The Park Homes Limited - GST warranties again

The Park Homes Limited v Miah [2022] NZHC 1352

The liability for a lost GST input tax credit was again the subject of recent proceedings before the High Court. PTPHL sought summary judgement against Mr Miah based on an alleged breach of his warranty on the sale of a property to THPHL, that he was not registered for GST. Were that the case, then TPHL was entitled to an input tax credit on its purchase of the property.

The case involves some permutations in that the warranty as to non-registration was not given in the original agreement for sale and purchase but in a variation subsequently entered into. Indeed, the original agreement expressly stated that the vendor was registered and this was negated in the later variation.

The background to the variation is not set out expressly in the judgment of the Court but it is apparent that there was a good deal of negotiation between the parties over price. It is not difficult to imagine that there was some pressure for a discount to be achieved in the purchaser's favour by non-registration being warranted.

As it happened, Inland Revenue deemed the vendor to be registered for GST, just as he had originally stated in the agreement. It applied compulsory zero rating and denied the purchaser, TPHL, the input tax credit that it sought. TPHL sought summary judgment for the lost input tax credit.

The vendor Mr Miah argued against summary judgment on the grounds that he had never been registered for GST and that his warranty as to GST status expired a day before actual settlement took place.

On the first ground, the Court concluded that registered status had to be determined applying the GST Act. It provides for actual and deemed registration, the latter of which applied to Mr Miah. He had to live with the statutory regime for registration. The argument that his warranty applied only to the day before settlement was roundly rejected. The settlement date stated in the agreement had been extended at the request of Mr Miah's solicitor by one day and it was settlement of the agreement that the warranty contemplated, whatever date that occurred.

The decision is a reminder that the GST regime for compulsory zero rating allocates risk between the parties to a property transaction and that GST warranties must be carefully considered accordingly. The earlier decisions of Ling v YL NZ Investment Ltd [2018] NZCA 133 and Holdaway v Ellwood [2019] NZHC 792 applied, and risk was allocated to the vendor, who is in the best position to know if they are, or are liable to be, registered. The loss associated with the breach of warranty is the lost input tax credit. Other cases have held that the opportunity to claim the credit is the correct focus, and not whether it would have been claimed.

There being no tenable defence to the claim for the lost input tax credit, summary judgment was entered.

© G D Clews, 2022