the premises by Torta, but neither was there any agreement to supply to C S Development the taxable activity of leasing the building, which would normally involve conveying the landlord’s rights under the tenancy agreement which Torta had with the Cockburn trustees. On the contrary, that tenancy came to an end, and a separate tenancy came into being immediately after settlement.

[72] Mr Carruthers argued that this sequence of events was, in substance, the supply of a going concern, given Torta was in occupation up to the time of settlement and continued in occupation thereafter. But the assessment required by s 11(1)(m) must be undertaken at the time of supply and we do not accept that these subsequent events indicate that the parties contracted on 2 July for the supply by the Cockburn trustees to C S Development of a taxable activity that was a going concern. The appellants cannot point to anything else supporting their contention that the common intention at the time of supply was for the supply of a going concern.
[73] Further, the subsequent conduct of signing the new lease (to take effect after settlement) is also consistent with the respondent’s contended meaning: that settlement was with vacant possession. At the time the 2 July variation was signed, C S Development may have intended that it would find its own tenants for the premises, an intention of which Mr Hodge, signing for Hodge Trustee Services, would likely have been aware. There is some evidence that C S Development in fact intended to carry out a tender for the right to run the Parade Café, but later entered into a lease agreement with Torta. In the absence of any other evidence supporting the appellant’s contended meaning, the fact that Torta was eventually granted a new lease to take effect from the day after settlement cannot be decisive in interpreting what the parties had agreed on 2 July 2007.
[74] The Cockburn trustees also argued that, on the authority of Vector, the Court should consider elements of the negotiations leading up to the signing of the original agreement and the 2 July variation in order to assist in the interpretation of those agreements. But, when the evidence of the key players in those negotiations is stripped of the clearly inadmissible material relating to subjective intention, little assistance is derived from the remainder. The Judges in Vector took differing approaches to the extent to which pre-contractual evidence could be admitted, but it was common ground that such evidence was helpful only if it dealt with objective commercial purpose or the objective meaning of the agreed bargain.[19]
[75] Although in his affidavit, Mr Cockburn says that he did not intend that there be vacant possession and that he understood there would be a transfer of a going concern, these are matters of subjective intention which are not of assistance. He cannot point to evidence to suggest that Hodge Trustee Services knew that this was his intention at the time of signing the variation.
[76] Mr Cockburn asserts that the agent engaged for the purpose of the sale, Mr Fairbairn, told him that the GST provision on the cover page of the agreement could be ignored because the agreement for sale and purchase was subject to a tenancy, but this is in dispute and, in any event, relates to the agreement as originally signed, not to the variation. Mr Fairbairn was the Cockburn trustees’ agent, so there does not seem to be any basis for attributing his assurance, if it was given, to the purchasers. If he did misrepresent the position that is a matter to be resolved between the Cockburn trustees and him, not with C S Development.
[77] Much of Mr Cockburn’s evidence deals with the continuous nature of Torta’s business before and after settlement, which supports the proposition that Torta’s taxable activity of running Parade Café continued uninterrupted in the days leading up to, including, and following the settlement date. However, it does not assist with the determination of compliance with s 11(1)(m)(i), which focuses on what was agreed at the time of supply.
[78] The insurmountable problem for the Cockburn trustees in that regard is that they signed an agreement providing for the transfer of the property with vacant possession. As is well established in Taxation Review Authority cases, it does not avail a vendor that there was a transfer subject to a tenancy if the agreement for sale and purchase relating to the transaction did not specifically provide for this.[20] In this case the agreement (as varied) provided for vacant possession and there is nothing in the text of the agreement or in the contemporaneous evidence which supports the proposition that “vacant possession” in the circumstances meant other than what it said. As Lord Hoffman said in Investors Compensation Scheme Ltd v West Bromwich Building Society, the Court should be wary of displacing the literal meaning of words by concluding that they have no effect.[21] Instead, the Court should give effect to “the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents”.
[79] We see nothing in the evidence of objective intention before the Court that supports the proposition put forward by the Cockburn trustees that all parties contemplated at the time of supply that the tenancy would continue after settlement, much less that they actually agreed to that. The parties bargained for an agreement requiring settlement with vacant possession, and although a new lease was immediately entered into, the facts as disclosed in the evidence support the view that that is exactly what happened, albeit that the termination of one lease prior to settlement and the commencement of a new lease after settlement allowed for the continuous operation of the Parade Café business by Torta.
[80] We have also considered the possibility that the terms of the agreement for sale and purchase evolved from the time of the variation agreement so that it did, in effect provide for the supply of the leasing business. Such evolution would have to arise either by oral understandings or by the course of conduct adopted by the parties between the time at which the variation agreement was signed and the settlement date. We do not have anything before us supporting that possibility. Even if there were, there would still be the insurmountable hurdle for the Cockburn trustees that s 11(1)(m) requires an agreement in writing (as does the Contracts Enforcement Act 1956 for contracts conveying land). So an agreement that was partly in writing and partly not would not assist the Cockburn trustees’ case.
[81] Much of the evidence given by Mr Cockburn is more properly attuned to a claim for contractual mistake, but there is nothing in the pleadings indicating that such a mistake occurred, and no pleading seeking rectification of the contract.

Mutual intention

[82] Our discussion of the requirement for a written agreement has required us also to consider whether there was a mutual intention that the leasing activity would be supplied by the Cockburn trustees to C S Development under the agreement for sale and purchase. The evidence before us does not establish that both parties had that intention, or even that the Cockburn trustees did.

Supply of a separately operable taxable activity

[83] We had only brief submissions on this point. The obstacle facing the Cockburn trustees is that no tenancy agreement was conveyed. We do not rule out the possibility that a sale of a building subject to a lease or tenancy, in circumstances where the parties intended that the same tenant would continue in occupation under a new tenancy after settlement, could satisfy this requirement if that intention was reflected in the sale and purchase agreement. But the point is of no moment given our earlier conclusions and we make no ruling on it.

Supply of all necessary goods or services

[84] The last requirement in the list set out above[22] is that the supplier must have supplied all the goods and services necessary for the continued operation of the

taxable activity being transferred (here, the activity of leasing the building). “Goods” is defined in s 2 of the GST Act to mean:

Goods means all kinds of personal or real property; but does not include choses in action, money or a product that is transmitted by a non-resident to a resident by means of a wire, cable, radio, optical or other electromagnetic system or by means of a similar technical system.

[85] Leases would thus constitute “goods” under that definition. If a lease is seen as necessary for the “continued operation of that taxable activity” then it must be provided in order for the supply to be a “going concern”. Thus the core issue is whether it is necessary that a continuing lease be supplied, i.e. whether the lease itself is a necessary part of the continued operation of a leasing business.
[86] There may be circumstances where a leasing business may still be operating even if the premises are not fully let.[23] However, where there is a lease at the time the deposit is paid (time of supply), and it is not contemplated that the landlord’s interest in the lease will be assigned, it seems clear that one of the “goods” necessary for the continuation of the leasing business is not being supplied. In this case the chattels used in the café were supplied but no lease was supplied. In our view, that means that this requirement was also not met.

Conclusion

[87] We are satisfied that the agreement for sale and purchase did not meet the requirements of s 11(1)(m)(i) of the GST Act. The supply by the Cockburn trustees was not zero rated. The Cockburn trustees ought to have supplied a tax invoice to C S Development reflecting a supply on which GST was payable at 12.5 per cent.

Section 78E of the GST Act

[88] Mr Carruthers argued, for the first time in this Court, that if the Cockburn trustees had made an error and the transaction had not been, as anticipated, a supply of a going concern, then the Cockburn trustees were entitled to increase the price for the property by the amount necessary to meet the GST liability to the Inland Revenue Department. For this he relied on s 78E of the GST Act.
[89] Mr Carruthers acknowledged this point had not been argued in the High Court and, indeed, was not yet pleaded. He anticipated it would be left for resolution at the trial if there was one. But Mr Rennie was content to deal with the matter, while reserving his client’s position as to the propriety of raising the matter at this stage. He took a realistic approach that, given that the Court was seized of the matter and the arguments had been aired, it was desirable for the matter to be dealt with.
[90] As it turns out, the basis of the argument under s 78E is removed by our decision on the construction of the agreement. However, we will briefly set out our views on the provision.
[91] Section 78E provides as follows:

78E Alteration of agreed price in relation to supply mistakenly believed to be of a going concern

Where—

(a) a supplier and a recipient have agreed in writing that a supply is the supply of a going concern, and the supplier has accordingly treated the supply as being chargeable with tax at the rate of 0% under section 11(1)(m); and

(b) the contract or agreement for the supply contains no provision for an increase to the agreed price arising in the event that the supply is not a supply that comes within the provisions of section 11(1)(m), or does not otherwise contemplate or provide for the consequences if tax is not chargeable at the rate of 0%; and

(c) the supply does not come within the provisions of section 11(1)(m),—

the supplier may increase the consideration for the supply by an amount equal to the agreed price in the contract or agreement multiplied by a percentage equal to the percentage specified in section 8(1) applicable to that supply.

[92] The provision was considered in Capital Enterprises Ltd v C A Stewart.[24] At that time the provision in the GST Act which was equivalent to s 11(1)(m) was s 11(1)(c), but apart from the substitution of the reference to the latter by a reference to the former, s 78E remains as it was when considered by Master Venning in the Capital Enterprises case. Master Venning pointed out that there were five elements to be satisfied for s 78E to apply. These are:

(a) the supplier and the recipient must have agreed in writing that the supply of the property was the supply of a going concern;

(b) the supplier must have treated the supply as being chargeable with tax at the rate of 0 per cent under s 11(1)(m);

(c) the agreement must not have provision for an increase to the agreed price arising in the event that the supply is not a supply that comes within the provisions of s 11(1)(m);

(d) the agreement must not otherwise contemplate or provide for the consequences of taxes not chargeable at the rate of 0 per cent; and

(e) the supply of the property does not come within the provisions of s 11(1)(m).

[93] In the present case we have found that the agreement as varied by the 2 July variation did not amount to an agreement in writing that the supply of the property was the supply of a going concern. Thus the s 78E argument falls at the first hurdle. Even if that were not so, the argument would fail, as it failed in the Capital Enterprises case, because the fourth requirement would not be met. In the present case, as in Capital Enterprises, the agreement does contemplate or provide for the consequences of taxes not chargeable at the rate of 0 per cent, because it provides for a GST inclusive price which means that the responsibility for the GST falls on the supplier, in this case the Cockburn trustees.
[94] Our conclusions on the first and fourth requirements make it unnecessary for us to consider the other requirements for the application of s 78E. The s 78E argument fails.

Interest

[95] In the High Court, Associate Judge Gendall made a finding that C S Development was entitled to interest on the GST component of the purchase price from the date on which it would (but for the default of the Cockburn trustees) have received payment of the GST credit. This was a finding on liability only, with the issue of quantum to be determined when the relevant dates are known.
[96] The Associate Judge recorded that the Cockburn trustees had argued that there was no basis for a claim for interest as no debt was owed by them to
C S Development. The Associate Judge found that interest was not limited to debt sums, and made the award outlined above. It was not clear what the statutory or contractual basis for this award was.
[97] Mr Carruthers renewed the argument in this Court. He said that the present action was not an action for debt or damages so s 87 of the Judicature Act 1908 could not apply. And it was not an equity claim so that the jurisdiction arising from an application of Day v Mead did not apply.[25]
[98] Mr Rennie said in oral argument that he accepted it was unclear whether interest could be awarded under the Judicature Act in circumstances where a mandatory injunction had been ordered, but that interest had also been sought under the interest provisions in the agreement for sale and purchase. However the contract rate was 12 per cent which was considered to be high and so the Judicature Act rate was used.
[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 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.

Conclusion

[100] In accordance with the views of the majority, the appeal is allowed only to the limited extent stated above. Otherwise the appeal is dismissed and the High Court judgment is upheld on all matters other than interest.

Costs

[101] Although the Cockburn trustees have succeeded on the interest point, they have been unsuccessful on the major points at issue. In those circumstances, we award costs to C S Development calculated as 90 per cent of costs for a standard appeal on a band A basis and 90 per cent of usual disbursements.

WILLIAM YOUNG P

Overview

[102] I agree with the approach taken by O’Regan and Baragwanath JJ as to s 109 of the Tax Administration Act 1994.[26] But I disagree as to the other critical issues in the case. In particular, I am of the view that the transaction in this case is properly categorised as the supply of a going concern and I would allow the appeal accordingly.

General comments

[103] The 1999 GST Review[27] noted three reasons why the Goods and Services Tax Act 1985 (GST Act) provided for supplies of going concerns to be zero rated:

(a) avoidance of cash flow costs to purchasers associated with the period between payment and receipt of the input tax credit;

(b) reduction of fraud risk (associated with vendors charging GST to purchasers and then not accounting for the output tax); and

(c) parity with the treatment of sales of shares.

[104] From the point of view of the Inland Revenue Department, the categorisation (one way or the other) of a transaction as involving the sale of going concern will (at least usually) have no net fiscal effect. Either no GST is paid or, alternatively, any output tax which accrues is cancelled by the input tax credit. On the other hand certainty one way or the other and thus symmetry are obviously desirable. In particular it would not be acceptable for the vendor to be able to treat a transaction as zero rated and for the purchaser to claim an input tax credit.
[105] With that background in mind, it is helpful to consider briefly the legislative history.

The legislative history

[106] As the judgment of O’Regan and Baragwanath JJ shows, the relevant legislation has evolved significantly since the 1985 enactment of theGST Act.
[107] The 1985 provisions provided for an objective test.[28] Given that the supply

of a taxable activity as a going concern is at best a slippery concept and that there are significant incentives for vendors and purchasers to adopt inconsistent categorisations (with consequent risks for the Commissioner of Inland Revenue), a revised regime was plainly desirable.

[108] The 1995 provisions are discussed generally in the judgment of O’Regan and Baragwanath JJ at [46]–[47]. The critical section was s 11(1)(c), which provided for zero rating where:

(c) The supply is—

(i) A supply to a registered person of a taxable activity, or part of a taxable activity, that is, or is to be, transferred from the supplier to the recipient as a going concern; and

(ii) Agreed by the supplier and the recipient, in writing, to be the supply of a going concern ... .

(Emphasis added.)

[109] Section 11(1)(c)(ii) introduced a substantial measure of party autonomy, making the agreement in writing of the parties fundamental to a going concern categorisation. The parties to a transaction should be alive to the need for appropriate categorisation and certainty (at least in reasonable measure) can be achieved on the basis that a transaction will not be zero rated unless the parties have agreed in writing to a supply of a going concern categorisation.
[110] Section 11(1)(c)(i) was addressed to what was to be transferred (ie what was to pass at the date of settlement); this given the words “that is, or is to be, transferred”. As O’Regan and Baragwanath JJ point out this explains why the judgment in Fatac Ltd v Commissioner of Inland Revenue[29] focused on what was to happen at settlement.[30]
[111] The current relevant provisions were introduced in 2000 to give effect to the

1999 GST Review. The changes were intended to require the going concern test to be satisfied at the time of supply (which in the case of a sale of real property is normally when the deposit is paid) and to make it a precondition of a going concern categorisation that the business in question is capable of being carried on by the purchaser.

[112] As to the first of these purposes, the Review noted:

13.9 The time of supply appears to be the better time at which to apply the going concern test. The time of supply will generally be when the parties enter into an agreement to transfer a taxable activity. It will also be the time at which the parties consider whether the taxable activity is a going concern.

[113] Against that background I turn now to consider the current provisions.

The current legislation

[114] The current s 11(1)(m) provides for zero rating in the case of:

(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 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 ... .

(Emphasis added)

[115] It is also necessary, at this stage to set out the current definitions of “taxable activity” and “going concern”.
[116] “Taxable activity” is defined relevantly in s 6(1) as meaning:

For the purposes of this Act, the term taxable activity means—

(a) Any activity which is carried on continuously or regularly by any person, whether or not for a pecuniary profit, and involves or is intended to involve, in whole or in part, the supply of goods and services to any other person for a consideration; and includes any such activity carried on in the form of a business, trade, manufacture, profession, vocation, association, or club...

(Emphasis added.)

[117] Section 6(2) goes on to provide:

Anything done in connection with the beginning or ending, including a premature ending, of a taxable activity is treated as being carried out in the course or furtherance of the taxable activity.

(Emphasis added)

[118] “Going concern” is defined in this way:

Going concern, in relation to a supplier and a recipient, means the situation where—

(a) There is a supply of a taxable activity, or of a part of a taxable activity where that part is capable of separate operation; and

(b) All of the goods and services that are necessary for the continued operation of that taxable activity or that part of a taxable activity are supplied to the recipient; and

(c) The supplier carries on, or is to carry on, that taxable activity or that part of a taxable activity up to the time of its transfer to the recipient ...

(Emphasis added)

What must the appellants establish to obtain summary judgment?

[119] To obtain summary judgment the appellants must establish that:

(a) they supplied (part of) a taxable activity (see s 11(1)(m));

(b) at the time of supply (ie when the deposit was paid) this taxable activity was a going concern (see s 11(1)(m));

(c) the appellants and the respondent agreed in writing to a going concern categorisation (see s 11(1)(m)(i));

(d) the taxable activity was capable of being carried on as a going concern by the respondent( see s 11(1)(m)(ii));

(e) the appellants supplied to the respondent all the goods and services necessary for the continued operation of the taxable activity (see item (b) of the “going concern” definition); and

(f) the appellants carried on the taxable activity up to the time of settlement (see item (c) of the “going concern” definition).

[120] Of these requirements, it is the first and third which give rise to most difficulty. But for the sake of completeness, I will address all of them.

Did the appellants supply a taxable activity?

[121] What the appellants agreed to sell was land, a building and the chattels and equipment associated with the business carried on from the premises. There was no assignment of the existing informal lease. Nor were there the other usual incidents associated with the sale of a business, the acceptance of existing contractual burdens, restraints of trade, transfers of goodwill and intellectual property and the like.
[122] If the definition of taxable activity is viewed in isolation, it might be thought that the supply of a taxable activity is confined to transactions which involve the sale of a business in the sense discussed. And if this is so, then the transaction in this case was not the supply of a taxable activity.
[123] On the other hand, the appellants sold to the respondent everything which was necessary for it to continue to lease the building, as in fact it did. And for the reasons I am about to give, I think that this was sufficient to result in the sale being able to categorised as the supply of a taxable activity.
[124] Before I give those reasons, I should acknowledge that I have found this issue to be conceptually difficult. The primary problem, as I see it, is that the expression “taxable activity” is not particularly well used in s 11(1)(m). Within the scheme of the GST Act as a whole, the expression “taxable activity” and its definition have the primary purpose of determining which supplies of goods and services are taxable. Such supplies are taxable if made in the course or furtherance of a taxable activity, see s 8(1). The definition of “taxable activity” works well enough for this purpose. But it can hardly have been intended to have been a description of a particular type of “goods” even though this might seem to be the way the expression “taxable activity” is used in s 11(1)(m).
[125] In this context, I consider that the concept of the supply of a taxable activity as a going concern must be approached holistically and in a way which gives effect to all the relevant statutory provisions. On this basis, some awkwardness with the application of the definition of “taxable activity” may have to be accepted if a literal application of that definition would be inconsistent with the overall scheme and purpose of the going concern provisions as a whole.
[126] Under the current s 11(1)(m) the requirement for a taxable activity to be a going concern is expressed to be at the time of supply and not settlement. Given that Fatac on this point has been over-taken by the 2000 amendments, what is to happen at settlement is irrelevant. It would thus be contrary to the intention of the 2000 amendments to confine the supply of a taxable activity to transactions in which a business is sold (in the usual sense discussed above) and to exclude sales of all the assets necessary to conduct a business.
[127] There are other respects in which the current provisions steer away from confining the going concern concept to business sales. Thus s 11(1)(m)(ii) merely requires that the taxable activity be capable of being carried on by the purchaser as a going concern. If the going concern concept only applies to the sale of a business in the sense discussed, this requirement would be otiose. Also otiose would be the requirements in the “going concern” definition for the supplier to supply all the goods and services necessary for the continued operation of the taxable activity and to have carried on the taxable activity up to the time of settlement.
[128] A strict business sale approach might also be a little awkward to apply in the case of the sale of a property which is partly tenanted. It cannot have been the intention of the legislature that the tax treatment of such a sale requires an apportionment of the sale price to allow for untenanted parts of the building.[31]
[129] On this basis it seems to me that the sale of a commercial building can be treated as the supply of a taxable activity independently of whether any tenancies are to be assigned.

Was the taxable activity a going concern at the time of supply?

[130] It follows from what I have said that at the time of supply (ie when the deposit was paid), the requirement that the taxable activity be a going concern was satisfied.

Did the appellants and the respondent agree in writing to a going concern categorisation?

[131] Clause 13.1 of the agreement, part of the standard form section, provides that:

If this agreement relates to the sale of a tenanted property ... then, unless otherwise expressly stated herein:

(a) each party warrants that it is a “registered person” within the meaning of the [GST] Act;

(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 percent.

[132] Obviously, the property was tenanted at the time of the agreement. So on a literal approach to cl 13.1, the parties agreed on a going concern categorisation. As will become apparent, I consider that this literal approach is correct.
[133] I accept that in Fatac this Court rejected a literal approach in relation to a precursor of cl 13.1 and took the view that the going concern categorisation only applied where it was agreed that the property would be tenanted at settlement. [32] As O’Regan and Baragwanath JJ have pointed out, however, Fatac was decided in the context of the provisions as inserted in 1995 and must be regarded as having been over-taken by the 2000 amendments.
[134] On my preferred literal approach to the agreement, the fact that tenancy particulars were provided for in the agreement is irrelevant. Also irrelevant in the present context is c1 3.1 which provides:

Unless particulars of a tenancy are included in the agreement the property is sold with vacant possession and the vendor shall so yield the property on the possession date.

[135] Instead, it is the fact that the property was tenanted at the time of supply which is critical rather than what was to happen at settlement.
[136] On this approach, and allowing for the conclusions already expressed the variation providing for settlement with vacant possession is also irrelevant. In particular, because the agreed going concern categorisation did not turn on
cl 13.1, it was not negated by the vacant possession stipulation.
[137] Finally, I note that in Fatac, this Court emphasised the need for certainty, a need for “agreement in clear and unequivocal terms”.[33] The logic underlying that approach is obviously equally applicable where it is suggested that an agreed written going concern categorisation has been revoked. In this context, I think that the courts should be cautious about allowing such revocation to be achieved by implication.

Was the taxable activity capable of being carried on as a going concern by the respondent?

[138] Plainly it was.

Did the appellants supply to the respondent all the goods and services necessary for the continued operation of the taxable activity?

[139] I answer this question in the affirmative.
[140] As is apparent from my earlier discussion, I think that a lease to a particular

tenant was not fundamental to the continued operation of the relevant taxable activity (namely the use of the building as a leasing proposition).

Did the appellants carry on the taxable activity up to the time of settlement?

[141] Plainly they did.

Conclusion

[142] I would allow the appeal, set aside the orders made in the High Court and enter summary judgment for the appellants.

Solicitors:
Jefferies Raizis, Wellington for Appellants
Treadwells, Wellington for Respondent

[1] C S Development No 2 Ltd v Cockburn HC Wellington CIV-2009-485-587, 26 June 2009.
[2] Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].

[3] Westpac Banking Corporation v Commissioner of Inland Revenue [2009] NZCA 24; [2009] 2 NZLR 99.

[4] Policy Advice Division of the Inland Revenue Department GST: A Review (Wellington, 1999) at 78.
[5] Goods and Services Act 1985, s 11(1)(m)(i).
[6] Fatac Ltd v Commissioner of Inland Revenue [2002] 3 NZLR 648 (CA) at [23].
[7] Belton v Commissioner of Inland Revenue (1997) 18 NZTC 13,403 (HC).
[8] Inland Revenue Department Tax Information Bulletin 4(7) (March 1993) at 14.
[9] Pine v Commissioner of Inland Revenue (1998) 18 NZTC 13,570 (CA).
[10] For example, Case M98 (1990) 12 NZTC 2,599, also reported as Case 68 (1990) 15 TRNZ 36.

[11] Similar reasoning in a different context has been employed by the Court of Appeal in Greenmount Manufacturing Ltd v Southbourne Investments Ltd (2007) 23 NZTC 21,096: the lessor challenged the lessee’s exercise of an option to buy via a nominee. The Court held that the use of a nominee did not render the exercise of the option invalid because it was the only way that the lessee could exercise its option so as to retain the “going concern” treatment of the sale as was provided for in the lease.
[12] At [13.11].
[13] At [42].
[14] At [20].

[15] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.

[16] Gibbons Holdings Ltd v Wholesale Distributors Ltd [2007] NZSC 37; [2008] 1 NZLR 277.
[17] Goods and Services Tax Act 1985, s 9(1).

[18] Case L67 (1989) 11 NZTC 1,391 (TRA); Ch΄elle Properties (NZ) Ltd v Commissioner of Inland Revenue (2004) 21 NZTC 18,618 (HC).
[19] Blanchard J at [14] (with whom Gault J agreed) and Tipping J at [27].
[20] Case W56 (2004) 21 NZTC 11,525 and Case W57 (2004) 21 NZTC 11,539.

[21] Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 913.
[22] At [40].
[23] Case S27 (1995) 17 NZTC 7,819 (TRA).
[24] Capital Enterprises Ltd v C A Stewart HC Wellington Registry CP 91/98 19 June 1998.
[25] Day v Mead [1987] 2 NZLR 443 (CA).
[26] Above at [28]–[35].

[27] Policy Advice Division of the Inland Revenue Department “GST: A Review” (Wellington, 1999) at 78.
[28] See above at [44]–[45] of O’Regan J’s judgment.
[29] Fatac Ltd v Commissioner of Inland Revenue [2002] 3 NZLR 648 (CA) at [23].
[30] See [51] above.
[31] Case S27 (1995) 17 NZTC 7,819 (TRA).
[32] At [23].
[33] At [79].

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