Empire Securities Pty Ltd v Miocevich - [2004] WASC 118

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: EMPIRE SECURITIES PTY LTD -v- MIOCEVICH & ANOR [2004] WASC 118

CORAM: MASTER SANDERSON

HEARD: 20 MAY 2004

DELIVERED : 3 JUNE 2004

FILE NO/S: CIV 2278 of 2003

BETWEEN: EMPIRE SECURITIES PTY LTD (ACN 055 640 376)
Plaintiff
AND
LEONARD STEVEN JAMES MIOCEVICH
MARGARET DENE MIOCEVICH
Defendants

Catchwords:

Practice and procedure - Application for summary judgment by plaintiff and defendants - Turns on own facts

Legislation:

A New Tax System (Goods and Services Tax) Act 1999 (Cth)

Result:

Defendants' application successful in part

Category: B

Representation:

Counsel:

Plaintiff: Mr R K O'Connor QC
Defendants: Ms W F Buckley

Solicitors:

Plaintiff: Hotchkin Hanly
Defendants: Hager & Partners

Case(s) referred to in judgment(s):

Nil

Case(s) also cited:

ETO Pty Ltd v Edamenceo (No 123) Pty Ltd [2003] NSWSC 1096
Fineglow Pty Ltd v Anastasopoulos [2002] NSWSC 1181

MASTER SANDERSON: This is the defendants' application for summary judgment under O 16 in relation to the plaintiff's claim and summary judgment under O 14 on the defendants' counterclaim. The facts are not really in dispute and can be summarised quite simply.
By offer and acceptance dated 14 September 2002 the defendants agreed to sell and the plaintiff agreed to purchase part of Lot 1300 Chamberlain Street, Gosnells ("the land"). A copy of the Offer and Acceptance appears as annexure "IBM1" to the affidavit of Ian Bruce McKellar, sworn 16 April 2004. The first‑named defendant says in his affidavit that he and his wife, the second‑named defendant, had prior to the sale farmed passionfruit on a small part of the land for some years. The defendants had ceased operating any farming business before the end of June 2002. Because they were in the farming business the defendants were registered as goods and services tax (GST) payers from July 2000.
The contract for the sale of the land was subject to a number of conditions. First, it was express to be subject to finance. This clause was subsequently waived and can be put to one side. The contract was also subject to a number of other conditions which are found in annexure "A" to the Offer and Acceptance. Essentially these conditions deal with the need for the defendants to subdivide the property to allow the sale of part of the lot to proceed. Although the application for the subdivision took some time and meant that the parties were not ready to settle until June 2003, it is not relevant for present purposes. The Offer and Acceptance was expressed to include as part of the contractual arrangement the 2000 Joint Form of General Conditions for the Sale of Land (the "General Conditions"), save insofar as the General Conditions were varied by or inconsistent with the express terms with the Offer and Acceptance. There was also special cl 9 in the offer and acceptance, which was in the following terms: "the vendors to remove Colorbond shed from the property prior to settlement".
There is no dispute between the parties as to any of the matters that I have set out above.
The Offer and Acceptance and the General Conditions refer in a number of places to liability for GST. Under the section in the Offer and Acceptance headed "Purchase Price", there appears the following: "(unless otherwise agreed the Purchase Price includes any GST liability of the Vendor)". The purchase price in this case was said to be $667,000. Clause 24 of the General Conditions deals with GST. Clause 24.2 is headed "GST on Purchase Price". Subclause 1 of cl 24.2 is in the following terms:
"If the Vendor is liable to pay GST on the sale of the Property, the provisions of this Condition 24.2 will apply."
As at the date of sale of the property, the defendants were uncertain as to whether or not they would have to pay GST on the sale. They were registered for GST purposes and they had, for a period, used the property as a farming enterprise. It is not alleged that they made any representations to the plaintiff as to their liability to pay GST. The plaintiff, for its part, may have made some assumptions as to the defendants' liability for GST, but for the purposes of this action, such assumptions are irrelevant. The simple contractual position is that the purchase price was said to include any GST liability to the vendor and cl 24.2 would operate if, and only if, the vendor was liable to pay GST on the sale of the property.
Subsequent to the signing of the Offer and Acceptance, the defendants sought cancellation of their Australian Business Number. By letter dated 28 February 2003 the Australian Tax Office cancelled the Australian Business Number of the defendants, effective as of 1 July 2002. The effect of that cancellation was that the defendants were no longer registered as a GST payer. It is to be remembered that as at the date of signing of the Offer and Acceptance, the defendants were registered for GST. The registration was subsequently cancelled but was backdated to a date earlier than the signing of the Offer and Acceptance. This is a point of some significance, at least so far as the plaintiff's case is concerned.
Perhaps motivated by their uncertainty over whether or not they were liable for GST, the defendants sought a private ruling from the Australian Tax Office. A copy of their submission in relation to the private ruling appears as annexure "LSJM9" to the affidavit of the first‑named defendant. By letter dated 6 October 2003 the Australian Tax Office wrote to the defendants saying that the Commissioner had determined that the defendants were not liable to pay GST on the sale of the property. Doubtless the receipt of that advice was regarded as good news by the defendants. The plaintiffs were rather less sanguine.
Clearly the plaintiff anticipated that the defendants would be liable for GST on the sale. They therefore assumed that pursuant to the provisions of cl 24.2 of the General Conditions, as at settlement, the defendants would be required to provide to the plaintiff a tax invoice that in turn would allow the plaintiff to recover the tax paid, effectively reducing the purchase price paid by the plaintiff. The way in which this is expressed in the statement of claim is found in par 10. The plaintiff pleads the terms of the contract which I have set out above and then says, based upon those pleas, that:
"(a)the purchase price included GST;
(b)the price of the taxable supply by the Defendants was $606,363.63 ('the Price of the Supply');
(c)the portion of the Purchase Price comprising GST is $60,636.36 ('the GST Payable');
(d)the Defendants are liable to make attribution of the GST Payable, and are obliged to remit the sum of $60,636.36 to the Commissioner for Taxation; and
(e)the Defendants are obliged to provide a Tax Invoice to the Plaintiff at the Settlement that entitles the Plaintiff to an input tax credit in the amount of the GST Payable."
Even a cursory reading of that plea throws up the flaw in the plaintiff's argument. The simple fact is that the defendants are not liable to make attribution of any GST to the Commissioner of Taxation. The Commissioner has said as much. The purchase price mentioned in the Offer and Acceptance is said to be inclusive of GST. But there is no GST payable. So the purchase price is as stated in the Offer and Acceptance. That is the amount that must be tendered by the plaintiff at settlement. Clause 24.2 of the General Conditions is not relevant because no GST is payable. This cause of action, as set out in the statement of claim, must fail.
On behalf of the plaintiffs it was argued that the private tax ruling was not binding upon the Commissioner if it could be shown that the ruling was based upon misinformation or a lack of information provided by the defendants. In his outline of submissions, counsel for the plaintiff listed a number of areas where it was said there were material omissions from the submission made by the defendants to the Australian Taxation Office. In my view, any fair reading of the submission made to the tax authorities shows that there was full and complete disclosure. Furthermore, the facts set out in the ruling mirror precisely the circumstances of the purchase. I can see no basis upon which it could be said that the ruling was likely to be reversed, with the effect that the defendants, at some time in the future, would be liable to pay GST on the transaction.
During the course of his submissions, counsel for the plaintiff placed heavy emphasis on the fact that as at the date of the signing of the contract, the defendants were registered for GST purposes. But registration for GST purposes is only one aspect of liability for GST. The obligation to pay GST is imposed by the provisions of A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("the GST Act"). In particular, Pt 2.2 of subdiv 9‑A sets out what are "taxable supplies". Section 9.5 of the GST Act provides that there is a taxable supply if:
"(a)the supply is for consideration;
(b)the supply is made in the course or furtherance of an enterprise;
(c)the supply is connected with Australia; and
(d)the supplier is a registered payer or someone required to be registered."
In my view, it misstates the position to say that if a party is registered, that party is liable to pay GST on each and every transaction undertaken. If that proposition were correct, it would mean that if a party was not registered but engaged in a transaction which otherwise satisfied the requirements which rendered it liable for GST, no GST would be payable. Clearly that cannot be right. In my view, although it is relevant that the defendants were registered for GST purposes at the time this contract was entered into is not determinative of their liability to actually pay GST on the transaction.
By par 15 of the statement of claim the plaintiff puts its claim in the alternative. It is convenient if I quote the paragraph of the statement of claim:
"In the alternative to each of the matters pleaded in paragraph 10(c) and (d) above, if it is found, by virtue of the matters pleaded in paragraph 12 above, that the Defendants are not obliged to remit the sum of $60,636.36 to the Commissioner of Taxation and/or the Defendants are not obliged to provide a Tax Invoice to the Plaintiff that entitles the Plaintiff to an input tax credit in the sum of $60,636.36 at the Settlement, which is in no way admitted, the Plaintiff claims an adjustment to the Purchase Price such that the Purchase Price is the Price of the Supply."
It is not entirely clear just what cause of action is pleaded by that paragraph. On one reading it may be a plea of mutual mistake. On another, it may be a plea of misrepresentation. In my view, it matters not what cause of action is pleaded. The contractual position is simple and straightforward. The purchase price did not include any GST, the defendants are not liable to remit any amount to the Commissioner of Taxation and the plaintiff is not entitled to a tax invoice. That was the position as at the date the contract was signed, no matter what the plaintiff may have thought.
Based on the above, I am satisfied that the plaintiff's claim must fail. There should be judgment for the defendants under O 16. The question then is whether the defendants are entitled to judgment under O 14 on the counterclaim.
In their counterclaim the defendants seek three orders. First, they seek a declaration that the contract is of full force and effect. Second, they seek an order that the contract be specifically performed and thirdly, they seek an order that they are entitled to interest pursuant to the contract, based upon the plaintiff's failure to settle.
It is common ground between the parties that the date of settlement pursuant to the General Conditions was 17 June 2003. On 16 June 2003 the plaintiff's solicitors wrote to the defendants' solicitors advising that they were ready, willing and able to effect settlement. It was subsequent to this date that the dispute over GST arose. However, there can be no doubt that leaving the GST dispute to one side, the plaintiff was in a position to settle. Given the conclusion I have reached in relation to the plaintiff's claim, it is clear that the defendants are entitled to the first and the second of the orders that they seek.
That leaves the question of whether the defendants are entitled to interest for late settlement, based upon cl 5 of the General Conditions. It is common ground that a default notice has been issued, although there may be some dispute as to the effectiveness of that notice. Anyway, the defendants say that they were ready, willing and able to settle, the plaintiff declined to settle, an appropriate default notice was issued and served and the plaintiff is now liable to the defendants for what is described in the general conditions as "penalty interest".
As I have indicated above, it was a condition of the contract that a Colorbond shed on the property be removed prior to settlement. There is no doubt that the above‑ground portion of the shed was removed prior to settlement. But the concrete pad on which the shed stood was not removed. In my view, it is arguable - and I put it no higher than that - that the defendants had not complied with the conditions of the contract when they purported to issue the default notice. On that basis there may be some doubt as to the defendants' entitlement to interest. I am satisfied that this is an issue which must be tried.
For these reasons I am prepared to order that there should be judgment for the defendants on the counterclaim for the order sought in par 1 and 2 of their prayer for relief. I will hear the parties as to the precise form of orders and as to costs.