Whether GST should be included in damages is often an issue. This decision confirms the wisdom of counsel giving the issue proper, early, consideration. Ideally the topic would be addressed in the statement of claim.

This was a decision made by Gendall J on the papers. It followed a substantive judgment[1] which had been issued on 16 August 2019 which awarded damages to the plaintiffs.

The damages were awarded following the plaintiffs establishing that they had suffered a loss. The loss related to them not receiving the full value of their promised benefit under the contractual settlement. There was a shortfall which was made up of the difference between the $894,937 upon which the Settlement Agreement was premised, and the respondent’s actual estimate of “the amount it would have cost us to rebuild your house on its present site”. The respondents were found to have wrongly represented that estimate of the rebuild.

A memorandum was filed by counsel for the plaintiffs after the issuing of the substantive judgment, seeking that the judgment be corrected. Counsel considered there had been an error in the calculation of the damages, as the judgment indicated the amount awarded was to be GST exclusive, whereas what the plaintiffs had claimed (and were entitled to) was the GST inclusive amount.

Rule 11.10 of the High Court Rules provides for correction of accidental slip or omission in a judgment or order.

The defendant considered that the judgment should remain GST exclusive, as no submissions were made as to GST at trial, and the “slip rule” was not an appropriate way to address those issues. It said that the judgment should remain GST neutral, submitting that damages for misrepresentation are intended to compensate for losses, and are not the supply of goods and services under s 8(1) of the Goods and Services Tax Act 1985.

Gendall J acknowledged that the issue of GST was not addressed at trial – it had, however, been included as a component in the plaintiffs’ claim. He noted that the damages awarded for misrepresentation represented the difference between the amount upon which the Settlement Agreement was premised and the defendant’s actual estimate of the amount it would have cost to rebuild the house. Given the defendant’s actual estimate of its costs included GST, Gendall J considered it was appropriate that the plaintiffs be awarded GST.

The defendants further submitted that the awarding of GST would constitute a “windfall” for the plaintiffs as there was no evidence led as to the GST status of the plaintiffs. Given the loss suffered stemmed from the plaintiffs settling for a figure they thought was based on a proper building assessment report plus GST, Gendall J considered it difficult to see how they were gaining a windfall in the circumstance where they received the actual estimate plus GST.

Finally, the defendants submitted that the plaintiffs purchased another house – something that would not ordinarily attract GST as vendors are not generally GST registered. Gendall J did not accept this argument. Damages were not based on the plaintiffs suffering loss when purchasing another house – rather, damages were awarded because of the defendants misrepresenting the estimated rebuild cost. That estimated cost was made up of costs to build a house, including GST.

In Gendall J’s view, it was clear that determining the GST question did not require the calling of further evidence. He considered that the omission of GST from the damages awarded was an error resulting from an accidental slip in terms of r 11.10, and he ordered that “plus GST” be added to various paragraphs of the judgment.

Comment: I assume plaintiffs were not GST registered and therefore did not account for GST. Where a sum for GST is included in an award of damages but the plaintiff-recipient is not required to on-pay that GST to the IRD then they it seems legitimate to say they have enjoyed a boon of sorts. That said, if damages are calculated with reference to the difference between two GST inclusive amounts then no unfairness seems to arise. For most ordinary folks, when then pay for something it is GST inclusive and simply regarded as part of the overall price. That seems to have been the gist of the plaintiffs’ position here with respect to their misrepresentation claim.

Authors: Steve Keall, Katy Barker & Kate Macdonald

Copyright Steve Keall 2019, All Rights Reserved.

[1] Dodds & Ors v Southern Response Earthquake Services Ltd [2019] NZHC 2016.