This proceeding has a very long (and very expensive) history. The essential question was whether the purchaser was bound to pay, in addition to the stated purchase price, an amount on account of GST. The disputed sum of $225,000 was deposited into a trust account pending resolution of the issue. The decision illustrates the importance of drafting GST clauses that properly reflect the intentions of the parties, and also that not all GST disputes involve the Commissioner.
I first discussed this decision as part of a paper I delivered earlier this year entitled “GST and Real Estate Contracts – when things go wrong”. This was just after the Tribunal had handed down its second decision whereby it was found that the GST clause in the contract required that GST be added to the price, but an order for rectification was made to the effect that the contract price was GST-inclusive. The Supreme Court allowed the vendor’s appeal against this decision and found that rectification should not have been ordered. However, the Supreme Court accepted the notice of contention of the purchaser and found the GST clause to be void for uncertainty. The purchaser was therefore successful as the purchase price was inclusive of GST.
The history of the case is as follows:
- In 2007 there was a hearing before the Victorian Civil and Appeals Tribunal (VCAT) which took 6 days and found in favour of the purchaser.
- In 2008 the decision of VCAT was appealed to the Supreme Court, which allowed the appeal and referred the matter to the Tribunal for re-hearing:  VSC 495
- In 2011 VCAT re-heard the matter, over three days. The tribunal again found in favour of the purchaser:  VCAT 278
- In February 2012 the vendor sought leave to appeal from the decision of VCAT before an Associate Justice of the Supreme Court. Leave to appeal was refused.
- In July 2012 the vendor sought a rehearing of the application for leave to appeal the decision of VCAT before a Judge of the Supreme Court. That hearing was heard over 2 days. On 19 September Emerton J found that leave to appeal should be granted, the appeal allowed and the order of VCAT be substituted by the orders of the Court:  VSC 504
Given the history of the matter, I would not be surprised if there is a further appeal.
Mr Booth purchased a property in Sorrento from Cityrose. Kay and Burton conducted the auction on behalf of Cityrose. The land did not sell at auction and later that day, Mr Booth, who had attended the auction, made an offer of $2,250,000 and signed the contract which included that figure.
The contract contained special condition 7 which has headed “Goods and Services Tax”. The special condition provided as follows:
7.1 For the purposes of this special condition:
(a) ‘GST’ means GST within the meaning of the GST Act;
(b) ‘GST Act’ means A New Tax System (Goods and Services Tax) Act 1999;
(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.
The Tribunal made the following findings of fact:
- that neither Mr Booth or the agents realised, at the time contract was concluded, that Special Condition 7 arguably made the price GST exclusive.
- Mr Booth’s solicitors were given a copy of the draft contract the day before the auction and a copy was given to Mr Booth. Mr Booth did not pay attention to Special Condition 7.
- The agents said nothing about GST during the action and nobody else said anything about GST.
Seven days before settlement, the solicitors for the vendor gave the first indication that Mr Booth was obliged to pay an additional amount under the contract for GST.
The claim before the Tribunal (first decision)
Mr Booth’s claim before the Tribunal can be summarised as follows:
- The contract required him to pay no more than $2.25m and Special Condition 7, on its proper construction, had no application; meant that the purchase price was GST-inclusive; or was so uncertain as to be meaningless.
- Rectification of the contract.
- Excision of special condition 7 from the contract as a consequence of Cityrose’s misleading or deceptive conduct in contravention of the Fair Trading Act 1999.
- Damages in the amount of $225,000 and the additional stamp duty of $12,375 because of the misleading and deceptive conduct of Cityrose.
The Tribunal found that the Special Condition in the contract required the purchaser to pay an additional amount on account of GST. However, rectification of the contract was ordered to remove the Special Condition so that the purchase price specified in the contract of sale was the price stipulated in the contract, and no more.
The first appeal to the Supreme Court
Cityrose appealed to the Supreme Court. Justice Whelan declined to form a final view on the construction of the special condition and referred the matter back to the Tribunal to be heard again. However, the following observations of his Honour clearly illustrate the difficulties in construing the clause (at -):
21 As the special condition says expressions used are to have the meanings given in the GST Act, what then does it mean to say that consideration “represents” value? If what was intended was that for the purposes of the special condition the consideration under the contract is to be the “value” under the GST Act, that would not be consistent with the provision stating that defined expressions in the GST Act have the same meaning in the special condition. The difficulty of determining what is meant by saying that consideration represents value is exacerbated by the fact that if “consideration” has the meaning it has in the GST Act, then any amount payable under special condition 7 must also be part of the “consideration” because it would be an amount in connection with, in response to, or for the inducement of a supply.
22 The difficulties continue, as the clause then provides: “[w]here a taxable supply is made … for consideration which represents its value …”. If consideration represents value because of the first part of clause 7.2, it is difficult to understand why the second part is qualified in this way.
23 The second part of clause 7.2 then says 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. If “value” has the meaning given in the GST Act, this then means the person must pay whatever obligation special condition 7 imposes at the same time and in the same manner as the price is payable. Again, the second part of clause 7.2 is difficult to understand because to the extent the special condition imposes a liability in addition to $2,250,000 that liability itself becomes part of the “consideration” within the meaning of that term in the GST Act.
24 All of these difficulties arise in a context where if what was intended was that the purchaser was to pay to the vendor any GST liability the vendor had, it would not have been difficult to say so.
The re-hearing before the Tribunal
On re-hearing, the Tribunal eventually came to the conclusion that the proper construction of the special condition was that the price was exclusive of GST and that Mr Booth was obliged to pay a further amount on account of GST. As observed by the Tribunal (at ):
In the end, whichever view one takes of it, the drafting of the special condition is thoroughly unsatisfactory. But it can be given a meaning. It is not void for uncertainty. I acknowledge too that the “contra preferentum” rule, if given operation, tends to push one away from a construction for which Cityrose argues. Nevertheless, ultimately for the decisive reason that the construction gives a point to the condition whereas the competing constructions seem to result in the condition having no practical point to it at all, I have concluded that the preferable construction is Cityrose’s. It is preferable only to the extent that it is the least unsatisfactory of all the competing constructions.
Nevertheless, the Tribunal agreed with Mr Booth that the contract should be rectified.
The Tribunal also found that the conduct of Cityrose and the agents was misleading and deceptive within the meaning of the Fair Trading Act. However, no penalty was imposed on the agents because the responsibility for Mr Booth’s loss and damage rested solely with Cityrose. The Tribunal found that if the Contract could not be rectified, the contract should be varied by the excision of special condition 7 or alternatively an award of damages of $225,00 to compensate Mr Booth for loss and damage.
The appeal to the Supreme Court
Cityrose appealed on a number of grounds, but they can were directed to three parts of the Tribunal’s decision:
- that the contract of sale could be rectified;
- that Cityrose engaged in misleading and deceptive conduct and that Mr Booth suffered loss and damage as a consequence; and
- that no liability should be apportioned to the agents.
Mr Booth filed a notice of contention that the Tribunal ought to have found that Special Condition 7 was so uncertain as to be meaningless and that it should be severed from the contract of sale.
The Court first considered the question of whether the Tribunal erred in finding that Special Condition 7 required an additional amount of GST to be paid by Mr Booth. The Court referred to the “difficulties” with the condition outlined by Whelan J in the earlier appeal and rejected the “commercial” or “practical” approach of the Tribunal on the re-hearing, to the effect that the commercial objective of the special condition was to allocate the responsibility for GST liability. As noted by the Court (at ):
In my opinion, therefore, the commercial or ‘practical’ purpose identified by the Tribunal does not assist in giving meaning to the words in Special Condition 7. 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 person in question would be uncertain. 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.
The Court concluded that the special condition was meaningless and should be severed. In doing so, the Court concluded as follows (at -) (footnotes omitted):
In my 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.
I have reached the conclusion that Special Condition 7 is void for uncertainty. In so concluding, I have given careful attention to the principle that when faced with issues of uncertainty and incompleteness, the Court should strive to uphold the validity of bargains, and that the importance of upholding bargains is reinforced where the parties have, as here, acted on the agreement. The question is one of construction and the language used will be interpreted broadly and fairly, and not narrowly or pedantically. An agreement will be enforced if it is not utterly impossible to place a reasonable meaning on the language used and to discern the parties’ intention.
In this case, although the parties concluded a bargain for the sale of the property for a price, they did not conclude a bargain for the payment of GST. In my view, it is impossible to place a reasonable meaning on the language used in Special Condition 7 and to discern the parties’ intention with respect to the payment of GST.
The decision on severance meant that there was no need to address the appeal by Cityrose. Nevertheless, the Court found that the Tribunal erred in finding that the contract should be rectified. The reason for this view was that while the Tribunal was satisfied that both parties held the same intention in relation to the amount payable under the Contract at the time it was executed (ie, GST inclusive), the Tribunal erred by failing to consider the question of communication or disclosure of that common intention.
The Court found no error in the Tribunal’s reasoning that Cityrose engaged in misleading or deceptive conduct and that Mr Booth suffered loss and damage as a result, or the finding of the Tribunal that no liability should be apportioned to the agents.