Antonelli Investments Pty Ltd v Campbell
[2004] WADC 89
•14 MAY 2004
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: ANTONELLI INVESTMENTS PTY LTD -v- CAMPBELL & ANOR [2004] WADC 89
CORAM: MARTINO DCJ
HEARD: 16 APRIL 2004
DELIVERED : 14 MAY 2004
FILE NO/S: CIV 83 of 2002
BETWEEN: ANTONELLI INVESTMENTS PTY LTD
Appellant
AND
MALCOLM JOHN CAMPBELL
MARISA CAMPBELL
Respondents
Catchwords:
Contracts - Building engineering and related contracts - Whether a clause that enables builder to recover the direct financial effect of GST legislation is a rise and fall clause
Legislation:
Home Building Contracts Act 1991
Builders' Registration Act 1939
A New Tax System (Goods and Services) Act 1999
Result:
Leave to appeal granted
Appeal allowed
Representation:
Counsel:
Appellant: Mr S Owen-Conway QC & Ms C Kierath
Respondents : Mr R K O'Connor QC & Mr S Shaw
Solicitors:
Appellant: Godfrey Virtue & Co
Respondents : Dwyer Durack
Case(s) referred to in judgment(s):
Commodore Homes (WA) Pty Ltd v Standley [2001] WADC 89
Leary v Federal Commissioner of Taxation (1980) 80 ATC 4438
Luscombe v Prior [1999] WADC 7
Martin v Worthmore Homes Pty Ltd (2002) 28 SR (WA) 175
Telstra Corp Ltd v Treloar (2000) 102 FCR 595
Wing Luck Foods v Lay Choo Lim [1989] WAR 358
Worthmore Homes Pty Ltd v Martin [2002] WADC 237
Case(s) also cited:
Antaios Campania Naviera SA v Salen Rederierna AB [1985] AC 191
Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223
Avon Downs Pty Ltd v Commissioner of Taxation (Cth) (1949) 78 CLR 353
Commonwealth Aluminium Corporation Ltd v Federal Commissioner of Taxation (1977) 32 FLR 210
Commonwealth Freighters Pty Ltd & Boland v Sneddon (1959) 102 CLR 280
Federal Commissioner of Taxation v Woolcombers (WA) Pty Ltd (1993) 93 ATC 5170
Federation Insurance Ltd v Wasson (1987) 163 CLR 303
Lilly v Lindsay-Smith [2001] WASCA 168
Orr v Holmes (1948) 76 CLR 632
Tyler, Re; Ex parte Foley (1994) 121 ALR 153
MARTINO DCJ:
Introduction
On 28 January 2000 the appellant ("Antonelli Investments") and the respondents ("Mr and Mrs Campbell") entered into a contract for Antonelli Investments to build a house for Mr and Mrs Campbell. The construction of that house was completed after 30 June 2000. Antonelli Investments claimed the sum of $4,264.40 as a variation to the contract price as additional costs incurred as a result of its obligation to pay Goods and Services Tax on supplies made after 30 June 2000. Mr and Mrs Campbell paid the variation claimed.
By a complaint made to the Building and Disputes Tribunal ("the Tribunal") on 10 November 2000 Mr and Mrs Campbell claimed relief from payment of the sum of $4,264.40 paid by them. The Tribunal heard the complaint on 8 August 2001. Both Antonelli Investments and Mr and Mrs Campbell were represented by legal practitioners. On 24 July 2002 the Tribunal made the following orders:
"(1)That Antonelli Investments Pty Ltd pay to Malcolm Campbell and Marisa Campbell the sum of $5,575.30 on or before 31 July 2002, being a refund of the amount of GST invoiced by the builder and paid by the owners in circumstances where there was no contractual entitlement to charge GST, and interest thereon.
(2)The owners' application for costs is dismissed."
Antonelli Investments seeks leave to appeal against those orders and also seek leave to adduce further evidence. Mr and Mrs Campbell seek leave to appeal against the second order.
The Tribunal's reasons
The form of the contract was the Housing Industry Association Ltd Lump Sum Building Contract Form 16C. The contract included a clause added to the form in the following terms:
"SPECIAL CONDITIONS – ANTS TRANSITIONAL CLAUSES
This clause applies if any part of the Works are supplied after midnight 30 June 2000.
The Owner acknowledges that as at the date of this Contract the Builder is not able to accurately price the Works due to the unforeseeable effects of ANTS and that the Contract Price has no allowance for the effect of ANTS.
The Builder is only allowed to claim GST payable on the Building Works if the Builder determines a value of that part of the Works permanently incorporated or affixed on the Site as at the start of 1 July 2000 in accordance with the requirements in section 19 of the A New Tax System (Goods and Services Transition) Act, No. 57, 1999.
The direct financial effect of ANTS on the price of the Builder supplying, or in connection with the supply of, the Works is to be passed on to the Owner as a change to the Contract Price. The Builder may claim the change at any time.
The Builder, whenever claiming or allowing such a change to the Contract Price, must give the Owner written notice of:
(a)the change and how it has occurred (up or down); and
(b)a statement that the change is solely attributable to the direct effect of ANTS.
Where the Builder claims a change to the Contract Price, the Owner must pay any increase to the Contractor with the next progress payment and the Builder will allow any decrease in the next progress claim. The effect may be netted off in any progress claim where both an increase and an allowance is claimed
In these Special Conditions:
(a)"ANTS" means the legislation forming the tax reform package known as "A New Tax System" that includes the GST as part of it; and
(b)"GST" means the tax known as the Goods and Services Tax."
Antonelli Investments claimed the sum of $4,264.40 from Mr and Mrs Campbell pursuant to those clauses. Mr and Mrs Campbell claimed that the ANTS Transitional clauses were invalid by reason of s 13 of the Home Building Contracts Act 1991.
The Tribunal followed an earlier decision in the Tribunal in Martin v Worthmore Homes Pty Ltd (2002) 28 SR (WA) 175 and held that the ANTS Transitional clauses were rise and fall clauses within the meaning of s 13(3) of the Home Building Contracts Act 1991. It followed the decision of Yeats DCJ in Commodore Homes (WA) Pty Ltd v Standley [2001] WADC 89 that GST was not a further cost within the meaning of s 13(4) because GST was a known and anticipated cost even if its precise amount was unknown at the time that the contract was entered into. The Tribunal held the ANTS Transitional clauses were void by reason of s 13(2) of the Home Building Contracts Act 1991.
The Tribunal also held that even if the ANTS Transitional clauses were not void there was no evidence that Antonelli Investments had determined the value of that part of the Works permanently incorporated or affixed on the site at the start of 1 July 2000 as required by the third clause or that it had provided the written notice required by the fifth clause. It is on the final reason for the Tribunal's decision that Antonelli Investments seeks leave to adduce further evidence.
The decision in Worthmore Home Pty Ltd v Martin
After the Tribunal delivered its decision on Mr and Mrs Campbell's complaint French DCJ allowed an appeal against the Tribunal's decision in Martin v Worthmore Homes Pty Ltd. In Worthmore Homes Pty Ltd v Martin [2002] WADC 237 her Honour held that ANTS Transitional clauses in the same terms as the clauses under consideration in this application were not rise and fall clauses and so were not rendered void by s 13 of the Home Building Contracts Act 1991.
Her Honour's reasons were:
"20… The obligation to make [the GST payment] to the Commonwealth is the direct consequence of the GST Taxation Scheme or the ANTS Scheme. That is the only change to the contract price that can be passed on to the owners as a result of the ANTS clause. The clause does not enable the builder to claim any change in the contract price that reflects an increase in the price of labour or materials. The amount of GST that the builder is obliged to pay as the supplier of the taxable supply does not reflect an increase in the cost of labour or materials. The GST component that "increases" the cost of labour and materials is set-off as an input credit against the amount of GST that the builder is obliged to pay to the Commonwealth. The finding of the Building Disputes Committee that the amount of GST that the builder is obliged to pay somehow reflects a change or increase in the cost of labour and materials ignores the "value added" operation of the GST Taxation Scheme.
21The fact that the obligation to pay GST on the supply arises when the contract is entered into is implicit in the finding by the Building Disputes Committee and in the decision of Commodore Homes (WA) Pty Ltd v Standley (supra) that the GST payment cannot be "further costs" within the meaning in s 13(4) of the Home Building Contracts Act. This is consistent with a construction that the GST component does not and cannot reflect a change in costs in labour or materials. The value of the taxable supply is based on the original contract price less the value of supply made before midnight on 30 June 2000. The only variable in the amount of GST payable is the extent of supply or work performed as of that date. Apart from that aspect the amount of GST payable is determined by the provisions of the relevant GST legislation. It is not affected by any changes in the costs of labour or materials. To the extent that those costs have increased as a result of the GST component that is in practical terms deducted from the amount of GST payable by means of the input credit procedure."
Whether the ANTS Transitional clauses were a rise and fall clause
There is no appeal against a decision of this Court on appeal from the Tribunal: s 41(4) Builders' Registration Act 1939. It is obviously undesirable that there be inconsistent decisions of this Court on such appeals as it would then place the parties to disputes before the Tribunal in a position of uncertainty. For this reason I should follow each of the decisions of Yeats DCJ and of French DCJ unless I am satisfied that they are plainly wrong or have produced unintended or irrational consequences: Telstra Corp Ltd v Treloar (2000) 102 FCR 595 at 602‑603. Wickham J in Leary v Federal Commissioner of Taxation (1980) 80 ATC 4438 at 4015 used slightly different words however when read in context I do not consider that his Honour adopted a significantly different test to that expressed in Telstra Corporation Ltd v Treloar. In considering whether I should follow Worthmore Homes Pty Ltd v Martin I bear in mind that French DCJ did not have the benefit of argument on behalf of the owners.
The obligation to pay goods and services tax is contained in s 9.40 of A New Tax System (Goods and Services) Act 1999 which provides:
"You must pay the GST payable on any taxable supply that you make."
The effect of the ANTS Transitional clauses, if valid, is to permit the Builder to recover from the owner the direct financial effect of the new tax system "on the builder of the builder supplying, or in connection with the supply of, the Works". This is not necessarily the same amount as the amount of GST that the Builder must pay on the supply after 30 June 2000 because the builder must give credit for any reduction in the cost to the builder as a result of any removal of sales tax. The calculation of the direct financial effect on the builder must also take into account any GST credit the Builder receives for any goods and services tax paid on acquisitions.
Section 13(3) of the Home Building Contracts Act 1991 provides:
"(3)In this section "rise-and-fall clause" means, subject to subsection (4), a provision under which a price stipulated for the performance of home building work may change to reflect changes in the costs of labour (including related overhead expenses) or materials, or both, to be incurred by the builder."
Whether the ANTS Transitional clauses constitute rise and fall clauses within the meaning of s 13 of the Home Building Contracts Act 1991 turns on whether the clauses are "a provision under which a price stipulated for the performance of home building work may change to reflect changes in the costs of labour (including related overhead expenses) or materials, or both, to be incurred by the builder."
Section 9.75 of A New Tax System (Goods and Services) Act 1999 defines price to include the GST component of the price charged by the supplier. This reflects the ordinary use of the word price. However it is still necessary to determine whether an increase that the builder can make to the price payable by the owner pursuant to the ANTS Transitional clauses is an increase to reflect changes in the costs of labour (including related overhead expenses) or materials or both incurred by the builder. French DCJ has held that it does not.
The increased cost incurred by suppliers, including builders, under s 9.40 of A New Tax System (Goods and Services) Act 1999 is not an increase in the cost of labour or materials incurred by the supplier. It is an increased cost as a result of the obligation to pay the GST payable on any taxable supply.
The ANT Transitional clauses enables the builder to recover from the owner the direct financial effect of this obligation to pay GST.
It follows in my view that the clause is not a provision under which the price stipulated for the homebuilding work may change to reflect changes in the cost of labour (including related relevant expenses) or materials.
I conclude therefore that the ANTS Transitional clauses are not rise and fall clauses within s 13 of the Home Building Contracts Act 1991.
Antonelli Investments's application for leave to appeal
Leave to appeal should only be granted where the challenged decision is wrong or attended with sufficient doubt to justify an appeal and where a substantial injustice would be done by leaving the decision unreversed. Leave will be granted more readily if the practical effect of the order is to change substantive rights or finally determine the rights of the parties: Wing Luck Foods v Lay Choo Lim [1989] WAR 358 at 360.
I have concluded that the decision of the Tribunal was wrong. If it is not unreversed Antonelli Investments will suffer a substantial injustice because it will finally lose the capacity to recover any moneys to which it may be entitled under the ANTS Transitional clauses. I conclude therefore that I should grant Antonelli Investments leave to appeal.
Antonelli Investments' application for leave to adduce further evidence
Antonelli Investments seeks to adduce evidence to show that it has complied with the ANTS Transitional clauses. Order 8 Rule 30(1) of the District Court Rules provides:
"On appeal to the Court a party may, on special grounds only, apply to the Court for special leave to adduce further evidence on questions of fact either by oral examination or by affidavit and the Court has full discretionary power to grant such leave"
To obtain special leave to adduce further evidence an appellant must in general show a reasonable explanation for the non-production of the evidence at the hearing below and that had the evidence been available and adduced it would more likely than not have produced the opposite result. However when considering an appeal from a body which is to act informally and according to the substantial merits of the case it is necessary to bear in mind that fact and the procedure adopted in deciding whether or not to grant special leave: Luscombe v Prior [1999] WADC 7. The Tribunal is to act informally and according to the substantial merits of the case: s 36(1) Builders' Registration Act 1939.
At hearing before the Tribunal the following exchange occurred:
"Chairman:Thank you. Well, Mr Harrison [solicitor for Mr and Mrs Campbell], is there to be any evidence?
Harrison:No.
Chairman:No. It's just on the interpretation of the provisions of the contract and Section 13 of the Act."
There was no evidence at the hearing. The parties were given leave to file submission after the hearing. In his submissions Mr Harrison raised that Antonelli Investments had not given the notice required by the ANTS Transitional clauses and noted shortly after that submission:
"26. To the extent that [Antonelli Investments] claimed a change to the contract price it did so by describing such changes as variations (see documents supplied)."
In fact no documents were supplied. The documents referred to in par 26 of Mr Harrison's submission arguably do satisfy the ANTS Transitional clauses. There was clearly a misunderstanding as to the evidence before the Tribunal and in my view if the evidence had been before it the Tribunal it may well have concluded that the ANTS Transitional clauses had been complied with.
I would give special leave Antonelli Investments to adduce further evidence. Unfortunately even with that evidence available to me it is not possible for me to determine whether Antonelli Investments has complied with the ANT Transitional clauses and, if it has, the direct financial effect of the new tax system on Antonelli Investments. It is therefore necessary for me to remit the matter back to the Tribunal. Hopefully it will not be necessary for there to be a further hearing and the parties can agree on any amount to which Antonelli Investments may be been entitled under the ANTS Transitional clauses.
Mr and Mrs Campbell's application for leave to appeal
As Antonelli Investments has been successful in this appeal it is not appropriate to grant leave to Mr and Mrs Campbell to appeal against the failure to award costs to them. However I should say that there is a sound basis not to award costs in the Tribunal provided by s 38(4) of the Builders' Registration Act 1939. However it is desirable for the Tribunal to give brief reasons for any decision it makes on costs if reasons for its orders are requested. In this case no such reasons were included in the reasons it provided.
Conclusion
For these reasons I have decided that I should grant leave to Antonelli Investments to appeal, allow the appeal and remit Mr and Mrs Campbell's complaint back to the Tribunal to be dealt with in accordance with these reasons. As I have noted earlier hopefully a further hearing before the Tribunal will not be required.
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