Ipsofactoj.com: International Cases [2003] Part 10 Case 7 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

Fatac Ltd

- vs -

Commissioner of Inland Revenue

TIPPING J

FISHER J

PATERSON J

23 SEPTEMBER 2002


Judgment

Fisher J

INTRODUCTION

  1. This case is mainly about the distinction between tenancies and licences. The distinguishing feature of a tenancy always used to be the right to exclusive possession. A broader approach held sway for 30 years of the mid-twentieth century, largely at the instigation of Lord Denning. England returned to orthodoxy in 1985 but in the meantime New Zealand had followed the broader path. It has prevailed in this country ever since. There is an irony in New Zealand’s continuing legacy of an English adventure since abandoned by the English. We do not think that the broader approach stands close scrutiny in logic or principle. The conclusion reached in this judgment is that it is time to return to exclusive possession as the fundamental test.

  2. In this case the tenancy/licence question arises in the context of an argument about goods and services tax. The appellant Fatac is liable for any output GST payable on the sale of land from an associated company, Puhinui Quarries Ltd ("Puhinui"), to a third party, Mt Wellington Nurseries Ltd ("Mt Wellington"). Fatac has to pay the GST if a certain occupation right granted to Atlas Consolidated Ltd ("Atlas") was a licence rather than a tenancy. The Commissioner’s claim to GST was refused in the Taxation Review Authority’s decision of 21 June 2000 but upheld on appeal in Rodney Hansen J’s High Court decision of 22 August 2001. From that decision, Fatac appeals.

    FACTUAL BACKGROUND

  3. Puhinui was the owner of a 9.9021 ha property at Wiri in South Auckland. Part of the land was a quarry. In 1991 Puhinui granted Atlas the right to operate the quarry for a period of twelve years, renewable for a further three years. Without pre-empting argument over its legal status, it will be convenient to refer to the document as a licence agreement. The agreement provided that if Atlas exhausted the recoverable material from the quarry before expiration of the twelve-year term, the agreement would be terminable at Puhinui’s option. The consideration for the right to quarry was the payment of a royalty set at $1.50 plus GST per cubic metre with a minimum of $2500 per month.

  4. By 1 July 1996 approximately half of the originally licensed area had been fully exploited by Atlas (areas designated A and B in the plan annexed to the licence agreement). Another portion (designated area E) was required for access. Only areas C and D remained to be quarried. They constituted about a third of the entire property.

  5. On 1 July 1996 Puhinui entered into an agreement to sell the entire property to Mt Wellington. The agreement was in the standard Real Estate Institute of NZ/Auckland District Law Society form for the sale and purchase of real estate. The form has a first page for entry of the core terms of the agreement, a printed set of standard general conditions of sale, and space for special conditions of sale, if any, drafted for the occasion.

  6. In this case the spaces provided on the first page of the standard form were completed as follows:

    AGREEMENT FOR SALE AND PURCHASE OF REAL ESTATE

    This form is approved by the Real Estate Institute of New Zealand and by the Auckland District Law Society.

    DATE: 1st July 1996

    VENDOR: PUHINUI QUARRIES LIMITED Level 6, 135 Broadway, Newmarket

    PURCHASER: MT WELLINGTON NURSERIES LIMITED 15 Matanui Street, Northcote

    Address of property: McLAUGHLINS ROAD, WIRI

    Legal description: Estate: FREEHOLD (unless otherwise described)

    Area

    9.9021ha

    Lot

    Part 3

    DP

    48867

    CT

    93D/80 (N.A.R.)

    SUBJECT TO the encumbrances as set out on the attached copy of the Certificate of Title

    Purchase Price: $ 950,000.00 Plus GST (If any) OR Inclusive of GST (If any)

    If neither is deleted the purchase price includes GST (if any)

    Deposit: $ 95,000.00

    Balance of purchase price to be paid or satisfied as follows:

    In cash in one sum on the Possession Date

    LSP date: (refer clause 8.5) GST date:

    Possession date: 20 September 1996 Interest rate for late settlement % p.a.

    Special conditions: (if any) SEE OVERLEAF

    FINANCIAL CONDITIONS

    Lender: Amount required: $

    Lender: Amount required: $

    LAST DAY FOR ARRANGING FINANCE:

    UNIT TITLE CONTRIBUTIONS

    Amount of any unexpended special levies: $

    Vendors portion of any maintenance fund: $

    Amount and frequency of regular contributions: $ per

    Details of tenancies: (if any) Name of tenant: Refer clause 16.0

    Rent: Term: Right of Renewal

    CHATTELS: The following chattels if now situated on the property, and valued at $ , are included in the sale

    (strike out or add as applicable):

    STOVE TV AERIALS FIXED FLOOR COVERINGS BLINDS CURTAINS DRAPES LIGHT FITTINGS

    Sale by (name of real estate agent): Private sale

    It is agreed that the vendor sells and the purchaser purchases the above described property, and the chattels included in the sale, on the terms set out above, on the general conditions attached and any special conditions hereinafter appearing.

  7. The general conditions of sale included a standard provision for GST in the following terms:

    13.0

    Goods and Services Tax (GST)

    13.1

    If this agreement provides for the purchaser to pay (in addition to the purchase price stated without GST) any GST which is payable in respect of the supply made under this agreement then:

    (1)

    The purchaser shall pay to the vendor the GST which is so payable in one sum on the GST date.

    (2)

    Where the GST date has not been inserted on the front page of this agreement the GST date shall be the possession date.

    (3)

    Where any GST is not so paid to the vendor the purchaser shall pay to the vendor:

    (a)

    interest at the interest rate for late settlement on the amount of GST unpaid from the GST date until payment; and

    (b)

    any default GST.

    (4)

    It shall not be a defence to a claim against the purchaser for payment to the vendor of any default GST that the vendor has failed to mitigate the vendor’s damages by paying an amount of GST when it fell due under the GST Act.

    (5)

    Any sum referred to in this clause is included in the purchase price interest and other moneys referred to in clause 3.5.

    13.2

    If the supply under this agreement is a taxable supply the vendor will deliver a tax invoice to the purchaser on or before the GST date or such earlier date as the purchaser is entitled to delivery of an invoice under the GST Act.

    13.3

    "Default GST" means any additional GST, penalty or other sum levied against the vendor under the GST Act by reason of non-payment of the GST payable in respect of the supply made under this agreement but does not include any such sum levied against the vendor by reason of a default by the vendor after payment of the GST to the vendor by the purchaser.

    14.0

    Supply of a Going Concern

    14.1

    If this agreement relates to the sale of a tenanted property then, unless otherwise expressly stated herein, the parties agree that the supply made pursuant to this agreement is the supply of a going concern under Section 11(1)(c) of the Goods and Services Tax Act 1985 on which GST is chargeable at zero per cent. If however, 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 13.0 of this agreement shall apply.

  8. The special conditions of sale were as follows:

    16.0

    The Purchaser acknowledges that the property is to be purchased by it subject to:

    16.1

    A licence to Atlas Consolidated Ltd ("Atlas") as documented in the Licence Agreement between the Vendor and Atlas dated 30 April 1991, a copy of which has been provided to the Purchaser and approved by it; and

    16.2

    A lease (ADLS Third Edition 1993) to McConnell Dowell Constructors Ltd ("MDC") the essential terms of which are set out in the attached Schedule in respect of that part of the property marked on the attached site plan having an approximate area of 100 metres x 160 metres in the south-east corner of the property.

    17.0

    The Purchaser also acknowledges that, in terms of the Licence Agreement between the Vendor and Atlas, Atlas pays the Vendor the sum of $2,500 per month in arrears as a minimum licence fee, and that every six months a survey of the quarry is undertaken to determine the actual licence fee payable for the last six months, as calculated by reference to the formula set out in the Licence Agreement. The Vendor agrees that if any licence fee payment is made by Atlas to the Purchaser in respect of the survey as at 31 December 1996 (which survey will cover a period during which the quarry was owned by the Vendor) the Purchaser may keep all of such payment.

    18.0

    The Purchaser also acknowledges that the Vendor has made various submissions concerning the possible impact on the property of the proposed Manukau District Plan, and that a copy of those five separate submissions has been provided to the Purchaser.

    19.0

    This agreement is conditional on the Purchaser reaching an agreement with Atlas which is acceptable in all respects to the Purchaser concerning Atlas’s arrangements under the Licence Agreement and, in particular, the manner and timing of the remedial work to be carried out by Atlas to bring its quarrying back within parameters acceptable to the Purchaser. This condition will be deemed to be satisfied unless the Vendor or its solicitor receives a written notice from the Purchaser or its solicitor within 60 days of the date of this agreement advising that this condition has not been satisfied, in which latter case the deposit paid by the Purchaser will be refunded in full, with interest thereon, and neither party shall have any further claim against the other.

  9. The schedule referred to in clause 16.2 followed. It provided for a lease of 1.6 ha from the purchaser, Mt Wellington, to McConnell Dowell Constructors Ltd, an associated company of Puhinui. The term was five years with right of renewal for another five years. The 1.6 ha area had always been used by McConnell Dowell as a construction and storage yard and as such had been excluded from the licensed area.

  10. As noted, cl 19 of the agreement for sale and purchase made the agreement conditional upon further agreement between Mt Wellington and Atlas concerning "Atlas’s arrangements under the Licence Agreement, in particular, the manner and timing of the remedial work to be carried out by Atlas ...." On 7 August 1996 Mt Wellington and Atlas came to an oral agreement on that subject as a result of which Mt Wellington notified Puhinui on 28 August 1996 that the agreement was unconditional.

  11. The oral discussion between Mt Wellington and Atlas was subsequently reduced to writing in a letter from Mt Wellington to Atlas of 13 September 1996. It materially provided:

    Proposal for continued quarrying of Puhinui Quarry as discussed on Tuesday 7th August.

    1.

    Atlas to continue to quarry basalt rock.

    2.

    Atlas have sole rights to all basalt rock on site.

    3.

    Atlas have 24 months to complete quarrying.

    4.

    Atlas shall pay no ground rent to be on site.

    5.

    Atlas shall pay no royalty for rock quarried.

    6.

    Atlas shall process material already stockpiled on site near crushing plant. This material consists of scoria and other lower grade material which has been won and stock piled during basalt quarrying. It also contains broken concrete, concrete waste and some other miscellaneous materials. Atlas shall pay no royalties for this material. Atlas shall have sole ownership of this material.

    7.

    All scoria and other lower grade material (other than basalt) shall become the property of the owner.

    8.

    The owner will set up a screening plant to process scoria for nursery and other uses. This plant will be positioned as to not interfere with Atlas’s quarrying operation.

    9.

    The owner will remove scoria in conjunction with Atlas’s basalt quarrying operation. This will be by the owners own means or by Atlas’s machinery at a rate to be agreed on. This material will be stockpiled as conveniently as possible but not so as to impede Atlas’s quarrying operation.

    10.

    Where blasting is winning material for both parties the owner shall contribute to the cost of blasting at an agreed rate.

    11.

    Atlas shall not be required to back fill any part of the quarry.

    12.

    The owner shall indemnify Atlas from any previous requirements in relation to back filling, in previous agreements or correspondence with McConnell Dowell.

    13.

    Atlas shall ensure no fill material is brought onto the site while they are in occupation without written consent from the owner.

    14.

    The owner shall indemnify Atlas against any quarrying that has been carried out below agreed levels in previous agreements with McConnell Dowell.

    15.

    Atlas shall not quarry below the existing quarry floor level. A large portion of the Southern end of the quarry is already down to this level.

    16.

    The owner may require areas within the quarry for uses other than quarrying, provided that it does not interfere with Atlas’s quarrying operations.

    17.

    Atlas may continue to use areas within the quarry for sand blasting etc. until their quarrying operation is completed.

    18.

    Any provisions not covered by the above points shall be deemed to be covered by the previous McConnell Dowell agreement.

  12. The sale agreement was settled on 13 September 1996. On that date, a tax invoice showing the supply as zero-rated for GST purposes was provided by Puhinui to Mt Wellington. This did not deter Mt Wellington from claiming and receiving an input tax credit in respect of the same supply. Receipt of Mt Wellington’s claim prompted the Commissioner to make his own claim against Puhinui’s vendor group of companies. The revenue arrangement was that if Puhinui incurred GST liability in the first instance it would have to be paid by Fatac as the representative member of the McConnell Dowell GST group. The claim was for $105,555.55 representing the output tax on the sale.

    RELEVANT LEGISLATION

  13. As it existed at the relevant time, section 11(1) of the Goods and Services Tax Act 1985 provided:

    Where, but for this section, a supply of goods would be charged with tax under section 8 of this Act, any such supply shall be charged at the rate of zero percent 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.

  14. "Going concern" was defined in section 2 in the following terms:

    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:

  15. As to the meaning of "taxable activity", s 6 materially provided:

    6.

    Meaning of term "taxable activity"

    (1)

    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:

    (b)

    Without limiting the generality of paragraph (a) of this subsection, the activities of any public authority or any local authority.

    (2)

    Anything done in connection with the commencement or termination of a taxable activity shall be deemed to be carried out in the course or furtherance of that taxable activity.

    TAXATION REVIEW AUTHORITY DECISION

  16. In its decision of 21 June 2000 the Authority found that as the sale of the property constituted the supply of a going concern for the purposes of s 11(1)(c) of the Goods and Services Tax Act, it was zero-rated for GST purposes. The decision rested on the assumptions that the relevant "concern" was quarrying; that the quarrying was on-going and passed to the purchaser; that the licence agreement to which the land was subject was referred to in the "Details of tenancies" section on the front page of the agreement for sale and purchase; and that this constituted the necessary agreement in writing that the quarrying activity was to be supplied as a going concern. The Authority’s view was fortified by an examination of the negotiations and subjective intentions of the parties. No reference was made to cl 14 of the agreement for sale and purchase.

    HIGH COURT JUDGMENT

  17. On appeal to the High Court, Hansen J found for the Commissioner. It was common ground that the going concern was the licensing of the land, not the quarrying as assumed by the Authority. While accepting that Puhinui supplied the licensing activity as a going concern for the purposes of s 11(1)(c)(i), Hansen J found that the parties had not agreed in writing that there was to be the supply of a going concern for the purposes of s 11(1)(c)(ii). Clause 14 made agreement that there was the supply of a going concern dependent on the existence of a "tenanted property". Hansen J concluded that the agreement between Puhinui and Atlas constituted a licence and not a tenancy. Consequently, the property was not a "tenanted" one, the elements necessary for the zero-rating exception in s 11(c) were not satisfied, and output tax remained payable on the transaction.

  18. Hansen J went on to address a distinct issue between the parties over liquidation procedures. Encouraged by the decision of the Taxation Review Authority, the liquidator of Fatac had rejected the Commissioner’s claim in the liquidation. The Commissioner had overlooked filing an application to challenge the liquidator’s decision. The Commissioner applied for an order under s 284 of the Companies Act 1993 to review the liquidator’s decision and extend the time within which to make that application. Hansen J declined the application for extension of time. In this Court there has been no challenge to that aspect of Hansen J’s decision. We address it no further.

    ISSUES ON APPEAL

  19. We agree with Mrs. Howe that before supplies can attract GST zero-rating under s 11(1)(c), four elements must be satisfied:

    1. The supply must be to a registered person;

    2. The supply must be of a taxable activity or part of a taxable activity;

    3. The taxable activity must be supplied as a going concern; and

    4. The supplier and the recipient must have agreed in writing that the supply was of a going concern.

  20. In this case it was agreed that elements [a] and [b] were satisfied. Hansen J found for Fatac as to element [c] but against it as to element [d]. The thrust of the appeal was that [d] too was satisfied, that is to say that by virtue of the agreement for sale and purchase, the supply was "agreed .... in writing, to be the supply of a going concern".

  21. In addition to resisting that conclusion the Commissioner sought to support the judgment on another ground. Mr. Beck argued that element [c] was not satisfied either. He argued that the licence to quarry was not transferred from Puhinui to Mt Wellington and that in consequence the taxable activity was not transferred from supplier to recipient as a going concern. For reasons that will emerge, we find it unnecessary to comment upon that argument.

    WAS THERE AN AGREEMENT IN WRITING THAT THE SUPPLY WAS OF A GOING CONCERN?

  22. The supply could be zero-rated only if there was an agreement in writing that the supply was of a going concern for the purposes of s 11(1)(c)(i). It was common ground that if there was any written agreement to that effect it would need to be found in cl 14 of the agreement for sale and purchase. Two preliminary points affect the question whether that clause sufficed.

  23. The first concerns the time at which the conditions referred to in cl 14 were to be assessed. Clause 14 invoked certain GST consequences "if this agreement relates to the sale of a tenanted property". Whether the property was to be regarded as "tenanted" for this purpose was a matter of contractual intention. The contractual intention had to be determined as at the date of the contract. However in our view the intention at the date of the contract was that the formula referred to in cl 14 would be applied to the property as at the date of settlement, not as at the date of the contract. A sale is primarily concerned with the property that is intended to pass. What matters is therefore whether this property was "tenanted" at the date of settlement.

  24. The second point concerns the scope of the evidence to which the Court can resort for the purpose of determining the parties’ GST intentions. The Authority devoted a good deal of time to the parties’ negotiations, subjective intentions, and post-contract conduct. Hansen J confined his analysis to the terms of the document as applied to the contemporaneously known facts.

  25. We agree with Hansen J’s approach. It is true that as Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 (HL) and Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA) illustrate, the Court can draw upon extrinsic evidence of objective matters that must have been within the mutual contemplation of the parties. We accept that in this case the factual setting in which the agreement for sale and purchase was to be interpreted included the original licence agreement of 30 April 1991, the physical features of the land, the access to it, the quarry within it, the proportion of land still subject to potential quarrying, and other objectively observable facts that must have been known to both parties at the time.

  26. We have been unable to find anything further that could legitimately assist in the interpretation of the agreement. Quite apart from the parole evidence rule, s 11(1)(c)(ii) is intended to remove room for argument on the matter by requiring the parties to record their GST intentions in the document itself. The whole point of s 11(1)(c)(ii) would be subverted if the inquiry could wander off into contemporaneous oral communications, subjective intentions, and post-contract conduct.

  27. While not abandoning all reliance upon extrinsic evidence of that nature, Mrs. Howe concentrated upon the interpretation of the agreement itself bearing in mind the existing licence agreement and the physical characteristics of the land at the time. It was common ground that if there was any relevant agreement in writing for the purposes of s 11(1)(c)(ii) it had to be found in cl 14 of the agreement for sale and purchase. The GST consequences under cl 14 were triggered "if this agreement relates to the sale of a tenanted property".

  28. It was not suggested that the new tenancy to McConnell Dowell could relevantly make the property a tenanted one. As it would not come into existence until settlement it could not be supplied as a going concern. Mrs. Howe relied on the arrangement with Atlas. She argued that the Atlas agreement provided two reasons for regarding the property as "tenanted" for present purposes. One was that properly construed, the agreement with Atlas created a "tenancy" in the strict sense. In the alternative she argued that whatever the conventional classification of the Atlas agreement, the agreement for sale and purchase in this case evidenced an intention that it would be treated as a "tenancy" for GST purposes. The two arguments require consideration in turn.

    DISTINCTION BETWEEN TENANCY AND LICENCE

  29. In its conventional sense a tenancy is an interest in land conferring the right to possess it for a limited period. A licence is a mere permission to be on the land, with or without additional permission to perform specified acts there. The former creates an estate in the land; the latter does not.

  30. The distinction has usually assumed significance for occupiers who would enjoy statutory protection against eviction only if they were tenants rather than licencees. It has also affected the availability of relief against forfeiture, the right to distrain for unpaid rent, proprietary interests as against third parties, assignability, and liability to pay local body rates. Unsurprisingly, policy considerations and implied legislative intentions have sometimes influenced the outcome in those contexts. Authorities are to be read with that caution in mind. In New Zealand any temptation to distort traditional concepts for the purpose of protecting residential occupiers has been removed by the Residential Tenancies Act 1986. That Act extends its protection to premises occupied by residents "whether exclusively or otherwise" (see the definition of "tenancy" in s 2(1)).

  31. In the present case the object is purely to ascertain the intention of the parties when they used the expression "tenanted" for the purpose of allocating GST obligations between themselves. Nevertheless it seems reasonable to infer that, in the absence of any express indications to the contrary, when they used that expression the parties contemplated "tenancy" in the sense usually understood by lawyers.

  32. Unfortunately "tenancy" has not always meant the same thing to all lawyers. Discussing the distinction between tenancies and licences, the authors of Hinde, McMorland and Sim, Butterworths Land Law in New Zealand (Butterworths 1997) at 433 and 434, refer to a divergence between New Zealand and overseas authorities and conclude that "while the reasons for this divergence of approach may be more apparent than real .... the matter can now be resolved only by the Court of Appeal." We agree that clarification is timely. For this it is necessary to begin with English experience, since a trend which proved to be only temporary there appears to have encouraged New Zealand on its present path.

    DEVELOPMENTS IN THE TENANCY / LICENCE DISTINCTION IN ENGLAND

  33. Over the past hundred years the English approach to the tenancy/licence distinction has effectively described a circle: Cheshire & Burn’s Modern Law of Real Property (15th ed, Butterworths, 1994) p 362 and see further Street v Mountford [1985] AC 809 (HL). Traditionally, the crucial question was whether the occupier had the right to exclusive possession. Typical was Glenwood Lumber Co. Ltd v Phillips [1904] AC 405 where the grant of a right to hold an area of land for the cutting and removal of timber was held to constitute a tenancy. Delivering the advice of the Privy Council, Lord Davey said this (409):

    In the so-called licence itself it is called indifferently a licence and a demise but in the Act it is spoken of as a lease, and the holder of it is described as the lessee. It is not, however, a question of words but of substance. If the effect of the instrument is to give the holder an exclusive right of occupation of the land, though subject to certain reservations or to a restriction of the purposes for which it may be used, it is in law a demise of the land itself.

    [emphasis added]

  34. Chiefly under the influence of Lord Denning, the mid-twentieth century saw a temporary English departure from that approach – see, for example, Errington v Errington [1952] 1 KB 290 at 298; Cobb v Lane [1952] 2 All ER 1119 at 1120-2; Isaac v Hotel de Paris Ltd [1960] 1 WLR 239 at 245; Shell-Mex & BP Ltd v Manchester Garages Ltd [1971] 1 WLR 612 at 615; and Marchant v Charters [1977] 3 All ER 318 (CA). Speaking for the Privy Council in Isaac v Hotel de Paris, supra, at 245 Lord Denning said:

    The intention of the parties is the paramount consideration and while the fact of exclusive possession together with the payment of rent is of first importance, the circumstances in which exclusive possession has been given and the character in which money paid as rent has been received are also matters to be considered.

  35. In Shell-Mex, supra, at 615 he went further, stating:

    Broadly speaking, we have to see whether it is a personal privilege given to a person (in which case it is a licence) or whether it grants an interest in land (in which case it is a tenancy). At one time it used to be thought that exclusive possession was a decisive factor. But that is not so. It depends on broader considerations altogether. Primarily on whether it is personal in its nature or not.

  36. The English Courts returned to orthodoxy in 1985. Delivering the unanimous judgment of the House of Lords in Street v Mountford, supra, Lord Templeman rejected the passage just quoted from Lord Denning’s judgment, pointing out that (824E):

    In my opinion the agreement was only ‘personal in its nature’ and created ‘a personal privilege’ if the agreement did not confer the right to exclusive possession of the filling station. No other test for distinguishing between a contractual tenancy and a contractual licence appears to be understandable or workable.

    The right to exclusive possession has remained the core test in England ever since – see, for example, AG Securities v Vaughan [1990] 1 AC 417 (HL).

  37. For their part, the Australian Courts never departed from the traditional reliance on the right to exclusive possession. Declining to follow the temporary English foray into other approaches, the High Court of Australia reasserted the exclusive possession test in Radaich v Smith (1959) 101 CLR 209 (HC of A) and in subsequent decisions such as Goldsworthy Mining Ltd v Federal Commissioner of Taxation (1972) 128 CLR 199, 212 (HC of A).

    RATIONALE FOR THE EXCLUSIVE POSSESSION TEST

  38. In our view first principles support the right to exclusive possession as the litmus for tenancies. Exclusive possession allows the occupier to use and enjoy the property to the exclusion of strangers. Even the reversioner is excluded except to the extent that a right of inspection and/or repair is expressly reserved by contract or statute. A tenant enjoys those fundamental, if temporary, rights of ownership that stem from exclusive possession for a defined period. Stipulated reservations stem from that premise. The reverse is true for a licensee. Lacking the right to exclusive possession, a licensee can merely enter upon and use the land to the extent that permission has been given. It is this reversal of starting point that provides the rationale for recognising an estate in the land, in the one case, and a mere personal right or permission to enter upon it, in the other: see further Street v Mountford, supra, at 816B-D.

  39. Because the tenancy/licence distinction turns on those substantive rights granted to the occupier, it remains unaffected by the label which the parties choose to place upon their transaction. It has sometimes been said that the distinction between tenancies and licences turns on the intention of the parties. This can be misleading unless it is appreciated that the only intention that matters is intention as to substantive rights, not intention as to legal classification. As Lord Templeman put it in Street v Mountford, supra, at 819:

    .... The consequences in law of the agreement, once concluded, can only be determined by consideration of the effect of the agreement. If the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they are only creating a licence. The manufacture of a five-pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.

    Windeyer J made the same point in Radaich v Smith, supra, when he said at 222:

    Whether the transaction creates a lease or a licence depends upon intention only in the sense that it depends upon the nature of the right which the parties intend the person entering upon the land shall have in relation to the land.

    REFINEMENTS TO THE EXCLUSIVE POSSESSION TEST

  40. Analysis of the case law reveals a series of ancillary principles for the purpose of distinguishing tenancies from licences. None of these, however, undermines exclusive possession as the fundamental test. Exclusive possession terminable by the owner at will would, at least as against the owner, be possession in name only. Accordingly a necessary incident of a meaningful right to exclusive possession is a defined term, whether fixed or periodic (see further Street v Mountford, supra, at 816G). The same is true of an intention to be legally bound (ibid at 819-822).

  41. Rent would seem relevant to the presence or absence of an intention to be legally bound but not a precondition for a tenancy per se. In Street v Mountford, supra, at 816G Lord Templeman spoke of rent as one of the central features of a tenancy but provided no rationale for elevating it to a critical requirement. In Ashburn Anstalt v Arnold [1988] 2 All ER 147 at 154 (CA) Fox LJ observed that "we are unable to read Lord Templeman’s speech in Street v Mountford as laying down a principle of ‘no rent, no lease’". Similar comments were made in Dresden Estates Ltd v Collinson [1987] 1 EGLR 45 at 47 (CA). No such requirement was stipulated in the High Court of Australia decisions Radaich v Smith and Goldsworthy Mining Ltd, both supra.

  42. Limitations upon the purposes to which the occupier can put the land do not negate a tenancy: Glenwood Lumber Co Ltd v Phillips, supra, at 408-409 (PC). Exclusive possession is not synonymous with an unqualified range of permitted uses. Equally consistent with the critical role of exclusive possession is the refusal to recognise a tenancy where the owner is prevented by statute from granting a tenancy (Street v Mountford at 821), where the landlord’s right of entry to provide services is inconsistent with exclusive possession (ibid at 818, 824-825), or where the right to exclusive possession can be terminated pursuant to some legal relationship extraneous to that of landlord and tenant.

  43. We would see the last point as the rationale for withholding recognition as a tenancy where an employee occupies an employer’s premises in order to perform the employee’s duties (Street v Mountford at 818), where there is a purchaser in occupation pursuant to an agreement for sale and purchase (ibid at 826-827), where occupation is incidental to the holding of an office, and where there is a mortgagee in possession (ibid at 818). In all of these cases the owner has the legal right to terminate occupation for reasons extraneous to any conventional relationship as landlord and tenant. Tenancies can be prematurely terminated for non-payment of rent or breach of a covenant relating to use of the land. Employee-occupiers can be required to vacate when they are dismissed for redundancy. In the latter case the trigger for the eviction arises independently of the owner-occupier relationship. Consequently there is no tenancy.

  44. A refinement of the last point occurs where the occupier enjoys exclusive possession of only a small proportion of the total area of land that is the subject of the overall contract (see Waimiha Sawmilling Co Ltd (in liquidation) v Howe [1920] NZLR 681 (SC and CA) and John Fuller & Sons Ltd v Brooks [1950] NZLR 94 (SC and CA) discussed infra). If the contract is primarily concerned with the use of the land as a whole, and occupation of the exclusively possessed portion can be terminated for reasons extraneous to its use and payment, there is no tenancy. All of these matters can be traced back to the indefeasibility of the occupier’s possession.

  45. Equally consistent with the exclusive possession test are the many decisions concerned with interpretation of the contract or grant conferring the right to occupation. The fundamental question here is whether the parties intended that the occupier would have the right to exclusive possession. On that subject de facto exclusive possession can be an important guide to contractual intentions. That would seem the best explanation for the significance often attached to possession in fact – see, for example, Isaac v Hotel de Paris Ltd, supra, at 245; Street v Mountford, supra, at 823 and Daalman v Oosterdijk [1973] 1 NZLR 717.

  46. Terminology traditionally used to describe a tenant’s right of occupation (e.g. the right "to enter upon, use, and enjoy" the land) is significant only if and to the extent that it indicates an intention that the occupier enjoy exclusive possession (Addiscombe Garden Estates Ltd v Crabbe [1957] 3 All ER 563 (CA) at 567). An express right to enter and inspect can imply a general foundation of exclusive possession to which exceptions must be expressly stated (ibid at 568). Conversely, a requirement that the occupier not impede the owner’s "right of possession and control" (Shell-Mex & BP Ltd v Manchester Garages Ltd, supra, at 616), or that the occupier move from one part of the premises to another at the owner’s direction (Dresden Estates Ltd v Collinson, supra, at 47), tends to negate exclusive possession. All such refinements remain consistent with the right to exclusive possession as the fundamental test.

    RECENT APPROACHES TO THE TENANCY / LICENCE DISTINCTION IN NEW ZEALAND

  47. Until the mid-20th century New Zealand decisions reflected orthodox reliance upon exclusive possession. That was broadly the approach, for example, in Waimiha Sawmilling Co Ltd (in liquidation) v Howe [1920] NZLR 681 (SC and CA). In that case a contractual right to enter in order to remove millable timber was held to involve a mere licence. In the Court of Appeal, Stout CJ said that "A lease of land, to use the term in its widest sense, implies the act of giving up possession of land to someone for a stated period" (697). Referring to other cases in which a right to enter and cut timber was held to be a mere licence, he went on to say (698) ".... In my opinion this case is even stronger, insofar as the grantor remained in possession although he granted the purchaser of the timber the right to use the land for the purpose of securing it." He distinguished Glenwood Lumber Co Ltd v Phillips, supra, where the right to enter in order to remove millable timber was held to involve a tenancy. In that case the terms of the grant had included an exclusive right of occupation.

  48. Delivering the joint judgment of Chapman, Sim and Herdman JJ in Waimiha, Sim J thought that other factors - the implied purpose of the transaction and the language used by its drafter (700 and 701) – tended to negate a tenancy but in the following passage (702 and 703) he returned to exclusive possession:

    We proceed now to consider the effect of the agreement in so far as it operates as something more than a contract for the sale of timber with an incidental license. It gives to the respondent the right to the exclusive occupation of the 6 acres to be laid off as a mill-site. To that extent it may be regarded as a lease according to the rule applied in the Glenwood Lumber Co. v Phillips and McPherson v Temiskaming Lumber Co. In the view we take of the case it is not necessary, however, to decide this definitely, and we leave the question open. The position is probably the same with regard to the land for the time being occupied by the tram-lines, ways, and dams which the respondent is authorized to lay down and construct on the land. The agreement also gives to the respondent the right to cut, remove, and mill all the rewarewa, miro, tanekaha, and tawa timber trees and logs growing, standing, or being on the land, subject to the payment of royalty. That is the grant of a profit a predre, and is an incorporeal hereditament: Martin v Williams; Fitzgerald v Firbank; but the grant of such a right does not give an exclusive right to occupy any part of the soil. The only parts of the land in respect of which the respondent appears to have such a right are the mill-site and perhaps the parts occupied as tram-lines, ways, and dams. To that extent, therefore, it may appear to be a lease. But its operation in this respect is subsidiary to the main purpose of the transaction, which was intended to be a sale of growing timber. Such a sale is clearly not a lease for the purposes of ss. 93 and 94 of the Property Law Act. The fact that there may be an incidental demise of a small portion of the land to which the transaction relates cannot be treated as altering the substance of the transaction and making that a lease which is not a lease. The transaction must be looked at as a whole, and in substance it is plainly not a lease. If it had been in substance a lease, then the fact that it involved something additional would not prevent the application of ss. 93 and 94.

    [emphasis added]

  49. In isolation, the right to exclusively occupy the mill site, tram-lines, ways, and dams, would have justified a finding that the arrangement was a tenancy. But the exclusively possessed areas formed only a small proportion of the total land that was the subject of the agreement. For most of the land there was no right to exclusive occupation. That was how the case critically differed from Glenwood Lumber. The contract could not be fragmented. Viewed as a whole, it could not satisfy the exclusive possession test. Accordingly it amounted to a sale coupled with a licence.

  50. In 1949 the New Zealand Court of Appeal appeared to join their English colleagues in favouring a new approach. In John Fuller & Sons Ltd v Brooks, supra, a theatre-owning company had originally granted to Mrs. Brooks the tenancy of a shop next to its theatre and the exclusive right to have boys with trays sell ice cream and confectionery in the theatre. The company then granted her the right to occupy a stall, to which she had the only key, in a passage in the theatre. From this she sold the same goods to theatre patrons. When the company later sought to terminate the agreement to sell goods in its theatre, Mrs. Brooks took refuge in tenancy protection legislation. At first instance she gained an injunction but this was reversed on appeal.

  51. In the Court of Appeal, Hutchison J’s judgment suggested that the same result could have been supported on an orthodox basis (108–114). Although she had the only key to the stall, the company controlled the lighting system and the power to the refrigerator for which no charge was made. As she had no key to the theatre’s front door, the company determined when she could gain access to the stall. Customers could be served from the stall only if the company allowed them to stand on the adjacent floor area. The stall constituted only a small proportion of the premises to which the agreement as a whole applied. It was therefore eminently arguable both that she lacked exclusive possession of the stall itself and that its size in proportion to the total floor area affected justified its treatment as a licence.

  52. Significantly, however, the majority in the Court of Appeal moved the focus from exclusive possession to the perceived purpose of the transaction and the tenancy/licence intentions of the parties. In a judgment with which Sir Humphrey O’Leary CJ and Hay J agreed, Finlay J first traversed a series of English "front of the house" and "exhibition" cases. Some of these, such as Daly v Edwardes (1900) 82 LT 372 HL and Frank Warr & Co Ltd v London County Council [1904] 1 KB 713 (CA), appear to have rested the conclusion that the arrangement was a licence upon what was essentially a lack of exclusive possession. That conclusion was warranted given the sharing of control, the owner’s right to interfere, limitation in the permissible hours of use, and the extension of the agreement to other areas and activities. In others, such as Joel v International Circus and Christmas Fair (1920) 124 LT 459, the conclusion that the stall-holder had a tenancy appears to have rested on the stall-holder’s right to exclusive use and occupation during the relevant exhibition, uncomplicated by other floor areas and activities.

  53. Although the English licence cases discussed by Finlay J seem broadly capable of explanation on orthodox terms, he expressed his understanding of them in the following way (105):

    It is essential to observe that in all these cases the cardinal feature of the contract was the right to provide refreshments or amenities, and that the right of occupation of any premises concerned was merely incidental and collateral to the exercise of that right. Any right to exclusive occupation of premises was regarded as designed to enable the licensee the better and more effectively to exercise the primary right which it was the fundamental purpose of the contract to create, and not to exclude the retention of control of the whole of the premises by the person granting the right.

    [emphasis added]

  54. Explaining why a tenancy was upheld in one of the cases, he added (106):

    I apprehend it was upon the ground that the real intention of the parties was to create a tenancy. This distinction between the two lines of authority emphasises the crucial character of the question as to what was the real intention of the parties to the contract under consideration in this appeal.

    [emphasis added]

  55. John Fuller was followed by Baikie v Fullerton-Smith [1961] NZLR 901 (CA). In that case the owners re-entered when Mr. Baikie’s conventional tenancy agreement was terminated for non-payment of rent. He was permitted to return upon an express stipulation that he would sign a new tenancy agreement. The terms of the new agreement were never settled. When he was again ejected he brought proceedings alleging that his second period in occupation constituted a tenancy. Both the High Court and the Court of Appeal held that on the second occasion he was there as a mere licensee and that in consequence he could be ejected at will.

  56. It seems clear that Mr. Baikie’s claim could have been shortly dismissed on the ground that until a fresh agreement was signed there was no intention to be legally bound. However the Court of Appeal framed the issue in terms of Lord Denning’s dicta, Gresson P saying (905):

    The question whether premises are occupied under a tenancy or merely a licence depends upon the intention of the parties; even exclusive possession is not necessarily decisive to constitute a tenancy: see Isaac v Hotel de Paris Ltd [1960] 1 W.L.R. 239; [1960] 1 All ER 348.

    [emphasis added]

  57. Citing a number of Lord Denning’s decisions, North J said (916):

    In Errington v Errington & Woods [1952] 1 K.B. 290; [1952] 1 All E.R. 149, Denning L.J. reviewed a number of the earlier authorities and he disposed of the view formerly held that the test in distinguishing between a tenant at will and a licensee was whether exclusive possession had been given. He said, on the contrary, the whole question depended on the intention of the parties

    [emphasis added]

  58. Cleary J said (921 and 922):

    It was formerly commonly accepted that if the so-called licensee were granted exclusive possession he would have an estate as tenant, whatever language the parties employed; but by a series of modern cases, of which Isaac v Hotel de Paris Ltd [1960] 1 W.L.R. 239; [1960] 1 All ER 348 is both the most recent and most authoritative, it has been established that the giving of exclusive possession does not necessarily create a tenancy. In that case Lord Denning in giving the judgment of the Privy Council approved a statement in the law of the Court appealed from in the following terms: ‘It is clear from the authorities that the intention of the parties is the paramount consideration and while the fact of exclusive possession together with the payment of rent is of first importance, the circumstances in which exclusive possession has been given and the character in which money paid as rent has been received are also matters to be considered’ (ibid 245; 352).

    [emphasis added]

  59. The formulations by all members of the Baikie Court provided unqualified support for Lord Denning’s thesis that while exclusive possession remained important, the paramount consideration was the intention of the parties. Subsequent High Court decisions, Wellington City Council v Dominion Budget Rent A Car Ltd (High Court Wellington, CP 105/87, 15 April 1988, Eichelbaum J) and Holland Craig Management Ltd v Kelly Tarlton Underwater World Ltd (High Court Auckland, CP 818/90, 30 July 1990, Sinclair J), acknowledged the binding nature of Baikie.

    SHOULD NEW ZEALAND RETURN TO EXCLUSIVE POSSESSION?

  60. Current understanding in this country is reflected in Hinde McMorland & Sim, Butterworths Land Law in New Zealand at para 5.008 where the learned authors say:

    In distinguishing between a lease and a licence two factors need to be considered: first, whether a legal right of exclusive possession has been given; and secondly, the intention of the parties to be inferred from the circumstances and from their conduct.

  61. What this passage has in common with John Fuller, Baikie v Fullerton-Smith, and the English counterparts of their day, is the assumption that the right to exclusive possession and the intention of the parties are discrete topics. In our view this is misconceived. Whether the occupier has the right to exclusive possession turns on the effect of the contract or grant. The effect of the contract or grant is a matter of interpretation. Interpretation is the search for the intention of the parties. The quarry is intention as to exclusive possession.

  62. It adds nothing to the exclusive possession test to say that the Court must search for the intention of the parties on that subject. In this context their intention on any other subject is irrelevant. In particular it is for the Court alone to determine the legal classification of the transaction. To the extent that John Fuller and Baikie v Fullerton-Smith suggest otherwise, we would no longer follow them. They can not be supported in principle and are no longer supported by overseas authority.

  63. A refinement of the New Zealand emphasis upon intention has been the reliance placed upon the dominant purpose of the relationship. In John Fuller the Court inferred that the dominant purpose of the contract was to allow Mrs. Brooks to sell ice cream and sweets to theatre patrons rather than to allow her the use and enjoyment of the space occupied by her stall. In Wellington City Council v Budget Rent A Car Eichelbaum J found the dominant purpose of the contract to be the operation of a car rental business at the airport, exclusive occupation of a booth there being merely "incidental to the main object" (31, 32).

  64. We see similar difficulties in a "dominant purpose" test. The dominant purpose of an oil company’s lease to a service station proprietor will be to enable the proprietor to sell the oil company’s products. The dominant purpose of a sandpit or quarry lease will be the sale and extraction of products associated with the land. The dominant purpose of the lease of a mature forest will usually be the sale and milling of the timber. The dominant purpose of the lease of a boutique or stall in a shopping mall or arcade will usually be to profitably contribute to a comprehensive service through tightly controlled individual but complementary services. In all these cases it could be argued that occupation of the land is incidental to some larger commercial purpose even though the right to exclusive possession would otherwise demand recognition as a tenancy. Indeed, the dominant purpose test could in practice render the very concept of a "commercial lease" paradoxical. We question the utility of such a test.

  65. A more principled basis may be discerned for some of the refinements to the exclusive possession test discussed earlier. Occupation pursuant to an employment relationship, a purchaser in occupation, a mortgagee in possession, occupation pursuant to the holding of an office, and exclusive occupation of an area that is small in proportion to the total area affected by the agreement, were examples. Difficult questions of degree will be unavoidable in some of these cases. At times the connection with exclusive possession may seem tenuous. But the sounder analysis would seem to be that in all cases of that type where the occupier is found to have a mere licence, it will be because the initial appearance of a right to exclusive possession is found to be critically undermined by the potential for termination for reasons extraneous to the occupation of the exclusively occupied area. A tenant is safe if he pays the rent and other specified outgoings and observes all covenants relating to use of the property. Not so an employee, purchaser, mortgagee, office holder, or business partner. In the latter cases possession is defeasible for reasons unconnected with tenancies.

    CONCLUSIONS AS TO THE TENANCY / LICENCE DISTINCTION IN NEW ZEALAND

  66. Our conclusion is that in this country, as elsewhere, the fundamental distinction between a tenant and a licensee is that the former alone has the right to exclusive possession. For exclusive possession to be meaningful there must be a minimum finite term, whether fixed or periodic. Rent is an important indicator of an intention to be legally bound but its absence does not per se negate a tenancy.

  67. The terminology employed by the parties in describing their relationship will be immaterial unless it helps in deciding whether there is a right to exclusive possession. Restrictions upon the use to which the occupier may put the land are not inconsistent with exclusive possession. On the other hand there will be no tenancy where there is no intention to enter into a legally binding relationship or where a tenancy is precluded by statute.

  68. There will similarly be no tenancy where the occupier’s right to possession may be terminated for reasons extraneous to the occupation of the land. Examples are occupation pursuant to an employment relationship, a purchaser in occupation, a mortgagee in possession, occupation pursuant to the holding of an office, and exclusive occupation of an area that is small in proportion to the total area affected by the agreement. In cases of this kind questions of degree will be unavoidable but the answer is not to be found in the perceived intention of the parties as to the legal classification or dominant purpose of their transaction.

    WAS THE ARRANGEMENT IN THE CASE A TENANCY OR A LICENCE?

  69. In the present case the relevant transaction is recorded in Mt Wellington’s letter of 13 September 1996 read together with the Licence Agreement of 30 April 1991. The lack of provision for rent does not preclude a tenancy. The parties clearly intended to be legally bound. The use of the word "licence" in both documents is irrelevant, as is the purported "right of re-entry" (1991 agreement clss 11.1 and 11.2) and the right to "distrain for royalty" (cl 11.3). The focus is not the terminology of the parties but the exclusivity of Atlas’s right of occupation.

  70. Even under the 1991 agreement Puhinui and its associated companies had a general right of access to the land so long as they did not obstruct the permitted activities of Atlas (cl 9.2). The 1996 letter took this further, reserving to Mt Wellington the right to all quarried materials other than basalt. In association with its own right to quarry those materials, Mt Wellington enjoyed the right to set up a screening plant in the quarrying area, and to stockpile and remove all material other than basalt, so long as this did not impede Atlas’s quarrying operations. Atlas’s right of occupation was far from exclusive.

  71. The point is reinforced by the dwindling area still yielding basalt rock. Atlas’s quarrying rights were limited to the residue. As para 15 of the 1996 letter records, by 1996 a substantial proportion of the original area had already been quarried. The stockpiling referred to in para 6 of the letter, and the related purposes provision in cl 6.1 of the original licence, implied continued use of other areas by Atlas but the location and duration of these was not fixed. Coupled with the uses reserved for Mt Wellington, it could not be said that there was any clearly defined area of which Atlas would have the exclusive use, let alone an area that was substantial in relation to the licensed area as a whole. We conclude that the arrangement with Atlas was a licence in the strict sense. It was not a tenancy.

    WAS CLAUSE 14 INTENDED TO EMBRACE THE AGREEMENT WITH ATLAS?

  72. In the alternative Mrs. Howe argued that whatever the conventional classification of Atlas’s right of occupation, the parties to this agreement for sale and purchase intended it to fall within the "going concern" provisions of cl 14. The argument is that the expression "tenanted property" in cl 14.1 takes its meaning from the provision for "Details of tenancies" on the front page of the agreement; that in the present case, the "Details of tenancies" provision requires the reader to "refer clause 16.0", that cl 16.0 includes the reference to the "Licence Agreement between the vendor and Atlas dated 30 April 1991"; and that the parties have effectively written their own dictionary with respect to the meaning of "tenanted property" for the purposes of cl 14.1.

  73. We agree that in principle it was open to the parties to the agreement for sale and purchase to provide that the "going concern" provisions of cl 14.1 would apply to the arrangement with Atlas and to achieve that result by agreeing that the expression "tenanted property" in cl 14.1 would, for the purposes of that agreement, apply to the arrangement with Atlas. In practice, however, the argument breaks down at several points.

  74. First, the format of the agreement lent itself to the inclusion of licences as well as tenancies in the space provided for under "Details of Tenancies". The terms of the agreement were divided between core provisions on the front page, standard general conditions in the middle, and specifically drafted special conditions at the back. Clause 16 of the special conditions specified that the purchaser would acquire the property subject to both a licence to Atlas and a tenancy to McConnell Dowell. The form contemplated that the essential characteristics of the property to be sold would be referred to on the front page. The front page made provision for "Details of Tenancies" but there was no separate provision for "Details of Licences". If licences were to be referred to at all within the constraints of this form, the logical place for them was in the space provided for under "Details of Tenancies".

  75. Secondly, the drafter had to make some entry under "Details of tenancies" in order to avoid the consequences of cl 3.1. It provided:

    Unless particulars of a tenancy are included in this agreement, the property is sold with vacant possession and the vendor shall so yield the property on the possession date together with such keys to all exterior doors as are in the vendor’s possession.

    But for an entry under "Details of Tenancies" the vendor would have been obliged to provide vacant possession. That would have conflicted with intentions in relation to the licence as well as the tenancy.

  76. Thirdly, cl 16 does refer to a "tenancy" in the true sense. Cl 16.2 makes the property to be conveyed to Mt Wellington subject to a conventional lease. To the extent that an entry under "Details of tenancies" required the existence of a "tenancy" in the strict sense, it was to be found in cl 16.2.

  77. Fourthly, it is at least arguable that the expression "tenanted property" in cl 14.1 contemplates a property which is wholly, or at least principally, subject to a tenancy. In the present case, it seems clear that by the date of the agreement less than half of the property sold remained subject to the quarrying operations of Atlas. The 1.6 ha to be leased to McConnell Dowell was proportionately small.

  78. Finally, we accept Mr. Beck’s submission that the history and wording of s 11(1)(c)(ii) of the Goods and Services Tax Act indicates a legislative desire for certainty. The introduction of a requirement that the supply be "agreed by the supplier and the recipient, in writing, to be the supply of a going concern" was remedial. Its implied purpose was to remove the confusion and uncertainty that tended to occur before its introduction, the purchaser seeking an input tax credit, and the vendor seeking to resist an output tax debit.

  79. In the present case the vendor has attempted to transfer the dissension and uncertainty that preceded the legislation from an argument over the supply of a going concern to an equivalent argument over the question whether the parties had agreed on that point in writing. In our view, "agreed by the supplier and the recipient in writing" is to be interpreted as requiring agreement in clear and unequivocal terms. Had it been the intention of these parties that the taxable activity be transferred as a going concern for GST purposes, nothing would have been easier than to say so simply, directly, and expressly. The fact that on the alternative argument Fatac is forced to traverse a series of oblique and debatable arguments counts against the proposition that there was any qualifying agreement for the purposes of s 11(1)(c). We agree with Hansen J that there was no agreement in writing for that purpose.

    RESULT

  80. The appeal is dismissed. The appellant must pay the respondent costs in the sum of $5000 plus disbursements to be fixed by the Registrar.


Cases

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 (HL); Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA); Street v Mountford [1985] AC 809 (HL); Glenwood Lumber Co. Ltd v Phillips [1904] AC 405; Errington v Errington [1952] 1 KB 290; Cobb v Lane [1952] 2 All ER 1119; Isaac v Hotel de Paris Ltd [1960] 1 WLR 239; Shell-Mex & BP Ltd v Manchester Garages Ltd [1971] 1 WLR 612; Marchant v Charters [1977] 3 All ER 318 (CA); AG Securities v Vaughan [1990] 1 AC 417 (HL); Daly v Edwardes (1900) 82 LT 372 HL; Frank Warr & Co Ltd v London County Council [1904] 1 KB 713 (CA); Joel v International Circus and Christmas Fair (1920) 124 LT 459; Baikie v Fullerton-Smith [1961] NZLR 901 (CA); Wellington City Council v Dominion Budget Rent A Car Ltd (High Court Wellington, CP 105/87, 15 April 1988, Eichelbaum J); Holland Craig Management Ltd v Kelly Tarlton Underwater World Ltd (High Court Auckland, CP 818/90, 30 July 1990, Sinclair J)

Legislations

Goods and Services Tax Act 1985: s.2, s.6, s.11(1)

Authors and other references

Hinde, McMorland and Sim, Butterworths Land Law in New Zealand (Butterworths 1997)

Cheshire & Burn’s Modern Law of Real Property (15th ed, Butterworths, 1994)

Representations

B A Howe and A Low for Appellant (instructed by Chapman Tripp Sheffield Young, Auckland)

A C Beck and Z Wisniewski for Respondent (instructed by Crown Law Office, Wellington)


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