The Independent’s Editorial October 24, “Vanuatu’s sallies into retrospective legislation” calls into question judgments of both the Supreme and Appeals Courts, infers that because the VAT Act was amended retrospectively a company was deprived of a refund to which it was entitled and says that the government ‘changed the law [in order] to cover their then illegal decision to refuse a refund.’
It is unfair, the Editorial suggests, that just because the law allows an Act to be retrospectively altered, a court of law would sanction the doing of it to the detriment of an investor. Other investors therefore, it further opines, should beware.
The Editor begins by wishing to spare the reader the ‘complicated judgments involved’.
They are indeed complicated and can be read by anyone interested on Paclii’s website www.paclii.vu Court of Appeal - Groupe Nairobi (Vanuatu) Ltd v Government of the Republic of Vanuatu [2009] VUCA 35; Civil Appeal Case 11 of 2009 (16 July 2009) but by so simplifying the issues the public has been given a somewhat slanted view of the matter.
In early 2005 a company called Groupe Nairobi (Vanuatu) Ltd purchased from Willmax Holdings two adjoining pieces of land for vt 60 million each. The transfer of lease was dated February 9, 2005 and was lodged at the Lands Dept on April 28, 2005. As is usual with purchase and transfer of land leases there was no mention of VAT in the transaction.
On May 27, 2005 Groupe Nairobi, being registered for VAT, and asserting that the land purchased was ‘second hand goods’ as defined in the VAT Act, claimed a refund of VAT in the amount of vt 14 million although there could be no guarantee at that time that the planned subdivision would be approved and would go ahead.
The idea that land could ever be construed as ‘second hand goods’ was new and unacceptable to Customs and they denied the claim.
In 2009 the Appeals Court transcript records “an observation made in the early stages of the correspondence between the parties to the effect that the concept of land ever being “second hand” is a doubtful one” and that “Claimant’s counsel was unwilling to push this point”.
Customs, back in 2005 however, realized that if land were to be considered second hand goods for the purposes of the VAT Act, the refund claim floodgates would open leaving the government in a very unenviable financial position.
Legislation to amend the VAT law was enacted on 1 January 2006 and made retrospective to the inception of the VAT Act in 1998.
Groupe Nairobi, while arguing about ‘second-hand goods’ and claiming that their Constitutional Rights had been denied them, went ahead with subdivision plans. On September 28, 2005 the consent to surrender the original leases was signed by the relevant Minister. Much later the various internal sections of Lands Department duly stamped new survey plans for the proposed subdivision.
These were dated 17 January 2006 and it wasn’t until April, 2006 that eight new leases were approved. Although backdated to July 30, 2005 (as would be normal procedure - July 30 being the start date for all Urban land leases) they were not registered with Lands Department until June 14, 2006.
All this happened well AFTER the claim for refund of VAT was made but not before
Groupe Nairobi, which exists within a miasma of companies and nominee companies, had begun selling the land to other companies that exist similarly within a framework of same name directors and shareholders.
Although the transfer of one of the titles wasn’t registered until January, 2007 the Consent for its Transfer was signed and dated March, 2006 – a month before the new leases were approved and several months before they were registered.
The Appeal Court, in its summing up said: “The reasons which prompted the Amendment Act involved a perceived urgent need on the part of Government to protect the revenue against a source of refund claims which hitherto had not been anticipated, and to protect the revenue. These were legitimate concerns, which the Government was obliged to take into account. In our opinion the Government’s decision to amend the legislation by changing the definition of second-hand goods was a matter for the Government to decide.
The information before the Court raises no suggestion that the resulting adjustments and balance between the interest of the revenue, and interest of individual registered persons under the VAT Act was not a reasonable one.”
Nor, the Court said, was Groupe Nairobi unjustly deprived within the meaning of Article 5(j) of the Constitution.
Was Groupe Nairobi a scapegoat for the ‘illegal’ amending of an Act as the Indy suggested it was?
Should the government be chastised for taking what the Editor called a ‘tough luck for the investor’ approach in order to protect the revenue of the State? Should we be concerned that ‘other investors cannot rely on the law as they read it or as their lawyer has advised them’?
This scribe doesn’t think so.
On the contrary, it seems that a loopholey stable door was, for once, closed BEFORE the clever financial horse, saddlebags loaded with taxpayers’ money, bolted.
- B. J. Skane