Booth v Cityrose Trading Pty Ltd [2011] VCAT 278 | Case summary

Booth v Cityrose Trading Pty Ltd [2011] VCAT 278 | Case summary | Zoe

[8]

This case concerns the incidence of goods and services tax ("GST") upon a sale of land. The first question in the case is whether, upon the proper construction of the written contract for the sale of the land, the purchaser bound himself to pay not only the purchase price stipulated in the particulars of sale but also GST upon that purchase price. If the answer to that first question is yes, the second question is whether the purchaser is entitled to any remedy against the vendor or its real estate agent by reason of the purchaser not having been made aware that if he purchased the land upon the terms contained in the proposed contract he would become liable to pay the purchase price plus GST. For the purchaser is claiming that the contract ought to be rectified so that he did not become so liable, alternatively that if rectification is not possible the conduct of the vendor and of the real estate agent which induced him to enter into the contract was misleading or deceptive and that he is entitled to other remedies including compensation for the amount he paid above the stipulated purchase price.
The applicant Noel Booth was the purchaser. The first respondent Cityrose Trading Pty Ltd ("Cityrose") was the vendor. The second respondent Kay & Burton Pty Ltd ("Kay & Burton") was the vendor's real estate agent.
The contract was signed and exchanged on 20 May 2006. The land was Lot 2 on certified Plan of Subdivision 524383J situated at 7 Albany Court, Sorrento. Cityrose had built a residence upon the land. Kay & Burton conducted an auction on that day. The written contract had been prepared as an auction contract, with the purchase price left blank. The land did not sell at auction. There was a vendor bid but no other bids. Later that afternoon Mr Booth, who had attended the auction, made an offer of $2,250,000.00, signed a copy of the contract and paid a deposit of $225,000.00. Mario Salvo on behalf of Cityrose accepted the offer. Kay & Burton completed the particulars of sale in the contract, including the figure of $2,250,000.00 as the purchase price. Mr Salvo signed it.
Once the contract had been signed and exchanged, its particulars of sale provided that the purchase price was $2,250,000.00, that a deposit of $225,000.00 was payable upon signing, and that the balance was payable on 20 August 2006 or within 14 days of approval of the Plan of Subdivision by the Registrar of Titles, whichever was the latter.
The contract included special conditions. Special Condition 7 was headed "Goods and Services Tax". There is no dispute that the sale of the land constituted a taxable supply upon which GST was payable. The issue - which is the first question referred to above - is whether, as Cityrose has maintained but the other parties have disputed, the effect of Special Condition 7 was to oblige Mr Booth to pay to Cityrose not only $2,250,000.00 but also GST on that amount, namely $225,000.00. Mr Booth and Kay & Burton have both maintained that the legal effect of the contract was that Mr Booth was obliged to pay no more than $2,250,000.00, that the incidence of GST was upon 10/11 of that sum, and that the stipulated purchase price included the GST.
Mr Booth completed the contract by paying at settlement, under protest, the additional $225,000.00, so that he paid a total of $2,475,000.00. By agreement of the parties, the disputed sum of $225,000.00 has been retained by B2B Lawyers, the solicitors who acted for Cityrose in the sale, in a trust account pending the determination of this proceeding.
It has taken a long time for the proceeding to be determined. There was a hearing in 2007 which took 6 days. The Tribunal made orders in favour of Mr Booth against both respondents. They both sought and obtained leave to appeal. In November 2007 Whelan J allowed the appeal and remitted the proceeding to the Tribunal for hearing again. A further appeal to the Court of Appeal against Whelan J's orders was dismissed. At last the proceeding came on again for hearing before me in December 2010. So efficiently and ably did the parties' legal representatives conduct their respective cases that the hearing was completed this time in 2½ days. I reserved my decision.
As a consequence of having paid $2,475,000.00, instead of $2,250,000.00, in order to obtain a transfer of the land, Mr Booth had to pay an additional $12,375.00 in stamp duty upon the instrument of transfer which described a consideration of $2,475,000.00. By way of monetary relief Mr Booth has claimed, in addition to the disputed sum of $225,000.00, that additional $12,375.00 as a loss that he has incurred as a result of misleading or deceptive conduct.
Although I shall later be setting out in greater detail the events which led up to the signing of the contract, I shall now briefly describe how it came about that, as I find, neither Mr Booth nor the two persons involved at Kay & Burton realised, at the time that the contract was concluded, that Special Condition 7 in the contract arguably made the contract GST-exclusive and so bound Mr Booth to pay the additional $225,000.00. Those two persons at Kay & Burton were the salesperson, Elizabeth Jensen, and the auctioneer, Gerald Delany.
Cityrose is the trustee of the Regency Towers Trust, a family trust, the family being Mario Salvo's. The trust was registered for GST purposes. Cityrose itself was not. Cityrose was retaining ownership of Lot 1 on the Plan of Subdivision but wished to sell Lot 2. Although Mr Salvo was not a director of Cityrose, he was its decision-maker. However, Cityrose delegated to Jason van der Slot, Cityrose's manager, the task of engaging real estate agents to advertise and sell the land and of instructing Cityrose's solicitors, B2B Lawyers, to draft the proposed contract of sale.
In brief, the events were these.

[58]

If, as clause 7.1 (c) of Special Condition 7 stipulated, expressions used in the special condition had the meaning given to them in the GST Act, "consideration" and "value" would mean different things. But clause 7.2 began by stating that the consideration payable for a taxable supply made under the contract "represents" the value of the taxable supply.
In paragraphs 21-24 (inclusive) of his judgment given on 21 November 2008 Whelan J neatly expressed the difficulties involved in construing Special Condition 7.
1. 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.
2. 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.
3. 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 10/11 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.
4. 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.
Yet it was a draft contract containing such a perplexing special condition that Cityrose's solicitors supplied to its real estate agent, and to the prospective purchaser Mr Booth, late in the afternoon of 19 May 2006, the afternoon before the auction date.

[59]

The perplexity gives rise to the possibility, which Whelan J raised, that the condition is so uncertain as to be meaningless. If it is meaningless, there would be nothing in the contract that compelled Mr Booth to pay any more than $2,250,000.00.
I ought to strive to give the condition a meaning if I can. A contract, or a term of a contract, cannot be held to be void or uncertain or meaningless unless it is "so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention": Scammell (G) & Nephew Ltd v Ouston [1941] AC 251 or 268, per Lord Wright. "As long as it is capable of a meaning, it will ultimately bear that meaning which the Courts (sic) .... decide is its proper construction": Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 at 436-437, per Barrick CJ.
The task of construction is the ascertainment of what the parties, when using the words of the condition against the relevant background, would reasonably have been understood to mean. The relevant background, or "matrix of fact", is such knowledge as would reasonably have been available to the parties at the time they entered into the contract. See Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896 at pages 912-913, per Lord Hoffmann. It includes what the parties said and did, but not what they thought or believed. It includes the surrounding circumstances known to the parties, and the purpose and the object of the transaction: Toll (FGCR) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 451 at pages 461-462.
Apart from the context given by the contract itself, read as a whole, there is very little by way of relevant background that assists in the task of construction of Special Condition 7. There are two features of that context. The first is that nothing else in the contract imposed or suggested an obligation to pay anything more than the purchase price of $2,250,000.00 specified in the particulars of sale. The particulars of sale did not specify whether the price was inclusive or exclusive of GST. They did not mention GST. If there had been no Special Condition 7, there would have been no question but that the purchase price was GST-inclusive, if GST was payable at all. The second feature is that the wording of Special Condition 7, despite its other obscurities, at least demonstrated that the condition was a boiler-plate clause, designed to meet not only a circumstance in which the sale of the land described in the contract created a taxable supply but also a circumstance in which the sale did not create a taxable supply and so a liability to pay GST did not arise. The concluding phrase in the condition, "any GST payable in respect of the taxable supply", demonstrated that. So did the use of the phrase "the party liable to pay for the taxable supply", rather than "the purchaser" or "the vendor", expressions used elsewhere in the other special conditions and in the rest of the contract; the condition appears to have contemplated that it might be a person other than a purchaser of land who, as a consequence of making a taxable supply under the contract, became liable to pay GST. In short, the presence of a condition about GST, as Special Condition 7 was, did not necessarily imply that GST was payable at all, let alone payable by the purchaser in addition to the purchase price.
Some of the evidence of the two expert witnesses which arguably bore upon the issue of construction did not really, to my mind, give any greater assistance than was gained from the contractual context itself. Mr Hellier gave evidence that the large majority of sales of residential property (as this sale was) did not attract GST, but it was not uncommon for a contract of sale to include a "GST clause" even though the vendor was not registered for GST purposes and the contract created no taxable supply. That evidence merely reinforced the conclusion, apparent from context, that Special Condition 7 was a boiler-plate clause. So did Mr Davine's evidence that the condition resembled a form of condition encountered from time to time until 2001 but seldom encountered after that year.
Mr Flynn, Counsel for Mr Booth, submitted that because Special Condition 7 was ambiguous it should be construed against Cityrose, the party which had prepared the contract and was relying upon the condition: it should be construed "contra proferentem". While the "contra proferentem" rule is a rule of general application in contract law, its application is most usually found in cases involving standard form contracts like insurance policies and in cases involving exclusion clauses. In McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 at 602 Kirby J described the "contra proferentem" rule as being "one of last resort because it is widely accepted that it is preferable that judges should struggle with the words actually used as applied to the unique circumstances of the case and reach their own conclusions by reference to the logic of the matter, rather than by using mechanical formulae". Even the passage which Mr Flynn cited from Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 at 510 - an exclusion-clause case - emphasised that the "contra proferentem" rule is only one, and not a dominant, aid in the task of construction. After referring to three earlier High Court decisions, the High Court stated in that passage:

[69]

The fourth objection is that the analysis does not explain why the qualifying phrase "where a taxable supply is made under this contract for a consideration which represents its value" was expressed in that way. If a taxable supply was made at all under the contract, it would always be "for a consideration which represents its value", because the first sentence in paragraph 7.2 said so.
Whether, despite those objections, Cityrose's construction is the preferable one depends upon the view taken as to the respective constructions that Mr Booth and Kay & Burton put forward. Each contends, for different reasons, that the special condition did not oblige Mr Booth to pay GST on top of $2,250,000.00.
Mr Flynn, Counsel for Mr Booth, put a simple argument. It focused upon the qualifying phrase "where a taxable supply is made under this contract for a consideration which represents its value". He submitted that, when regard was had to the definitions in the GST Act as paragraph 7.1 (c) of the condition required, this was not a case in which there was a taxable supply by Cityrose for a consideration which equated to its value. The case did not come within the qualifying phrase. The rest of paragraph 7.2 became inapplicable. Hence it did not impose an obligation upon Mr Booth to pay anything, except the "value" which, as part of the "consideration", the contract even without paragraph 7.2 had obliged him to pay. That construction was consistent with the boiler-plate characteristics of the condition, designed to cover various situations in which GST might become payable upon a taxable supply under the contract and also to cover situations in which there was no taxable supply at all and hence no GST payable.
Attractively simple though the argument is, I cannot accept it. It takes no account of the first sentence in paragraph 7.2, which stated that consideration "represents" value where a taxable supply was made under the contract. Because of that sentence, if a taxable supply was made at all under the contract it would always be "for consideration which represents its value" and it would always come within the terms of the qualifying phrase. The argument treated the condition as if that first sentence in paragraph 7.2 did not exist. Moreover, a consequence of one's acceptance of the argument is a conclusion that Special Condition 7 could never have any operation and was pointless, for if the GST Act definitions governed its meaning there would never be a case in which the consideration for a taxable supply was the same as the value of the taxable supply.
There was another argument which was apparently put to Whelan J but which Mr Flynn put only faintly to me. The argument was that Special Condition 7 dealt not with the taxable supply of the land by Cityrose to Mr Booth but with other taxable supplies that might occur, such as upon adjustment of rates or other outgoings at settlement in favour of one party or the other. Given the boiler-plate characteristics of the condition, one can conceive of it purporting to apply to taxable supplies of that nature, but it is not apparent to me how any such taxable supply could be "for consideration which represents its value" so that it could come within the qualifying phrase although the sale itself of the land did not. The reasons for not accepting Mr Flynn's principal argument apply to this argument too.
Ms Sofroniou, Counsel for Kay & Burton, submitted that Special Condition 7 was applicable and meaningful in the circumstances of the case, for on its true construction it confirmed that the purchase price was GST-inclusive, that is to say, the purchaser's obligation was to pay the "value" (10/11 of the purchase price) and the equivalent of the GST (the other 1/11). The submission came to grips with the troublesome first sentence in paragraph 7.2 - that consideration "represents" the value - by drawing attention to the definition of "consideration" in the GST Act. Under section 9-15, "consideration" is defined so that it "includes: (a) any payment ... in connection with a supply of anything ...". So defined, it does not mean only the purchase price payable under the contract. It means also any payment that has gone towards the purchase price, including the "value", which together with the amount of the vendor's GST liability made up the total purchase price. It was in that sense, she submitted, that consideration "represents" value, as the first sentence in paragraph 7.2 said it did, in a way that was not inconsistent with definitions in the GST Act.
Although Ms Sofroniou did not express the submission in these terms, I think that the submission really required one to read the word "represents" in paragraph 7.2 as if it meant "includes", and to read Special Condition 7 as if it were as follows:

[75]

The submission has several points in its favour. It supports a construction of the condition that is consistent with the particulars of sale, which specified only the purchase price as being payable, not the purchase price plus GST. It makes every sentence in the condition meaningful. Unlike the construction which Mr Flynn's submission supported, it does not treat the first sentence in paragraph 7.2 as if it did not exist. Unlike the construction which Mr Schlicht's submission supported, it did not create any inconsistency between paragraph 7.1 (c) and the first sentence in paragraph 7.2, for "consideration" was not being equated with "value". All expressions used in paragraph 7.2 intelligibly had the same meaning as was given to them in the GST Act, so long as "consideration" was understood to mean the part of the payment that represented "value".
Ms Sofroniou's submission did not meet what I listed as the third and fourth objections to Cityrose's contention, just as Mr Schlicht's submission did not. It is not for that reason, however, that I do not accept her submission. There are other reasons why I cannot accept it.
The first reason is that "includes" is not a natural meaning that can be given to the word "represents". One has to face the fact in order to read "represents" as if it meant "includes" one is really substituting a word that has a different natural meaning. That reason alone might not have led to my rejection of the submission. But there are others.
The second reason is that the argument involves question-begging, in my opinion. In order to reach a desired conclusion that Special Condition 7 meant that the purchase price was GST-inclusive, one adopts a construction that requires one to read "includes" for "represents". The reasoning tends to assume the existence of what has to be established, namely, that the condition embraced and expressed the notion of inclusion when it dealt with what the purchaser was required to pay.
The third reason is that the "GST-inclusive" construction does not seem to me to give Special Condition 7 any practical function or point. To say, as the construction would have the condition saying, that the purchaser must pay the GST component of the purchase price at the same time and in the same manner as the "value" component of it was payable, is simply to say, in a periphrastic fashion, something that the rest of the contract had already said more simply, namely, that on the settlement date the purchaser was required to pay to the vendor the balance of purchase money. What was the point of Special Condition 7 saying it again? Ms Sofroniou's responses to that question, when I put it in argument, were that the vendor was being alerted to the possibility of having to pay GST on a taxable supply and that the parties were evidencing to the revenue authorities that if GST was payable the amount would be 1/11 of the GST-inclusive price of $2,250,000.00, not 1/10 of it as a GST-exclusive price. To my mind, that explanation of the presence of Special Condition 7 with a GST-inclusive effect is much less convincing than an explanation of the presence of the condition with a GST-exclusive effect: a notification to the purchaser that the contract required the purchaser to pay to the vendor not only the stipulated purchase price but "also" the GST which was payable on that price.
So I return to the construction for which Cityrose contended. I have already listed four objections to it. The first was inconsistency with the particulars of sale. The second was that it did not resolve an apparent inconsistency between paragraph 7.1 (c) and the first sentence in paragraph 7.2 which stated that consideration "represents" value. The third and fourth objections were less important, to my mind.
I think that the second objection can be overcome if a notional adjustment is made, not to any of the words in Special Condition 7, but to its structure, and by adding two words, "except that", to indicate - as I think is the preferable view - that the first sentence in paragraph 7.2 was an exception to the stipulation in paragraph 7.1 (c) that expressions bear the meaning given to them in the GST Act. The change to the structure is to make paragraph 7.2 begin in a different place, at the commencement of what had been the second sentence in it. Once those notional changes are made, Special Condition 7 can be read as if it were as follows:
1. Goods and Services Tax

[84]

On 17 March 2006 Ms Jensen of Kay & Burton wrote to Mr van der Slot of Cityrose with a proposed marketing plan for the sale of the land at 7 Albany Court Sorrento (Lot 2 on the Plan of Subdivision). Cityrose had recently completed the construction of a residence on the land. Earlier Cityrose had informed Ms Jensen that if it were to sell the land it would engage Kay & Burton as selling agent. The marketing plan stated that a sale ought to attract interest at a price above $1,750,000.00, and proposed a commission scale of 1.75%, plus GST, upon a sale price up to $2,250,000.00 and of 10%, plus GST, "of the increment over $2,250,000.00".
On 27 March 2006 Mr van der Slot proposed a commission scale of 1.5%, rather than 1.75%, plus GST, but otherwise the same as Ms Jensen had proposed. Ms Jensen agreed.
A marketing campaign began for an auction sale. The land was advertised for sale at "$1.9 million plus".
Mr Booth contacted Ms Jensen on 31 March 2006, had conversations with her thereafter and inspected the land in Ms Jensen's presence. During the inspection Ms Jensen told him that there had been a sale of a similar property in the area for $1,875,000.00, hence her estimate of "$1,900,000.00 plus".
On 24 April 2006 Ms Jensen asked B2B Lawyers, Cityrose's solicitors, to prepare an auction contract and a vendor statement (under section 32 of the Sale of Land Act) and to provide those documents to her office. Mr Booth had asked her to let him see a copy of the proposed contract and the section 32 statement.
On 2 May 2006 Mr van der Slot on behalf of Cityrose signed a written authority appointing Kay & Burton as its agent for the sale of the land by auction on 20 May 2006. Mr Salvo had put into Mr van der Slot's hands the task of retaining estate agents and solicitors for the purposes of the sale. The authority document did not identify a vendor's reserve price. It gave an agent's estimate of selling price of "between $1,850,000.00 and $2,035,000.00". It expressed rates of commission which were consistent with what had been agreed on 27 March 2006. It expressed, as a dollar amount of estimated commission, "$33,577.50 including GST of $3,025.50 if sold at a price of *$2,035,000.00", "*including GST". So the example given of a price, for the purposes of the estimate, was a GST-inclusive price. References to possible sale prices elsewhere in the document did not mention GST.
On a date that was not identified in the evidence but which I infer was after he had signed the authority document, Mr van der Slot instructed B2B Lawyers to include in the draft auction contract a provision for the purchaser to pay GST in addition to the sale price. He did so after he had completed a questionnaire that B2B Lawyers had sent to him. The questionnaire had asked whether the vendor was registered for GST purposes. He had replied "yes" to the question. In fact Cityrose itself was not registered for GST purposes, but Regency Towers Trust, of which Cityrose was the trustee, was so registered. But his answer to the question had prompted B2B Lawyers to ask him whether GST was applicable and, if so, whether the purchaser was to pay it and whether a GST margin scheme would apply to reduce the tax amount. Mr van der Slot's reply was that GST was applicable, that the contract should provide that the purchaser was obliged to pay the purchase price plus GST, and that a margin scheme did not apply. I have inferred that he gave those instructions after he signed the auction authority because in his witness statement his evidence about the questionnaire and his conversation with the lawyers came after his evidence about the signing of the authority.
On 10 May 2006 Mr Booth told Ms Jensen that his solicitors were Russell Kennedy and asked her to send to them a copy of the contract and the section 32 statement. He told her that he wanted his solicitors to make sure that the contract included a provision that would give him a right of access from Lot 2 over Lot 1 to the beach, for he was not interested in purchasing the land unless the right of access existed. He repeatedly asked Ms Jensen to have the contract sent to his solicitors, and in turn Ms Jensen repeatedly asked Mr van der Slot to urge B2B Lawyers to provide the contract to her.
Two or three days before the proposed auction, Mr Booth received a copy of the section 32 statement.

[85]

On either Wednesday 17 May or Thursday 18 May 2006 there was a pre-auction meeting at Kay & Burton's South Yarra office at which Mr Salvo, Mr van der Slot, Ms Jensen and Mr Delany were all present. In his diary Mr Delany had appointed 18 May, but he also nominated 19 May in his evidence. Ms Jensen's evidence was that such meetings were normally conducted on a Wednesday or Thursday before a Saturday auction. Mr van der Slot's evidence was that the meeting was on Friday 19 May. To my mind that is the least likely of the three possible dates. So late a pre-auction meeting would have been so unusual that I think that the two Kay & Burton persons would have remembered it being so. I do not think it matters whether the day was the Wednesday or the Thursday and make no finding about which it was.
At the pre-auction meeting, Ms Jensen said that Kay & Burton still had not received the contract of sale. She said that she wanted to make sure that it provided for the creation of an easement over Lot 1. Mr Salvo refused to nominate a reserve price, but authorised Mr Delany to make a vendor bid of $1,950,000.00 at the auction if necessary. Nobody mentioned GST. Ms Jensen and Mr Delany asked whether there was anything else they needed to know. Mr Salvo said there was not. Although Mr van der Slot had given instructions to B2B Lawyers that the contract should require a purchaser to pay the price bid plus GST, he did not tell the others that at the meeting, or at any other time before the auction concluded. It did not occur to him that he should.
At the end of the meeting Ms Jensen asked Mr van der Slot to make sure that Cityrose's lawyers should provide Kay & Burton with the auction contract as soon as possible and should send a copy of it to Russell Kennedy as soon as possible.
Soon after the meeting, Mr van der Slot did obtain a draft of the contract, but it had not included any provision for the creation of an easement. For that reason he did not send a copy of it to Russell Kennedy.

[86]

On 18 May 2006 Mr Booth spoke to Ian Bult of Russell Kennedy, handed him the section 32 statement he had received and asked him to check whether if he purchased the land the contract would secure for him a right of way to the beach.
Ms Jensen gave evidence that she spoke to Mr Bult on Friday 19 May 2006 who told her that he had received a copy of the contract, that he was negotiating with B2B Lawyers about a clause providing for an easement, and that he was anxious to finalise negotiations before he went away for the weekend. As other evidence, to which I shall refer below, is that Russell Kennedy did not receive the contract until 4.30pm on that day and that the contract when received did contain a clause providing for an easement in the very terms that Russell Kennedy had requested, the statement attributed to Mr Bult seems inexplicable. So I think it unlikely that Russell Kennedy had received a contract at the time that he spoke to Ms Jensen, whenever it was and whatever he said.
At 3.29pm on Friday 19 May 2006 Samantha George of Russell Kennedy sent to B2B Lawyers by email a letter stating that their client Mr Booth would not consider bidding at the auction unless the contract of sale contained a special condition worded in the way set out in the letter, and asked for a copy of the contract.
At 4.25pm on that day B2B Lawyers sent to Mr van der Slot by email a copy of the auction contract and of the section 32 statement, and said in the email that they had forwarded a copy of the documents to Kay & Burton and to Russell Kennedy. In fact it was not until 4.30pm that they sent them by email to Russell Kennedy. The copies of the auction contract included, as Special Condition 13, a special condition in the wording that Russell Kennedy had asked for. The copies also included Special Condition 7.
No-one at Kay & Burton or at Russell Kennedy had sighted any earlier draft of the contract, or any version of the contract, before 4.30pm on 19 May.
At about 5.00pm on 19 May Ms George told Mr Booth by telephone that Russell Kennedy had received the contract and that the condition securing a right of way had been included. Mr Booth asked her to send him a copy of the contract. At 5.25pm Russell Kennedy sent by fax to Mr Booth's home a copy of the contract. That was the first time that he had seen any version of the contract. He looked through it to make sure that the condition about the easement was there, but did not pay attention to Special Condition 7.

[89]

A decision upon the claim for rectification of the contract involves findings as to what the parties intended that their contract should be. On Cityrose's side, the persons involved were Mr Salvo, Mr van der Slot and Ms Jensen. The following paragraphs under this heading represent my findings, based on the uncontradicted evidence, as to the intentions of the persons involved.
Mr Booth intended that the contract should provide for a purchase price of $2,250,000.00. He did not intend that it should provide for payment of GST on top of that figure. Nor did he intend that it should express anything about GST. The prospect of GST being payable, inclusive or exclusive of the purchase price, had not occurred to him.
The intentions of Mr Salvo and of Ms Jensen were the same. Mr Salvo accepted an offer of $2,250,000.00 payable in 90 days. The prospect of GST being payable, inclusive or exclusive of the purchase price, had not occurred to him when he signed the contract. He had not turned his mind to the matter. He said so in his evidence. Likewise, Ms Jensen, who effected the exchange of contracts, intended that Mr Booth should pay $2,250,000.00 under it. The prospect of GST being payable was not something about which she had been instructed. Insofar as that prospect had occurred to her at all, she had assumed that any GST would be payable by the vendor out of the purchase price, as it usually was, because very few contracts of residential land provided specifically for GST to be payable by the purchaser in addition to the purchase price.
When he instructed B2B Lawyers, as Cityrose had authorised him to do, Mr van der Slot intended that the contract should provide for the purchaser to pay not only the purchase price but also GST upon that price as the value of a taxable supply. He had instructed the solicitors accordingly. He did not ever have a different intention. Whether on the day of the pre-auction meeting, or on the day of the auction, that intention was still something that he was conscious of was not clear from the evidence, but I think it likely that by those days he had simply forgotten that he had given those instructions.

[94]

In paragraph 21 of the Further Amended Points of Claim Mr Booth alleged that it was the common intention of him and of Cityrose that the price specified in the contract "had no GST liability", or alternatively "was inclusive of any GST liability". Paragraph (E) of the claim for relief asked for an order that the contract be rectified "to indicate that the sale price is GST inclusive", consistently with the second alternative alleged common intention rather than with the first. I think that in their respective submissions the parties gave too much attention to the second alternative and insufficient attention to the first.
The proper framing of the first preliminary question is not whether there was a common intention that the contract should provide for the purchase price to be GST-inclusive. For Mr Booth had no such intention. The topic of GST never entered his mind before the contract was formed. Rather, in my opinion, the proper framing of the question is whether there was a common intention that the total purchase price payable was $2,250,000.00 and no more, and so whether the contract that by Special Condition 7 effectively required payment of $2,250,000.00 plus GST contained a common mistake as to the total purchase price payable.
In my opinion the first of the two allegations in the Further Amended Points of Claim, that the common intention was that the price "had no GST liability", is wide enough to entitle Mr Booth to ask the Tribunal to decide whether the common intention was that the total purchase price payable was $2,250,000.00 and no more. That is what I propose to decide. Even if the allegation were thought not to be so wide, the whole topic of the parties' intentions was thoroughly canvassed in the evidence, and I think that justice requires that I should answer what I consider to be the right question, not the wrong one. The Tribunal is not a court of pleading. The statute that created the Tribunal requires it to act fairly and according to the substantial merits of the case in all proceedings: Victorian Civil and Administrative Tribunal Act 1998 section 97.
As to the second and third preliminary questions, I consider that they are answered by the following paragraphs from the judgment of Ipp JA, with whom Santow JA agreed, in Igloo Homes Pty Ltd v Sammut Constructions Pty Ltd [2004] NSWSC 123, a decision of the Court of Appeal of the Supreme Court of New South Wales. At paragraphs 88, 89 and 90 of the judgement, Ipp JA stated:
1. The essential basis of a claim for rectification is that, by mutual mistake, the parties' common intention has been incorrectly recorded in the written contract. It follows that the relevant time for assessing whether rectification should be ordered is the moment when the written contract was entered into, that is, when it was executed.
2. In Johns v Australian Securities Commission (1992) 35 FCR 146 Black CJ and Von Doussa J said (at 172):

[96]

Their Honours were concerned with whether an exercise of power on behalf of a corporate entity was for a proper purpose, but I see no reason why the principles expressed should not apply equally to the determination of the intention of a corporate entity in entering into a written contract.
Applying the law as set out in those paragraphs of the judgment to the second preliminary question, I conclude that one needs to ascertain the intention of the parties on 20 May 2006, when the contract was signed and exchanged. The intention of Cityrose when it gave instructions to its solicitors to prepare the contract is not relevant, unless it happened to be the same as the intention that it had on 20 May.
Applying the law as set out in those paragraphs of the judgment to the third preliminary question, I conclude that the natural person whose intention is relevant, so that it amounted to Cityrose's intention at the time that the contract was signed and exchanged, is "the person who acted". In my opinion, that person is Mr Salvo. He was the decision maker. It was he alone who decided whether to accept Mr Booth's offer. It was he who signed the contract on Cityrose's behalf.
A possible view of the matter is that Ms Jensen was also a "person who acted" on behalf of Cityrose at the time that the contract was entered into. It was she who effected the exchange of contracts. No binding contract would have been created until the exchange occurred. On the other hand, the decision as to what offer to accept was not hers.
Mr van der Slot, however, was not "a person who acted" when the contract was entered into. His actions occurred at an earlier time, when he instructed Cityrose's solicitors. He played no part in the decision to enter into a contract with Mr Booth. On the question, therefore, of whether Mr Booth and Cityrose had a common intention which the written contract failed to reflect, Mr van der Slot's intention is irrelevant.
The evidence as to the respective intentions of Mr Booth and of Mr Salvo is clear and convincing. Each intended that the purchase price payable under the contract should be $2,250,000.00. Each signed the contract in the belief that it reflected that intention. Neither intended that the purchaser should have to pay $2,475,000.00. As the effect of Special Condition 7 was to require the purchaser to pay $2,475,000.00, their execution of a contract containing that special condition was a common mistake. Insofar as Ms Jensen's intention is relevant, she had the same intention, that the purchaser should have to pay $2,250,000.00.
Mr Booth has proved that the written contract did not reflect the common intention of the parties, which was that the purchaser was obliged to pay $2,250,000.00 and no more. The remedy of rectification is available. The contract ought to be rectified so that Special Condition 7 is deleted entirely and the contract correctly reflects that common intention.
I need to mention various arguments relating to the rectification question that Counsel put, none of which I accept.
Mr Flynn submitted that the auction authority addressed to Kay & Burton, which Mr van der Slot signed, was evidence of his, and hence Cityrose's intention that the purchase price should be GST-inclusive. For reasons given above Cityrose's intention at the time that the auction authority was signed is irrelevant unless it happened to be the same as it was on 20 May 2006. Moreover I think that the document did not demonstrate any such intention. All it did was to set out an example of how commission was to be calculated. As I indicate below, I consider that the auction authority has significance for the issue of whether Cityrose engaged in misleading or deceptive conduct, but I consider that it has no significance for the issue of rectification.
Mr Schlicht submitted that because Russell Kennedy, at Mr Booth's request, had received and read a copy of the proposed contract before the auction, and must have realised that Special Condition 7 had the effect that it did have, Mr Booth did not have an intention that he should pay no more than any bid of his that was accepted, because his agents Russell Kennedy did not have that intention. He submitted that Mr Booth's failure to call any witness from Russell Kennedy meant that I could infer that no evidence from any such witness would assist in proof of the intention that Mr Booth claims to have had. Even if the submission is otherwise correct, it would not assist Cityrose because no-one at Russell Kennedy was a "person who acted" in the relevant sense at the time that the contract was entered into. But the submission is not otherwise correct. Even if I were to infer that one or more solicitors at Russell Kennedy read Special Condition 7 in the half-hour or so that they had at their disposal on 19 May 2006, to assume that they were readily able to understand its effect at once would be a heroic assumption to make. Whelan J found it difficult to understand. Even after having had the opportunity for lengthy reflection upon it, I have struggled to understand it.
Ms Sofroniou submitted that the problem could be analysed in terms of offer and acceptance to demonstrate that the written contract departed from the contract created when on behalf of Cityrose Mr Salvo accepted Mr Booth's offer to pay $2,250,000.00. There are two flaws in that argument, in my opinion. The first flaw is that it overlooked the evidence that Mr Booth made his offer not only by articulating orally an offer to pay $2,250,000.00 but also by signing a copy of the auction contract. So he was offering to pay that sum on the terms set out in the document, which included Special Condition 7. That is the offer which Mr Salvo accepted. The contract entered into was a contract in the terms of the document. The trouble was, as I have found, that the document did not reflect the parties' common intention. The second flaw is that no enforceable contract came into existence until such time as exchange occurred. Before that time, Mr Salvo could have instructed Ms Jensen not to exchange the part that he had signed, and there would never have been an enforceable sale. So it is an over-simplification to analyse the problem in terms of offer and acceptance.
I recognise that if one or both of two conclusions that I have reached is wrong this would not be a case in which the law would permit rectification of the contract.
If, contrary to my view, the first preliminary question has to be addressed by asking not whether there was a common intention that the total price should be $2,250,000.00 and no more but rather whether there was a common intention that that price should be GST-inclusive as opposed to GST-exclusive, then the answer would have to be that there was no clear and convincing evidence of any such common intention. Indeed there was no evidence at all of any such common intention. All the evidence was that neither Mr Booth nor Mr Salvo turned his mind at all to the prospect of GST being payable if he entered into a contract for sale of the land, and so neither turned his mind at all to the matter of whether GST should be inclusive of the price or exclusive of the price.
Furthermore, if, contrary to my view, Mr van der Slot's intention at any time is relevant, so that Cityrose's intention encompassed his intention, again the conclusion would have to be that there was no common intention as to what a purchaser would be obliged to pay once a contract for sale of the land was entered into. When he instructed B2B Lawyers to prepare the contract Mr van der Slot's intention was that the purchaser should be obliged to pay GST on top of the purchase price. There was no evidence that he later had any different intention.
Mr Flynn sought to overcome the obstacle created by Mr van der Slot's intention, if it bore upon Cityrose's intention, by relying upon the exception to the general rule that there must be proof of the necessary common intention. The exception is that under equitable principles rectification may be ordered if one party mistakenly believes that the written contract reflects his intention - makes a unilateral mistake - and the other party knows that the first party is mistaken but does nothing to correct the document or to point out the first party's mistake. The other party's conduct will be tantamount to equitable fraud and the equitable remedy of rectification will be available. An example of such an exceptional case is Commerce Consolidated Pty Ltd v Johnstone [1976] VicRp 78; [1976] VR 724, on which Mr Flynn relied. In my opinion the exception could only have assisted Mr Booth if there had been evidence that Mr van der Slot had deliberately withheld from Kay & Burton, and from Mr Salvo, and from persons attending the auction, the fact that he had instructed Cityrose's solicitors to include in the auction contract a provision making the price GST-inclusive and that Special Condition 7 was intended to have that effect. There was no such evidence. The evidence I have set out in these reasons for decision does not justify a finding that he deliberately withheld that information. While, as I indicate below, his failure to impart the information is significant for the issue of misleading or deceptive conduct, it did not make out a case of equitable fraud.
I have concluded that the Tribunal should exercise its power to order rectification of the contract so that it reflects the common intention of the parties that the sum payable by the purchaser should be $2,250,000.00 and no more. The rectification can be achieved by the deletion of Special Condition 7. As a consequence of the rectification, the additional $225,000.00 which Mr Booth paid is recoverable as money which Cityrose has had and received: a restitutionary entitlement. Pursuant to section 108 (2)(b) or (e) of the Fair Trading Act the Tribunal may, and should, order Cityrose to pay $225,000.00 to Mr Booth.
In case my decision on the issue of rectification is wrong I need to express my conclusions upon the other alternative claims.

[131]

There was no dispute that at all material times in their dealing with Mr Booth both Cityrose and Kay & Burton were acting "in trade or commerce". As Mr Flynn submitted, the very fact that there was a GST liability upon Cityrose as a consequence of the sale led inevitably to the conclusion that Cityrose was acting "in trade or commerce" when it was selling the land.
Nor was there any dispute that Mr van der Slot and Kay &Burton, as agents of Cityrose, were doing so with the authority of Cityrose whenever they engaged in any of the conduct about which I have made findings. By virtue of section 144(2)(b) their respective conduct is deemed to have been the conduct of Cityrose.
At the times that Mr van der Slot was dealing with Kay & Burton, and at the times that Kay & Burton was dealing with Mr Booth, a relevant circumstance was the nature of the sale that Cityrose proposed to make: an auction sale of residential land. Because it was a sale by auction, and the draft contract prepared for the purpose was an auction contract, a prospective purchaser at auction would not have the opportunity of reading the draft contract until the day of the auction unless the purchaser asked for an earlier opportunity. Because it was a sale of residential land, it would be unusual for the sale to attract a GST liability. The evidence of all the estate agents who gave evidence - Ms Jensen, Mr Delany and Mr Hellier - was that the large majority of sales of residential property did not attract a GST liability. A vendor of residential property for sale by auction, and its selling agent, ought to appreciate that ordinarily there would be no reason for a prospective purchaser to think that a GST liability would arise, let alone a GST liability that the purchaser would end up having to pay for on top of the purchase price, unless the purchaser were specifically told so, and ought to appreciate that telling the purchaser so merely by putting a special condition in the contract might not be the most effective way of doing it. Likewise, there would be no reason for the selling agent to assume that such GST liabilities would arise, in the absence of any instructions from its principal that the purchase price was intended to be GST-exclusive and that the contract of sale had been prepared to reflect that intention.
At the time that Mr Booth entered into the contract, other relevant circumstances were the characteristics of the contract itself and the fact that he, his solicitors and Kay & Burton had been given only a late opportunity to acquaint themselves with its terms. By the characteristics of the contract I mean the discrepancy between the particulars of sale (which did not mention GST) and Special Condition 7, the obscurity of Special Condition 7's meaning, and the presence of Special Condition 13, concerning the easement or right of way. As Cityrose and Kay & Burton knew, Mr Booth's primary concern about the terms of the draft contract was the inclusion of a special condition to the effect of Special Condition 13. That was also Ms Jensen's primary concern in that regard. In her evidence she described Mr Booth and herself as having been "fixated" upon the inclusion of such a term.
Mr Flynn urged upon me that there was another important characteristic of the contract: that the particulars of sale recorded only an Australian Company Number ("ACN") for Cityrose, not its Australian Business Number ("ABN"), and did not describe Cityrose as a trustee and give the ABN for the trust. He submitted that particulars of sale in those terms were likely to mislead or deceive a prospective purchaser into assuming that the sale would not attract a GST liability. I do not accept that. There was no evidence that the absence of reference to an ABN misled Mr Booth about anything, and I think it unlikely that the presence or absence of a reference to an ABN would lead a prospective purchaser to draw any conclusion about GST. Moreover the law requires a corporation to identify its ACN in legal documents and Cityrose can hardly be criticised for having done so.
In the relevant circumstances to which I have referred, and viewing the conduct as a whole, I conclude that Cityrose, by itself and by its agent Kay & Burton, engaged in conduct, in trade or commerce, which was misleading or deceptive or likely to mislead or deceive, in contravention of section 9. It was as a consequence of that conduct that Mr Booth entered into the contract in the belief that it obliged him to pay $2,250,000.00 and no more. The conduct was of three kinds. The first was the conduct of Cityrose vis-à-vis its own agent Kay & Burton. The second was the conduct of Cityrose itself vis-à-vis Mr Booth. The third was the conduct of Kay & Burton vis-à-vis Mr Booth. The third was a consequence of the first.
The conduct of Cityrose vis-à-vis Kay & Burton, which contributed to the entirety of the conduct of Cityrose and Kay & Burton towards Mr Booth being misleading and deceptive, was:

[151]

Section 158 (2)(b) empowers me to order that the contract of sale is varied if I consider it fair to make such an order. I do. An order varying the contract so that Special Condition 7 is excised from it would remedy the loss which Mr Booth has suffered because it could lead to a consequential order under section 158 (2)(d)(i), or section 108 (2)(b)(iii), or under section 108 (2)(e), for a refund of the $225,000.00 overpaid.
The contract of sale has been fully performed. Cityrose has transferred the land to Mr Booth. There is no further obligation under the contract that either party has to perform. I have wondered whether, in those circumstances, it is possible and appropriate to order that the contract is varied. I have had in mind the much-criticised rule in Seddon v North Eastern Salt Co Ltd [1905] 1 Ch 326 that a contract for the sale of land cannot be rescinded on account of innocent misrepresentation if the contract has been executed, that is to say, discharged by complete performance in all respects. Since that rule was formulated, the Trade Practices Act, relevant provisions of which are mirrored in the Fair Trading Act, has transformed the law relating to innocent misrepresentation and has created remedies for innocent misrepresentation that did not previously exist. The cases in which rescission, or a remedy comparable to rescission, had been ordered as an exercise of the statutory powers do seem to involve contracts where there were continuing obligations. But I am not aware of any authority that, by reason of the Seddon rule or for any other reason, a fully performed contract cannot be rescinded or varied in exercise of the statutory powers.
Accordingly, if contrary to my conclusion the contract cannot be rectified under equitable principles, I consider that I could, and I would, achieve much the same result by ordering under section 158 (2)(b) that the contract is varied by the excision from it of Special Condition 7. I would go on to order that Cityrose refund $225,000.00 to Mr Booth.
Alternatively, if I am wrong to order rectification, and wrong to conclude that I could and should order variation of the contract, I would order that Cityrose pay to Mr Booth $225,000.00 to compensate him for the loss and damage he suffered because of Cityrose's contravention of section 9.

[153]

One of Mr Booth's alternative claims is for damages for contravention of section 9. He has made that claim against both respondents. It is an "apportionable claim" as defined by Part IVAA of the Wrongs Act 1958. I have found that each respondent contravened section 9 and that their acts or omissions jointly caused Mr Booth to suffer loss and damage in the amount of $225,000.00. Each respondent, therefore, is a "concurrent wrongdoer" as described in section 24 AH of the Wrongs Act. Section 24 AI of that Act provides that in any proceeding involving an apportionable claim the liability of a defendant (in the present case, a respondent) is limited to an amount reflecting that proportion of the loss or damage claimed that the court (in the present case, the Tribunal) considers just, having regard to the extent of the defendant's responsibility for the loss or damage.
On the view I have taken of the case, the contract should be rectified and Mr Booth has a restitutionary right to the recovery of $225,000.00 which he overpaid under the contract. On the first alternative view I have taken if the first view is wrong, the contract should be varied by the excision of Special Condition 7 and there should be an order for repayment of the $225,000.00. A claim for payment of $225,000.00 in accordance with either of those views is not an apportionable claim as defined by the Wrongs Act, and no question of apportionment arises.
But if both of those views are wrong, and in accordance with the second alternative view I have taken Mr Booth should be awarded $225,000.00 as damages he has suffered as a result of contravention of section 9, the question of apportionment between the two concurrent wrongdoers does arise and I need to deal with it.
In my opinion the responsibility for Mr Booth's loss or damage rests wholly with Cityrose. The misleading or deceptive conduct in which Kay & Burton engaged vis-à-vis Mr Booth was entirely the consequence of its principal Cityrose's failure to tell it that Cityrose had instructed its solicitors to prepare a contract of sale that specified a GST-exclusive purchase price, and that prospective purchasers ought to be told that entry into the contract would oblige a payment of the purchase price plus GST. Those matters remained a well-kept secret until a few days before the settlement date.
Mr Schlicht pointed to some features of the evidence of Ms Jensen and of Mr Delany which, he submitted, should lead to a finding that responsibility for any loss or damage which Mr Booth suffered rested substantially with Kay & Burton. They were professionally trained and experienced real estate agents. They were aware of the way in which GST became payable upon a sale of real estate which was a taxable supply for the purposes of the GST Act. They had developed a policy of advising a vendor client, about to put such real estate on the market for sale, not to attempt to sell on terms that the price was GST-exclusive. They did not advise Cityrose not to do that. They ought, Mr Schlicht argued, to have enquired from Cityrose whether the sale would attract GST and, if it did, whether the land was being put up for sale on a GST-inclusive or GST-exclusive basis. They did not attempt to clarify with either Mr Booth or Mr Salvo whether the offer Mr Booth was putting was for a price which was GST-inclusive or GST-exclusive. I do not accept those arguments. I have referred above to the evidence that it was unusual for a sale of residential property to attract GST, and unusual for any sale that did attract GST to take place on the basis that the purchaser was expected to pay a GST-exclusive price.
In my opinion, apart from the very presence of Special Condition 7 in the contract which Ms Jensen and Mr Delany saw only a short time before the auction commenced, there was nothing which ought to have prompted them to enquire of Cityrose whether the sale was to be on a GST-exclusive basis. They had enquired generally, during the pre-auction meeting with Mr Salvo and Mr van der Slot, whether there was anything further they needed to know, and had been told that there was not. In my opinion, the only possible criticism of the Kay & Burton personnel that could be made is that Ms Jensen might have collected the contracts from her office on the Friday evening and perused them overnight, and that Mr Delany might have arrived for the auction earlier than he did. Thereby there would have been a greater chance that one of them might have enquired from their client, before the auction commenced, what Special Condition 7 was supposed to achieve. But it is equally likely that Special Condition 7, obscure as it was and difficult as it is to construe even now, would have passed them by completely.
On the view I have taken of the case, and upon either of the two alternative views I have discussed, the proceeding as against Kay & Burton should be dismissed.

Booth v Cityrose Trading Pty Ltd

At a glance

Court

Decision date

Source

Judgment (157 paragraphs)

Booth v Cityrose Trading Pty Ltd (ACN 077 934 671) and anor (Civil Claims) [2011] VCAT 278 (23 February 2011)

Parties

Legislation Cited (2)

Cases Cited (8)