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[2003] NSWSC 1096
plaintiff. Order for specific performance of the contract; declaration that the vendor must provide a tax invoice on settlement reflecting the GST actually payable; declaration that vendor is not required to...
The purchaser sought specific performance of a standard-form land sale. The parties disagreed about GST invoicing and clause 13.9 consequences where the $3.9 million lump-sum covered multiple lots, one of which was a taxable supply. The Court held the vendor must provide a tax invoice showing the total contract price and the GST actually payable on the taxable component(s); clause 13.9 does not require the vendor to refund one-eleventh of the whole price where only part of the sale is taxable. Specific performance was ordered and declarations given (paras 27-31, 34-42).
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ETO Pty Ltd (purchaser) contracted to buy five contiguous lots in Eastwood from Idameneo (vendor) for a lump-sum price of $3,900,000 under the 2000 edition of the standard form contract dated 30 April 2003 [5], [10]. The parties attempted settlement on 10 October 2003 but it aborted because of a dispute over GST treatment: the parties agreed that 4a Rutledge Street was a taxable supply, the vendor contended the remaining lots were input taxed and obtained a private ruling to that effect, while the purchaser contended the invoice should show GST calculated on the whole contract price (so that $3,900,000 is presented as $3,545,454.55 plus GST of $354,545.45) [11], [12], [16]-[17].
1 cited instrument linked from this judgment.
The purchaser sued for specific performance and declaratory relief as to three questions: (1) whether the vendor must provide a tax invoice on settlement showing GST of $354,545.45 (i.e. GST on the whole price) or an invoice reflecting the GST actually payable by the vendor; (2) whether s29.70 of the GST Act or related taxation law forbids the vendor from issuing any invoice other than one showing the GST the vendor actually pays; and (3) if the vendor gives an invoice showing less GST than the purchaser claims, whether clause 13.9 requires the vendor to pay the purchaser one-eleventh of the difference between the taxable value and the contract price (MI #24, summarised at para 3) [3].
Young CJ in Eq heard the matter and ordered specific performance. The Court declared that the vendor must provide a tax invoice reflecting the GST actually payable in respect of the supply under the contract, and that the vendor is not liable to make any payment under clause 13.9 in respect of the mixed taxable/non-taxable nature of the sale. The matter was referred to the Master to implement specific performance, and the purchaser was ordered to pay the vendor's costs to date [42].
The Court's analysis centred on construction of the standard form's GST provisions and the interaction with the GST Act.
CHOICES section: The standard form's CHOICES boxes on page 2 record entries such as "This sale is taxable supply" and "Margin scheme applies", with tick boxes for 'YES' or 'NO' [5]-[6], [18]. The Court treated the CHOICES entries as prima facie informational triggers or definitions for clause 13, not as absolute warranties that categorically bind the parties to an all-or-nothing characterisation of the whole sale. The judge explained that reading those boxes as warranties would clash awkwardly with clause 13's own expressed promises (noting the word 'promises' in clause 13.7) and with the structure of clause 13 itself; nevertheless, the Court acknowledged purchasers misled by CHOICES may have remedies of various kinds, but those issues were not determinative of the decree for specific performance sought here [20]-[26].
Statutory and contractual invoicing obligations: Clause 13.10 requires the vendor to give the purchaser a tax invoice for any taxable supply under the contract and s29.70 of the GST Act imposes a supplier's duty to give a tax invoice on request; the Act contemplates invoices that deal with transactions partly taxable and partly not [8], [27]. The Court relied on this statutory context and the ordinary commercial practice of itemising taxable and non-taxable items on a single invoice (an everyday analogy to supermarket receipts) to conclude that the vendor must issue an invoice stating the total contract price ($3.9 million) and identifying which part(s) are taxable and the GST actually payable [28]-[31].
Clause 13.9 construction: Clause 13.9 provides that where the contract "says this sale is a taxable supply and does not say the margin scheme applies", the vendor must pay the purchaser one-eleventh of the price if the sale is not a taxable supply or if the margin scheme applies [8], [34]. The Court rejected the purchaser's argument that the CHOICES entry 'This sale is taxable supply' should operate as a categorical binding statement forcing the whole sale into either taxable or non-taxable 'baskets'. Instead the Court accepted the vendor's construction that where only part of the sale is taxable the clause should not be read to require refunding one-eleventh of the entire contract price. The judge reasoned that the contract contemplates a 'middle basket' (some parts taxable, some input taxed) and this reading is supported by the use of the word 'any' in clause 13.10 and by the practical incoherence of refunding one-eleventh of the entire price where only a small portion is taxable [35]-[41].
Given those constructions, the Court answered question 1(b) "Yes" (invoice must reflect GST actually payable), concluded question 2 did not arise separately in light of the resolution of question 1, and answered question 3 "No" (vendor not obliged to pay under clause 13.9) [30], [33], [41].
Before this decision, there was limited reported authority in the NSW Supreme Court directly addressing the interaction of the standard form contract's CHOICES section, clause 13, and the GST Act in mixed-supply land sales. Textual commentary (Butterworths Conveyancing Service NSW vol 1, [10274]) had observed uncertainty around the legal status of the CHOICES entries, whether they are warranties, information, or the terms upon which the parties proceed, but without definitive judicial resolution [19]-[21].
This judgment clarifies several points for practitioners in the NSW jurisdiction:
After this decision, parties and conveyancers should expect courts to read clause 13 pragmatically and to resolve disputes about GST invoicing by reference to the actual GST payable on taxable components rather than to a notional apportionment of the whole contract price as a single taxable supply. The decision also signals that purchasers who rely on CHOICES entries may need to pursue separate remedies if they have been misled, rather than treating those boxes as automatically creating categorical contractual consequences for clause 13.9.
Quotation: "NOTE: Subject to clause 13, the price INCLUDES goods and services tax (if any) payable by the vendor." [8] Plain-English: The printed contract note says the listed price is meant to include any GST that the seller has to pay, but clause 13 can modify that basic statement.
Quotation: "On completion the vendor must give the purchaser a tax invoice for any taxable supply by the vendor by or under this contract." [8] Plain-English: The seller must provide a tax invoice for any part of the sale that is actually a taxable supply under the GST rules.
Quotation: "Accordingly, what has to be furnished is an invoice which sets out the price, and that is $3.9 million, and then must note the GST taxable items, that is it must include any taxable supply." [29] Plain-English: The invoice should show the total $3.9 million price and then identify which parts of the sale are taxable and state the GST payable on those parts.
Quotation: "Accordingly, in my view, the tax invoice only refers to the tax which is actually payable and, accordingly, I would answer question 1 (b) 'Yes'." [30] Plain-English: The Court decided the invoice must show the GST the seller actually owes, not a hypothetical GST on the whole price.
Quotation: "Thus question 3 must be answered 'No'." [41] Plain-English: The Court rejected the purchaser's claim that clause 13.9 required the seller to pay one-eleventh of the full contract price where only part of the land was taxable.
This decision is directly on point where:
If those circumstances arise, this decision instructs that a vendor may lawfully issue a single invoice showing the total contract price and the GST actually payable on the taxable component(s), and clause 13.9 will not warrant a blanket one-eleventh refund of the whole price merely because the CHOICES box indicates 'taxable supply'.
(This judgment supplies the Court's reasoning and declarations, but the deep dive must not invent subsequent judicial treatments. The judgment itself comments that clause 13 construction does not appear to have been the subject of decided cases in this Court prior to this decision, and the judge relied on statutory language and practical commercial examples to reach his conclusions [13], [19], [28]. Readers should consult subsequent authorities and later cases for any developments.)
This decision provides practical guidance on how clause 13 and the GST Act interact in mixed-supply land transactions, but it does not eliminate factual disputes over taxability or valuation nor does it explain every possible permutation arising from bespoke drafting or negotiated modifications to the CHOICES entries.
Disclaimer: This is general legal information based on the uploaded judgment and not legal advice. I may make mistakes. Before you rely on this, act on it, or use any draft, get a qualified Australian lawyer to check it.
CITATION : ETO Pty Ltd v Idameneo (No 123) Pty Ltd [2003] NSWSC 1096 HEARING DATE(S) : 21/11/03 JUDGMENT DATE : 21 November 2003 JURISDICTION: Equity Division JUDGMENT OF : Young CJ in Eq DECISION : Specific performance granted. Defendant to provide the plaintiff with a tax invoice reflecting the amount of GST actually payable by the defendant. Plaintiff to pay the defendant's costs to date.
CATCHWORDS : CONVEYANCING [68]- Standard form contract for sale- Construction of cl 13- GST provisions- Whether contract price includes the GST payable by the vendor- Whether GST invoice must represent the amount actually paid in GST- What happens where some of the properties being sold under the contract are a taxable supply and some are not?- "CHOICES" section of contract- Whether warranties or mere information. LEGISLATION CITED : A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 29.70 PARTIES : ETO Pty Limited (P) Idameneo (No 123) Pty Limited (D) FILE NUMBER(S) : SC 5201/03 COUNSEL : D L Warren (P) D R Pritchard (D) SOLICITORS : Robilliard Plowman Herat (P) MasseyBailey (D)
IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION
5201/03 - ETO PTY LTD v IDAMENEO (NO 123) PTY LTD JUDGMENT 1 HIS HONOUR: This is a purchaser's suit for specific performance. There is no dispute between the parties that the contract should be completed. Their dispute involves the interpretation of the contract with respect to GST in the circumstances of the contract. Accordingly, at the end of these reasons I will make an order for specific performance, refer the matter to the Master for directions to implement that order, but I will also make a series of declarations as to the issues of principle which divide the parties. 2 I fear there may still be left to the Master at least two serious questions, (1) as to the valuation of part of the property; and (2) as to whether certain properties, which are claimed to be residential, were at the relevant time residential within the meaning of the GST legislation. However, it may be that once the questions of principle have been decided those issues will dissipate. 3 The issues have been set out in the document marked MI #24 and three matters are raised:
(b) the contract price of $3,900,000. 4 Before I deal with those issues I need to set out the background of the dispute. 5 The contract which was made on 30 April 2003 is in the 2000 edition of the standard form. The purchase price is shown as $3,900,000. On page 2 of the standard form there is a section headed "CHOICES". A subheading of this is "GST information (a New Tax System (Goods and Services Tax) Act 1999) (clause 13)". Underneath this subheading there are seven statements made on seven separate lines with a box for "NO" and a box for "yes". 6 The way in which the contract is put together suggests that one must construe the words on the third line of page 1 as included for interpretation, so that where there is no answer then the alternative in block capitals prevails. The line "This sale is taxable supply" has the "yes" box ticked against it. The line "Margin scheme applies to property" does not have any box ticked so the "NO" box is deemed to have been ticked. 7 There has been debate as to the significance of what appears on page 2, a matter to which I will return. In the meantime I will set out some other material provisions of the contract. 8 At the foot of page 1, outside the area enclosed with lines forming boxes, are the words: "NOTE: Subject to clause 13, the price INCLUDES goods and services tax (if any) payable by the vendor."
Clause 13 is headed "Goods and services tax (GST)". "13.1 In this clause, enterprise, input tax credit, margin scheme, supply of a going concern, tax invoice and taxable supply have the same meanings as in the GST Act . 13.2 Normally , if a party must pay the price or any other amount to the other party under this contract, GST is not to be added to the price or amount. ... 13.7 If this contract says this sale is not a taxable supply, the purchaser promises that the property will not be used and represents that the purchaser does not intend the property to be used in a way that could make the sale a taxable supply. 13.8 If this contract says this sale is not a taxable supply, the purchaser must pay the vendor on completion in addition to the price an amount of 10% of the price if this sale is a taxable supply because of - 13.8.1 a breach of clause 13.7; or 13.8.2 something else known to the purchaser but not the vendor. 13.9 If this contract says this sale is a taxable supply and does not say the margin scheme applies to the property, the vendor must pay the purchaser on completion an amount of one-eleventh of the price if - 13.9.1 this sale is not a taxable supply; or 13.9.2 the margin scheme applies to the property. 13.10 On completion the vendor must give the purchaser a tax invoice for any taxable supply by the vendor by or under this contract." 9 The special conditions in 32.5 make it clear that the contract constitutes the entire agreement. There was a special condition 32.9 limiting the rights of the purchaser to ask for requisitions, but this has been deleted. There is a definition of "taxable supply" in the definition cl 30.1, but this seems merely to be redundant. There are some limitations on objections and requisitions in 32.2, but none seem to be material to the present problem. 10 The contract is for a lump sum of $3,900,000.00. What was being sold were five distinct lots of property; 11 and 13 Clanalpine Street, 14 Trelawney Street and 4 and 4a Rutledge Street, Eastwood. The five properties are contiguous and form one whole. There are buildings on all of those properties, save and except 4a Rutledge Street, which is vacant land. 11 There is no dispute at all that the sale of 4a Rutledge Street is a taxable supply and GST needs to be paid in respect of it. The vendor says that the balance of the land is not a taxable supply and has obtained a private tax ruling to that effect. 12 On 10 October 2003 the parties attempted to settle the conveyance. However, the settlement aborted because of the different views taken by the parties with respect to the application of the contract and the GST to the property. 13 With that background I should deal with the separate issues, though it will be necessary to discuss what is the proper construction of cl 13 of the standard contract, a matter which does not appear to have been the subject of any decided case in this Court. 14 On the hearing Mr Darryl Warren of counsel appeared for the plaintiff, and Mr David Pritchard appeared for the defendant and I am indebted to both of them for their research, which is evident from their written outline of argument and from their oral presentation. As is usually the case where the principal question is one of construction, different minds may easily approach the problem in different ways and so achieve different results. My job is, aided by those submissions, to declare what is the true construction of the contract in the events which have happened. 15 1. Mr Pritchard says that there is no dispute that the vendor is required by cl 13.10 of the contract, and indeed the GST legislation itself, to provide the purchaser with a tax invoice on settlement of the contract. Further, there is no dispute that the total amount of the invoice is to be $3.9 million, with perhaps the necessary conveyancing adjustment. The dispute between the parties is as to the way in which the GST should appear on the tax invoice. 16 It would appear that the purchaser contends that the invoice should be for a price of $3,545,454.55 plus GST of $354,545.45. The compilation of those figures being $3.9 million. 17 On the other hand, the vendor's case is the amount should reflect the GST actually payable. On the valuation it has received, 4a Rutledge Street, Eastwood, has a value such that the invoice should be for GST of $31,818.20. If, of course, the value of 4a Rutledge Street is otherwise, then a corresponding adjustment will have to be made, but for present purposes that does not concern me, I am more concerned with the question of principle. 18 The first matter that arises is what is the status of the statements made with the boxes for "CHOICES" on p 2 of the standard contract. 19 One of the few text to deal with the problem is Butterworths Conveyancing Service NSW, vol 1, [10274], which I have assumed was written by an experienced conveyancing solicitor, formerly a partner of Allens, Mr Neil M Cameron. 20 In relation to cl 13 he notes: "The status of the information is unclear. Most commonly the boxes on page 2 of the contract will be completed by the vendor with little, if any, input from the purchaser. It might be argued by a purchaser that the purchaser has entered the contract on the basis of the information and has a claim for compensation if the information is wrong. It might also be claimed that there is an implied warranty by the vendor in favour of the purchaser that the information is correct. On the other hand, it may be that the completed boxes contain the basis on which the parties have agreed to proceed irrespective of the accuracy of the information." 21 Mr Warren has contended that, indeed, the material in the "CHOICES" section is a warranty. Indeed, Mr Cameron seems to come to that view in the paragraph I have mentioned. 22 With respect, there are very great difficulties in assuming that construction, not the least of which is that cl 13 itself contains promises, such as in 13.7. Clause 13.6, which I have not set out, also contains a promise. 23 It would be very odd indeed if there are warranties in the "CHOICES" section and then the word "promises" used in cl 13 because normally the word "promises" is a warranty which sounds in damages. 24 It seems to me that all that the boxes on p 2 do is to provide some prima facie definitions for the terms used in cl 13. This is borne out by the dichotomy in 13.9 between the statement in the first line "if this contract says the sale is a taxable supply" and in 13.9.1 "this sale is not a taxable supply". It again seems to indicate that the material under "CHOICES" is just a provision of some information, or is a trigger for the operation of cll 13.6 through to 13.9. 25 The point is made both in Butterworths Conveyancing Service and by Mr Warren that this view leaves the purchaser at the mercy of the vendor's statement in CHOICES. This is not so as the purchaser can by proper requisition or inquiry find the true facts. 26 That is not to say that a purchaser who is misled by a statement under the "CHOICES" section is without remedy. First, it may constitute a warranty, though, as I say, I doubt it. Secondly, it might be said that there is an error or misdescription within cl 6 of the contract; it might be said that specific performance should only be granted with compensation; it might be said that there is a false and misleading statement within the meaning of s 42 of the Fair Trading Act 1987; there might be said to be some operative misrepresentation which has effect at law or in equity. However, none of those matters concern me because all I am doing is working out what direction should be made to implement the decree for specific performance which was asked for, without any suggestion of compensation. 27 Accordingly, one turns to the wording of 13.9 and 13.10. Section 29.70 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) requires a supplier of a taxable supply on request to give the recipient a tax invoice for the supply. The contract in 13.10 says the same in slightly different words. The Act makes it clear that a tax invoice may be for a transaction which partly involves a taxable supply and partly does not. 28 Almost every day of the week one receives a tax invoice from Woolworths or Coles for one's grocery bills, indicating which are GST items and which are not, and this is the most familiar illustration of this particular part of the GST Act. 29 Accordingly, what has to be furnished is an invoice which sets out the price, and that is $3.9 million, and then must note the GST taxable items, that is it must include any taxable supply. 30 The only taxable supply, on the assumption that I am making, is in respect of 4a Rutledge Street. Accordingly, in my view, the tax invoice only refers to the tax which is actually payable and, accordingly, I would answer question 1 (b) "Yes". 31 To make it clear, the assumption that I have been making is that the properties, other than 4a Rutledge Street, are not taxable supply because they are GST input taxed. As I have said, if this matter remains in contention, then it may have to be decided by a Master. 32 I should note that the debate appears to be over whether the other lots were actually used as residences or not, on the facts which have been presented to the court. 33 2. It seems to me that this question does not arise, in view of my answer to question 1. 34 3. This raises the construction of cl 13.9. It is certainly the case that the first line of cl 13.9 on the printed form is made out, that is the contract says it is a taxable supply, and does not say the margin scheme applies; the second line requiring the vendor to pay one-eleventh of the price, accordingly, comes into play, if the conditions in 13.9.1 or 13.9.2 apply. Obviously the latter on the facts of this case is inapplicable, so I concentrate on 13.9.1. 35 The sale is not a taxable supply in the sense that the whole of the property is not a taxable supply. However, it could not be said that the sale is not a non taxable supply because part of the sale is a taxable supply. As both counsel acknowledged in their submissions, the persons who drafted the standard contract do not seem to have directed their minds to such a situation. That, of course, is not the end of the matter, as, with respect, (and it is always easy to be wise in hindsight) those who drew this particular contract do not appear to have done so either. 36 The question then is how does one treat 13.9.1 in a case where part of the sale is a taxable supply? Mr Pritchard says it is quite simple. The sale is a taxable supply, in that 4a Rutledge Street is a taxable supply in relation to which GST is payable by the vendor. 37 On the other hand, Mr Warren says that statement in the "CHOICES" section, that it is a taxable supply, must bind the vendor in cl 13.9 and the vendor cannot equivocate by making one statement in the "CHOICES" section and then argue for another statement in 13.9.1, and the whole way in which the contract is framed is that the content of the contract falls into one of two baskets; basket A, a taxable supply; basket B, a non-taxable supply; and there is no room for any middle basket. 38 It is a question of construction, but it seems to me that Mr Pritchard's construction is correct, that is that no matter what is said in the "CHOICES" section, if the sale is not within the category of not a taxable supply then the 13.9.1 does not apply. 39 This, I think, is reinforced by the use of the word "any" in 13.10, which seems to suggest that there is, what I have termed, a middle basket, and it also fits in far better with the working out of the contract. 40 The contract proceeds on the assumption that the price includes GST. If it does not, then a refund of one-eleventh makes sense, but it does not make sense when part of the property is a taxable supply and part not. 41 Thus question 3 must be answered "No". 42 Accordingly, the orders are:
I make order 1 in the summons, deleting the word "hereto" and substituting "of the summons".
I order that the contract for sale be specifically performed.
I declare that on the true construction of the contract for sale the defendant is required to provide to the plaintiff a tax invoice on settlement of the contract which reflects the amount of GST actually payable by the defendant arising out of the contract.
I declare that the defendant is not obliged to make any payment to the plaintiff under cl 13.9 of the contract.
I order that the matter be referred to a Master to implement the order of specific performance.
I order that the plaintiff pay the defendant's costs to date. Further costs reserved.
The exhibits and the documents marked for identification are to remain with the papers until further order.
I grant liberty to either party to file a notice of motion for directions returnable before a Master on 5 December 2003, or as the Senior Master may direct.
Last Modified: 11/26/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
ETO Pty Ltd
Idameneo
Order for specific performance of the contract; declaration that the vendor must provide a tax invoice on settlement reflecting the GST actually payable; declaration that vendor is not required to make any payment under clause 13.9; matter referred to a Master to implement specific performance; plaintiff to pay defendant's costs to date; further costs reserved (para 42).