Current market value means GST exclusive

Sayes v Tamatekapua [2012] NZCA 524

This case holds that a deed must be interpreted in its context and that here the deed and the surrounding circumstances indicated that the plain meaning of “current market value” was one that excluded consideration of GST. Valuers of a property were held to have acted consistently with the provisions of the deed, and had therefore correctly valued the current market value of a property as excluding GST.

The case involved a longstanding dispute between the children of the late Mr and Mrs Sayes over the distribution of their estates, including a property which was to be transferred to Michael or his nominee. Michael, who had been in occupation of the property for many years, was not registered for GST. The value to be given the property affected the calculation of Michael’s share in the estates of his late parents.  If the value of the property was GST inclusive it would be $4.8 million. If, however, the value was GST exclusive, it would be $4.3 million. Michael argued for the lower, GST exclusive value because he would then receive more from the estate. His brother argued for the higher, GST inclusive value.

Clause 15 of the settlement deed provided “that the properties … be valued at their current market value as at the same date by a registered valuer … . The valuers issued a valuation report stating that the land’s current market value (excluding GST) was $4,311,000. The report also stated that it had been prepared “for the specific purpose stated”. A dispute followed over whether this was the appropriate value for a residential rural property.

To resolve this the trustees applied to the High Court for directions. The application was heard by Lang J who decided that the current market value was $4,311,000 exclusive of GST (Sayes v Tamatekapua HC Auckland CIV-2007-404-516, 2 March 2011). The case was taken on appeal by Michael’s brother.

The Court of Appeal considered that the issue raised on this appeal involved a straightforward matter of contractual interpretation and the application of well-established principles. It found that:
The requirement for the valuation of the property appeared in the deed of settlement. The deed must be interpreted in its context.

The meaning of the expression “current market value” was well-established. It means the price at which a willing but not anxious vendor would sell and a willing but not anxious purchaser would buy.
A hypothetical sale of the property in question was to be assumed, disregarding the personal desires or sentiments of any parties, but approaching the matter as a practical question not overlaid by philosophical niceties.

There was no suggestion the valuers had failed to value the property in accordance with the correct approach. The valuation was not challenged and the valuers were not called for cross-examination on their report or to explain their valuation. No evidence was adduced to suggest that the valuation was not the “current market value” of the property.

The forensic accountant who gave evidence for the brother was not the valuer nominated in cl 16 of the settlement deed. In terms of the deed, his opinion was of no relevance, especially in the absence of any challenge to the “GST exclusive” valuation.

There was no suggestion that the valuers had erred in determining the price that hypothetical parties would have reached for the property.

The provisions of the settlement deed relating to the transfer of other properties and cl 14, which expressly provided for the four children to share equally the cost of any tax that might be payable, supported the view that Seagar & Partners were correct to value the current market value of the property exclusive of GST.
The submission that the value ought to be the value to the particular beneficiary may be paraphrased as “market value means the GST exclusive value unless, because of the appellant’s tax status, the person may be able to gain more than the GST exclusive value by selling it”. However, such a definition of market value would be unworkable as the trustees could not know in advance how the tax status of the various beneficiaries might play out in any future sale.

Determining a fair way to value the properties would undermine the parties’ agreement to be bound by the valuation and the parties’ agreed and unambiguous instructions to the valuers. Although there may be unforeseen tax advantages and disadvantages in the way the parties had structured their affairs, it was not for the Court to seek to rearrange the parties’ agreement now.
Where a person is entitled to “market value” the entitlement is to “market value” not “market value plus GST”. Also, the market value cannot be different depending on whether or not GST is payable or claimable by the purchaser (Minister of Lands v Nutsford-Cumming HC Auckland AP83SD02, 17 March 2003 cited).
The Court of Appeal dismissed the appeal.

The issues canvassed by the Court are often at large in other settings such a rental arbitrations where a market value for land will be relevant. There it is not unusual for there to be debate over whether value should be inclusive or exclusive of GST. In this case the valuers had arrived at a valuation excluding and the Court upheld that as being the price that a willing buyer would have been prepared to pay for the property. But the approach taken by the Court suggests that the value may indeed have been wrong. If as the Court says tax issues are to be set to one side, then the higher GST inclusive value may well have been the correct value. That is because competitive bidders for the property might well have been prepared to pay more than the valuers’ figure based on their GST standing. A registered purchaser might well have paid a higher price because of the ability (at the time) to take a deduction for input tax.

This issue is now resolved largely by the mandatory zero rating regime for land transactions, which removes the influence of GST input tax credits between registered persons, but the issue still applies when an unregistered person sells to a registered person. There the possibility still exists of a GST credit on purchase.

© G D Clews    

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