Special GST clause in contract unclear
The Supreme Court of Victoria has held that a special condition concerning GST inserted into a contract for the sale of a property that sought to ensure GST was payable in addition to the agreed purchase price was "void for uncertainty".
Background
The first respondent in the case, Mr Booth, bought a property at Sorrento from the applicant, Cityrose Trading Pty Ltd (which was the trustee of a family trust), by contract of sale signed and exchanged on 20 May 2006 after the property had been passed in at auction. The second respondent ("Kay & Burton") was the real estate agent appointed by Cityrose to sell the property. The dispute initially before the Victorian Civil and Administrative Tribunal was whether Mr Booth was required to pay only the purchase price stipulated in the Particulars of Sale or whether he was liable to pay that amount and a further amount referable to GST payable on the sale.
The purchase price was recorded in the Particulars of Sale as $2,250,000. That is what Mr Booth offered to pay for the property following the auction. The offer to pay that amount was accepted by Cityrose and a contract of sale was executed. The sale price of $2,250,000 was inserted into the Particulars of Sale, along with the amounts for the deposit and the residue. However, the contract of sale contained Special Condition 7, which concerned GST. It provided, in part:
"(c) Expressions used in this special condition which are defined in the GST Act have the same meaning as given to them in the GST Act.
7.2 The consideration payable for any taxable supply made under this contract represents the value of the taxable supply for which payment is to be made;
Where a taxable supply is made under this contract for consideration which represents its value, then the party liable to pay for the taxable supply must also pay at the same time and in the same manner as the value is otherwise payable the amount of any GST payable in respect of the taxable supply."
Before the Tribunal, Mr Booth contended that the contract of sale did not impose a liability to pay an amount in addition to the purchase price, but if it did, the contract of sale ought to be rectified to remove that liability. If rectification was not possible, he contended that the conduct of Cityrose and Kay & Burton, which induced him to enter into the contract of sale, was misleading or deceptive in contravention of the Fair Trading Act 1999 (Vic).
The Tribunal, in its 2011 decision (see Booth v Cityrose Trading Pty Ltd [2011] VCAT 278), held that despite the drafting of Special Condition 7 being "thoroughly unsatisfactory", it could be given a meaning and was not void for uncertainty. The Tribunal held that the preferable construction of Special Condition 7 was that it provided for the purchaser to pay GST in addition to the stipulated purchase price of $2,250,000.The Tribunal was of the view that rectification of the contract could and should be ordered "as both Mr Booth and Cityrose intended that the purchase price would be $2,250,000 and no more". It ordered that Special Condition 7 be deleted from the contract of sale and ordered Cityrose to refund the payment of $225,000 and pay interest on that sum. Cityrose sought leave to appeal, which was denied in September 2012. The company then appealed that decision to the Supreme Court.
Decision
The Supreme Court granted leave to appeal and allowed the appeal.
The Tribunal had reformulated the special condition by adding the words "except that" at the end of para 7.1 as follows:
"(c) Expressions used in this special condition which are defined in the GST Act have the same meaning as given to them in the GST Act except that:
The consideration payable…."
The Tribunal considered that, if construed in this way, "Special Condition 7 had a practical point in that it added something to the contract of sale by imposing an additional obligation on the purchaser". The Supreme Court disagreed.
The Court considered that while the commercial aim or objective of the special condition may have been to allocate responsibility for any GST liability attaching to the supply or supplies made pursuant to the contract of sale, "this says nothing about whether the purchase price in the Particulars of Sale was intended to be GST-inclusive or GST-exclusive". Even if it could be accepted that the purchase price would conventionally be viewed as GST-inclusive in the absence of a clear indication to the contrary, Special Condition 7 did not indicate whether the purchase price of $2,250,000 included a component for GST, the Court said. Furthermore, the Court considered that, even if Special Condition 7 added nothing to the purchase price as specified in the Particulars of Sale, "a clause headed 'Goods and Services Tax' might have been included because it is commercially sensible to have a GST clause to avoid doubt and dispute".
Justice Emerton concluded that the commercial or "practical" purpose identified by the Tribunal did not assist in giving meaning to the words in Special Condition 7. Her Honour said: "The answer to the question, 'What would reasonable persons in the position of the parties have understood the words in Special Condition 7 to mean?' is that the persons in question would be uncertain". She was of the view that "the words and their context provide no resolution to the question whether it was the objective intention of the parties to impose a liability on the purchaser in addition to the purchase price".
In the Court's view: "… the language used in Special Condition 7 is so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention. Put another way, the competing constructions are equally 'open' (or not) and the Court is unable by legitimate means to divine what the parties should be taken to have intended as to whether Special Condition 7 rendered the purchase price GST-inclusive or GST-exclusive".
Justice Emerton held that the GST clause was void for uncertainty, and was to be removed from the contract. The Court held that the parties to the contract of sale did not conclude any bargain for the payment of GST and the purchase price of $2,250,000 in the Particulars of Sale was therefore to be understood to be inclusive of any GST payable on the sale.
Cityrose Trading Pty Ltd v Booth [2013] VSC 504, www.austlii.edu.au/au/cases/vic/VSC/2013/504.html.
