Appellant v First Respondent

Supreme Court of Victoria|2008-11-21|Before: WHELAN J

ADMINISTRATIVE LAW - Appeal from the Victorian Civil and Administrative Tribunal - Dispute concerning GST clause in contract for sale of land - VCAT orders inconsistent with each other - Appeal allowed, matter remitted.

1 On 20 May 2006 Noel Booth executed a contract pursuant to which he purchased a property in Sorrento, Victoria from Cityrose Trading Pty Ltd ("Cityrose"). The contract specified in the particulars of sale a purchase price of $2,250,000. The contract had a special condition (condition 7) which dealt with goods and services tax. Shortly prior to settlement the vendor advised that goods and services tax was payable and that under special condition 7 the purchaser was liable to pay to the vendor, in addition to the purchase price provided for in the particulars of sale, the amount of GST that was payable. Mr Booth objected but paid under protest. He then took proceedings in the Victorian Civil and Administrative Tribunal ("VCAT") against Cityrose, and against Cityrose's selling agent, Kay & Burton Pty Ltd ("Kay & Burton"). The matter was heard in October and November 2007 and orders were made and reasons delivered on 17 March 2008.

2 Each of Kay & Burton and Cityrose have appealed to this Court under s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) ("the VCAT Act"). Appeals under s 148 of the VCAT Act are confined to questions of law.

3 The published decision of VCAT records the following orders and declarations:

"The Tribunal:

1 Declares that the contract price was inclusive of GST.

The First Respondent is to pay the Applicant the sum of $189,900.00 being 80% of the claim plus interest of $35,676.30 totalling $225,576.30.
The Second Respondent is to pay the Applicant the sum of $47,475.00 being 20% of the claim plus interest of $8,919.07 totalling $56,394.07.

4 Total amount payable by the Respondents to the Applicant is $281,970.37 payable within 45 days of this date.

Liberty to the parties to apply in relation to the question of costs."

4 Seen in isolation, order 1 might be a declaration as to the proper construction of the contract. Before VCAT, Kay & Burton submitted that on a proper construction of the contract Mr Booth was not liable to pay any amount in excess of $2,250,000 and that the $2,250,000 price was GST inclusive. A consideration of the reasons reveals that the declaration was not made on the basis that that submission was accepted. There are indications in the reasons that VCAT considered that this was perhaps the preferable construction of the contract, but the declaration was based upon a finding of an entitlement to rectification without any decision having been made as to construction of the unrectified contract.

5 Orders 2 and 3 could only have been made on the basis that Cityrose and Kay & Burton, or one of them, had engaged in misleading and deceptive conduct in contravention of the Fair Trading Act 1999 (Vic). It is clear from the reasons that this was the basis for those orders.

6 The notice of appeal filed on behalf of Cityrose sets out 36 grounds. With the possible exception of five of them (1, 2, 4, 6 and 32), they are all of the kind which involves an assessment of the evidence and the findings made. Grounds of this nature raise the issue dealt with by Phillips JA in S v Crimes Compensation Tribunal[1] as to whether they do raise an issue of law.

7 The grounds in the Kay & Burton notice of appeal are of a different character. Fourteen grounds are set out. With the exception of three grounds (10, 13, and 14), they all assert in different ways that VCAT failed to appreciate that having declared the contract price to be inclusive of GST, Kay & Burton could not be liable to Mr Booth for misleading him, nor could Kay & Burton be liable for contribution. This is because if the purchase price is GST inclusive Mr Booth has not been misled by anyone.

8 The tribunal has fallen into the legal error identified by Kay & Burton. Order 1 is inconsistent with orders 2 and 3. If the contract price is GST inclusive, either on a proper construction of the contract or as a consequence of rectification, Mr Booth cannot have been misled. If Mr Booth was misled and suffered damage as a result, his loss could only be referrable to his contractual liability to pay the GST amount and order 1 declares that he has no such liability.

9 At the outset of the hearing I raised this issue with counsel for Mr Booth who frankly conceded that an error had been made. His position was that whilst orders 2 and 3 would have to be set aside, order 1 could be upheld.

10 There is in my view a further related error of law which is revealed by the reasons. The tribunal made comments on the construction of the contract at a number of points ([15], [53], [55], [87], [93]-[94], [105], [148], [152]). The tribunal never determined the legal effect of the written contract which the parties executed. At some points there are observations that suggest the tribunal might have concluded that as a matter of construction the special condition did not impose liability in relation to the GST amount on Mr Booth ([15], [148], [152]), but in other places the tribunal characterises the relevant provision as unclear ([53], [55], [87]). The tribunal determined to rectify the contract because it "might be interpreted as requiring a purchaser to pay GST" ([94]), and so as to "obviate any doubt" as to construction ([105]).

11 In making its decision in this way, without analysing the terms and legal effect of the written contract and using rectification as a means of addressing a lack of clarity in the relevant provision, the tribunal fell into legal error. Rectification is a remedy which is based upon the prevention of unconscionable conduct and which may arise where a written contract fails to accurately record the parties' intentions because of a common mistake, or in some circumstances, a unilateral mistake. The issues raised by a rectification claim cannot be addressed, it seems to me, unless the meaning and effect of the written contract are determined first.

12 As there have been errors of law, the most obvious course is to remit the matter for a re-hearing. Given that this is an appeal in the nature of judicial review,[2] the only other courses potentially open are the following :

(1) If, on examination of the reasons, I conclude that the legal errors I have identified have no significance, then I could uphold the orders (or one or some of them) notwithstanding the errors made.[3]

(2) If appropriate, I could do what VCAT failed to do, namely make a decision as to the construction of the written contract of sale.[4] That is a question of law. Order 1 might be upheld if it reflects the outcome of that decision.

(3) If the facts are largely undisputed or clearly found on a proper basis, in an appropriate case I could proceed to determine the matter applying correct legal principles.[5]

13 What I cannot do is to review the material bearing on disputed factual issues myself and then substitute a new decision. As Cavanough J observed in XYZ v State Trustees Limited & Anor:[6]

"Generally speaking, it would not be appropriate to substitute a new decision for VCAT's decision unless it were the only decision open to VCAT as a matter of law. That is not this case. The material that was before VCAT was certainly not all one way. Parliament has reposed in VCAT, not this Court, the responsibility for assessing the relevant material and for making the correct or preferable decision on the facts and the merits."

14 The errors here do have significance. The orders are fundamentally inconsistent with each other. The facts here are not undisputed and there are diverse outcomes which are open depending upon the findings on the disputed issues of fact. It does seem to me that I should consider the construction arguments put on the appeal, because if I considered that I was able to decide that as a matter of construction order 1 was correct, then I could uphold that order.

15 Special condition 7 of the written contract between Mr Booth and Cityrose dated 20 May 2006 provides that expressions used in the special condition which are defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("the GST Act") have the same meaning as given to them in the GST Act. The special provision then provides as follows:

"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."

16 There is no issue between the parties that, in the circumstances here, there was a taxable supply and Cityrose was liable for GST.

17 On behalf of Kay & Burton it was submitted that clause 7.2 did not impose on Mr Booth a liability to pay to the vendor the amount of GST for which the vendor was liable, in addition to the $2,250,000 price, because properly construed all clause 7.2 did was to alert the purchaser to the fact that the purchase price of $2,250,000 contained within it the vendor's GST liability. The submission in this respect was founded upon the proposition that under the GST Act the "value", upon which the GST is calculated, is of the price, so that the price is always GST inclusive. Kay & Burton's submissions referred to the familiar practice in the marketplace of GST inclusive prices and suggested payment of the price ($2,250,000) was itself satisfaction of any liability under special condition 7.

18 Before me counsel for Mr Booth also submitted that special condition 7 did not impose an additional liability referrable to GST on the purchaser. It was submitted that the clause did not cover a taxable supply by the vendor to the purchaser but rather covered a taxable supply that might occur under the contract in relation to rates, charges, body corporate fees, and like obligations. It was said the clause is for "the benefit" of both the purchaser and vendor. It was also submitted that the GST amount claimed is itself part of the $2,250,000 price, and that an interpretation of the clause which means an amount is payable in addition to that price leads to an absurdity because the consideration payable would then have to be increased or "grossed up" by that GST amount.

19 Clause 7.2 is not an easy provision to understand. It begins by providing that the consideration payable for any taxable supply "represents" the value.

20 Both "consideration" and "value" are expressions used in the GST Act. Under s 9-15 of the GST Act, "consideration" includes any payment in connection with a supply, or in response to or for the inducement of a supply. Under s 9-70, the amount of GST on a taxable supply is 10 per cent of the "value" of the taxable supply, and under s 9-75 "value" is "Price x ", where "price" is the amount of the "consideration".

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 of 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.[7]

25 In its detailed written outline of argument filed before the appeal hearing, Cityrose addressed the construction issue by asserting that Mr Booth had accepted before VCAT that special condition 7 imposed upon Mr Booth a liability additional to the $2,250,000 purchase price. Before me counsel for Mr Booth disputed the assertion that Mr Booth had not put the effect of special condition 7 in issue before VCAT. Cityrose could not, and did not, contend that the issue of construction had not been raised at all in the VCAT proceeding because Kay & Burton had contended there, just as it did before me, that special condition 7 properly construed imposed no liability on Mr Booth which was additional to payment of the $2,250,000 purchase price.

26 Cityrose did address the construction issue in the appeal hearing and in the course of the hearing it filed a brief written submission on the issue. It did so whilst continuing to maintain that Mr Booth had not put the matter in issue at VCAT.

27 On the appeal Cityrose's submission on the construction of special condition 7 was that special condition 7 deals with value which it submitted "represents the consideration excluding GST", not with price which it submitted "represents the consideration including GST". It submitted that the first paragraph of clause 7.2 provides, in the relevant context, that the purchase price listed in the particulars of sale represents the value within the meaning of the GST Act. In other words, it submitted, $2,250,000 was the consideration excluding GST. It was submitted that the second paragraph of clause 7.2 then "reinforces" that position by providing that where consideration represents value (a condition which it is said is satisfied by reason of the first paragraph of clause 7.2) then the party liable to pay for the taxable supply "must also pay" (emphasising the word "also") the amount of the GST payable. Thus, it was submitted, the proper construction is that the purchaser must pay the amount of the GST in addition to the consideration of $2,250,000 specified in the particulars of sale.

28 It seems to me, then, that the competing contentions as to construction are as follows.

29 The analysis of the special condition which results in a liability referable to GST being imposed on the purchaser in addition to the $2,250,000 is:

(a) The special condition equates consideration under the contract with value under the GST Act, this is what is meant when it is said that consideration payable "represents" value. So, the $2,250,000 consideration under the contract is the "value" within the meaning of the GST Act, not the "price".

(b) The special condition imposes an additional liability because it is something the person paying must "also" pay.

(c) The additional liability is the amount of any GST payable, and it is additional to the $2,250,000 payable under the contract.

30 There are problems with this construction. The first problem is that under this construction the expressions "consideration" and "value" as used in the special condition do not have the meanings which they have in the GST Act. Clause 7.1 of the special condition says that they do have those meanings. Under the GST Act "consideration" and "value" in relation to a taxable supply cannot mean the same thing. There is also the related problem that if "consideration" has the meaning provided for in the GST Act then that concept must itself include any additional amount payable under the special condition.

31 The analysis of the special condition which results in a liability referable to GST not being imposed on the purchaser in addition to the $2,250,000 is:

(a) "Value" under the GST Act means price x , and "price" is the "consideration".

(b) The liability imposed by special condition 7 is to pay the amount of the GST in addition to, at the same time and in the same manner as, the "value" is payable.

(c) This means no more than that the person liable must pay "value" plus GST, which will then equal the "price", which in this case is $2,250,000.

(d) The special condition does this so as to alert the purchaser to the fact that the price has a GST component (as contended by Kay & Burton), or because the special condition is directed at payments such as charges and body corporate fees and may operate to the benefit of either the purchaser or the vendor (as Mr Booth contends).

32 There are also problems with this construction. This construction really gives no meaning to the first part of clause 7.2 which provides that the consideration represents the value. This construction also has the problem that, at least on the present state of the material, the suggested objectives of the clause are unconvincing. It is conceivable that expert conveyancing evidence might clarify the matrix of fact relevant to special condition 7.

33 It seems to me that there is a third possibility: that the clause is so unclear as to be meaningless. The issue of severance would need to be addressed if that were the conclusion reached.

34 Having considered the matter, I have decided that it is best that I not express a final view as to the construction of special condition 7 and that I refer the proceeding back to VCAT to have the entire dispute determined again. In reaching this conclusion I am particularly influenced by the fact that there was uncertainty before VCAT as to whether the construction of special condition 7 was in issue between Mr Booth and Cityrose and that uncertainty persisted at the commencement of the appeal hearing. It is true that Kay & Burton have always put that matter in issue, but Kay & Burton is not one of the contracting parties. The construction issue should be determined after a hearing at first instance where it is clear that this is a matter of controversy between the contracting parties, Cityrose and Mr Booth. The second reason why I have determined to refer the entire dispute back to VCAT is related to the first. As the arguments were put on appeal, it is possible that there are aspects of the matrix of fact which might be relevant but which have not been the subject of evidence. Finally, I have determined to refer the entire dispute back to VCAT because a decision on the construction issue will not necessarily conclude the dispute between the parties.

35 I will allow each of the appeals, order that the orders of VCAT be set aside, and remit the proceeding to be heard and decided again by a differently constituted tribunal.

36 Kay & Burton has succeeded in establishing the errors it contended for and has neither succeeded nor failed in the argument put forward on the issue of construction. Mr Booth should not be held responsible for the errors made by VCAT which have led to the appeal succeeding. Cityrose has not had its grounds of appeal determined. My assessment is that it cannot be said that any of them had significant prospects of success, save to the extent that they might have been said to implicitly rely upon the errors which I have found.

37 In the light of these considerations and as the matter is to be determined again by the tribunal, I have tentatively decided that I will reserve the costs and deal with them once the matter has been dealt with again in VCAT.

38 If any party wishes to make submissions against this course on costs, or to make submissions in relation to the orders proposed, I will hear them. Otherwise, I will make the orders I have outlined, including the costs orders.

[2] Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue of the State of Victoria [2001] HCA 49; (2001) 207 CLR 72, 79-80.

[3] S v Crimes Compensation Tribunal [1998] 1 VR 83, 94.

[4] Caruso v Kite [2008] VSC 207 at [23] and [24].

[5] Statham v Federal Commissioner of Taxation (1988) 20 ATR 228, 234.

[7] See the clause in Igloo Homes Pty Ltd v Sammut Constructions Pty Ltd [2005] NSWCA 280; 2005 ATC 4986.

Fair Trading Act 1999(Vic)

Civil and Administrative Tribunal Act 1998

New Tax System (Goods and Services Tax) Act 1999

At a glance

Court

Decision date

Before

Source

Judgment (63 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (1)