Lloyd v Belconnen Lakeview Pty Ltd & Ors

[2022] HCATrans 62

[2022] HCATrans 062

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S189 of 2021

B e t w e n -

SUSAN MARGARET LLOYD

Applicant

and

BELCONNEN LAKEVIEW PTY LTD

First Respondent

JOHN KINLOCH HINDMARSH

Second Respondent

GERALD JOHN RYAN

Third Respondent

Application for special leave to appeal

KEANE J
STEWARD J
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA AND BY VIDEO CONNECTION

ON TUESDAY, 12 APRIL 2022, AT 10.30 AM

Copyright in the High Court of Australia

____________________

KEANE J:   In accordance with the Court’s protocol when sitting remotely, I will announce the appearances for the parties. 

MR M.J. DARKE, SC appears with MR I.C. COLQUHOUN and MR T.E O’BRIEN for the applicant.  (instructed by Corrs Chambers Westgarth)

MR I.M. JACKMAN, SC appears with MR A.J. McINERNEY, SC and MR J.K. KENNEDY for the first respondent.  (instructed by HWL Ebsworth Lawyers)

KEANE J:   There are submitting appearances for the second and third respondents.  Yes, Mr Darke.

MR DARKE:   Thank you, your Honours.  Your Honours, in our submission, this case gives rise to important questions as to the law concerning claims for money had and received upon a failure of consideration, particularly where the payment sought to be recovered is a component of the purchase price said to be referable to a transaction tax such as GST.  Those questions include the circumstances in which the obligations of the supplier in relation to the transaction tax should be characterised as a severable part of the consideration for which the purchase price was paid, and the circumstances in which a component of the purchase price should be regarded as apportionable to that severable consideration. 

GLEESON J:   Mr Darke, does the appellant accept that it must meet the distinct and severable test in Roxborough to succeed?

MR DARKE:   Not necessarily, your Honour.  If it were established, as we say it is, that there was a GST component of the purchase price, and that that amount is identifiable, then we would respectfully submit, even if there were no severable consideration the apportionability of that amount to the payment of GST on the transaction would be an appropriate and sufficient basis for the Court to make an award in my client’s favour on a “moneys had and received” basis.

That is consistent with what the High Court said in David Securities at page 383, which we have referred to in our written submissions.  That is in our summary of argument at paragraph 14, application book page 262, where the plurality said:

“where both parties have impliedly acknowledged that the consideration can be ‘broken up’ or apportioned … any rationale for adhering to the traditional rule requiring total failure of consideration disappears”.

But we do say there was in this case a severable consideration, but even if there was not, that would not be favourable to us and whether we are right about that or not of course is an important question for this Court to consider.  Your Honours will appreciate that ‑ ‑ ‑

STEWARD J: Mr Darke, can I ask you one question? Section 75‑5 of the GST Act refers to the vendor and the recipient of the supply agreeing in writing that the margin scheme is to apply. What sort of…..do you say that is? Is it a contractual one or something less than that, or what?

MR DARKE:   In this case, it was contractual, your Honour.  I will take your Honours to this very shortly – but in the contract for sale which appears – or the relevant aspects of which appear in the Full Court’s decision – it is recorded in the schedule that the buyer and seller agree to apply the margin scheme.  So, the agreement, in that respect, was contractual in this case, at least.

STEWARD J:   I am just looking at paragraph 46 of Justice Lee’s judgment and the boxes that are then – to use the American expression – “checked”.  Is the agreement no more than what is recorded there?

MR DARKE:   It is more than that because there are also the terms of clause 24, which appears in the reasons of the Full Court, application book 205.  If your Honours have that clause, your Honours will see clause 24.5, at the foot of the page.  Your Honours will see that in the circumstances that applied here – that is where there was an agreement - the margin scheme applies:

the Seller –

that is Belconnen:

warrants that it can use the margin scheme and promises that it will.

Then, in paragraph 53, your Honours will see that special condition 52 is set out.  If I can just draw your Honours’ attention to clause 52(b).  So, it is more than just the checking of the boxes, in answer to your Honour Justice Steward’s question.

KEANE J:   Mr Darke, you do not contend that your client has any entitlement under clause 24.6, at page 206 of the record?

MR DARKE:   No, we do not, your Honour, because that clause only applies where the contract does not say the margin scheme applies and in this case the contract did say the margin scheme applies.

KEANE J:   That being so, why does one not apply the usual rule of construction that there is an express provision that provides for your client to get what we will call a refund in certain events.  That event has not occurred.  Why is that not the end of it so far as the rights of the parties in relation to the one‑eleventh of the price of the GST is concerned? 

MR DARKE:   The Full Court dealt with that issue, your Honour, and found in our favour in respect to it at paragraphs 189 and 190 of their decision.  This is at application book pages 247 to 248.  In particular, if I could draw your Honour’s attention to paragraph 190, essentially what their Honours concluded was that clause 24.5:

did not specifically deal with a situation where the contract said that the sale was a taxable supply and the sale was not in fact a taxable supply. 

Your Honour will see that in the sentence beginning “However” about halfway down paragraph 190 on page 248.  Then in the final sentence of that paragraph their Honours continued:

It does not seem to be intended to deal with a situation where the contract said that the sale was a taxable supply and the sale was not a taxable supply.

So, for those reasons, their Honours concluded that clause 24.5 did not exclude Mrs Lloyd from bringing and succeeding upon a “moneys had and received” claim of the kind she brought.  Their Honours decided that claim against her on the sole basis that appears at the beginning of paragraph 169 on page 243 that, in their Honours’ view, there was:

a severable component of the purchase price –

referable to GST, I interpolate:

cannot be identified.  Accordingly, there was no total failure of a severable part of the consideration.

We say, with respect, that their Honours were wrong to reach that conclusion and that their Honours’ reasons for that conclusion were also wrong.  Effectively what their Honours did was to distinguish this Court’s decision in Roxborough on what we respectfully submit are unsound grounds.

STEWARD J:   Can I ask you about that, Mr Darke, if I may?

MR DARKE:   Yes, your Honour.

STEWARD J:   One possible problem you might have is that in Roxborough the tobacco licence fee was clearly passed on to the purchaser.  It was an addition to the wholesale price of the tobacco.  As best as I can tell – and you will correct me if I am wrong – we do not know to what extent the potential liability for GST, under the margin scheme, was added to the contract price here – in whole or in part.  Under the GST scheme, there is no obligation for the person making the taxable supply to have the consumer bear its economic costs.  It is just a question of negotiation, essentially.  Am I wrong about that – that we do not know to what extent the punitive GST liability affected price?

MR DARKE:   In my submission, your Honour is mistaken about that.  The matters that are relevant to that issue are really these.  First – as we have said in paragraph 24 of our summary of argument, at application book, 265 – a central feature of the GST legislation is that the economic burden of the tax is to be borne by consumers, such as Mrs Lloyd.  I accept entirely, of course, the legal liability falls on – or fell, in this case – on Belconnen, but the tax is ‑ ‑ ‑

STEWARD J:   But there is no legal obligation – or statutory obligation – to pass on the economic burden.  Some people – in order to be competitive – wholly consume the burden at the taxable supply level in order to have a cheaper price.  It is a matter for negotiation.

MR DARKE:   I accept, your Honour, that there is no legal obligation to pass it on, but nonetheless we are.  The starting point is that we are dealing here with a tax – the economic burden of which is expected to be passed on in that manner.  Secondly, the parties here contracted on the basis that GST was payable on the sale to Mrs Lloyd.  Their contract expressly addressed that matter and so provided.  They contracted on the basis that her purchase price was inclusive of GST.  The purchase price was described as being GST inclusive – that is set out in the Full Court’s reasons at paragraph 48.

They agreed upon the method by which GST was to be calculated – that is by Belconnen applying the margin scheme – your Honours have already seen the boxes checked and the other provisions of the contract that went to that.  They also agreed, your Honours, that, on completion, Belconnen was to provide Mrs Lloyd with a tax invoice separately identifying the GST payable on the sale to her.  That obligation was in clause 24.7 – which your Honours will find at application book page 206.

As to that obligation to provide a tax invoice, the primary judge construed it as requiring a tax invoice that complied with section 29-70 of the GST Act. Your Honours will find that at application book 33.

STEWARD J:   Can I ask you, Mr Darke, if the margin scheme – but for the margin scheme being agreed to have been applied – would Mrs Lloyd been entitled to a creditable acquisition for the acquisition of this property?

MR DARKE:   No, your Honour, she would not have been – I think is the answer to your Honour’s question.

STEWARD J:   So, does that mean she was giving nothing up by agreeing to have the margin scheme applied here – it made no difference to her?

MR DARKE:   It may be that it did not make a difference to her.  But whether she paid GST – whether GST on the supply was to be calculated on the ordinary basis of one‑tenth of value or on the margin scheme basis – in our respectful submission, makes no difference to the merit or otherwise of her “money had and received” claim.  Either way, given the nature and terms of the dealing between the parties – the terms of their contract which I am addressing your Honours on – they contracted on the basis that a component of the purchase price would be referable to GST and that in that way Mrs Lloyd would put Belconnen in funds to meet its expected GST liability on the sale to her. 

In those circumstances, GST not having been paid, she is entitled, we respectfully submit, to the refund of that component of the purchase price. Indeed, under the GST legislation, had the sale completed on the basis that it was a taxable supply, and had Belconnen then paid the GST component to the ATO, in order for Belconnen to obtain a refund of that GST component – in the event it was later appreciated that it was not a taxable supply – it would first – Belconnen would first have had to refund Mrs Lloyd the GST component of her purchase price. That appears from section 142‑10 of the GST Act – which we have extracted and appears at page 271 of the application book.

The point I wanted to make your Honours about clause 24.7 is that what it required was a tax – the provision of a tax invoice – meeting the requirements of section 29-70 of the GST Act and, thus, one that identified the amount of GST payable in relation to the sale of the unit to Mrs Lloyd. That is effectively what the primary judge held at paragraph 43(7) on page 33 of the application book. There is no challenge to that finding and it was not disturbed by the Full Court.

Now, in the events that had happened no such invoice was in fact provided to Mrs Lloyd because the sale to her was not in fact a taxable supply.  But had clause 24‑5 been duly performed, that is, had GST on the sale been calculated in accordance with the margin scheme, such an invoice would have been given and then…..GST payable on the sale as being $46,759.  That is the amount of GST that the parties agreed would have been payable on the sale to Mrs Lloyd applying a margin scheme if, in truth, the sale was a taxable supply and that is the amount that Mrs Lloyd sought to recover on her “moneys had and received” claim.

Your Honours, the Full Court’s reasons for rejecting Mrs Lloyd’s “moneys had and received” claim are really contained between paragraphs 169 to 175 of the judgment at page 243 of the application book.  I have already taken your Honours – or referred your Honours – to paragraph 169 where their Honours held that Mrs Lloyd’s claim should be rejected on the basis that:

a severable component of the purchase price –

referable to GST:

cannot be identified.  Accordingly there was no total failure of a severable part of the consideration –

for the sale to her.  That finding is repeated in similar terms at paragraph 175 on page 244.  In the findings ‑ ‑ ‑ 

KEANE J:   Mr Darke, what do you say about paragraph 173, where it is recorded that:

Mrs Lloyd acquired the unexpired term of the lease . . . and there was no evidence at trial that the unit was worth anything less than the amount she paid at the time of the purchase ‑ ‑ ‑

MR DARKE:   Your Honour, we say that the absence of such evidence is not a useful guide to whether the parties contracted on the basis that…..purchase price included a GST component reflecting Belconnen’s expected GST liability on the sale applying the licence scheme.  In that respect, in our submission, the absence of such evidence is simply not capable of displacing the terms on which the parties contracted.  What we say about the terms on which the parties contracted is that ‑ ‑ ‑ 

KEANE J:   So, is your case really – you are really putting a case on the basis of contract that you are contractually entitled – not that you are entitled under some extra contractual restitutionary arrangement, you are actually putting your case on the basis the contract entitles you to ‑ ‑ ‑

MR DARKE:   No, I am not putting my case on the basis that the contract entitles me to restitution.  What I am submitting is that it is apparent from the terms of the contract that the parties dealt with each other on the basis that the purchase price payable by Mrs Lloyd included a component referable to the GST that Belconnen expected to be liable to pay applying the margin scheme and which Belconnen would use to pay that liability.  That is the basis on which the parties contracted.  That basis having failed, we say Mrs Lloyd is entitled to a remedy in restitution.

I should just go back to one issue, given that I am quickly running out of time.  Your Honour Justice Steward asked me earlier about evidence that the purchase price included a component for GST.  I have referred your Honours already to the fact that the price was said to be GST‑inclusive and that the parties contracted on the basis that GST was payable on the sale, agreed the method by which GST was to be calculated and agreed that an invoice showing the GST payable would be provided on completion. 

But in addition to all of that, there is some evidence at the factual level as to the grossing up of the purchase price.  Your Honours will find that in the Full Court’s reasons at paragraph 34 on application book page 201.  Your Honours will see extracted there an email from Mr Ryan, who was an employee of the respondent, dated 23 January 2013.  If your Honours would pass down to the third paragraph your Honours will see that Mr Ryan wrote that:

By treating sales as input-taxed, Hindmarsh –

That was Belconnen’s parent:

would not have to remit GST on the sale prices received for the apartments, but would have to refund any GST input credits previously received . . . This would increase the Altitude profit by approximately $3m (GST on sales $13m less $10m in credits refunded)…

That paragraph indicates, we submit, that the sale prices were grossed up for GST and in the event that GST did not have to be paid, Belconnen

would retain the benefit…..by the need to repay input tax credits.  Your Honours, I see that my time has expired.

KEANE J:   Thanks, Mr Darke.  Yes, Mr Jackman.

MR JACKMAN:   May it please the Court.  Could I ask the Court to go to application book page 261 which is part of my learned friend’s special leave application and your Honours will see in paragraphs 9 and 10 a statement of the governing principles which we are in entire agreement with.  In paragraph 9 one has the general principle for a case for failure of consideration as to whether the payment was made on a:

“state of affairs contemplated as the basis or reason for the payment which has failed to materialise or, if it did exist, has failed to sustain itself” –

Paragraph 10 then deals with the situation where the question is directed to a severable part of a payment.  At about line 20 my learned friend correctly states the governing principle as being:

where a purpose for, or contemplated state of affairs or basis upon, which part of purchase price was paid has failed or disappeared -

Now, there is no controversy between us as a matter of legal principle.  We accept that they are the governing principles.  The difference between us is a factual one as to whether the Full Court in the circumstances of this case correctly applied the principles which are common ground.

Now, in the present case, the applicant, Mrs Lloyd, paid the full purchase price to acquire an interest in real property, being the unexpired portion of a long‑term lease over a residential unit.  The question which arose for the court was whether the court should attribute to her from the objective circumstances a distinct basis or reason for paying part of that sum in order to meet an anticipated tax liability on the part of the vendor.

It is a feature of the special leave application that the applicant’s argument takes each of the four grounds of distinction with the Roxborough reasoning individually and, in effect, contends for each of them that it individually would not necessarily have been a sufficient reason on its own for the court’s ultimate conclusion.  It is our submission that that technique of argument misfires because it does not direct attention to the real force of the Full Court’s reasoning that it was a number of features of the case in combination – that is the circumstances as a whole – which led to the ultimate conclusion.

So, for example, contrary to the special leave application, the Full Court did not say that it was a requirement for a “money had and received” case that the parties must have identified at the time of contract the precise amount of the allegedly severable component and, similarly, the Full Court did not say that it was necessarily fatal to the claim that the applicant herself had no legal liability to pay the GST.  These were factors of significance in throwing light on whether there was a separate basis on which the applicant paid a portion of the whole of the purchase price.

If I can then turn to the four grounds of distinction which are set out on application book pages 243 and 244.  The first of the grounds, in paragraph 170 of the Full Court’s reasoning, is that the amount of GST was not identified – the calculation was complex.  Indeed, it could not have been undertaken by the applicant at the time of contracting.  That is a clear point of distinction with Roxborough where, of course, there was separation itemisation – both in the invoices and in the price lists – identifying the amount of tax.

It must be a relevant factor to consider – in terms of the basis on which the applicant paid the purchase price – and, indeed, it does not seem to be contended otherwise.  It is merely put that this was not necessarily a self‑sufficient reason for the court’s conclusion.  That is an argument which is directed at a straw man because the court is including this as only one of the pertinent circumstances in the case.

The mere fact that the amount could be calculated by the time of the trial – and was, in fact, calculated at the trial – distracts from the true inquiry which should be directed to the reason, or basis, for the applicant paying the money in the first place.  It is relevant, in this regard, to have regard to what the Court recites at application book page 219.  At the top of 219 – where the Full Court quotes from the primary judge’s reasoning – and looking at the passages in bold at the top of 219, the primary judge was satisfied that:

Mrs Lloyd settled upon her intention to purchase her flat without any reference whatsoever to GST . . . it would have made any difference to her decision to exchange and then later settle and pay the Price for which she had bargained –

had she known the true position in relation to GST.  The Full Court elaborates on that at page 227, in paragraph 118.  If one goes, half a dozen lines from the end of paragraph 118, after referring to the primary judge being “affirmatively satisfied it would have made no difference”:

These findings are not challenged by Mrs Lloyd.  Moreover, these findings are logical and unsurprising in circumstances where Mrs Lloyd, as a private purchaser of a residential unit, could not claim an input tax credit for any GST payable on the supply.  Therefore, assuming whether or not the supply was subject to GST had no bearing on the Price, it made no financial difference to Mrs Lloyd whether or not the supply was subject to GST.

My learned friend then puts an argument that the parties had actually agreed on the method of calculating GST but, with respect, that overstates the position, given that in this context of land which is subdivided by a developer, the seller has a discretion as to the methodology and is entitled to use any fair and reasonable method of apportionment for that subdivided land so that there is not a self‑executing methodology which the parties had actually agreed upon simply by their agreement that the margin scheme would apply.

The second ground, which is in paragraph 171, in effect is that the contract contemplated that the taxable treatment of supply might change between exchange and completion, indicating that the basis for the applicant paying the purchase price was not referable to GST, but simply to obtain title to the unexpired portion of the lease and, in that connection, the court correctly dismissed the argument based on the invoice provision.  If your Honours go to paragraph 172, clause 24.7 which assumed some prominence in the oral argument of my learned friend today is dismissed by the court, quite correctly, as not being applicable because it refers to “any taxable supply” and as a matter of fact there was not a taxable supply. 

The third ground, at paragraph 173, which your Honour Justice Keane asked about, is the proposition that the applicant obtained exactly what she bargained for and, contrary to the written argument by my learned friend, the Full Court was not saying that loss is an ingredient in a restitutionary action, the court here is merely identifying the basis for the payment by Mrs Lloyd as having been the price that she had to pay in order to obtain the unexpired term of the lease and she did obtain the full benefit of what she paid for.

The final ground then, in paragraph 174, is the proposition that the liability for GST fell on the vendor not on the applicant and, again, it is not put forward as necessarily a self‑sufficient reason, but it is a strong indication of why the applicant would have been indifferent as to what amount, if any, was paid for GST by the vendor, because the applicant’s real interest was in paying no more than the market value of the property in order to acquire that property, and the point does provide a direct contrast with Roxborough where the retailers had to pay the amount of tax if the wholesaler failed to do so.

Then in paragraph 175, the conclusion is preceded by the words “In light of the above”, that is, it is a combination of all the circumstances of the case which produced the conclusion that there was not a severable component of the consideration.  In our respectful submission, that conclusion involves the application of well‑established and uncontroversial principles to what is perhaps an unusual set of factual circumstances, but that unusual set of circumstances is highly unlikely to arise again, because, if your Honours go back to application book page 200, in paragraph 31 the small window of opportunity which arose in the wake of Gloxinia, the Full Court’s decision given in May 2010, was very rapidly closed by the legislature in passing amending legislation which is referred to in paragraph 31, subject to transitional provisions.

Now, there was a window of a couple of years where those transitional provisions, in effect, left an opportunity open to proceed by way of binding tax rulings from the Commissioner, but that window has…..closed, and the set of circumstances that gave rise to this controversy does not have a realistic prospect of arising again.  For those reasons, in our respectful submission, special leave should be refused with costs.

KEANE J:   Thanks, Mr Jackman.  Mr Darke, anything in reply?

MR DARKE:   Yes, thank you, your Honour.  Just on that last point first, your Honours should appreciate that Mrs Lloyd is a representative applicant in a class action.  There are 300 or so group members with claims for moneys had and received, the same as her.  The contract in this case was the standard form contract for the ACT for the sale of land, the 2013 edition, so that any conclusions that the court drew about whether the GST component of the purchase price paid under that contract was apportionable, or whether the vendor’s obligations in relation to GST were severable consideration would be of significance to other parties in the future, we submit.

Transaction taxes, as your Honours know, are ubiquitous throughout the Australian economy and guidance from this Court as to how “moneys had and received” claims, in respect of such taxes, are to be determined would for that reason be of use and that too raises an issue of importance.  So the application is for those reasons, we say, an important one.

The reasons of the Full Court do not involve applying Roxborough.  What the Full Court has done in the only paragraphs where it addresses the basis for rejecting Mrs Lloyd’s claim is to distinguish Roxborough.  The Full Court has distinguished Roxborough on four reasons, each of which we say is flawed.  In those circumstances, in our respectful submission, the decision of the Full Court, if not reviewed and corrected by this Court, will be productive of uncertainty in this area of the law.

As to the first reason, the fact that there was no document identifying the amount of Mrs Lloyd’s purchase price record of GST, as I have said, your Honours, we say that is really a matter of no significance in circumstances where the parties had contracted on the basis that they did – that is that GST was payable, and that the purchase price included an amount for it – that they agreed on a method by which GST would be calculated and then, on completion, Belconnen was to provide Mrs Lloyd with a tax invoice identifying the GST component of the sale.  The fact that…..had not been determined at the time of contracting is really neither here nor there, but the Full Court made it its first reason for distinguishing Roxborough.

The second reason the Full Court gave for distinguishing Roxborough was that the taxable supply – was that, in this case, the fact that the sale was a taxable supply was merely the anticipated nature of the supply.  That is difficult to reconcile with the findings that the Full Court made at paragraph 385 of its readings, those findings being that Belconnen and Mrs Lloyd had contracted on the basis that the sale was a taxable supply for GST purposes and that Belconnen would use the margin scheme to calculate the amount of GST payable. 

But, in any event, there is no suggestion that Mrs Lloyd was informed at any time prior to completion or, indeed until well after it, that the sale to her was not in fact a taxable supply.  Accordingly, there is no reason to doubt that she paid the purchase price, including the GST component of it, on the basis, as the contract provided, the Belconnen sale to her was a taxable supply.

As to my friend’s submission that Mrs Lloyd settled on her intention to purchase without regard to GST, that is, with respect, not the relevant inquiry.  It does not matter whether Mrs Lloyd would have paid the same purchase price as she in fact did had she known that GST was not payment on the sale to her.  What matters is that she contracted on the basis that her price was inclusive of GST and on the basis that the supply to her was a taxable supply.  She gave evidence to that effect and it was accepted by the primary judge and, again, by the Full Court and your Honours will see that at paragraph 63, page 208 of the application book.

As to the Full Court’s treatment of clause 24.7 – which one sees in their reasons at paragraph 172, page 243 – we say that their Honours completely failed to appreciate, in dealing with that particular clause, what it indicated about the basis on which…..had transacted.  That clause demonstrates that the parties were contracted on the basis that the GST component of Mrs Lloyd’s purchase price could, and would be, separately identified.  That brings the case squarely into the territory of David Securities at page 383.  Your Honours, those are our submissions.  

KEANE J:   Thanks, Mr Darke.  The Court will adjourn to consider the course it will take in this matter. 

AT 11.10 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.14 AM:

KEANE J:   The Court considers that the decision of the Full Court is not attended with sufficient doubt to warrant the grant of special leave.  Accordingly, the application is dismissed with costs.

Adjourn the Court please.

AT 11.14 AM THE MATTER WAS CONCLUDED