Gallinar Holdings Pty Ltd v Riedel

Judgment 1HIS HONOUR: This is a claim for specific performance of a contract for the sale of land. The plaintiff is the purchaser under the contract. The defendant is the vendor. The land in question comprises commercial premises subject to a lease. 2A dispute arose because the parties disagreed on whether the purchase price is inclusive of GST or whether GST is payable on top of the purchase price specified in the contract. The vendor believed that GST was payable on top of the purchase price. Mr Wilson SC, who appears for the vendor, accepts that that view was wrong. The vendor submits first that notwithstanding counterpart contracts being exchanged in identical terms, there was no binding agreement because there was no consensus on the price to be paid. Secondly, that if there were a binding contract, it is liable to be rescinded by reason of the vendor's mistake and, it is said, the purchaser's having exchanged, knowing of that mistake. Thirdly, the vendor submits that in any event, specific performance should be refused on discretionary grounds having regard to the vendor's mistake. I have concluded that none of these defences to the claim for specific performance succeeds. These are my reasons. 3On 11 January 2013 the vendor's solicitor, Mr Bisley of Thomas & Bisley, sent a draft Contract for Sale to Hansons, the purchaser's solicitors. After a considerable delay, Hansons sent a letter to Thomas & Bisley dated 13 May 2013 in which they stated: "We enclose by way of exchange:- 1. Contract executed by the purchaser. 2. Cheque in favour of your firm in the sum of $70,000 being the deposit payable. We would be pleased if you could date both the original and counterpart Contracts and return the executed original Contract in identical form to our office by return mail." 4The contract, as drafted by the vendor's solicitor and as executed by the purchaser and forwarded under cover of Hansons' letter of 13 May 2013, provided for a purchase price of $700,000 with a ten per cent deposit. For relevant purposes, the contract was in the standard form of contract provided by the Law Society of New South Wales and the Real Estate Institute of New South Wales. On the front page under the heading, "Tax Information (The parties promise this is correct as far as each party is aware)", there were a number of boxes to be filled in in relation to tax matters, including boxes against the subheadings, "Land tax is adjustable" and "GST: Taxable supply" and "Margin scheme will be used in making the taxable supply". The contract as drafted and signed for the purchaser, had the box "yes" crossed against the subheading, "Land tax is adjustable". It had the box "yes in full" crossed against the subheading "GST: Taxable supply". Under these boxes there were a further five boxes that could be crossed if the sale were not a taxable supply for any of the five reasons stated. None of those boxes was filled in. One of the boxes in question that could be filled in provides, "GST-free because the sale is the supply of a going concern under section 38-325". It was left blank. There was also, on this part of the contract, a box which states "GST Amount (optional)", and underneath that. "The price includes", underneath that, "GST of: $ ". This box was not completed. 5Clause 13.1 of the standard terms provides that various expressions, including "Taxable supply" and "Supply of going concern" have the same meanings as in the GST Act, that is, A New Tax System (Goods and Services Tax) Act 1999 (Cth). Clause 13.2 provides: "Normally, if a party must pay the price or any other amounts to the other party under this contract, GST is not to be added to the price or amount." 6The word "normally" is defined to mean "subject to any other provision of this contract". In other words, unless there is another provision specifying otherwise, GST is not to be added to the stated purchase price. Consistently with this, clause 13.8 provides that if the contract says that the sale is a taxable supply in full 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 the sale is not a taxable supply in full, or if the margin scheme does apply to the property. In other words, if the sale is not a taxable supply but the contract states that it is, the vendor must refund the GST that is included in the purchase price. GST is not payable on top of the purchase price unless there is some other provision to so provide. There was no such other provision in the contract prepared by the vendor's solicitor. 7On 21 May 2013 Thomas & Bisley responded to Hansons' letter of 13 May 2013. They said: "We refer to your letter of the 13th May forwarding the copy of the contract executed by your Client Company providing for the sale being a taxable supply in full with the margin scheme not to be used and advise in view of the fact that the Purchaser and Tenant are two (2) different Companies our client would be prepared if your Client Company wished to do so to amend the GST choice to the sale not being a taxable supply because the sale is the supply of a going concern under Section 38-325 - that of course depends upon your Client Company being registered for GST purposes and evidence of its registration being provided to us." 8Section 9.5 of the GST Act provides that a supply is not a taxable supply to the extent that it is GST-free or input taxed. The supply of a going concern is GST-free under s 38-325 if it is for consideration, the recipient is registered or required to be registered, and the supply and the recipient have agreed in writing that the supply is of a going concern. Hence the available choice. 9Hansons replied to the purchaser on 23 May 2013. They said: "We have been instructed to advise that at all times our client understood that the sale was to be for a price of $700,000 inclusive of GST and that understanding was reflected in the Contract submitted by your firm and returned to your firm duly executed for exchange. Accordingly our client understood that the GST exclusive price was $636,363.63 which when GST is added would amount to $700,000.00. Our client is prepared to proceed to exchange on the basis that the sale is a going concern but to do so the price would need to be reduced to $636,363.63 so that it accords with the price as our client understood it and as reflected in the Contract initially tendered. If, however, your client wishes to have the price remain at $700,000.00, then our client requires the sale to be on the basis of a full taxable supply and if this is the way the matter will proceed, our client requests a prompt exchange of the Contract already submitted." 10Thomas & Bisley replied on the same day. They said: "We refer to your letter of the 23rd May and enclose a photostat copy of the front page of the contract executed by your client Company clearly indicating that the property was a GST taxable supply in full and that the margin scheme would not be used in making the taxable supple i.e. the sale price of the property was $700,000.00 plus GST for which our client would provide a GST tax invoice. Would you please advise whether or not your client Company wishes to proceed on that basis or on the basis set out in our letter of the 21st May or any other basis whatsoever. It was quite clear from the contract provided to you that the sale price did NOT include GST of $63,636.37." 11Mr Bisley was wrong in saying that it was clear that because the contract indicated that the property was a GST taxable supply, the sale price would be $700,000 plus GST. This was pointed out by Hansons on 28 May 2013. They said: "We refer to your letter dated 23 May, 2013 which we have provided to our client. We have been instructed to submit the following: 1. The Contract submitted by your firm provides for a sale price of $700,000.00 and indicates that it is a full taxable supply. There is no clause in that Contract requiring the Purchaser to pay anything more than $700,000.00 in respect of the sale price and clause 13.10 indicates that on completion the Vendor must give the Purchaser as [sic] tax invoice for the taxable supply. Accordingly the Contract as submitted, was for a sale price of $700,000.00 inclusive of GST. 2. The Purchaser regards the Contract as reflective of his understanding of the agreement with the Vendor. 3. The Purchaser requests the Vendor to proceed to exchange Contracts in this sale noting that the purchase Contract was submitted to your firm under cover of our letter dated 13 May, 2013 together with a deposit cheque for $70,000.00. We now await to hear from you." 12Thomas & Bisley responded later that day by saying: "We refer to your letter of the 28th May and enclose for your information a copy of the front page of the contract executed by your client Company which clearly provides that the sale to your client Company is a taxable supply and the margin scheme is NOT to be used in making the taxable supply. That means with respect that the price in the contract is $700,000.00 plus GST of $70,000.00 for which our client will provide a GST tax invoice under clause 13.10 of the contract. Please advise whether or not your client Company wishes to proceed with the purchase of the property from our client and if so on what basis and if your client Company does not wish to proceed on a basis which is acceptable to our client then the contract executed by your client Company and cheque for the deposit forwarded with your letter of the 13th May will be returned to you." 13Mr Wilson SC, who appears for the vendor, submitted that it is clear from this letter that the basis for exchange that was acceptable to the vendor was that the price of $700,000 did not include GST and if the purchaser did not accept that that was the position, it should have so advised. In that event, the signed contract and the cheque for the deposit would have been returned. In fact the letter from Thomas & Bisley of 28 May 2013 expressly asked the purchaser's solicitor to advise if the purchaser wished to proceed with the purchase of the property and if so, on what basis. The basis upon which the purchaser wished to proceed was stated in a letter from Hansons of 31 May 2013. They said: "Our client has instructed to advise that it wishes to exchange the Contract submitted under cover of our letter dated 13 May, 2013 and with no amendments to it. Would you kindly proceed to exchange that Contract or alternatively, indicate precisely what amendments are required by the Vendor for Contracts to be exchanged." 14This was a clear statement that the purchaser did wish to proceed on the basis of the contract as it had been prepared and without amendment. Hansons had already said that in their view, the contract as prepared, provided for a price which was inclusive of GST. The letter expressly invited the vendor to indicate any amendment it proposed if it sought to amend the draft contract. Mr Bisley deposed that he understood Hansons' letter to be an acceptance of the position he had stated on 28 May 2013. Whilst I accept that was his understanding, I do not see why he reached that understanding. The purchaser had made its position clear in prior correspondence and had not moved from that position. Rather, it asked the vendor to indicate any amendment that the vendor proposed. Any reasonable reading of the contract would have shown that an amendment was necessary if GST was to be payable in addition to the stated purchase price. 15On 3 June 2013 Thomas & Bisley responded to Hansons' letter of 31 May 2013. They wrote: "We refer to your letter of the 31st May and advise the property is offered by Mrs Riedel to Gallinar Holdings Pty Limited on the terms and conditions of the contract Gallinar Holdings Pty Limited executed or on the basis of the sale being the supply of a going concern under section 38-325 of the GST Act on the terms and conditions set out in our letter of the 21st May to you. We are returning the contract so that you can arrange for the Director of your Client Company to initial whatever GST choice it chooses and advise we are instructed if contracts are not exchanged with a section 66W certificate excluding the cooling off period on or before 5:00pm Tuesday 11th June the offer by Mrs Riedel for the sale of the property to your Client Company is withdrawn and she will list the property on the open market for sale. We note it is now nearly five (5) months since the contract was originally forwarded to you." 16This was an express statement that the vendor would sell on the terms as drafted or on the basis of a sale as a going concern, as set out in Thomas & Bisley's letter of 21 May 2013. That letter had not addressed what price would be payable if the property were sold as a going concern, but Hansons had said that if the property were sold as a going concern, the price should be reduced to $636,363.63. In their letter of 3 June 2013, Thomas Bisley said nothing about that matter. 17In response to the statement that the property was offered for sale on the terms and conditions of the contract as had already been signed by the purchaser, Hansons sent a letter to Thomas & Bisley dated 5 June 2013 enclosing: "1. Contract duly executed and with the Purchaser's sole director having initialled the GST choice that he [sic] sale is a taxable supply in full. ... 3. Cheque in favour of your firm in the sum of $70,000.00 being the 10% deposit." 18They asked Thomas & Bisley to proceed to exchange contracts on the basis of the contract enclosed with their letter. The only amendment to the document sent under cover of Hansons' letter of 23 May 2013 was that the purchaser's director, Mr Gallinar, initialled the two boxes that had been crossed for "yes" and "yes in full" against "Land tax is adjustable" and the sale being a "Taxable Supply In Full". The box that could have provided for the GST amount included in the price of $636,363.63 was left blank, but the front page of the contract provides for the completion of that box to be optional. 19Exchange was completed on 6 June 2013 by Thomas & Bisley for the vendor. They sent a letter of that date to Hansons advising: "We refer to your letter of 5th June forwarding the copy of the contract duly executed by your Client Company and advise contracts have been exchanged today with the original contract signed by our client being enclosed with this letter." 20The terms of the counterparts of the contract are identical. 21After exchange, the parties put in train the usual steps for completion of a Contract for Sale of Land. On 3 July 2013 Thomas & Bisley responded to requisitions and provided a tax invoice which they said would be handed to the purchaser on settlement and the form of transfer. The invoice was for $770,000, being the sale price of $700,000 plus GST of $70,000. Hansons asked for that invoice to be amended and in due course the dispute crystallised. Prior to 19 August 2013 there was no suggestion that the parties did not consider themselves to be contractually bound. On that day, Thomas & Bisley wrote to Hansons referring to two cases of which Thomas & Bisley had been advised by the Law Society; namely Tam v Mannall [2010] NSWSC 250 and Ashton v Monteleone [2010] NSWSC 258. Those cases both held that in circumstances where the standard form contract was used, as is the case with this contract, GST was included in the purchase price. They then dealt with questions of rectification. 22In their letter of 19 August 2013, Thomas & Bisley asserted that there was no agreement on the sale price and therefore no contract between the parties. Up to that time, both parties treated themselves as contractually bound. The parties prepared agreed issues for trial. The first issue identified was whether, as a matter of construction, the purchase price of $700,000 included any amount of GST that might be payable in respect of the sale of the property or is a purchase price of $700,000 with GST on the top. The vendor did not press that issue.