A and a Property Developers Pty Ltd v MCCA Asset Management Ltd
[2016] VSC 653
•2 November 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S CI 2016 03577
In the matter of an Application pursuant to s 49 of the Property Law Act1958
| A & A PROPERTY DEVELOPERS PTY LTD (ABN 153 624 910) | Plaintiff |
| v | |
| MCCA ASSET MANAGEMENT LTD (ABN 18 113 728 706) and SANDHURST TRUSTEES LIMITED (ABN 16004 030 737) | Defendants |
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JUDGE: | Ginnane J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 26 September 2016 |
DATE OF JUDGMENT: | 2 November 2016 |
CASE MAY BE CITED AS: | A & A Property Developers Pty Ltd v MCCA Asset Management Ltd |
MEDIUM NEUTRAL CITATION: | [2016] VSC 653 |
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VENDOR AND PURCHASER – Contract for sale of land – Interpretation of contract -Whether GST to be added to stated purchase price – Contract required insertion of words ‘plus GST’ for purchaser to be liable to pay GST – Letters ‘GST’ inserted - Purchase price did not include GST – Property Law Act 1958 s 49 (1)
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr W Gillies | Ferraro & Co Pty Ltd |
| For the Defendants | Mr M Rivette | Blaak & Associates |
HIS HONOUR:
The plaintiff (‘A & A Property Developers’[1]) seeks the interpretation of a contract of sale of land at 42 Grant Crescent, Ringwood, under which it was vendor and the first defendant (‘MCCA’), the initial purchaser. The second defendant (‘Sandhurst Trustees’) is the nominee purchaser. The contract price was stated to be $2,900,000, with a deposit of $290,000.
[1]The plaintiff was misdescribed in the originating motion and an order was made amending its name.
The application is made under s 49(1) of the Property Law Act 1958.
The plaintiff sought a declaration that the total price payable by the purchaser under the contract of sale was ‘plus GST’, that is $3,190,000 and not ‘inclusive of GST’, being $2,900,000.
Putting the issue raised by the plaintiff another way: do the terms of the contract require that the amount of GST should be added to the contract price payable by the purchaser?
There was no evidence before the Court that established whether GST would be payable on the sale of the land.
The contract provisions
The particulars of sale contained in the contract stated:
Payment (general condition 11) Price $ 2,900,000 Deposit $ 290,000 10% by (of which $5K has been paid) Balance $ 2,610,000 payable at settlement GST (general condition 13) The price includes GST (if any) unless the words ‘plus GST’ appear in this box GST If this sale is a sale of land on which a ‘farming business’ is carried on which the parties consider meets requirements of section 38-480 of the GST Act or of a ‘going concern’ then add the words ‘farming business’ or ‘going concern’ in this box If the margin scheme will be used to calculate GST then add the words ‘margin scheme’ in this box
Clause 13 of the General Conditions of the contract states in relevant parts:
13. GST
13.1The purchaser does not have to pay the vendor any GST payable by the vendor in respect of a taxable supply made under this contract in addition to the price unless the particulars of sale specify that the price is ‘plus GST’. However the purchaser must pay to the vendor any GST payable by the vendor.
(a)solely as a result of any action taken or intended to be taken by the purchaser after the day of sale, including a change of use; or
(b)if the particulars of sale specify that the supply made under this contract is of land on which a ‘farming business’ is carried on and the supply (or a part of it) does not satisfy the requirements of Section 38-480 of the GST Act; or
(c)if the Particulars of Sale specify that the supply made under this Contract is of a going concern and the supply (or a part of it) does not satisfy the requirements of Section 38-325 of the GST Act.
13.2The purchaser must pay to the vendor any GST payable by the vendor in respect of a taxable supply made under this contract in addition to the price if the particulars of sale specify the price is plus GST.
13.3If the purchaser is liable to pay GST, the purchaser is not required to make payment until provided with a tax invoice, unless the margin scheme applies.
13.4…
13.5If the particulars of sale specify that the supply made under this contract is a ‘going concern’
(a)the parties agree that this contract is for the supply of a going concern; and
(b)the purchaser warrants that the purchaser is, or prior to settlement, will be, registered for GST; and
(c)the vendor warrants that the vendor will carry on the going concern until the date of supply.
13.6If the particulars of sale specify that the supply made under this contract is a ‘margin scheme supply’, the parties agree that the margin scheme applies to this contract.
13.7This general condition will not merge on either settlement or registration.
13.8In this general condition
(a)GST Act means a New Tax System (Goods and Services) Tax Act 1999 Commonwealth; and
(b)GST includes penalties and interest.
The facts
On 3 August 2016, Ms C Toll, the conveyancer for the purchaser, prepared a transfer of the land that stated the consideration as $2,900,000 and arranged for the nominated purchaser, Sandhurst Trustees Limited, to execute it.
On 10 August 2016, the solicitors for the vendor emailed Ms Toll stating:
Our client is preparing a tax invoice to be handed over at settlement for the above named sale. Could you kindly provide us with the full name, address and any ABN/ACN number of the entity purchasing the above property.
Ms Toll appears to have taken this email to be advice that GST was to be added to the purchase price.
On the same day, acting on the advice given by the vendor’s solicitors, Ms Toll replaced the front page of the transfer with a page that showed the consideration as $3,190,000, that included GST, and posted it to the vendor’s legal practitioners without any instructions from her client. The next day she spoke with the purchaser’s representative, Shiraz Ali Patel, who informed her that no GST was payable in addition to the purchase price. She immediately emailed the vendor’s practitioners to notify them of her client’s instructions, in the following terms:
We are instructed that our client’s purchase is an existing dwelling and the question of GST was never raised and we also note that the particulars of sale [do] not include the words ‘PLUS GST’.
Accordingly our client has not budgeted for GST and in addition proposes to later develop the property and sell on the margin scheme.
On 12 August 2016, the vendor’s lawyer wrote to Ms Toll and Mr A Wardlaw, the purchaser’s lawyer, stating that, although it was asserted that the property was GST free, the property was not residential premises as defined in s 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 as the premises on the land were not fit for habitation. They stated that as the vendor was charged the full rate of GST when it purchased the property, the ‘margin scheme’[2] could not be used. They contended that as the relevant box included the letters ‘GST’, a prospective purchaser would have concluded that GST applied to the sale.
[2]Being a reference to s75-5(3) of the A New Tax System (Goods and Services Tax) Act 1999 which defines when a supply is ineligible for the margin scheme.
On 15 August 2016, the purchaser’s solicitor replied to the letter of 12 August 2016 disputing that GST should be added to the purchase price and stating that at no time was the purchaser informed that the purchase price was ‘exclusive of GST’. The letter referred to various rights of action that the purchaser might have against the vendor. On 29 August 2016, the purchaser’s solicitor replied to the letter of 15 August 2016 and took issue with its contents.
Affidavit evidence
Mr A Pararajasingham, who is a director of the plaintiff, made an affidavit exhibiting relevant correspondence. He also described the condition of the premises on the property as ‘uninhabitable’. He stated that they could not be put back into a state of repair in which they could be tenanted without expending a large sum of money. He said that they were always intended to be redeveloped. He contended that, as the property was not residential premises, the purchase price ‘must include GST’. He stated that the ‘margin scheme’ was not relevant as the plaintiff had been charged the full rate of GST when the property was originally purchased.
The plaintiff also relied on an affidavit of its solicitor, who has considerable experience in conveyancing matters, in which he described the existence of the Australian Business Register, from which it can be determined whether an entity has GST registration. A search of the Register would have revealed that the plaintiff had been so registered since October 2011.
In addition to the previously mentioned affidavit of Ms Toll, the defendants relied on affidavits of Mr S Patel a director of a company, which acts for the first defendant as development manager and of Mr M Najjar, the General Manager of the MCCA. Mr Najjar stated that MCCA’s feasibility study for the acquisition of the property did not ‘show’ GST as part of the acquisition costs. He stated that, on 15 June 2016, he signed the contract on behalf of MCCA and he initialled page 3 of the contract, which listed the total price payable at settlement as $2,610,000. A 10 per cent deposit had already been paid. He then stated:
In the GST particulars the words ‘plus GST’ did not appear in the box provided, so my understanding was that no additional GST was payable. The selling agent Peter Bozinovski and Shiraz, were present at the time of signing. No mention of ‘GST’ being payable was made by the Plaintiff’s agent and there was no mention of GST at all.
Mr Patel’s affidavits dealt with pre–contractual and pre-settlement discussions, but I have not found those discussions of assistance in deciding this matter. He also disputed that the premises on the property were uninhabitable.
Submissions
A & A Property Developers objected to some of Mr Patel’s evidence of the negotiations between the parties.
It contended that the dwelling on the property was uninhabitable and therefore, that the sale attracted GST under A New Tax System (Goods and Services Tax) Act 1999. The contract was to be interpreted commercially and the presence of the letters ‘GST’ in the box, that formed part of the particulars of sale, indicated that the purchase price was ‘plus GST’. By the insertion of the letters ‘GST’ into the box, the contract meant that the contract price was ‘plus GST’. The meaning of the contract was clear. The words ‘plus GST’ had to be given some meaning and could not be ignored.
The plaintiff submitted that if the contract was ambiguous, then surrounding circumstances supported its argument as to its construction. Those circumstances were: that GST had already been paid when the property was previously purchased, that the box for GST in the particulars of sale had the letters ‘GST’ written in it, that the vendor’s registration for GST was public knowledge, that no query about GST was raised until after an adjustment statement was sent out and that the transaction was one that commonly ‘calls into account GST’.[3]
[3]The plaintiff referred to authorities, including Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 352, Gilberto v Kenny (1983) 48 ALR 620, 623 and McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, 589.
The defendants submitted that the Court did not have jurisdiction to make the declaration sought by the plaintiff because it had no jurisdiction to determine a revenue matter under the A New Tax System (Goods and Services Tax) Act 1999 and had no ability to bind the Commissioner of Taxation as to whether GST was payable on the transaction. As indicated during argument, I do not accept that proposition, because the Court is interpreting the contract and not making a revenue decision.
The defendants submitted that the language of clause 13.1 and 13.2 in the Particulars of Sale was clear. It meant that, even if is GST was payable on the sale, the purchaser was not required to pay it unless the Particulars of Sale specified the price was ‘plus GST’. The purchase price could only be increased by the addition of GST, if the mechanism provided for in clauses 13.1 and 13.2 was adopted.
As an alternative, if the Court were to find an ambiguity, the surrounding circumstances at the time that the contract was signed did not establish that the parties intended that the purchaser would pay GST on the purchase price.
Reference was made to the decision of John Dixon J in Duoedge Pty Ltd v Leong.[4] The contract in that case contained similar terms to clause 13.1 in this case. However, it appears that in that case, the particulars of sale stated the sale price as ‘$916, 000 GST inclusive’. The words ‘plus GST’ were not included in the relevant box on the contract. The box contained a handwritten strike though its centre. His Honour stated:
The plain meaning of this contract is that the GST risk lay with the vendor. That this was the contractual intention appears from at least two places. It is clear from the particulars of sale that the agreed contract price was GST inclusive, although adding those words after the price is not the correct way to complete the standard form of contract. The absence of the words ‘plus GST’ in a box confirms the handwritten addition of the words ‘GST inclusive’. The parties have expressed the intention that the purchaser had no obligation to make a further payment in respect of any GST assessment that might later follow. In other words, the parties plainly intended that the risk that GST might need to be remitted to the Tax Office lay with the vendor. If the transaction did not involve a taxable supply, that risk was abated to the benefit of the vendor, who retains the full price that it contracted to receive for the property. Objectively assessed, this was what the terms relating to GST show to be the intention of the contracting parties. This construction is neither uncertain, nor ambiguous. To reverse the allocation of that risk to the purchaser, the words ‘plus GST’ are added to the box.
General condition 13 deals at length with the mechanics of the allocation of risk that the transaction might involve a taxable supply creating an obligation to pay GST. There is nothing in general condition 13 that is inconsistent with the presumed intention that is identifiable from the completion of the particulars of sale, which I have described. Where the price includes GST, the purchaser pays the price and no more and if the transaction involves a taxable supply, the vendor must remit the GST to the Tax Office. Where the price is plus GST, the purchaser must, when provided with a tax invoice, pay an additional amount of GST.[5]
[4][2013] VSC 36.
[5]Ibid [23]–[24].
Analysis
I accept the defendants’ construction of the relevant provisions of the contract. A court should not add words into a written instrument unless it is clear that words have been omitted and what those omitted words were.[6] Here the presence of the letters ‘GST’ is capable of a number of interpretations. One is that proposed by the plaintiff. Another, is that some thought was given as to who should be liable to pay any GST that was payable, but a decision was not reached. A third interpretation is that the letters ‘GST’ were inserted erroneously and were intended to be deleted, but that the deletion was overlooked.
[6]See Homburg Houtimport BV v The Agrosin Private Ltd [2004] 1 AC 715, 741 (Lord Bingham).
The plain meaning of the contract is that the obligation to pay the GST lay with the vendor. To repeat the clear words of General Condition 13.1:
The purchaser does not have to pay the vendor any GST payable by the vendor in respect of a taxable supply made under this contract in addition to the price unless the particulars of sale specify that the price is ‘plus GST’.
The reasoning in Duoedge Pty Ltd v Leong[7], contained in the passage previously quoted, is applicable even though the details of the particulars of sale in the two contracts differ.
[7][2013] VSC 36
The contract of sale appears to have been, in part, in the form of contract published by the Law Institute of Victoria and the Real Estate Institute of Victoria Ltd. The general conditions are in the form contained in the Estate Agents (Contracts) Regulations 2008. The contract provides a mechanism to oblige the purchaser to pay the vendor GST on the purchase price, but it was not used in this instance.
In construing a contract, the court can correct obvious errors in the contract’s language and grammar. Such correction is usually limited to obvious mistakes in the expression of the contract, including spelling and grammar, mistakes in names, omissions or obvious words or the obvious use of the wrong word. The intention of the parties is to be determined objectively from the contract in admissible intrinsic evidence. In Fitzgerald v Masters[8] Dixon CJ and Fullagar J stated:
Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency.[9]
[8](1956) 95 CLR 420.
[9](1956) 95 CLR 420, 426-7 and see generally SA Christensen and WD Duncan, The Construction and Performance of Commercial Contracts (The Federation Press 2014) 52–55.
I do not consider that this case attracts the principle discussed in Fitzgerald v Masters.[10] There is no absurd result or inconsistency in the construction of the contract that I have adopted.
[10]Ibid.
The plaintiff did not seek an order for rectification of the contract and, in any event, the evidence suggests that the parties did not have a common intention about the their agreement concerning the liability to pay GST.
A further rule of construction is that when a clause in a contract contains a blank space, which was intended to be filled in, that part of the contract will usually be held void for uncertainty, unless the parties’ unexpressed intention can be discerned from the context and background or one party was authorised to fill in the blanks’.[11] In some cases, a blank in a document may be dealt with simply by ignoring it, and reading the contract as if it was not there.[12]
[11]See Sir Kim Lewison & David Hughes, The Interpretation of Contracts in Australia (Law Book Company 2012) pages 389–392.
[12]Spectra Pty Ltd v Pindari [1974] 2NSWLR 617, 620-1.
I do not consider that this case falls within those principles.
In my opinion, the contract provided a clear mechanism for the parties to give effect to an agreement that the purchaser must pay GST on the purchase price, but it was not employed in this instance. The inclusion of the letters ‘GST’ in the box did not shift the burden of the payment of GST to the purchaser.
The words of commercial contracts are to be interpreted in accordance with their commercial purpose. While words should ordinarily be given some role to play in the operation of the contract, sometimes words are included or are left in the contract in error.
There was no ambiguity in this contract justifying reference to surrounding circumstances.
Conclusion
Accordingly, I accept the defendants’ submissions as to the interpretation of the contract. The purchaser was not liable to pay GST in addition to the purchase price of $2,900,000.
The disputed additional sum was paid into a trust account to await the outcome of this proceeding. I will hear the parties about the appropriate form of orders.
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