Published 29 April 2007
Lawyer Manu Bhanabhai has failed to convince the Appeal Court that he shouldn’t pay gst on the sale of units in the Nautilus apartment on Hobson St 10 years ago, and failed to convince the Supreme Court he should have leave to take the case further.
Mr Bhanabhai & the law firm he’s a partner in, Dyer Whitechurch, had their application for leave turned down on Friday, 26 April.
The Appeal Court found in December they were liable to Inland Revenue on their undertaking that, on settlement of the Nautilus apartments on the western edge of the Auckland cbd, they would “forthwith” pay the gst component of the sale consideration.
Mr Bhanabhai & Dyer Whitechurch were the solicitors for Nautilus Developments Ltd & Golden Gate Holdings Ltd, related companies which were developers of the apartment building. Mr Bhanbhai was also an investor in the development, a director of Golden Gate and had personally guaranteed the loan which had financed the development.
The development became a sorry tale of non-performance, disputes and, in 1998-99, liquidation for the 2 companies.
GST output tax became payable when purchasers paid the deposit, but the developer companies didn’t pay that tax when the deposits were paid on 13 units. In April 1997, Inland Revenue agreed not to seek payment until the sales were finally settled. As part of this agreement, Inland Revenue obtained the “forthwith” undertaking from Dyer Whitechurch.
However, the project finance advanced by UDC Finance Ltd became repayable on 8 May 1998, when UDC became entitled to all proceeds of sale of the units. As a result the developer companies were unable to pay the gst and went into liquidation.
In the High Court, Justice John Laurenson found Mr Bhanabhai & Dyer Whitechurch liable on the basis of an ancilllary obligation to keep Inland Revenue advised of developments which could affect payment. The Appeal Court confirmed liability on the basis that the undertaking wasn’t contingent on receipt by the law firm of the sale proceeds, but constituted a direct obligation to pay the gst once the sale of the units
was settled, irrespective of whether the proceeds were received by the firm.
“The applicants frame the issue for the court as: Is it the law that, notwithstanding the actual intention of the parties, a solicitor’s undertaking in respect of matters outside the solicitor’s control must be construed not as a conditional promise but as an absolute guarantee?
“That is not, however, a fair characterisation of the issue determined by the Court of Appeal. Rather, the court came to its conclusion about the proper interpretation of the undertaking on the basis of the language used, the factual context in which it arose and its commercial purpose to arrive at its objective meaning. No error of principle in approach arises. The applicants simply seek a different conclusion in application of a correct approach to the facts of the case.”
Attribution: Court decision, story written by Bob Dey for this website.