Prowl Pty Ltd v DL Brookvale Pty Ltd

Issues

1. The issues that arise as between Prowl and the remaining defendants are straightforward. The first is whether, on the proper construction of the contract, in addition to the payment of the balance of the purchase price on completion of the contract, Brookvale was obliged to pay to Prowl the amount of the GST payable by Prowl in respect of the taxable supply constituted by the sale of the Brookvale property. As I understand it, the parties agree that the amount of the GST that Prowl has been required to pay is $1,145,000. Prowl also claims interest from completion of the contract when it says that Brookvale was required to pay to it an amount equal to the GST that was payable.
2. The second issue, which only arises if Prowl fails on the first, is whether Prowl is entitled to the rectification of the contract so that it conforms to the terms that Prowl says were at all material times agreed between Prowl and Brookvale. Prowl set out the precise manner in which it claims the contract should be rectified in its amended statement of claim. Brookvale did not take any issue with the appropriateness of those terms if Prowl is successful in establishing its claim for rectification. The effect will simply be, if the contract is rectified in the manner claimed by Prowl, that Prowl will then be entitled to the primary contractual relief sought by it.

Contract claim

1. Prowl's first claim, which for convenience I will simply call the "contract claim", is that on the proper construction of the contract, Brookvale was required to pay on completion the GST payable by Prowl, as well as the balance of the purchase price.

Relevant consequences of the GST Act

1. The parties accepted that the manner in which A New Tax System (Goods & Services Tax) Act 1999 (Cth) (the GST Act) imposed the obligation to pay GST on Prowl was an objective background fact known to both parties at the time of the contract, and accordingly a relevant consideration in the proper construction of the contract.
2. There was also no issue between the parties as to the manner in which the GST Act operated for the purpose of the proper construction of the contract.
3. First, it was accepted that the sale of the Brookvale property was a taxable supply for GST purposes, and whatever the precise manner in which the amount of the GST was calculated, the obligation fell on Prowl, as the vendor and supplier, actually to pay the GST to the Australian Taxation Office. The issue could therefore only be whether the contract obliged Brookvale to pay the amount of the GST to Prowl, in order to provide it with funds to make the payment.
4. The parties also conveniently accepted that the following summary of the effect of the relevant provisions of the GST Act, given by Campbell J (as his Honour then was) in Igloo Homes Pty Ltd v Sammut Constructions Pty Ltd [2004] NSWSC 1213 at [3]-[9], is accurate for present purposes (an appeal from his Honour's decision was dismissed: [2005] NSWCA 280): [3] An explanation of certain aspects of how the law relating to Goods and Services Tax affects the sale of real estate is needed to follow the facts of this case. [4] Section 9-10 of the ANTS (GST) Act 1999 says that a "supply" is any form of supply whatsoever, including an assignment of real property. Section 9-5 of that Act provides that: You make a taxable supply if: (a) you make the supply for consideration; and (b) the supply is made in the course or furtherance of an enterprise that you carry on; and (c) the supply is connected with Australia; and (d) you are registered, or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. [5] Section 9-40 imposes a liability on a person to pay the GST which is payable on any taxable supply that that person makes. The general rule concerning the amount of GST payable is contained in ss 9-70 and 9-75: 9-70. The amount of GST on taxable supplies The amount of GST on a taxable supply is 10% of the value of the taxable supply. 9-75 The value of taxable supplies (1) The value of a taxable supply is as follows: Price x 10/11 where: price is the sum of: (a) so far as the consideration for the supply is consideration expressed as an amount of money - the amount (without any discount for the amount of GST (if any) payable on the supply); and (b) so far as the consideration is not consideration expressed as an amount of money - the GST inclusive market value of that consideration. [6] There are various exceptions to this general rule, one of which relates to the "margin scheme" concerning a taxable supply of real property. Section 75-5(1) allows a person who makes a taxable supply of real property by selling a freehold interest in land to choose to apply the "margin scheme" in working out the amount of GST on the supply. Section 75-5(2) says that that choice is not open to a person who has acquired the freehold interest through a taxable supply on which the GST was worked out without applying the margin scheme. Section 75-10 provides that (subject to some exceptions not presently relevant): (1) If a taxable supply of real property is under the margin scheme, the amount of GST on the supply is 1/11 of the margin for the supply. (2) The margin for the supply is the amount by which the consideration for the supply exceeds the consideration for your acquisition of the interest … in question … [7] In broad terms, if a land developer acquires land for the purpose of its enterprise, acquires it through a taxable supply, and is registered for GST purposes, that acquisition is a creditable acquisition (ss 11-5, 11-10, 11-15). The developer is entitled to an input tax credit for that acquisition, in an amount equal to the amount of GST which was payable on the supply of the land (ss 11-20, 11-25). Usually, a supplier of any taxable supply must issue a tax invoice (s 29-70), which a person who makes a creditable acquisition must hold before it can claim the input tax credit in connection with that acquisition (s 29-10(3)). [8] Exceptions to these rules are that an acquisition of a freehold interest in land is not a creditable acquisition if the supply of the interest was a taxable supply under the "margin scheme" (s 75-20), and a person who makes a taxable supply which is solely of real property under the "margin scheme" need not issue a tax invoice (s 75-30). [9] Thus, if land is sold to a developer when the vendor does not elect to apply the "margin scheme", the vendor must pay GST of one-eleventh of the total consideration payable for the supply, but the developer is entitled to receive a tax invoice for the total consideration, and is entitled to an input credit for that one-eleventh of the total consideration. Alternatively, if land is sold to a developer when the vendor elects to apply the "margin scheme", the GST payable on the sale by the vendor is calculated as one-eleventh of the margin, ie of the difference between the consideration for the acquisition of the land and the consideration for which the vendor sells it. Thus, assuming that a vendor of land had not received it as a gift, less GST would be payable on a sale of land to a developer under the "margin scheme" than would be payable on a sale of land to a developer not under the "margin scheme". However, the developer who purchases land under the "margin scheme" cannot claim an input tax credit. Ordinarily, the amount of GST which a vendor of land must pay, and whether the purchaser will be entitled to an input tax credit for the amount of GST paid, will be factors which affect the price for which the land is sold. (I mention, incidentally, that this means that before a sale of real estate can be treated as a comparable sale for the purpose of valuing a parcel of land, the valuer should know and take into account whether or not the sale of the allegedly comparable land was under the margin scheme.)
5. The only subsequent change to the GST Act which is material is that s 75-5 (1) has been amended so that now (and in 2015) the margin scheme can be applied not by the unilateral choice of the vendor but by the agreement of both parties.
6. It is sufficient for present purposes to observe that GST payable on a taxable supply in relation to the sale of a property such as the Brookvale property may be calculated on one of two bases, the ordinary basis or the margin scheme.
7. If the ordinary basis applies, then the vendor must pay GST calculated upon the full contractual sale price for the property. Following settlement, the vendor must give the purchaser a tax invoice that will enable the purchaser to claim the amount of the GST as an input tax credit. The net amount received by the vendor is the contract price less the GST. The effective price paid by the purchaser is also the price less the GST. That will be so, provided the circumstances in which the property is sold and the nature of the purchaser's business entitles it to claim input tax credits. As the vendor's objective will be to receive the market value of the property determined without regard to the obligation to pay GST, the vendor will have an incentive to add the amount of the GST to the amount payable by the purchaser. At least at the time of purchase, the purchaser should not be averse to that course being taken, because the purchaser will be entitled to claim back the GST component of the amount paid as an input tax credit. Provided the amount paid by the purchaser equals the market value plus the GST, it should not matter to either party whether the contract provides for a purchase price that includes the GST, or provides for the price to be the market price and includes a separate obligation on the purchaser to pay the amount of the GST to the vendor.
8. A consequence will be, however, that when the purchaser on-sells the property (in this case after the completion of a substantial development project and the creation of a number of separate units as part of a strata scheme), the purchaser will, as vendor, be required to pay GST on the ordinary basis. That means that the GST payable by the purchaser (now as vendor) will be calculated upon the full contract sale price for each of the units sold. The purchaser will wish to receive the full market value for each of the units (just as did the original vendor) and will not want to pay the GST out of the contract sale price. However, particularly in relation to residential units, the purchasers of those units may not be in a position to claim input tax credits. Where that is so, it may be commercially impracticable for the purchaser as vendor to ask its purchasers to contract to pay the GST on the sales of the units. Market pressures may require the purchaser as vendor to absorb some or all of the GST that it is required to pay on the sale of each unit. To the extent that happens, the purchaser's position will be worsened by the fact that, as its original purchase required GST to be calculated on the full contract sale price (because the ordinary basis applied), the GST payable on the on-sale of the units will also be on the full value of the units because the ordinary basis will apply again. If on the other hand, the margin scheme is applied to the original sale, the amount of the GST is calculated as a proportion of the margin between the price at which the vendor sells the property and the price for which the vendor purchased the property. That will almost invariably be a smaller sum than the sale price itself. In the present case, because Prowl acquired the Brookvale property before 1 July 2000, the effect of the GST Act was that the margin was required to be calculated as the difference between the sale price and the value of the Brookvale property as at 1 July 2000.
9. Where the GST is calculated on the basis of the margin scheme, the amount of the GST payable will be less than the amount payable if GST is calculated on the ordinary basis, for the reason that I have just set out. However, the vendor will not be required to provide a tax invoice to the purchaser, and the purchaser will not be entitled to claim back the GST paid as an input tax credit. Consequently, the overall amount payable by the purchaser in respect of the purchase, if the purchaser is required to pay both the market price and the GST, will be more in the immediate sense than if the ordinary basis had applied. The net price to the purchaser will be the market price plus the GST. The purchaser will have to carry that extra cost until the property is on-sold. The benefit that the purchaser gains from the application of the margin scheme is that it is entitled to apply the margin scheme at the time the property is on-sold, or individual units following the development of the property are sold. The GST payable by the purchaser (now as vendor) will be calculated as a proportion of the difference between the sale price and the original purchase price. The GST payable will invariably be less than if the ordinary basis had applied. The purchaser will face the same problem as that which is described above, where units are sold to purchasers who cannot recover any part of the GST effectively paid by them by way of input tax credits. However, the amplitude of the problem of the purchaser being under pressure to absorb the GST will be reduced because the amount of the GST payable will be less than if the ordinary basis had applied.
10. It will be a matter for commercial judgment for a developer in the position of Raymond Touma and Brookvale concerning the balance between being able to recover the GST as an input tax credit if the purchase takes place on the ordinary basis, and possibly having to sell the developed units with a higher component of GST payable, on the one hand, and absorbing the GST on the other if the margin scheme is applied, but being able to deal with a lesser amount of GST on the sale of the units after the development has been completed.
11. Whichever basis for calculating the GST is used, it will obviously be important for the parties to deal in the contract with the issue of whether the amount of the GST is to be born by the purchaser in addition to the requirement to pay to the vendor the market price of the property. Provided that issue is dealt with clearly, it does not appear in principle that there is any relationship between whether the ordinary basis or the margin scheme is applied, and whether the contract price is stated as the indivisible sum of the market price plus the GST, or whether the contract price is the market price and the contract imposes a separate obligation on the purchaser to pay the amount of the GST to the vendor.

Principles of construction

1. There was no disagreement between the parties to the present case concerning the principles that the Court is required to apply to resolve the dispute between the parties concerning the proper construction of the contract.
2. It is not in the circumstances necessary to analyse all of the recent authorities that consider the manner in which the Court is required to construe commercial contracts. It will be sufficient to set out the following extract from the judgment of French CJ and Hayne, Crennan and Kiefel JJ in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 (footnotes omitted): [35] … [T]his court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd (in rec), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".
3. Later, in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, French CJ, Nettle and Gordon JJ said at [48] (footnotes omitted): Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
4. This statement has been approved in Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 328 ALR 564 at [51]; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [78]; and Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 343 ALR 58 at [73]. See also for an elaboration of these principles Cheshire & Fifoot, Law of Contract 11th Australian Edition at [10.12].
5. Brookvale did not take issue with the following statement of the principles contained in Prowl's written opening, as being of particular relevance to the construction issue in the present case, which I accept as being correct and have slightly edited: [The contract] is a commercial contract which is to be construed having regard to: (a) the background knowledge which was available to the parties at the time they entered into the contract (Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188; Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451 at 463), including the statutory framework in which the sale of development land is taxed (Zhang v ROC Services (NSW) Pty Ltd (2016) 93 NSWLR 561 at [93]-[97]); (b) the context in which each provision in the contract appears and the provisions of the contract as a whole (Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140 at 151); (c) the requirement that the words of every clause must if possible be construed so as to render them all harmonious one with another (Australasian Performing Right Association Ltd at 109) and to give rise to internal coherence (Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at 529 [16]); (d) the requirement that the Court strain against interpreting a contract so that a particular clause is nugatory or ineffective, particularly if a meaning can be given to it consonant with the other provisions in the contract (Chapmans Ltd v Australian Stock Exchange Ltd (1996) 67 FCR 402 at 411; Dovuro Pty Ltd v Wilkins (2000) 105 FCR 476 at [152]; Zhang v ROC Services (NSW) Pty Ltd at [121] and [257]); (e) the evident purpose and object of the contract (McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 599, 601; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179); (f) what a reasonable business person would have understood the terms of the contract to mean (Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640 at 656 [35]).

Relevant terms of the contract

1. It will now be appropriate to consider those aspects of the contract that have a material bearing on its proper construction for the purpose of resolving the present dispute.
2. I propose to set out the relevant provisions generally in the order in which they appear in the contract, and in the course of that exercise I will make some preliminary comments. When I have finished that exercise, I will state the substance of the submissions made by the parties, before giving my reasons for resolving the dispute between them.
3. The contract is in the form of the 2005 edition of the contract for the sale of land prepared by the Law Society of New South Wales and The Real Estate Institute of New South Wales. It is therefore a standard form printed contract in general use throughout this State. It contains blanks for the parties to complete. It contains other standard provisions that the parties can delete if they so choose. It contains terms that explain how the standard terms are intended to operate unless some provision is added to the contract to the contrary. As is customary, the contract contains typed special conditions that have been added to the standard form. Some of those standard provisions appear to have their genesis in a precedent used by the vendor's solicitor, as they appear either to have a general application to all contracts, or in some cases, no relevance at all to the particular transaction the subject of the contract. Other special conditions appear relatively clearly from their terms to be bespoke provisions created for the purpose of the particular transaction the subject of the contract. As is common, some of the special conditions appear to make provision for changes in the way that the standard printed terms would operate if not varied.
4. On the front page of the contract, in the box provided, the price typed in is $14,750,000, the deposit is $1,475,000, and the balance is $13,275,000.
5. In the statement of the price, there is no reference to the payment of GST. Accordingly, there is no statement to the effect "inclusive of GST" or "exclusive of GST", or any comparable expression. Thus, as Brookvale points out, the price is unambiguously stated as being $14,750,000.
6. The date, 27 July 2015, is written in handwriting in the space provided for the contract date.
7. The version of the contract that is in evidence was signed by Raymond Touma on behalf of Brookvale.
8. There is a small box on the front page of the printed form of the contract that contains the words: "GST AMOUNT (optional) The price includes GST of:", and then there is a space for the amount of the GST to be written in. In the case of the contract, all of the words in the box have been deleted by being crossed out, and no amount is stated for the GST.
9. Also on the front page of the printed form, by means of the placement of a cross in the relevant small box, the contract makes the statement: "GST: Taxable supply, yes in full".
10. By means of the placement of a cross in another box on the first page of the printed form, an affirmative response is given to the statement: "Margin scheme will be used in making the taxable supply".
11. Clause 13 of the printed form deals with GST. The relevant parts of this provision are: 13 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. … 13.5 Normally, the vendor promises the margin scheme will not apply to the supply of the property. 13.6 If this contract says the margin scheme is to apply in making the taxable supply, the parties agree that the margin scheme is to apply to the sale of the property. … 13.10 Normally, on completion the vendor must give the recipient of the supply a tax invoice for any taxable supply by the vendor by or under this contract. 13.11 The vendor does not have to give the purchaser a tax invoice if the margin scheme applies to a taxable supply.
12. Clause 13.2 has the effect that normally any GST payable by the vendor is not to be added to the price payable by the purchaser.
13. There is a definitions section in clause 1 of the printed form, which defines "normally" as "subject to any other provision of this contract".
14. Brookvale relies upon clause 16.7 of the printed terms, which provides: 16.7 On completion the purchaser must pay to the vendor… the price (less any deposit paid) and any other amount payable by the purchaser under this contract (less any amount payable by the vendor to the purchaser under this contract).
15. According to Brookvale, the effect of clause 16.7, when read with the provision on the first page which fixes the price at $14,750,000, is that on completion Brookvale was only required to pay the balance of $13,275,000.
16. Special condition 2 of the contract deals with amendments to the standard form. Special condition 2.1 (o) and (p) make amendments to parts of clause 13 that do not apply to the transaction the subject of the contract in the present case.
17. Special condition 27 deals with the subject of "GST". As submitted by Prowl, this special condition is clearly one of the special conditions that has been inserted into the contract on a bespoke basis to deal with the present transaction. A number of reasons support that conclusion, but it is sufficient to note that special condition 27.3 makes specific provision for the valuation obtained by Prowl to enable it to substantiate the margin for the purpose of determining the amount of the GST, given that Prowl acquired the Brookvale property before 1 July 2000.
18. Special condition 27 provides: 27 GST 27.1 The parties acknowledge that the purchase price is exclusive of GST as the term is defined in the A New Tax System (Goods and Services Tax) Act 1999. 27.2 The Vendor and the Purchaser agree that the Margin Scheme is to apply in working out the amount of any GST on the sale of the Property by the Vendor under this Contract. The Purchaser acknowledges that: (a) it will not be entitled to an input tax credit, and (b) the Vendor is not required to give a tax invoice, for the acquisition of the Property under this Contract. 27.3 For the purposes of this special condition 27, the vendor has procured a valuation from Property Logic Valuers for the purposes of applying the margin scheme as referred to in special condition 27.2 of this Contract. If requested by the purchaser, the vendor will assign all right and interest in the valuation to the purchaser on completion provided that the purchaser agrees to pay the vendor the sum of $7,100.00 by way of adjustment to the purchase price.

Prowl's submissions on construction

1. Prowl's submissions acknowledge the reference on the front page of the contract to "Price" as being $14,750,000, as well as standard clauses 13.2 and 16.7, and the definition of "normally", which have been considered above.
2. Prowl submits, and I accept, that where a contract is in a standard form to which the parties have added special conditions, then unless provided otherwise, the special conditions are to be given greater weight: for example Ryan v Fergerson (1909) 8 CLR 731 at 735-7; Walker v Citigroup Global Markets Australia Pty Ltd [2006] FCAFC 101; (2006) 233 ALR 687 at [77]; and Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 at [11]. Further, if there is a conflict between a general condition and a special condition, the latter will prevail: Bedroff Pty Ltd v Rennie [2002] NSWSC 928 at [59].
3. In that context, Prowl's submissions then focus upon the wording of special condition 27.1, which is set out above. The words that are most material are "the purchase price is exclusive of GST".
4. Prowl then submits (from its written opening outline)(footnotes omitted): 44. As a qualification on "purchase price", the phrase "exclusive of" means the opposite of "inclusive of". This accords with the natural meaning of the word "exclusive". It also reflects the usual dichotomy between "inclusive" and "exclusive" when reference is made to the relationship between a particular price and GST. The communications amongst the property professionals in this case amply demonstrates that usual dichotomy. 45. The ordinary meaning of the words in clause 27.1 is that the specified figure ($14,750,000) does not include GST and that a further amount is to be added for GST to determine the amount which the purchaser is to pay to the vendor. That is what a reasonable business person would have understood by the use of the words, just as they were used and understood by the auctioneer, the agent, the purchaser's solicitor, the judge and the Court of Appeal in SAMM Property Holdings Pty Ltd v Shaye Property Pty Ltd. 46. Nothing in the text or context of the contract supports giving the phrase "exclusive of" a meaning other than its ordinary meaning. On the contrary.
5. In this way, Prowl relies upon a suggested dichotomy between "inclusive of" and "exclusive of" when reference is made to the relationship between a particular price and GST. It submits that the natural meaning of the phrase "exclusive of" in relation to the purchase price is that the GST is also payable by the purchaser.
6. It may be observed that, if the expression "the purchase price is exclusive of GST" is construed strictly, all it expressly says is that the purchase price does not include the GST. It does not expressly add that the amount of the GST is payable by the purchaser. The ultimate question is whether the expression, in its context, should be construed as having that effect.
7. Although the argument in par 44 of Prowl's submissions that is extracted above appears to rely upon "the usual dichotomy between 'inclusive' and 'exclusive" when reference is made to the relationship between a particular price and GST", and also the "communications amongst the property professionals in this case", Prowl made it clear that it did not rely upon any convention or standard use of the expressions by people engaged in the property market. Prowl limited its case to the argument that the use of the expression "exclusive of GST" in the wider expression "acknowledge that the purchase price is exclusive of GST" in special condition 27.1 is sufficient, as a matter of the ordinary meaning of the words, when read in their contractual context, to impose an obligation on Brookvale to pay the amount of the GST to Prowl in addition to the separate obligation to pay the price.
8. While there is no doubt, as a matter of the ordinary meaning of the words, a dichotomy between "inclusive" and "exclusive", it does not necessarily follow that the use of "exclusive" in special condition 27.1, in a way that was not juxtaposed with the use of "inclusive", has the effect of imposing on the purchaser the obligation to pay the GST.
9. Prowl then looked to the context of special condition 27.1 in the special condition as a whole. It submitted that for special condition 27.1 to be read harmoniously with clauses 27.2 and 27.3, the GST must be added to the price to be paid by the purchaser.
10. Prowl did not appear to develop its submission that the inclusion of special condition 27.2 would only make commercial sense if special condition 27.1 was intended to have the result that Brookvale was required to pay the GST.
11. Special condition 27.2, in so far as it contains an agreement that the margin scheme was to apply, does not appear to do more than the ticking of the "yes" box on the front page of the contract, against "Margin scheme will be used in making the taxable supply".
12. Furthermore, in so far as par (a) of special condition 27.2 states that the purchaser acknowledges that it will not be entitled to an input tax credit, that is no more than an acknowledgement of the effect of the GST Act. Par (b) of special condition 27.2, which provides that the vendor is not required to give a tax invoice, repeats the effect of standard term 13.11.
13. Prowl submitted that the inclusion of special condition 27.3 only made commercial sense if it was intended that the price be calculated in a manner that required Brookvale to pay the GST.
14. It submitted that special condition 27.3 identifies a valuation of the land by which the amount of the GST payable under the margin scheme could be calculated (as the margin was the difference between the price and the value of the Brookvale property at 1 July 2000). Prowl submitted that special condition 27.3 gave Brookvale the right to take an assignment of the valuation, but only upon payment of $7100. It submitted that the clause contemplates that the valuation will be of value to Brookvale. That makes commercial sense where the price to be paid by the purchaser is to include the GST. In those circumstances, the purchaser is concerned with the regularity by which the amount of GST is to be determined and, hence, the valuation. If the valuer had not exercised reasonable care in the preparation of the valuation, then Brookvale's interests may have been adversely affected. Prowl's submission was that, if the price to be paid by Brookvale was limited to $14,750,000, and did not include a further amount for GST, then Brookvale would have had no interest in the valuation. There would have been no reason to confer on Brookvale the right to purchase the valuation.
15. Prowl then put the wider submission that, in the context of the contract as a whole, if special condition 27 does not have the effect that the figure of $14,750,000 is to be increased for GST, then special condition 27 is wholly otiose.
16. Senior counsel for Prowl made clear in opening that the evidence that would be before the Court would not establish any convention within the real estate market as to the meaning of the expressions "inclusive of GST" and "exclusive of GST", one way or another (T 22.44). Prowl did not submit that there is an industry-wide acceptance of the meaning of those terms (even though Prowl did point out that a number of the witnesses, including even Raymond Touma, used the expressions with the meanings contended for by Prowl). Prowl said that it was: "resistant to any idea that the construction of the contract can be informed by some kind of convention".
17. Prowl did not seek to widen the ambit of the objective surrounding circumstances known to both parties beyond the rules governing the application of the ordinary basis for determining GST and the margin scheme as being relevant surrounding circumstances. Nor did it seek to argue that there was any ambiguity in the express terms of the contract that justified the Court having regard to parole evidence. Prowl was in fact resistant to any use of evidence of surrounding circumstances in the manner recently discussed by Leeming JA (Gleeson JA agreeing) in Cherry v Steele-Park [2017] NSWCA 295; (2017) 351 ALR 521.
18. Prowl drew the Court's attention to the decision of Stevenson J in SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2016] NSWSC 362. That case concerned the sale by auction of an industrial property using the standard form contract for the sale of land. The issue between the parties was whether the purchaser was required to pay the GST that was payable on the sale in addition to the price. The contract between the vendor and the highest bidder contained clause 13.2, to the effect that normally GST is not to be added to the price. The price stated in the contract was the amount bid by the highest bidder. There was no "other provision" in the contract modifying the effect of clause 13.2. Thus, there was no equivalent to special condition 27 in the contract in the present case.
19. The issue was whether by reason of the statements made by the auctioneer during the course of the auction the true agreement between the parties was that the purchaser had an additional obligation to pay to the vendor the amount of the GST payable by the vendor. The question was whether the contract should be rectified to insert a provision imposing that obligation.
20. Stevenson J found that the vendor was entitled to have the contract rectified in the manner alleged, and his Honour's judgment was upheld on appeal in SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2017] NSWCA 132; (2017) 345 ALR 633.
21. Prowl pointed to the fact that in his judgment, Stevenson J on a number of occasions used the expression "exclusive of GST" in a context which shows that his Honour meant those words to have the meaning that GST would be added to the purchase price under the contract, and would be payable by the purchaser in addition to the price: see [24], [26], [28], and [30]. Indeed, in the last-mentioned paragraph, Stevenson J described the dispute in the following terms: "By that date, the controversy between the parties as to whether the sale price was inclusive or exclusive of GST had arisen". That expression of the essence of the dispute appears to accept that the term "exclusive of GST" did not simply mean that the GST was not included in the purchase price, but meant further that the purchaser had the obligation to pay it in addition to the price.
22. Prowl noted that in the Court of Appeal, the leading judgment was given by McColl JA, with whom Gleeson JA and Sackville AJA agreed, and that at [1] her Honour formulated the issue as to which the purchaser had appealed as being that Stevenson J "found that the sale price of a property it had contracted to purchase… was exclusive of goods and services tax (GST) and rectified the contract to reflect that conclusion".
23. In Powell General Sheet Metal Pty Ltd v Autopak Nominees Pty Ltd [2011] NSWSC 321 (which was also a claim for rectification of a contract for the sale of land, so that the purchaser would be required to pay the GST in addition to the price), Sackar J also used the expression "exclusive of GST" as if negotiations using that term necessarily implied that the purchaser would pay the GST in addition to the price: see [43], [49], [54], [58], [59] and [65]. Indeed, in [58] his Honour appears to have used the expressions "exclusive of GST" and "plus GST" as if they had the same meaning.
24. Consistently with Prowl's stance that it did not seek to make a case that the use of the term "exclusive of GST" meant as a conventional term of art that the purchaser was required to pay the GST in addition to paying the price, Prowl did not submit that the use of the term in the SAMM Property Holdings case with that apparent meaning, both at first instance and on appeal, was determinative of the issue in its favour.
25. That was a proper concession in my view, as there was evidence in the SAMM Property Holdings case at [17] that, in addition to the bare use of the term "exclusive of GST", the auctioneer said to bidders during the course of the auction: "The sale today will be deemed a taxable supply therefore GST will be payable, payable by you the purchasers, your bids today are exclusive of GST and GST will be in addition to the knockdown price of today's auction." Thus, there was evidence that the bidding took place on the express basis that the GST would be payable by the successful bidder in addition to the price.
26. Furthermore, it does not appear that there was evidence before Stevenson J that proved that the expression "exclusive of GST" had a conventionally accepted meaning in the market that, not only was the GST not included in the purchase price, but it was also payable by the purchaser to the vendor.
27. Thus, it is possible that Stevenson J used the expression "exclusive of GST" with the meaning that he clearly attributed to it, because that was the meaning consensually accepted by the parties to the case that his Honour was required to decide.
28. That may also explain the terminology used by Sackar J in the Powell General Sheet Metal case.
29. In these circumstances, Prowl only relied upon the judgments in SAMM Property Holdings to support a case that "exclusive of GST" is an expression which may have the meaning attributed to it by Stevenson J, not that it must have that meaning.
30. Prowl therefore confined its construction argument to the ordinary meaning of the term "exclusive of GST", when used in the context of the present contract.

Brookvale's submissions on construction

1. Brookvale submitted that, on the proper construction of the contract, no obligation was imposed upon it to pay the GST payable on the taxable supply constituted by the sale of the Brookvale property.
2. Brookvale pointed out that there was no doubt that GST was payable pursuant to the GST Act, and that amount had to be paid by Prowl as vendor. Nothing included by the parties in the contract could change that obligation imposed upon Prowl.
3. The primary submission put by Brookvale was that the contract was clear in not including any amount of GST in the price. Complementing that submission was the argument that, on a proper reading of special condition 27.1, it did not actually impose upon Brookvale any obligation to pay an amount of GST in addition to the price. Finally, there were many other provisions in the standard form contract, whether or not deleted in this instance, which showed how the contract clearly dealt with the imposition of additional payment obligations on Brookvale, and how the relevant amounts were to be quantified and paid.
4. Considering Brookvale's submissions in more detail, it submitted that by reference to the first page of the contract, it could not be more clearly stated than the price was an amount of $14,750,000. No amount of GST was expressly included in the price. Brookvale submitted that, even though the amount of the GST that was payable in this instance under the margin scheme was not known by the parties involved in drafting the contract at the time the contract was entered into, because a calculation had to be made based upon the value of the Brookvale property on 1 July 2000, the parties could easily have remedied the lack of knowledge by adding the words "plus GST" after the statement of the price.
5. Brookvale placed emphasis on the wording of clause 16.7 of the printed terms, which stated the obligation of Brookvale to make a payment on completion of the contract. To the extent that the obligation was to pay the price less any deposit paid, no amount would be payable for GST.
6. In so far as clause 16.7 required Brookvale to pay "any other amount payable by the purchaser under this contract", Brookvale relied upon the fact that special condition 27.1 is the only possible source of such an obligation, and it at most is an "acknowledgement", as it provides in terms, and is not a source of an obligation upon Brookvale. In any event, when the wording of special condition 27.1 is considered as a whole, it is not a statement of an obligation to pay money.
7. It was also submitted by Brookvale that it would be an error for the Court to give special condition 27.1 a meaning that it does not literally have, simply on the basis that special condition "27 must mean something". Brookvale submitted that the principal task of construction is to identify the parties' intention by the words that they used. It submitted that, for the Court to conjure an obligation to pay GST out of the wording of special condition 27.1 would be "to let the rules become the masters of the task, not their servant".
8. Brookvale submitted that special condition 27.2 plainly replicates clauses 13.6, 13.10 and 13.11 of the printed terms. It submitted that the Court should not strain to give special condition 27.2 some new and separate meaning, because it is not unusual that terms in the special conditions might replicate some of the printed terms. Furthermore, some terms, such as clause 15.1 are superfluous. In that instance, provision was made for what was to happen to the contract if one of the parties died. In the present case, clause 15.1 has no role to play as the contract is between two corporate entities.
9. Brookvale submitted that there are "littered throughout" the contract terms that provide for "extra amounts to be paid on top of the stated price". Brookvale submitted that, where the parties intended to provide for adjustments or additional payments to the price, they did so clearly and unambiguously by identifying the amount and identifying who had to pay it. It referred specifically to clause 3 of the printed terms (deleted in this case by a special condition) that deals with the payment of vendor duty. Clause 4.5.3 deals with an obligation on Prowl to pay Brookvale $33 if the sale is exempt from vendor duty. Clause 14 deals with the conventional adjustments that are made between the parties on completion for such matters as rates, water, sewerage and drainage service and usage charges, land tax and other periodic outgoings. Brookvale also referred to clauses 16.5, 16.8, 16.13, 18.5 and 23.15. Looking at the special conditions, Brookvale referred to special conditions 7.2, 8.2, 9.4 and 16.7, each of which, in some way or another, deals with payment obligations.
10. Having pointed out that special condition 27.2 duplicates provisions in the printed terms, Brookvale submitted that the purpose of special condition 27.3 was to create a right that otherwise would not exist, for Brookvale to obtain an assignment "for whatever purpose the purchaser might have for it" of the valuation report that enabled the calculation of the margin, and the benefit of the provision to Brookvale was to provide a means for recouping an out of pocket disbursement, being the fee paid for the valuation.
11. The focus of Brookvale's submissions was, however, on special condition 27.1. It contained an "acknowledgement", which is only an "acceptance or recognition of an existing fact or circumstance". If, contrary to the expectation of the drafters of the contract, there was in fact no such obligation, then an acknowledgement would not create it.
12. Brookvale submitted that the fact that special condition 27.1 was drawn in terms of an "acknowledgement", and the absence in the contract of any convenient or practical way to determine the amount of the GST that was payable, militates against the special condition being construed as imposing an obligation upon Brookvale to pay the GST in addition to the price.

Consideration of construction issue

1. The starting position is that the contract provides on its first page for a price of $14,750,000. The effect of clause 13.2 of the printed terms is that normally, GST is not to be added to the price payable by Brookvale. The definition of "normally" in clause 1 has the effect that the normal operation of the contract is subject to any other provision contained in it.
2. Consequently, Brookvale will not be liable to pay the GST in addition to the price unless there can be found some term in the contract that imposes that obligation.
3. While clause 16.7 of the printed terms requires the purchaser on completion to pay the price (less any deposit paid), it also requires the purchaser to pay "any other amount payable by the purchaser under this contract". Thus, clause 16.7 is not determinative of the issue, and the question remains whether the contract contains a term that obliges Brookvale to pay the GST.
4. The only candidate for a term in the contract that has that effect is special condition 27.
5. Special condition 27.2 does not oblige Brookvale to pay the GST. The parties accepted that sub-par (a) is otiose, no matter which party's contention as to the proper construction of the contract is correct. Also, sub-par (b) only repeats the effect of clause 13.11 of the printed terms. The sub-paragraph repeats the effect of the box on the front page of the contract being crossed to indicate that the margin scheme will be used in making the taxable supply.
6. Prowl submitted that, although special condition 27.3 is not a source of an obligation upon Brookvale to pay the GST, its existence is consistent with that operation of the contract, and supports the construction of special condition 27.1 to have that effect. Prowl submitted that special condition 27.3 is not what is sometimes called mere 'boilerplate', and its inclusion in the contract would not have been needed if special condition 27.1 did not have the effect of imposing an obligation to pay the GST on Brookvale.
7. Prowl submitted that there would be no point in permitting the purchaser to request the assignment to it of the valuation obtained by the vendor for the purpose of applying the margin scheme if the purchaser was not required to pay the GST.
8. I accept that there is some force in that argument, as if the purchaser was not required to pay the GST, it would have no interest at all in knowing what the valuation was, and accordingly would have no cause to require an assignment of the valuation upon payment of the sum of $7100.
9. I do not accept, however, that the argument quite works. In this case, as would ordinarily be expected, the valuer only accepted liability to Prowl. I will refer to that aspect of the valuation certificate below. It is not clear how Prowl could have assigned the valuation certificate to Brookvale without the valuer's consent. But even if that is not considered a significant impediment to the success of Prowl's submission, it is still difficult to see the point in the valuation certificate being assigned to Brookvale.
10. It is convenient to interpose that it was Brookvale's submission that the real purpose of special condition 27.3 was to give Prowl a means of defraying the cost of obtaining the valuation certificate, and thus to recoup an out-of-pocket expense. The validity of this argument also depends upon the issue of whether or not there was a commercial purpose in Brookvale obtaining an assignment of the valuation certificate.
11. As the margin scheme applied, the GST was to be calculated as a proportion of the difference between the price payable under the contract and the value of the Brookvale property as at 1 July 2000, as certified in the valuation certificate. On Prowl's argument, Brookvale would have become liable to pay that amount when it entered into the contract, whether or not the valuation certificate was later assigned to it. There is no evidence that Brookvale entered into the contract in reliance upon anything said in the valuation certificate. The valuer did not accept any liability to Brookvale when it issued the valuation certificate to Prowl. It is not necessary to resolve this question conclusively, and I go no further than to state the opinion that, although there is a sense in which the presence of special condition 27.3 in the contract tends to support Prowl's submission concerning the effect of special condition 27.1, I do not consider that the argument is clear or convincing.
12. Ultimately, in my view, the issue depends upon the proper construction of special condition 27.1 of the contract. Relevantly, that term states: "The parties acknowledge that the purchase price is exclusive of GST". The question is whether it is correct to read these words as having the same effect as the following: "The price does not include the amount of the GST that is payable on the price and the purchaser must pay the GST in addition to the price".
13. It must be remembered, for the purpose of what follows, that Prowl has specifically eschewed any argument that the expression "exclusive of GST" had a generally accepted meaning in the property market that the GST would be payable by the purchaser in addition to the agreed price. The question is whether the expression "exclusive of GST" is sufficient, as a matter of the ordinary meaning of the words used, to impose an obligation on the purchaser to pay the GST. That question must be answered in the context that the price on the front page of the contract is not expressed to be an amount plus GST, and the obligation of the purchaser to pay the GST is expressly excluded unless the contract contains a term to the contrary effect.
14. In my view it is proper for the Court to approach the resolution of this question on the basis that the identification of the amount payable by the purchaser should appear clearly from a reading of the contract, and not require the resolution of any semantic debate about whether an obligation on the purchaser to pay the GST is to be implied from the words used. There is force in Brookvale's submission that, as a general matter, the contract goes to considerable lengths to identify all manner of payments to be made by the parties in various eventualities. This consideration is the more potent because of the potential quantum of the GST which may, where the margin scheme is applied, range downwards from 10% of the price, but is always likely to be substantial.
15. There is considerable force in Brookvale's argument that in verbal form, special condition 27.1 starts as being an acknowledgement by both parties, and does not in terms impose an obligation on one of them. As an acknowledgement, it would naturally be expected that the special condition was no more than an express statement of the consequences that may expressly or impliedly follow from some other terms of the contract.
16. I regard Prowl's primary submission on the proper construction of special condition 27.1 to be that the effect of Brookvale's argument was to equate the word "exclusive" with "inclusive", which Prowl described as a perversion of language. It submitted that special condition 27.1 would have no work to do if it was not intended to have the effect that the GST was to be payable by Brookvale.
17. One difficulty I have with this argument is that the distinction between "exclusive" and "inclusive" is not to be found specifically in the contract. If, for example, some payment obligation of the purchaser was expressed to be inclusive of GST, another obligation to make a payment that was expressed to be exclusive of GST may justify a conclusion that the purchaser would be required to pay the GST in addition to the amount payable. However, the combined effect of the front page of the contract and clause 13.2 is simply that normally the GST is not to be added to the price.
18. I do not accept the argument that, in the context of the present contract, a statement that the price stipulated on the front page is exclusive of GST is sufficient, by itself, to have the additional effect of obliging the purchaser to pay the GST. In a real way, the acknowledgement that the price is exclusive of GST can have a sensible meaning that, so far as the parties are concerned, the price is the price. The fact that the GST Act imposes on the vendor an obligation to pay GST could be a circumstance entirely unconnected with the effect of special condition 27.1.
19. I appreciate that the conclusion expressed in the preceding paragraph is debatable, but the real question is whether the wording of special condition 27.1 is sufficiently clear to create by implication an obligation on the purchaser to pay the GST, so that the normal effect of the wording of the contract will not operate. I am not satisfied that it is.
20. The context in which special condition 27.1 is found is an assortment of (a) terms creating express obligations on parties; (b) terms that create obligations, but only contingently on certain events happening; and (c) terms that are otiose or repetitive. Given the manner in which the contract is clearly expressed to operate normally, it would be wrong as a matter of the ordinary meaning of the words used in special condition 27.1 to seize upon the expression "exclusive of GST", in the context, as being sufficiently clear to create an implied obligation on the purchaser to pay the GST as a departure from the normal operation of the contract.
21. In essence, the Court should not construe the contract as imposing an implied obligation on the purchaser based upon the use of the expression "the purchase price is exclusive of GST" in special condition 27.1, unless that implication would appear clearly and necessarily to reasonable business persons reading the contract as a whole. That follows from (a) the absolute importance in a contract for the sale of land of the amount payable by the purchaser on completion being stated clearly; (b) the absolute amount of the payment in issue that would have been understood to be in the order of a million dollars by the parties to the contract, even if they had not been able to make a precise calculation; and (c) the detailed terms in the contract designed to identify the payments and adjustments to be made by the parties. For those reasons I do not accept that the implication is sufficiently clear to justify the Court construing the contract as imposing an implied obligation upon Brookvale to pay the GST to Prowl.
22. Accordingly, I reject Prowl's claim insofar as it is based only upon the proper construction of the contract.

Rectification

1. The question then becomes whether Prowl is entitled to an order for the rectification of the contract. Brookvale did not contest Prowl's claim that if the contract is to be rectified, the words "and the Purchaser is to pay the GST" should be added at the end of special condition 27.1.
2. Brookvale also accepted that, if the contract is rectified in this way, Brookvale will be obliged to pay the amount of the GST that was in fact payable by Prowl on the taxable supply constituted by the sale of the Brookvale Property, which is agreed to be $1,145,000, notwithstanding that completion of the contract took place without Brookvale being required to pay the GST.

Principles governing rectification

1. There was no issue between the parties as to the principles that the Court is required to apply in determining whether the contract should be rectified. Those principles have been fully set out by McColl JA (Gleeson JA and Sackville AJA agreeing) in SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd (above) at [107]-[119]. As I am obliged to follow the principles established by the Court of Appeal, it will be appropriate to set out the relevant paragraphs from her Honour's judgment at some length. I have respectfully edited the extract to focus on aspects of the principles of particular importance to the present case. Her Honour said at [107] to [119] (footnotes omitted): [107] The case has to be determined against the background, explained in CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd, that: [32] A contract which has been reduced to writing is presumed to record the parties' agreement and they are bound by it unless one of the equitable doctrines, such as mistake, applies. Where the written words of the document do not reflect the true agreement of the parties due to their common (or, in some limited instances, unilateral) mistake, the equitable remedy of rectification may be available. The effect of rectification is retrospective so that the instrument is taken to operate in its rectified form from its inception. As an equitable remedy, the law relating to when rectification is available continues to develop. [Footnotes omitted.] [108] The rationale for rectification is that it is unconscientious for a party to a contract to seek to apply the contract inconsistently with what he or she knows to be the common intention of the parties at the time that the written contract was entered. [109] The essential principles concerning rectification were recently explained in the joint judgment in Simic v New South Wales Land and Housing Corporation, as follows: [103] Rectification is an equitable remedy, the purpose of which is to make a written instrument 'conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately'. For relief by rectification, it must be demonstrated that, at the time of the execution of the written instrument sought to be rectified, there was an 'agreement' between the parties in the sense that the parties had a 'common intention', and that the written instrument was to conform to that agreement. Critically, it must also be demonstrated that the written instrument does not reflect the 'agreement' because of a common mistake. Unless those elements are established, the 'hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties' cannot be displaced. [104] The issue may be approached by asking - what was the actual or true common intention of the parties? There is no requirement for communication of that common intention by express statement, but it must at least be the parties' actual intentions, viewed objectively from their words or actions, and must be correspondingly held by each party. [Emphasis added; footnotes omitted.] … [111] Kiefel J (as her Honour then was and with whose reasons concerning rectification French CJ agreed) addressed the question of how common intention is proved as follows: [41] It has for some time been settled law that the existence of an antecedent agreement is not essential to the grant of relief by way of rectification and that rectification may be granted in cases where the instrument sought to be rectified is the only agreement between the parties. The focus of the courts turned to the common intention of the parties up to the time the relevant instrument was made. That intention must be proved by admissible evidence and proved to a high standard. In a passage from Fowler v Fowler, which has been cited with approval by this Court, Lord Chelmsford said that: a person who seeks to rectify a deed upon the ground of mistake must be required to establish, in the clearest and most satisfactory manner, that the alleged intention to which he desires it to be made conformable continued concurrently in the minds of all parties down to the time of its execution. [42] What is necessary to be shown is the actual intention of each of the parties. This has often been referred to by intermediate appellate courts as the subjective intention of the parties. A court, in determining whether the burden of proof is discharged, may be said to view the evidence of intention objectively, in the sense that it does not merely accept what a party says was in his or her mind, but instead considers and weighs admissible evidence probative of intention. It is in this sense that statements such as that of Hodgson J in Bush v National Australia Bank Ltd, that common continuing intention 'must be objectively apparent from the words or actions' of each party, may be understood. [43] It is not to be expected that parties to contractual negotiations will express themselves in terms of their intentions. It is therefore to be expected that proof to the necessary standard will usually require some manifestation of the intention of each party by their words or conduct and that the requisite common intention will be a matter of inference for the court from that evidence. As Yeldham J pointed out in Bishopsgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd, it would not be sufficient for proof of intention to refer to a party's state of mind which remained undisclosed in the course of negotiations. … [114] In contrast, the type of intention that is relevant to rectification of a contract is the subjective intention - sometimes called the actual intention - of the parties. Campbell JA illustrated the proposition by reference to Codelfa Construction Pty Ltd v State Rail Authority (NSW) where Mason J explained the distinction by contrasting rectification and the implication of contractual terms by saying "[r]ectification ensures that the contract gives effect to the parties' actual intention; the implication of a term is designed to give effect to the parties' presumed intention". … [116] The "high standard" of proof to which Kiefel J referred in Simic, was explained by Gleeson JA in Newey in the following terms: [170] The principles which govern the rectification of the contract were not in dispute on the appeal. The authorities were considered by this Court in Franklins, and again in detail in Ryledar. It is uncontroversial that the onus on the party seeking rectification is a heavy one. Various expressions have been used to describe the standard of proof required to establish the parties' common intention. The common theme in the authorities is that the party seeking rectification must advance 'clear and convincing proof' that the written contract does not embody the final intention of the parties: Pukallus v Cameron [1982] HCA 63 ; 180 CLR 447 at 452 ('convincing proof'); Bishopgate Insurance Australia Ltd v Commonwealth Engineering (NSW) (Bishopgate) [1981] 1 NSWLR 429 at 431 (Yeldham J) ('clear and strong evidence'); and Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (Carlenka) (1995) 41 NSWLR 329 at 345 (McLelland AJA) ('clear and convincing proof'). … [173] In Ryledar at [176]-[186], Tobias JA (Mason P and Campbell JA agreeing) considered the question of whether the Court was entitled to determine the common intention of the parties objectively by confining itself to the correspondence between them including any relevant conduct and ignoring as irrelevant any inconsistent evidence which established that, subjectively speaking, no such common intention was held. Although the observations were obiter the following statements of the Court provide assistance to the approach which should be taken in a case such as the present: [182] It follows from the foregoing that first, the common intention which must be established by clear and convincing proof to justify rectification must be the actual or true common intention of the parties. Second, evidence of that intention may be ascertained not only from the external or outward expressions of the parties manifested by their objective words or conduct but also from evidence of their subjective states of mind. … [185] Fifth, it follows that where the correspondence and/or conduct positively establishes the necessary common intention, then assertions by the party opposing rectification of his or her subjective state of mind which is inconsistent with that party's outward manifestation of his or her intention, being unexpressed and uncommunicated, is unlikely to trump his or her expressed intention. But this is because that party is unlikely to be believed. [186] Sixth, where as in the present case, the outward expression of the parties' common intention is at best inconclusive, then establishing that the subjective states of mind of the parties evinces the relevant common intention becomes critical if the necessary standard of proof to support an order for rectification is to be achieved. … [119] How the court ascertains whether the "common continuing intention [was] … 'objectively apparent from the words or actions' of each party", was also explained in Newey as follows: [175] … Campbell JA explained at [281] in Ryledar the importance of concentrating on what is needed before any intention of the parties to a negotiation counts as a common intention. When that intention relates to the terms upon which the parties will contract with each other, his Honour noted that it is still necessary for them to know enough of each other's intentions for it to be said that there is a common intention. How might the parties come to know each other's intentions? His Honour explained that this could occur where those intentions are directly stated, or through the various other means by which one person's intentions can become known to another person. His Honour noted that those means sometimes involve a process of conscious and deliberate inference and could also involve simply perceiving a gestalt in a series of events … [Emphasis in original.]
2. It is necessary to determine whether Prowl and Brookvale entered into the contract under a common mistake that it created an obligation upon Brookvale to pay the GST that the GST Act required Prowl to pay, in addition to paying the price stipulated in the contract. The parties must be shown to have had a "common intention" to that effect which was not reflected in the contract.
3. The common intention must be proved by admissible evidence and be proved to a high standard.
4. Although the subject of the Court's search is the subjective intention of the parties, the Court is not required to accept what a party says was in his or her mind, but instead it must consider and weigh the admissible evidence probative of intention.

Summary of conclusion

1. I am satisfied to the required standard that, on the basis of all of the evidence objectively considered, it was indeed the common intention of the parties to the contract that Brookvale would pay the amount of the GST in addition to the price, and that by a mischance arising out of a late amendment to special condition 27.1, the parties failed to accurately record their true agreement in the contract. My reasons for reaching this conclusion follow.
2. I propose to analyse the objective evidence concerning the negotiations between the parties and the drafting of the terms of the contract, but where convenient I will interpose relevant aspects of the testimonial evidence and cross-examination in context.

The participants

1. It will be necessary, however, to begin by identifying relevant participants and to explain their respective roles.
2. Mr Richard Charles Kelly has at all material times been a director of Prowl, and the person who had management responsibility for its dealings with Brookvale. Brookvale does not contest Mr Kelly's evidence that, at all relevant times, it was his belief that Prowl had an agreement with Brookvale that Brookvale would pay the GST payable by Prowl in addition to the price provided for in the contract. Brookvale accepts that Prowl had the subjective intention that is required to be proved in order for Prowl to establish a right to the rectification of the contract.
3. The only question is whether it has been satisfactorily proved that Brookvale also had the same intention, so that it was common between the parties.
4. Prowl's agent on the sale was Jones Lang LaSalle (JLL). The persons who actually acted as agents for Prowl were Mr Sam Brewer and Mr Ben Hunter.
5. Prowl's solicitor retained for the purposes of the transaction was Mr Andrew William O'Donnell. Brookvale retained Mr Jacques (Jack) Kosmin. Mr O'Donnell gave evidence. Mr Kosmin did not do so.
6. I have explained the role undertaken by Mr Willoughby as the de facto buyer's agent and intermediary on behalf of Brookvale above. Prowl did not argue that Mr Willoughby had authority, as Brookvale's agent, that was sufficient for Mr Willoughby's intention to be the intention of Brookvale. Prowl accepted that, for it to prove that at the time the contract was made there was the common intention necessary to support an order for rectification, it must establish that Brookvale itself had that common intention.
7. Although other members of Raymond Touma's family had minor administrative roles in the transaction, the evidence shows that only Raymond and his son Pierre had active roles in the transaction. The evidence suggested that Pierre's role in developments undertaken by companies controlled by Raymond changed over time during the course of the development. As I understand it, Prowl accepted that Pierre did not have authority to make substantive decisions about the terms of the contract to be entered into by Brookvale after its formation. That authority resided solely with Raymond Touma.
8. Accordingly, Prowl accepted, and the case was fought on the basis that for Prowl to succeed on the rectification issue it had to establish, on the principles set out above, that Raymond Touma intended at the time the contract was made that it would be a term of the contract that Brookvale would pay the amount of the GST payable by Prowl in addition to the price.
9. The evidence was that Raymond Touma was a very experienced and successful developer of combined residential and commercial projects. A document attached to the Expression of Interest submitted by Brookvale to JLL, called a "Development Register" contained a list of 14 development projects undertaken by Mr Touma in the period from 1 October 2005. The total development value given was $496,800,000. The development Value of one project alone was $250,000,000.

Use of the expression "exclusive of GST"

1. It will be appropriate at the beginning for the Court to consider the question whether the relevant representatives of the parties understood and used the expressions "price inclusive of GST" and "price exclusive of GST" with the same, common meaning. The answer to that question will be material to an understanding of how the parties themselves understood the steps in the negotiations and the drafting of the terms of the contract, when those alternative expressions were used.
2. The question is whether the persons involved in the transaction used the expression "price inclusive of GST" to mean that the vendor would be required to pay the GST out of the price paid by the purchaser, and whether the term "price exclusive of GST" was a term of usage such that it was understood to mean, without more, that the purchaser would pay the price and in addition pay to the vendor the amount of the GST.
3. It is clear from the evidence given by Mr Kelly, which I accept, that he used and understood the terms in the sense that I have just set out. That is, if the sale price was to be an amount exclusive of GST, it naturally followed that the purchaser would have to pay the GST.
4. As will be seen, it must be said that Mr O'Donnell's involvement in this transaction was not a triumph of the solicitor's art. However, as he explained in his first affidavit, and I accept, Mr O'Donnell also understood that a statement of the price exclusive of GST meant, without more, that the purchaser would be required to pay the GST.
5. I also accept the evidence given by Mr Brewer and Mr Hunter, to the effect that the use of the expression "price exclusive of GST" was the accepted way, during the course of a negotiation, to establish an agreement that the purchaser would pay the GST in addition to the price. Otherwise, as they understood it, the parties to the negotiation would use the expression "price inclusive of GST".
6. It is unclear from Mr Willoughby's evidence whether he used the terms in the same way as Mr Kelly and the representatives of JLL. He clearly was aware of the use of the term "exclusive of GST". He did not state whether his understanding of the term was that it followed that the purchaser would be required to reimburse the vendor for the GST that was payable, in addition to paying the price.
7. The effect of the evidence concerning the understanding of the terms held by Raymond and Pierre Touma is more equivocal. Raymond Touma said in his second affidavit of 7 August 2017 at par 25: "… It was always my intention and understanding that we would not be claiming any credit for GST, I expected the price to be exclusive of GST and that any GST was to be payable by the vendor". That is in effect a statement of understanding that the use of the expression "exclusive of GST" in the context meant that the price had nothing to do with GST, so that the natural effect of the GST Act would be that the vendor had to pay the GST out of the price.
8. Pierre Touma said in par 12 of his affidavit dated 7 August 2017: "it was my understanding that "ex GST" meant there would be no GST payable by the purchaser." It is, however, Raymond Touma's understanding that is relevant, and not the understanding of Pierre.
9. At the end of his cross-examination, Raymond Touma was shown a document that became Exhibit P2. It was a price list, updated as at 15 August 2016, prepared by Brookvale, of the anticipated sale prices for the components of the development after completion. The price list was prepared for the purpose of submission to Brookvale's bank in order to support its application for finance in respect of the development.
10. The price list divided the units available for sale on completion of the development into three categories, which were described as "EX", "MIX" and "INC" in a column of the document headed "GST".
11. Although Raymond Touma's evidence as to the meaning of the term "MIX" was not clear, I infer that he accepted that the term was shorthand for a type of apartment at which the owner would both live and work, which appears to suggest that the proposed use of this type of apartment may attract a partial liability to pay GST.
12. It appears from the price list that all residential units were marked "INC" in the GST column. Units described as "work/live" were marked "MIX". All retail and office units were marked "EX".
13. Given the lack of clarity concerning the GST treatment of the units with the "MIX" label, it will be convenient to consider the units labelled "INC" and "EX". Persons who buy residential units are unlikely to be able to claim an input tax credit for the amount of the GST paid by the vendor in respect of the taxable supply of the unit to them. For the purposes of s 11.5 of the GST Act, such an acquisition will usually not be a creditable acquisition because it will not be for a "creditable purpose." That is because the unit will not be acquired "in carrying on your enterprise" (s 11.15(1)) and the acquisition will be of a "private of domestic nature" (s 11.15(2)(b)). Also, the purchaser is unlikely to be "registered" for GST purposes (s 11.5(d)). Consequentially, as a practical matter, the vendor cannot pass on the obligation to pay the GST to the purchaser on the basis that the purchaser will be able to recover the GST paid as an input tax credit. The sale could be made "price plus GST", but that would be a pointless exercise. That appears to be the significance of the label "INC" for residential units.
14. Where, however, a retail or office unit is sold, the sale may be a creditable acquisition by the purchaser, and if so the purchaser will be able to claim an input tax credit for any GST paid by the vendor. However, if the GST is calculated using the margin scheme the vendor will not be required to deliver a tax invoice to the purchaser. The purchaser will not be able to claim an input tax credit, even if the acquisition is for the purpose of carrying on an enterprise. If, on the other hand, the GST on the sale is calculated on the ordinary basis, any GST that is added to the price and paid by the purchaser may be the subject of an input tax credit to the purchaser.
15. If that is so, a vendor in Brookvale's position, which is entitled to calculate all GST payable on the sale of all units using the margin scheme, may elect to do that only for the sale of residential units. It may elect to sell retail and office units using the ordinary basis, because then, although the absolute amount of the GST will be greater than if the margin scheme had been used, the purchaser should not be concerned with having to pay the GST in addition to the price, because it can all be claimed back as an input tax credit.
16. The question is what the labelling of retail and office inputs as "EX" in respect of GST was intended to mean in this context.
17. The following cross-examination of Raymond Touma took place at T 198.25 -T 199.47: Q. Then what does the EX stand for in the GST column? A. There is no GST in that column. Q. I'm just asking what the abbreviation EX stands for where it appears A. That there is no GST. Q. No GST? A. No GST taken care of in there at the moment. GST is not taken into consideration. Q. For the purposes of this document. A. Yes. Q. Then where it says "INC", what does that stand for? A. "Including." Q. Including? A. Yes, that means we pay the GST. Q. For example, if you sold something for 810 and it says, "GST INC," then you as the vendor would pay the GST. A. Correct, and that's sold under the margin scheme too. Q. But if it said a price - 528 - and then in the column EX, does that mean you as the vendor, you would not be paying the GST. A. No. What we want to do is at the time we did this, the commercials wasn't up for sale, and we had to work out what commercial, because work live, it's got some residential and it's got some retail on the bottom that can be worked out differently. So at the moment, there is no GST calculated in these figures, and we expect like our lawyer to help us with what to do there. Q. But if you take for example lot 91 on the far left hand side, in the first column there's lot 91 about a dozen entries down. A. Yes. Q. And it's described in the lot type as an office. A. Yes. Q. And you go along and the price is 528,000. A. Yes. Q. Then the reference in the GST column is EX. A. Yes. Q. What does that mean? A. No GST in it. Q. No GST in what? A. In that price. Q. So that's the price exclusive of GST? A. That wasn't determined at the time, but, yes, could be no GST in there. Q. What's the purpose of providing this to your bank manager? A. To see how much the property is going to sell at so he can lend us the money. Q. So the bank manager wants to know for example if some of these prices are inclusive of GST, because if that's right then you'll have to take part of the price and pay it to the ATO. A. Correct. Q. But if the price is - you've described it as no GST, then that information needs to be recorded here as well, because then that would be the amount the vendor would be expecting to receive. A. Yes, plus the GST. Q. Yes. So for example, 91, 528,000, you'd be expecting to receive that price plus GST. A. Yes. Q. And you would understand that by the letters EX in that column. A. Yes.
18. The effect of this cross-examination is not entirely clear. In his final answers, Mr Touma appears to accept that "EX" in the GST column meant that Brookvale would expect to receive the price plus GST. However, earlier Mr Touma appears to have suggested that there had been no final decision on the treatment of GST for retail and commercial units.
19. Although the operation of the GST Act was not explored in these questions, it does appear on balance that Brookvale used the expression "EX" to signify that GST would not be a cost to it on the sale of certain types of unit (see: "GST is not taken into consideration" in the extract from the cross-examination above (T 198.32)).
20. Notwithstanding this evidence, when Raymond Touma was then asked whether, in an email written by Mr O'Donnell on 27 July 2015, addressed to Mr Touma and others, to which Mr O'Donnell attached the final amendments to the terms of the draft contract, Mr Touma understood Mr O'Donnell's statement that "special condition 21 has been amended to reflect that the price is exclusive of GST", to mean "plus GST", Mr Touma denied that suggestion and said at T 200.20: "It's not plus GST, it's exclusive; it's got no GST".

Evidence of the parties' negotiations

1. I will now turn to the evidence concerning the negotiations between the parties and the preparation of the draft contract. The Court may pass over the detail in the evidence concerning Prowl's intentions in respect of the proposed sale, the appointment of JLL by Prowl, and the arrangements made by Brookvale with Mr Willoughby.
2. On 1 June 2015, Pierre Touma asked Mr Willoughby by email to work up a gross realisation as soon as possible for the Brookvale property, including the non-residential component.
3. Mr Willoughby provided to both Pierre and Raymond Touma a suggested price list for the Brookvale property on 10 June 2015. The total estimated sale price was $61,732,000
4. On 16 June 2015, JLL sent to Pierre Touma a copy of the Information Memorandum for the Brookvale property, and said that it was for sale by expressions of interest closing on 15 July 2015. On the same day a copy of the Information Memorandum was sent to Mr Willoughby.
5. The Information Memorandum included the following under the heading "Process and Timetable": Please ensure your EOI clearly states (at a minimum): Pricing (Exc GST) … (emphasis added)
6. It also contained the following concerning the manner in which prospective purchasers could conduct due diligence: To assist in the assessment of this offering, due diligence documentation has been compiled by the vendor. This information will be made available to interested parties upon request and upon execution of a confidentiality agreement. The following information can be found in the Data Room: Contract of Sale … To receive access to the due diligence documentation, interested parties should first register their interest with the exclusive agents.
7. The Information Memorandum was only 11 pages long. Many of the pages were wholly or partly comprised of photographs and drawings. The document was a basic selling tool. It contained information of fundamental importance to prospective purchasers of a substantial development site, for which the proposed building had already been designed in detail and development approval obtained. Most of the information was of a nature of such importance to the viability of the development that prospective purchasers would necessarily have read the Information Memorandum carefully.
8. Notwithstanding the apparent significance of the Information Memorandum, and the prudence that a potential purchaser should adopt in its own interests by reviewing all of the available information in the data room, Pierre Touma said, in par 12 of his affidavit, that he recalled having access to the data room, but only accessed the information for the purpose of looking at the plans and documents related to the development potential, such as the development application. The import of Pierre Touma's evidence was that, as he only had a limited role in the negotiations for the acquisition of the property, and as he was not authorised to provide instructions in relation to making any offers for purchase, he did not notice that the Information Memorandum required a statement of: "Pricing (ex GST)".
9. Raymond Touma's evidence was that he was not aware of the Information Memorandum when he learned that the Brookvale property was available for purchase (T 134.18), and that he did not access the data room (T 134.31).
10. According to Mr Willoughby's evidence, he did not undertake a comprehensive review of the Information Memorandum, because his role did not require him to do so, but he did understand that the Information Memorandum required that "pricing would be exclusive of GST".
11. An email dated 13 June 2015 sent to representatives of JLL referred to the enclosed Margin Scheme Valuation being put into the data room. The email stated: "This is the valuation for Margin Scheme for the development site - $3.3m as at 1st July 2000". The valuation itself was expressed to be a "Margin Scheme Certificate for Valuations Made Under Division 75 of A New Tax System (Goods & Services Tax) Margin Scheme Requirements Determination MSV 2009/1". It was expressed to be prepared for the Australian Taxation Office, and a copy was provided to Prowl.
12. The Summary contained the statement: "Therefore the value of the subject property as at 1 July 2000 for use in the application of the margin scheme is $3,300,000 Exclusive of GST". There was a disclaimer in the following terms: "No responsibility is accepted to any party other than Prowl Pty Ltd for any purpose whatsoever".
13. Raymond Touma claimed in his evidence that, at the time Brookvale entered into the contract, he had no idea about the amount of the GST that Prowl would be required to pay under the margin scheme (T 161.9). He gave this evidence in support of his contention that he could not have intended that Brookvale would be required to pay the GST, if he had no idea what the amount would be. There was, however, no evidence to contradict Raymond Touma's assertion that he was not aware of the value of the Brookvale property as at 1 July 2000. That is so, notwithstanding that he would have discovered the value if he had reviewed the information in the data room.
14. On 17 June 2017, Mr O'Donnell emailed to Mr Kelly, and others, a copy of the current revised contract for sale. I infer that the contract of sale that the Information Memorandum stated would be in the data room was substantially in these terms.
15. The contract was in the form of the 2005 edition contract for the sale of land issued by the Law Society of New South Wales and The Real Estate Institute of New South Wales.
16. It was, of course, blank as to the purchaser, as well as the price, the deposit and the balance.
17. It was marked to show that the sale would be a GST taxable supply in full, and that the margin scheme would be used in the making of the taxable supply.
18. The draft contract included the standard conditions that have been described above in the course of dealing with the issue of the proper construction of the contract, and also included the following special condition 27: 27 GST 27.1 The parties acknowledge that the purchase price is inclusive of GST as the term is defined in the A New Tax System (Goods and Services Tax) Act 1919. 27.2 The Vendor and the Purchaser agree that the Margin Scheme is to apply in working out the amount of any GST on the sale of the Property by the Vendor under this Contract. The Purchaser acknowledges that: (a) it will not be entitled to an input tax credit; and (b) the Vendor is not required to give a tax invoice, for the acquisition of the Property under this Contract. 27.3 For the purposes of this special condition 27, the vendor has procured a valuation from Property Logic Valuers for the purposes of applying the margin scheme as referred to in special condition 27.2 of this Contract. If requested by the Purchaser, the vendor will assign all right and interest in the valuation to the Purchaser on completion provided that the Purchaser agrees to pay the Vendor the sum of $7,100.00 by way of adjustment to the purchase price. (emphasis added)
19. It is to be noted that the draft contract for sale provided for the margin scheme to apply and at the same time that the purchase price would be inclusive of GST. That was so even though the Information Memorandum required that prices offered in Expressions of Interest be "Pricing (Exc GST)".
20. It is of interest that, although in this version of the draft contract special condition 27.1 specifically provided that "the purchase price is inclusive of GST", the draft contract contains the same special condition 27.3 as the contract that was actually made between the parties. I have considered above, in relation to the proper construction of the contract, the submission made on behalf of Prowl that special condition 27.3 had a meaning that supported the submission that the use of the expression "exclusive of GST" in the final version of special condition 27.1 meant that Brookvale was obliged to pay the GST as well as the price. As the same wording of special condition 27.3 was included in versions of the draft contract in which special condition 27.1 stated "the purchase price is inclusive of GST" and "the purchase price is exclusive of GST", then this may support a view that courts should be careful in acting upon arguments as to why it is that a term such as special condition 27.3 supports a particular construction of some other provision; in this case a version of special condition 27.1 that uses the expression "exclusive of GST". It appears that, in reality, special condition 27.3 was included in both versions of the draft contract for some obscure reason that has nothing to do with special condition 27.1 including the word "inclusive" or "exclusive".
21. By email dated 30 June 2015, Mr Willoughby asked to have access to the data room.
22. On 8 July 2015, Pierre Touma sent an email to Mr Willoughby (cc Grace Touma) asking to be sent "the EOI paperwork asap". On the same day, Mr Willoughby asked JLL: "Do you have an EOI form for Brookvale?" JLL responded by saying that there was "no EOI as such", and then set out the process. The response included: "Pricing (Exc. GST)". It appears that later on 8 July 2015, Ben Hunter of JLL sent an email to Mr Willoughby with an attachment described as "EOI form.pdf". Mr Willoughby then forwarded the JLL email to both Raymond and Pierre Touma.
23. On 13 July 2015, Mr Willoughby received from JLL a reminder that the EOI would close at 3 PM on Wednesday, 15 July 2015. An Expressions of Interest form was enclosed. Mr Willoughby forwarded the email to Raymond and Pierre Touma.
24. On 14 July 2015, Pierre Touma prepared a feasibility study in respect of the proposed development at Brookvale. It is sufficient for present purposes to note that the price for the land was described as "$14,700,000 (ex GST)". However, an entry on the document suggests that it was prepared on the assumption that the ordinary scheme would apply, not the margin scheme. In that event, any GST that was required to be paid by the purchaser in addition to the price could be claimed back as an input tax credit.
25. Raymond Touma accepted in cross-examination that the feasibility study was prepared on the assumption that the ordinary scheme would apply to the purchase of the Brookvale property and not the margin scheme (T 149.16, T 149.40).
26. On 15 July 2015 at 10:11 AM, Mr Willoughby sent "Ray Touma's EOI" to Ben Hunter at JLL. The attached Expressions of Interest form was signed by Raymond Touma. The purchaser was described as: "Developmentlink Pty Ltd (The purchasing entity will be an SPV named DL Brookvale Pty Ltd, yet to be incorporated)". The form contained the following statement: "Proposed Purchase Price AUD$ (Plus GST, if applicable)". In the line under that statement was typed: "AUD $14,500,000". (It appears that the soft copy of the EOI form was completed electronically).
27. In cross-examination, Raymond Touma explicitly conceded (T 149.46, confirmed at T 150.22 and T 150.48) that he intended that Brookvale's first offer was "14.5 plus GST".
28. In my view, this is a crucial piece of evidence. It establishes that the starting position in the negotiations was that Brookvale would pay an agreed price plus the GST payable by Prowl. Consequently, Raymond Touma can only credibly say that he believed that the contract as finally made did not require Brookvale to pay the GST, if he can point to some change in circumstances during the subsequent negotiations that caused him to understand that the position had changed.
29. Mr Touma claimed that such a change in circumstances occurred. I will consider this contention in more detail below, but at this point it may be noted that Mr Touma asserted that it was his belief that there was a general practice in the property market that, in the case of sales of property where the margin scheme was agreed to apply, it followed that the vendor and not the purchaser would pay the GST. That is, the purchaser would not pay the GST in addition to the price.
30. Whether or not the Court should accept that Raymond Touma had a belief to this effect will be an important aspect of determining whether or not the contract should be rectified.
31. At this point, I will only note that the draft contract stated that the margin scheme would be used, but the evidence does not establish that Raymond Touma read the contract before he caused Brookvale to make the initial offer in the Expression of Interest. Mr Touma claimed that he had not thought about whether the margin scheme applied by the time he made the initial offer (T 142.21), but he later asserted on multiple occasions that he always intended that Brookvale would insist on the margin scheme applying (for example T 148.29).
32. On 15 July 2015 at 3:41 PM, Mr Willoughby sent to JLL's Ben Hunter an email on the subject: "Development Link EOI - Ex GST". The message was: "As requested". Mr Hunter sent a reply on the same date thanking Mr Willoughby.
33. The enclosed document was a copy of the EOI earlier signed by Raymond Touma upon which Mr Willoughby had written by hand next to the statement of the price "Ex GST" and initialled the change.
34. In his affidavit, Mr Willoughby gave the following explanation of why he amended the EOI that had been signed by Raymond Touma: On 15 July 2015, after submission of the First EOI, I received a telephone call from Ben Hunter of JLL to the following effect: Ben: There is no reference to GST on the EOI form. Go back and confirm it's ex GST. These guys won't get in the second round unless it is ex GST. It was a term of the IM that the offers be ex GST. Me: Okay, I will get instructions and email the updated EOI. I then made a telephone call to either Mr Touma or Pierre Touma. I have a recollection that they were at a development site at the time. I said words to the following effect: Me: The EOI offer has to be ex GST to get into the next round. The offer has to be exclusive of GST. What are your instructions? There won't be a second chance. RT/PT: Ex GST. The offer was always intended to be $14.5 million exclusive of GST. I cannot make that change to the EOI form, I'm onsite. Me: Okay. I can make the change on the form and resubmit it on your behalf. RT/PT: Yes, please do that. I then proceeded to write "Ex GST" on the EOI form next to the nominated price of $14,500,000 and marked the change with my initials.
35. This is plainly significant evidence. As I have noted above, Raymond Touma conceded in evidence that the original offer was an amount of $14.5 million plus GST. In that context, the statement that Mr Willoughby said was made on behalf of Brookvale: "The offer was always intended to be $14.5 million exclusive of GST", is only consistent with the person making the statement having the understanding that "exclusive of GST" was intended to mean "plus GST". That conclusion is supported by the balance of the conversation, as deposed to by Mr Willoughby, as it can only be interpreted as a statement of the necessity for the GST to be payable in addition to the price.
36. In his second affidavit, Raymond Touma denied having had the conversation with Mr Willoughby as stated above. He said at par 2 in response to par 25 of Mr Willoughby's affidavit of 20 July 2017: "I did not specifically instruct Mr Willoughby to write "ex GST" on the EOI form next to the nominated price". Mr Touma continued by asserting that he "expected the price to be exclusive of GST and that any GST was to be payable by the vendor".
37. For his part, Pierre Touma denied having the conversation with Mr Willoughby that is set out in Mr Willoughby's evidence. He said in par 8 of his 7 August 2017 affidavit in response to par 24 of Mr Willoughby's affidavit: "…I would not have discussed GST with Mr Willoughby. I would not give any such instructions to Mr Willoughby as I was not authorised to do so".
38. If it be accepted that the evidence proffered by Brookvale from Pierre Touma is correct, because of his absence of authority, it would follow that, if Mr Willoughby did have the conversation to which he deposed, it was with Raymond Touma and not Pierre.
39. On 15 July 2015, JLL sent to Mr Kelly a summary of all offers received under the expressions of interest process. There were six proposals. Raymond Touma's proposal is described as having a price of "$14,500,000 (Exc. GST)". There were other expressions of interest at $15,000,000 (Exc. GST), $14,250,000 (Exc. GST), alternative offers of $15,264,000 (Inc. GST) and $13,876,364 (Exc. GST), $12 million, and $8,435,000 (Inc. GST).
40. It is to be noted that nothing was said in Raymond Touma's Expression of Interest form concerning whether the ordinary or the margin scheme would apply in relation to the payment of GST.
41. On 16 July 2015, JLL's Sam Brewer wrote an email addressed: "Dear Buyer". (The email is said in the contents to the Chronological Bundle of Documents to be an email from JLL to bidders advising them of who was shortlisted to participate in the second round of the Expressions of Interest, although the email only appears to be addressed to representatives of JLL). The email advised that the recipient had been shortlisted to participate in the second round of the Expressions of Interest, which would close at 3:00 PM on the following Thursday, 23 July 2015. The email stated: "In response to buyer requests, the vendor is currently preparing an updated contract that includes a Put and Call option. In addition we note that a minimum 10% deposit is required by the vendor".
42. On 16 July 2015, Mr Willoughby wrote an email to Pierre and Grace Touma, in which he advised that JLL had said that the Toumas and three others were on the short list: "All around the same price". He added: "We might need to be back around $15m to buy it".
43. Mr Willoughby gave evidence in par 32 of his affidavit that he had a conversation with Raymond Touma in which he said: "Ray, you will need to increase your offer to secure the property". Mr Willoughby said that he had formed the opinion that it might be necessary for Brookvale to bid at approximately $15,000,000, given his understanding that each of the bids in the first round of the EOI process were around the same amount.
44. On 22 July 2015, Mr Willoughby sent an email to Grace and Pierre Touma, in which he stated that he had attached a copy of the contract for the Brookvale property as requested. On the same date, Grace Touma advised Mr Willoughby that she had: "Just sent the files through to our lawyer".
45. This version of the contract remained blank as to the price. It stated that the margin scheme would be used. Special condition 27.1 provided that "the purchase price is inclusive of GST".
46. On 23 July 2015, Mr Jacques Kosmin, as solicitor for the Toumas, wrote a letter to JLL in which he said: We act on behalf of the abovenamed and are instructed to offer $14.7 million on the basis that our client will exchange Contracts within two (2) business days of acceptance, with a Company to be incorporated. We confirm that we have reviewed the Contract and have advised our client in relation to same.
47. I infer that Mr Kosmin made the offer on 23 July 2015 on the instructions of Raymond Touma. There was no positive evidence that either Mr Kosmin or Raymond Touma had read special condition 27.1 in the form that it was then in. Had they read that term, then they could credibly have asserted that the offer of $14.7 million was made on the basis that the margin scheme applied and that the price was to be inclusive of GST.
48. However, had Brookvale's evidence taken that course, the benefit to its case may have been short lived. The reason is that, at virtually the last moment, Mr O'Donnell realised his error and submitted to Mr Kosmin replacement pages for the draft contract that amended the existing draft. One amendment made it clear that the margin scheme was to apply. Another amended special condition 27.1 to provide that the price was "exclusive of GST". Had the evidence been that Raymond Touma noticed this change, it would have been hard for him to assert credibly that he did not understand that Brookvale would be required to pay the GST in addition to the price.
49. On 23 July 2015 at 4:28 PM, Mr Willoughby sent an email to Sam Brewer and Ben Hunter at JLL on the subject: "Revised Offer to Purchase Lot 112/511-513 Pittwater Road Brookvale". The email stated: Further to our discussions this afternoon and my subsequent conversation with Ray Touma the purchaser. Please find below their offers to purchase the above property: 1. $15.0 million, 10% deposit upon exchange, settlement 1st March 2016. 2. $14.75 million, 10% deposit upon exchange, settlement in accordance with the contract as issued. Special Condition for both above offers. Right to occupy and market the project post exchange of unconditional contracts. The purchaser has advised that they will use their best endeavours to facilitate the exchange of contract by close of business tomorrow, however they have requested to have this extended until close of business Monday as they have been instructed by their lawyer to set up our SPV for the acquisition.
50. Neither of the offers referred to the issue of whether the ordinary or the margin scheme would apply. Nothing was specifically stated as to whether or not any GST payable by the vendor would be included in the sums nominated.
51. Raymond Touma has denied giving instructions to Mr Willoughby to make the $15 million offer (T 154.35, T 157.37). Mr Touma did concede that he and Mr Willoughby did discuss whether a $15,000,000 offer should be made (T 155.5). Mr Touma ultimately asserted that Mr Willoughby must have misunderstood him (T 155.26).
52. Raymond Touma's case was that the offer that he instructed Mr Willoughby to make of $14.75 million was in response to Mr Willoughby's advice that Brookvale would have to increase its offer. He also claimed that the offer was made on the basis that the margin scheme would apply, with the consequence that Prowl would have to pay the GST out of the price, and Brookvale would not be obliged to reimburse the GST. Mr Touma was cross-examined at some length on the issue of how he could have believed that the $14.75 million offer represented an increase in the value to Prowl, if at the same time the original offer to pay the GST in addition to the price had been withdrawn (T 160.20 to T 161.34, and T 183.20 to T 185.18). This is an important issue in relation to the credibility of Mr Touma's position, and I will return to it in more detail below.
53. JLL's Sam Brewer responded to Mr Willoughby's email on Friday, 24 July 2015 at 10:33 AM. He said: Confirming terms agreed: $14.75M ex GST 10% deposit Settle as per contract Purchaser can market after exchange (as per contract) We will email a sales advice shortly. (emphasis added)
54. Brookvale submitted that, when he referred to the price being $14.75 million ex GST, Mr Brewer had made an assumption that was inconsistent with the basis upon which Raymond Touma was proceeding. It submitted that Mr Brewer's response was not consistent with the email of Mr Willoughby to which it was a reply.
55. The chain of emails beginning with Mr Willoughby's 23 July 2015 email to Mr Brewer, and Mr Brewer's response of 24 July 2015, was forwarded by Mr Willoughby, on 24 July 2015 at 10:39 AM, to Raymond, Pierre and Grace Touma. Mr Willoughby's email was sent to the email addresses for Pierre and Grace, and the email to Raymond was sent to info@developmentlink.com.au. The email said: Guys See below. Let's get moving!
56. JLL's Mr Brewer sent an email on 24 July 2015 at 10:55 AM to Mr O'Donnell, and also to the email address of Gary Kosmin, Jacques' brother and partner. The email was also sent to Mr Willoughby, to Mr Kelly and to Raymond Touma's email address. The email attached Heads of Agreement and said: Please see attached HOA as agreed for the sale of the Brookvale Apartments site. In order to ensure a prompt exchange the vendor has asked that all correspondence between the parties is CC'd with the currently included group.
57. The email attachment was entitled: "HEADS OF AGREEMENT (Subject to contract)". It was dated 24 July 2015. By this time, Brookvale had been identified as the purchaser, but its ACN was to be advised. The email address given for Brookvale was Raymond Touma's, and he was identified as the "contact". The sale price specified was "$14,750,000 plus GST". The Heads of Agreement had a caveat that the particulars were not binding and did not form part of any contract. The agreement was to be subject to the execution of a contract of sale.
58. Raymond Touma's position in relation to the Heads of Agreement was that he had already booked a time with his lawyer to go through the contract and: "There is no need for me to worry myself with expression of interest or deed or whatever, because I am going to a final contract (T 163.24). He said that: "I wouldn't bother myself with a head of agreement that really after you sign a contract it's obsolete" (T 164.11). He specifically denied reading the attachment to the 24 July 2015 email (T 164.23, T 165.34 and T 168). Raymond Touma therefore denied learning that the price was to be $14.75 million plus GST, which as stated was the sale price specified in the Heads of Agreement.
59. At 11:59 AM on Friday, 24 July 2015, Mr Kelly sent an email to Mr Brewer, with copies to all of the recipients of Mr Brewer's earlier email, to which he attached a copy of the Heads of Agreement signed by him on behalf of Prowl.
60. The Heads of Agreement was not signed on behalf of Brookvale.
61. At 1:23 PM on 24 July 2015, Priscilla Touma forwarded to Jacques Kosmin a copy of Mr Kelly's email to Mr Brewer with the message: Not sure if you got this. Please see attached HOA for Brookvale purchase.
62. Mr O'Donnell sent an email to Gary Kosmin's email address on Friday, 24 July 2015 at 2:13 PM. The email was copied to Mr Willoughby, Raymond Touma's email address, and others. The email was expressed to be one of two. It appears that Mr O'Donnell attached the current version of the contract of sale broken up between two emails. Mr O'Donnell said: Dear Gary We enclose the updated front page of the Contract for Sale together with the counterpart Contract for Sale of Land… for approval and execution by your client. Please note that special condition 27.2 should be struck out from the Contract and we understand the vendor is not applying the margin scheme. Please confirm the Purchaser's ACN and the full names of the directors. Please note that no rights or obligations shall arise until a formal exchange of Contracts has taken place. Please contact us as soon as you are in a position to exchange Contracts.
63. The first page of the contract stated a price of $16,225,000, a deposit of $1,622,500, and a balance of $14,602,500.
64. In the box in the standard form that contains the writing: "GST AMOUNT (optional) The price includes GST of", the amount for GST of $1,475,000 was inserted.
65. The boxes in the form were marked to show that the sale was a taxable supply, but that the margin scheme would not be used in making the taxable supply.
66. The parties accepted that, even though the balance of the current version of the contract was not actually included in the Chronological Bundle of Documents, special condition 27 was in the same words as the earlier version (although the covering email stated that special condition 27.2 should be struck out).
67. It would have been obvious to any of the persons involved who read the replacement first page of the contract that the price of $14,750,000 plus GST referred to in Mr Brewer's 24 July 2015 email and in the Heads of Agreement had been 'grossed up' by $1,475,000 for GST which had been included in the purchase price.
68. This version of the draft contract may provide some retrospective explanation as to why the earlier draft provided in special condition 27.1 that the price would be inclusive of GST. I will put aside Mr O'Donnell's apparent misunderstanding of his instructions in believing that the ordinary scheme was to apply to the payment of the GST. However, on the basis of Mr O'Donnell's apparent belief that the ordinary scheme would apply, it was rational to provide in special condition 27.1 that the price would be inclusive of GST, as when the front page of the contract was completed, the price could be grossed up to include the GST. Further, the amount of the GST could be inserted in the optional box printed on the first page of the contract.
69. This version of the draft contract demonstrates that Mr O'Donnell did understand that the purchaser would ultimately pay the GST. That would happen because the price would be grossed up to cover the GST, rather than that the contract contain a term that required the purchaser to pay GST in addition to the price.
70. Mr O'Donnell made a file note on 24 July 2015, in which he wrote down Jacques Kosmin's name and his personal email address.
71. The file note also contains a handwritten reference to Brookvale and both its ACN and ABN numbers. Mr O'Donnell accepted that this latter entry may have been made at a later time. The file note also contains a note: "DA - Approved Plans".
72. Raymond Touma gave evidence of what happened on 27 July 2015, during the course of a lengthy attendance by him in Mr Kosmin's boardroom, for the purpose of receiving advice about the final form of the contract and taking the steps necessary to achieve exchange of contracts.
73. Raymond Touma insisted in cross-examination that Mr Kosmin did not during the conference show him the Heads of Agreement (T 169.32).
74. Mr Touma also claimed that he was not aware that the version of the draft contract in Mr Kosmin's position at the beginning of the conference specified the price as being $16.225 million (T 171.8, T 179.49 and T 180.37). Mr Touma's position was that not only did he not read the price, but Mr Kosmin did not tell him what the price on the contract was.
75. According to Raymond Touma, what Mr Kosmin in fact did was to advise him that the application of the margin scheme had been deleted from the contract (T 170.40). Mr Touma's position was that the absence of the margin scheme was a "deal breaker", and in effect that this issue predominated in his response to the draft contract (T 171.12).
76. Raymond Touma gave the following evidence in his first affidavit concerning the events of 27 July 2015: On 27 July 2015 I met with my solicitor, Jacques Kosmin. I was with him for many hours of that day. In the late-morning or early-afternoon, he said words to the effect that, "I have read the amended contract. The provision for the margin scheme to apply has been deleted." Jacques Kosmin in my presence telephoned Samuel Brewer ("Samuel") at Jones Lang La Salle and left a message for him to call. Jacques Kosmin in my presence then telephoned Benjamin Hunter ("Benjamin") of Jones Lang La Salle and left a message for him to call. I then telephoned Clint and left a message for him to call me. Clint then called me and I said words to the effect: "The margin scheme has been deleted. I am not paying any GST. The contract has to provide for the margin scheme to apply." I then received a call from Benjamin and Samuel together. I said to Samuel words to the effect: "I am not paying any GST. The margin scheme is to apply." Samuel replied: "I will speak to the vendor and the vendor's solicitor." At approximately 1:10 PM, in my presence, Jacques Kosmin had a conversation with Mr Andrew O'Donnell from Edney Ryan Legal, the vendor's solicitor, which I overheard, to the following effect: Kosmin: The margin scheme is to apply or my client will not proceed. O'Donnell: I will get instructions and come back to you. I then went through the draft contract with Jacques Kosmin and said to him words to the following effect: "It's all okay provided there is the margin scheme and we receive stamped architectural plans." At approximately 1.50pm, in my presence, Jacques Kosmin received a phone call from Andrew O'Donnell, which I overheard, to the following effect: O'Donnell: I am waiting for the accountant to okay the margin scheme. I will amend the front page and email it to you. Please advise the full name of the purchaser. Kosmin: DL Brookvale Pty Ltd ACN 607 265 538 as trustee for the DL Brookvale Unit Trust. When can we expect stamped plans? O'Donnell: I will check.
77. Mr Brewer gave evidence in reply that he had no recollection of being aware of the missed call from Mr Kosmin on 29 July 2015. He also said that at no time did he have a discussion with Mr Touma on 27 July 2015 in which Mr Touma said: "I am not paying any GST. The margin scheme is to apply".
78. Mr Brewer said that if Raymond Touma had told him that he was not paying the GST, that would have been a significant change to his understanding of this aspect of the deal. He would have told Mr Kelly about that straight away. At no time did Mr Brewer contact Mr Kelly and tell him that Mr Touma was not paying the GST.
79. Mr Hunter also gave evidence in reply that the conversation deposed to by Raymond Touma did not occur. He said that Mr Touma has never said to him that he would not be paying the GST. As this would have been a significant change to the deal, Mr Touma's offer would no longer be as competitive as other parties' first round offers, and it would have made the offer much less attractive to Mr Kelly. Mr Hunter confirmed that to his knowledge, Mr Brewer did not call Mr Kelly to tell him about this change.
80. It may be observed that objectively, a statement by Mr Touma to the agents that he would not pay the GST would have been a startling event to them. They had always proceeded upon the basis that the term "Ex GST" meant that the purchaser was required to pay the GST in addition to the price. Mr Hunter noticed that Mr Touma's original EOI did not include the expression "Ex GST", and he arranged for Mr Willoughby to amend the EOI to add the necessary expression. The original offer made by Mr Touma was a price plus GST offer. At least one of the other offers made during the first round of the EOI process was on offer at "$15,000,000 (exc GST)".
81. Mr Willoughby said in par 44 of his affidavit, that he did not recall a telephone conversation with Mr Touma or Pierre Touma in relation to the margin scheme or the payment of GST on or around 23 or 27 July 2015, or at any other time.
82. In his affidavit in reply, Mr O'Donnell denied that he had a conversation to the effect set out at par 27 of Raymond Touma's first affidavit. He said that he did not discuss the margin scheme with Mr Kosmin on 27 July 2015 (or at any other time). Mr O'Donnell had already explained in his first affidavit (which was served before Mr Touma's first affidavit), that his instructions had always been that the margin scheme was to apply to the sale.
83. At 2:25 PM on Monday, 27 July 2015, Mr O'Donnell sent to Jacques Kosmin one of two emails attaching the approved stamped plans.
84. Two minutes later, Mr O'Donnell sent a second email that attached the second part of the plans, and also contained the statement: "Revised cover page will shortly follow".
85. Brookvale submitted that the preparation of the revised cover page was a response to the conversation referred to by Raymond Touma in his principal affidavit at par 27.
86. Mr O'Donnell gave evidence in par 10 of his first affidavit that, on Monday, 27 July 2015, when he was preparing the execution copy of the contract for Mr Kelly to sign, he realised that the current draft of the contract (the front page of which he had emailed on 24 July 2015) did not apply the margin scheme. Consequently, he needed to make changes to the contract. He said that he had not been instructed as to what the amount of the GST would be under the margin scheme, so he could not simply change the inclusive GST price of $16,225,000. Therefore, he amended the price on the front page of the contract to be "exclusive of GST" by amending the purchase price to $14,750,000, by crossing out the box: "GST amount (optional) the price includes GST of $1,470,000", and by crossing the box on the front page to signify that the margin scheme would apply. He said: "I also amended clause 27.1 of the special conditions for the purpose of making it clear that the price was exclusive of GST, and that the margin scheme would apply to the calculation of GST".
87. At 2:43 PM on 27 July 2015, Mr O'Donnell sent a further email to Jacques Kosmin's email address. The email was copied to Mr Kelly and Mr Willoughby, among others, and also to Raymond Touma's email address. However, at this time Mr Touma was in conference with Jacques Kosmin at the solicitor's office. The email stated: Please see attached amended front page noting the margin scheme will now apply. Furthermore, special condition 27.1 has been amended to reflect that the price is exclusive of GST. Please let me know when the contract is available for collection and I will organise the agent to collect it from you and deliver it to me so as to attend exchange today. (Emphasis added)
88. The new first page of the contract that was attached to the email stated the price as being $14,750,000, the deposit being $1,475,000, and the balance being $13,275,000.
89. The words in the box that was contained on the front page of the standard form contract to enable an optional statement of the GST amount had been crossed out, with no amount stated for the GST.
90. Crosses were placed on the relevant part of the standard form to indicate that for GST purposes the sale would be a taxable supply, and that the margin scheme would be used in making the taxable supply.
91. An additional page was attached to the email that included a revised special condition 27. The revision included in part: 27.1 The parties acknowledge that the purchase price is exclusive of GST as the term is defined in the A New Tax System (Goods and Services Tax) Act 1999.
92. Raymond Touma's position was that he did not personally notice the price set out in either the first or second version of the draft contract that Mr Kosmin had on 27 July 2015, and Mr Kosmin did not tell him either price (T 179.9). He said that: "As soon as he applied the margin scheme the price will go back to normal" (T 178.27, and see T 179.43, T 182.42-50, T 184.26, T 186.16, T 186.39 and T 190.41). The effect of this evidence was that, as Mr Touma believed that the vendor always was required to pay the GST out of the purchase price whenever the margin scheme was used, without the purchaser being required to reimburse the GST to the vendor, once Mr Touma knew that the margin scheme would be applied, he could be satisfied that all Brookvale would have to pay would be the price stated on the front page of the contract.
93. In cross-examination, Raymond Touma confirmed the evidence that he gave in par 29 of his first affidavit that Mr Kosmin read to him Mr O'Donnell's 27 July 2015 affidavit (T 188.40). Then, at T 189.20: Q. Then if you go forward to page 538 where special condition 27.1 appears - do you see that? A. Yes. Q. It says in 27.1, "The parties acknowledge that the purchase price is exclusive of GST." A. Yes. Q. Do you see that? A. Yes. Q. Did you know that in the previous draft that you reviewed with Mr Kosmin, 27.1 said "the purchase price is inclusive of GST"? A. I didn't look at that detail, but it could be. Q. But in any event, you saw that the price in this document was now much lower than in the previous document. A. My understanding is the price is, yes. Q. Of course the margin scheme box has been changed as well. A. Yes. Q. I want to suggest to you that you understood fully when Mr Kosmin read you the email at page 534 that the price that the contract required you to pay was 14.75 plus GST. A. No. There was no GST. Q. Did you think that the vendor had previously wanted 16.225, but now was happy to settle for 14.75? A. If he takes 1.6 million GST out of it to the government, he's left with less money than under the margin scheme. It depends on the valuation; he could be left with more money. I did not know at the time what the margin scheme is. Q. If he takes the GST out of 16.225, he's left with 14.75, is he not? A. Correct. Q. You're saying that you thought he intended to accept 14.75 from you, and take out of that GST and pay it to the government. A. Under the margin. Q. Yes. A. It could be 100,000 or could be 50. Q. But whatever it is, it's more than zero. A. Yes. Q. So this is a lower figure that is being set out in this contract unless you also play the GST. A. No. It's what we agreed on. We agreed to pay 14.5 originally. Then we increased it subject to getting it under the margin scheme, and it's up to the vendor to work out whether this is better for him or not.
94. This evidence encapsulates Raymond Touma's explanation of how his last-minute insistence upon the application of the margin scheme, and the specification of the price of $14.75 million, could be consistent with his having increased the first offer that was made at $14.5 million plus GST.
95. It may be noted that Raymond Touma did not address the explanation given by Mr O'Donnell in his email for the changes that were made to the draft contract, being that it was "to reflect the price is exclusive of GST". Mr Touma's position concerning the significance of the explanation is only tenable if it is accepted that he was unaware that, when he walked into Mr Kosmin's board room in the morning, the then current draft of the contract stated the price was $16,250,000.
96. Contracts in the form of the final version of the contract of sale were exchanged late on Monday, 27 July 2015.
97. On 15 March 2016 Gary Kosmin wrote a letter to Mr O'Donnell's firm confirming that settlement had been arranged for 2 PM on Friday, 18 March 2016. The letter attached a settlement adjustment sheet for Mr O'Donnell's approval.
98. There were some communications concerning the settlement sheet, but for present purposes it is only necessary to record that the settlement sheet was prepared on the basis that the purchase price was $14,750,000, and the balance payable after allowing for the deposit was $13,275,000. There was no reference to any amount of GST, and no provision for that amount to be paid to Prowl by Brookvale on settlement. Mr O'Donnell's evidence was that he had simply forgotten that Brookvale was required to pay to Prowl the amount of the GST on completion.
99. By letter dated 16 March 2016 to Kosmin & Associates, Mr O'Donnell accepted that the amount payable to Prowl on settlement would be $13,747,113.25.
100. On 6 June 2016, Mr O'Donnell wrote a further letter to Kosmin & Associates in which he said: We refer to the settlement of this matter on 18 March 2016. It would appear that the cheque for GST was inadvertently not handed over or collected on settlement. Would you please contact the writer as soon as possible with regard to this matter so that the appropriate arrangement can be made for payment to our client for remission to the Australian Taxation Office. In the interim, we enclose our client's tax invoice for GST.

Consideration of rectification issue

1. For the reasons that follow, I find that Prowl has established its case that, when the contract for the sale of the Brookvale property was exchanged on 27 July 2015, it was the common intention of both parties that, although the stated price did not include GST, Brookvale would be required as a separate obligation to pay the amount of the GST, calculated on the basis of the margin scheme, to Prowl. That intention miscarried in the manner in which the contract was drafted, because at the 11th hour Mr O'Donnell realised that the current draft had been prepared on the basis that the ordinary scheme applied, and then he hurriedly but misguidedly made amendments that were intended to adopt the margin scheme, but still make Brookvale responsible for paying the GST.
2. The principal reason for the error appears to be that Mr O'Donnell could not calculate the amount of the GST, because he did not have the valuation of the Brookvale property as at 1 July 2000. He therefore could not gross up the price to include the GST, and accordingly stated the price on the front page of the draft contract as being $14.75 million. He then had to include a term that required Brookvale to pay the GST. The device that he adopted was to simply change the word "inclusive" in the current version of special condition 27.1 to "exclusive".
3. For the reasons that I have considered above in dealing with the proper construction of the contract, this approach miscarried. The original form of special condition 27.1 was effective, because the price was grossed up to include the GST. Consequently, the ordinary working of the terms of the contract would simply require Brookvale on completion to pay the balance of the purchase price, and that would include an amount to cover the GST. It was therefore appropriate to provide in special condition 27.1 that the price was inclusive of GST.
4. However, when the amount of the GST was removed from the price, the approach of replacing the word "inclusive" by "exclusive" in special condition 27.1 did not actually include in the contract an obligation on Brookvale to pay the amount of the GST in addition to the price. That is the case, provided it is correct, as I have found, that in the absence of proof that the expression "exclusive of GST" has an industry accepted meaning that the GST is payable by the purchaser, as a matter of ordinary language the use of the word "exclusive" is not sufficiently clear in the context of the present contract to have that effect.
5. It will be appropriate to set out my findings on the credibility of the witnesses, before I embark upon a discussion of my reasons for the conclusions that I have reached.
6. Mr Kelly was a credible witness, but his evidence concerning Prowl's intention as to the effect of the contract has not been put in issue.
7. As to Mr O'Donnell's evidence, I am satisfied that Mr O'Donnell confronted the reality of his professional actions squarely in the witness box. I accept him as a witness of truth. However, it is plain that in July 2015 Mr O'Donnell had a muddled understanding of his instructions as to whether or not the margin scheme would be applied. He appears always to have understood that Brookvale was to pay the GST.
8. The thrust of Mr Touma's version of the telephone conversation that he said Mr Kosmin had with Mr O'Donnell on 27 July 2015 was that Mr Kosmin said: "The Margin scheme is to apply or my client will not proceed". The Court might provisionally accept that that statement could have been made by Mr Kosmin, as the then current version of the contract had been drawn on the basis that the ordinary basis would apply. However, on Mr Touma's version, Mr O'Donnell replied: "I will get instructions and come back to you". It was Mr O'Donnell's evidence that he independently realised that the draft contract did not comply with his instructions that the margin scheme would apply. Mr O'Donnell gave evidence in par 3 of his first affidavit that, at the outset, Mr Kelly instructed him that the margin scheme would apply to the sale. As I have stated above, the original version of the draft contract stipulated that the margin scheme would apply. Consequently, if Mr Kosmin had made the statement attributed to him by Raymond Touma, the natural response from Mr O'Donnell would have been something to the effect: "of course, that accords with my instructions, the present version of the draft contract is a mistake".
9. I would not be prepared to reject Mr O'Donnell's evidence on this issue in the absence of evidence from Mr Kosmin corroborating Mr Touma's version of the conversation.
10. I found both Mr Brewer and Mr Hunter to be straightforward witnesses, who gave their evidence in a direct and professional manner. Both witnesses were disinterested in the outcome of the case. It is true that they gave evidence about subjects that arose in the day to day performance of their duties. However, I accept that a last-minute change in Brookvale's position, whereby it declined to pay the GST, having formerly been accepted as the best offer in the course of the EOI process on the basis that it would pay the GST, would have been so significant that both men would have recalled such an event. It is self-evidently relevant to the role of the agents to facilitate their principal obtaining the best price on offer for the property, that both witnesses would have recalled if the proposed purchaser had changed its offer, with the effect that the amount offered was less than an offer already made by a competing purchaser.
11. At the time Mr Willoughby gave his evidence, he was self-interested, as he was defending a claim then made by Prowl against him. His interest was best served by giving evidence that established that Brookvale was liable to pay the GST to Prowl.
12. However, I am satisfied that Mr Willoughby was a straightforward and credible witness, who did his best to give honest responses to the questions that were put to him. Furthermore, a general review of Mr Willoughby's affidavit justifies the conclusion that he did not try to go beyond what he could actually remember, and he was prepared to acknowledge when his memory was not clear upon a particular matter.
13. I would not find against the credibility of Raymond Touma's evidence on any basis connected with his demeanour in the witness box or the way he gave his evidence. A reading of the transcript of Mr Touma's evidence as a whole will justify the observation that the formulation of his responses to questions was not always in perfect English. However, he was able to make his meaning clear. Mr Touma broadly adhered to his case, and with a limited number of exceptions, to which I will come, he was not moved.
14. The question of the credibility of Raymond Touma's evidence ultimately depends upon an objective assessment of the probability of it being correct, having regard in particular to the evidence given by other witnesses that the Court is prepared to accept, and the inherent logic of the position adopted by Mr Touma.
15. At the end of the day, I do not understand Prowl to have suggested that any relevant issue arises in respect of the credibility of Pierre Touma's evidence. His intention concerning the effect of the contract was not material. It seems that Pierre's involvement in the transaction was relatively peripheral.
16. My reasons for finding that Prowl has established an entitlement to the rectification of the contract may be distilled into three main grounds. First, Raymond Touma's first offer was made on the basis that the GST would be paid by the purchaser in addition to the price, and I do not accept that anything materially changed so that Raymond Touma did not have the same intention when the contract was made. Secondly, upon a consideration of a number of significant facets of the evidence, the positions adopted by Mr Touma are so logically improbable that, considered cumulatively, they take Mr Touma's evidence beyond the frontier up to which the Court would be prepared to believe what he says. Thirdly, Brookvale did not call Mr Kosmin, without an explanation as to why it did not do so, and I find that to be a highly significant omission given the issues in the case.
17. Even though the Court is required, as a matter of principle, to make a finding on the basis of the objective evidence, while having regard to the assertions made by Mr Touma as to his subjective intention, it must always be remembered that it is the actual intention of the relevant party as to the terms of the contract that has been made that is determinative. The actual intention of the party may not be sensible or prudent, or even rational. The Court is not concerned with what the party's intention ought to have been, given all of the objective evidence relevant to the formation of that intention.
18. It is therefore significant in the present case that the starting position, being the original offer made by Raymond Touma, was of a price of $14.5 million plus GST. Had Mr Touma not made that initial offer, the Court would have been required to examine all of the evidence to determine whether a finding was warranted that Mr Touma formed an intention before the contract was made that Brookvale would pay the GST. The investigation in the present case will be different, as the question will be whether the evidence supports a finding that Mr Touma changed his intention so that Brookvale would not pay the GST.
19. Further, it is necessary to be clear about the subject matter of the intention. The question is whether Mr Touma intended to enter into a contract a term of which was that Brookvale would pay the GST in addition to the price. However the process of offer and acceptance may play out in a particular case, the question is whether the party had an intention to enter into a contract that contained the relevant term. If so, it is immaterial that the party may not have had an intention to perform that term.
20. The basis of Brookvale's claim that, by the date of the contract it did not intend that the contract included a term that it would pay the GST, was Mr Touma's assertion of his own understanding that, as a matter of practice, the vendor always pays the GST out of the price where the contract provides for the GST to be calculated on the basis of the margin scheme.
21. As I have recorded above, Mr Touma's reliance upon this proposition extended to the relatively extreme point that, on the day of exchange of contracts, when a number of alternative versions of the draft contract existed, he did not need to concern himself with the price specified in the contract, or the possibility that different prices may have been specified in alternative draft contracts, because, once he knew that GST would be calculated on the basis of the margin scheme, that was enough to establish that Prowl rather than Brookvale would pay the GST.
22. As Brookvale's counsel put it in submissions, the question is whether in fact Raymond Touma acted upon the basis of a belief that such a convention existed, not whether it in fact existed, or whether it was objectively rational to believe it existed.
23. A number of facets of the evidence tend to undermine a finding that Raymond Touma acted on the basis that he asserted.
24. The most significant, in my view, is that Mr Touma ultimately accepted in cross-examination that the convention in the market that he claims to have acted upon was not universal, but ultimately depended upon the agreement of the parties to the contract. The following cross-examination took place at T 194.46 to T 195.26: Q. What I'm suggesting to you that just because a purchaser does not get a refund of the GST paid on the acquisition of land under the margin scheme that the purchaser might still want the margin scheme to apply because they pay less GST when they sell the units? A. It depends what you agree. It's an agreement, you know Q. That's right. You can agree it either way with the vendor of the land, can't you? A. Yeah, you can. You can agree and write down that if in the event of the GST payable, like, under the margin scheme the vendor doesn't want to pay it he would clarify it on the contract and just say you pay it, then I would look at it and get the opportunity to reject the whole contract. Q. Yes, so it's a matter for agreement between the parties? A. Yeah. Q. But it's not always the case, is it A. What do you mean? Q. I haven't finished the question. It's not always the case, is it, that the purchaser does not have to pay the GST when they buy development land under the margin scheme? It's a matter for the parties to agree? A. It is automatic the vendor pays the - under the margin scheme pays the GST unless there is an agreement that somehow you add that figure to the price somehow. Q. You understand that it's a matter for the parties to agree? A. Yes, matters for the parties. Q. You understood that in July 2015? A. Yes.
25. Logically, there is a sound basis for finding that, once Mr Touma has accepted that the supposed convention is always subject to the agreement between the parties, his claimed actual reliance upon that supposed convention to prove that the intention of Brookvale was not in fact to enter into a contract that obliged it to pay the GST simply breaks down. That is not because the convention cannot take effect if it is subject to contrary agreement, but because the initial position was an offer made by Mr Touma to pay a price plus GST. That being the case, the terms of the final contract would not accord with the convention unless by subsequent agreement the effect of the convention was reinstated.
26. There are other grounds to doubt Mr Touma's claim that he truly acted on the basis that the convention meant that the vendor would pay the GST.
27. The evidence is that whether or not the margin scheme was to apply appears to have changed over time, and Mr Touma's claim that he consistently required the margin scheme to apply, and consequently believed that the purchaser would not have to pay the GST, does not always fit the evidence. As I have recorded, Mr Touma asserted that Brookvale would never have entered into the contract if the margin scheme did not apply. However, Mr Touma's initial offer did not specify the application of the margin scheme as an essential term. Mr Touma said that initially he did not concern himself with this issue. The feasibility study prepared by Pierre Touma assumed the application of the ordinary scheme. The initial draft of the contract specified that the margin scheme would apply, but there is no evidence that Raymond Touma sufficiently concerned himself with this issue to inspect the first draft of the contract. These matters cast doubt on Mr Touma's claim concerning the consistency of his insistence that the margin scheme apply, and thus the consequences of that scheme applying.
28. Brookvale did not tender any evidence to provide objective corroboration of the claim by Raymond Touma that he believed there was a convention that, if the margin scheme applied, the vendor paid the GST out of the price.
29. Raymond Touma said in par 3 of his second affidavit that he had been purchasing properties for development since the 1960s. He estimated that he had been involved in the purchase of over 50 properties. To the best of his recollection, on all of those occasions, when the margin scheme had been applied, the vendor paid the GST. He accepted in cross-examination at T 151.12 that he had not provided copies of any contracts relating to any purchases under the margin scheme that he had been involved in.
30. Even if due allowance is made for the fact that records of many of those purchases may not have been available when Mr Touma's affidavits were prepared, no explanation was given for the fact that no objective corroboration for Mr Touma's assertion was supplied.
31. Even though the issue is what Raymond Touma actually believed, as the guiding mind of Brookvale, and not whether any belief he asserted was rational, the rationality of the alleged belief is still relevant to whether the Court should accept Mr Touma's assertion. Mr Touma is an intelligent man, and a very experienced real property developer. While he could have held an objectively irrational belief, it is unlikely that he did so.
32. When considering how the GST Act operates in this situation above, I made a number of observations concerning the relationship between the manner in which the margin scheme and the ordinary basis operate, and the likelihood that the parties to a contract would choose one rather than the other. I concluded that, while the choice of one scheme for calculating the GST over the other could have significant commercial consequences for the purchaser, those consequences did not appear to have any connection with the issue of which party was required to fund the vendor's obligation to pay the GST.
33. In short, the purchaser must pay the price to the vendor, and the vendor must pay the GST to the ATO. The total amount that the purchaser will pay in a competitive market should be determined by the market. It should not matter whether the total amount payable by the purchaser is defined as the price plus GST, or whether the price is, so to speak, 'grossed up' to include the amount of the GST that the vendor must pay. All that is necessary is that there be a clear understanding of the structure of competing offers, so that the vendor can understand what is the highest offer.
34. The significance of these observations in the present case is that Brookvale made no attempt at all to provide a rational basis for Mr Touma's claim that there was a convention that, if the margin scheme was to apply to the calculation of the GST, the vendor would pay the GST out of the price. That circumstance has considerably undermined the justification for the Court to accept Mr Touma's claim that he acted on the basis that the supposed convention existed.
35. A further serious impediment to the Court accepting Brookvale's claim arises out of Mr Touma's concession (which he clearly had to make) that the offer that he made of $14.75 million was intended to be an increase from Prowl's perspective of the initial offer of $14.5 million plus GST.
36. Mr Touma's claim is only rational if the effect of the application of the margin scheme to the calculation of the GST would be that the amount of the GST payable by Prowl would be less than $250,000. That proposition is itself simplistic, because if the objective was to win the EOI process by making a significant increase in the price offered, the process would have been counter-productive, if the expectation that Prowl would have to pay the GST had the effect that it would not gain the benefit of a substantial part of the increase that was offered.
37. Raymond Touma claimed that he did not know the value of the Brookvale property at 1 July 2000, so that he could not calculate the amount of the GST payable on the basis of the margin scheme. That claim itself is suspect, as it requires an acceptance that neither Raymond nor Pierre Touma was sufficiently interested in the information made available in the data room to review it, and consequently to find out that the valuation certificate adopted a value of $3.3 million. However, as the contrary was not proved, I will accept that Raymond Touma did not know the value. Even so, Mr Touma's conduct is improbable, as it was not rational for him to set out to increase the offer he made, while believing that he had withdrawn his offer to pay the GST in addition to the price, without having any idea whether or not the increase in price of $250,000 would be sufficient to cover the GST that would now be payable by Prowl.
38. I also find that the arithmetic necessary to support Raymond Touma's claim that he had increased his offer while withdrawing his agreement to pay the GST in addition to the price is so improbable as to undermine his assertion that he believed that the proposed agreement no longer required him to pay the GST.
39. If the margin scheme applies, the consideration for the supply is taken to be the price payable less, in this case, the value of the property at 1 July 2000. Call that value X. The question is, what value must X have to give an amount of GST of $250,000. That calculation will give the value of X such that the whole of the increase would be taken up by Prowl's obligation to pay the GST out of the purchase price. As I understand it, the applicable formula is ($14,750,000 - X) ×1/11 = $250,000. If that is correct, then X is $12,000,000.
40. The effect of the position adopted by Raymond Touma is that his supposedly increased offer would be an increase in fact up to the point where the value of the Brookvale property as at 1 July 2000 was $12,000,000 or more. If the value of the Brookvale property was less than $12,000,000 as at that date, the value of Mr Touma's offer to Prowl would proportionally decrease below the value of his initial offer of $14.5 million plus GST.
41. The conclusion I have reached may be simply stated. The rate of increase of the value of residential real estate in Sydney over the 15 years between 1 July 2000 to 3 July 2015 has been so notoriously high that I find Mr Touma's claim to be incredible, in so far as its validity depends upon the value of the Brookvale property only having increased by $2.75 million over that 15 year period.
42. It is now necessary to move to a consideration of the credibility of Raymond Touma's evidence generally, having regard to conflicts between his evidence and the evidence given by other witnesses.
43. In this respect I make the following findings. First, I prefer the evidence of Mr Willoughby that he acted on the instructions of Raymond Touma when he amended the EOI by hand to add the expression "EX GST", to the evidence given by Raymond Touma that he did not give such an instruction to Mr Willoughby.
44. While Mr Willoughby's evidence was that he was given the instruction either by Raymond or Pierre Touma, I accept the evidence of Pierre, which was proffered in Brookvale's case, that he was not the one that gave any such instruction. That being the case, if Mr Willoughby was given an instruction, it must have been by Raymond.
45. Apart from the fact that I have generally accepted Mr Willoughby to be a witness of credit, having regard to the way he gave his evidence in the witness box, I do not accept that he would have unilaterally amended Mr Touma's EOI, without being first authorised to do so. Apart from the fact that I accept that Mr Willoughby would have regarded that as being an essential aspect of his professional obligations, it must be recalled that he had no formal appointment from Mr Touma at all. While Raymond Touma denies that he gave the instruction to Mr Willoughby, if in fact the deal was that Mr Touma would pay the GST in addition to the price (consistently with the initial offer), it would have been natural for Mr Willoughby to have sought Mr Touma's instruction to make the amendment to the EOI, and it would have been natural for Mr Touma to confirm the instruction as a matter of course.
46. Secondly, I prefer the evidence of Mr Brewer and Mr Hunter to the effect that they were not told by Raymond Touma in a telephone conversation on 27 July 2015 that Brookvale would not pay the GST in addition to the price, to the evidence given by Raymond Touma.
47. I have considered this question above, where I have set out the conflict in the evidence. Apart from the fact that I found Mr Brewer and Mr Hunter to be generally credible witnesses, I am persuaded by the fact that there is no evidence whatsoever that either man contacted JLL's principal, Mr Kelly, to inform him that Brookvale had not only withdrawn a material aspect of its offer, but that the consequence was that Brookvale's offer was no longer one that would yield Prowl the highest result from the EOI process. It is clear in my view, given the consistency with which JLL insisted that Mr Touma's offer be on an exclusive of GST basis (which its representatives clearly understood to mean price plus GST), there would have been a dramatic reaction had Mr Touma made the statement that he claims to have made to Mr Brewer and Mr Hunter, and there is no objective evidence at all of any reaction to such a statement.
48. I am also inclined to believe Mr Willoughby over Raymond Touma on the issue of whether Mr Touma had the conversation which he claims to have had with Mr Willoughby on 27 July 2015. However, it is not necessary for the Court to make a definite finding on that issue, given Mr Willoughby's relatively general response to the evidence given by Mr Touma.
49. Thirdly, I find it improbable that Raymond Touma did not read the Heads of Agreement and note in consequence that the price stated was "$14,750,000 plus GST". It is also improbable that Mr Kosmin did not inform Mr Touma of the effect of that term in the document.
50. It must be noted that, even if, as he claimed, Raymond Touma did not open the attachment to the email sent to him, and others, by Mr Kelly on 24 July 2015, which was the copy of the Heads of Agreement signed by Mr Kelly, on the same date, Priscilla Touma, forwarded the same email to Mr Kosmin. I find Mr Touma's claim that he did not look at the Heads of Agreement because he was only interested in the terms of the actual contract to be unpersuasive.
51. Finally, I am not prepared to accept the evidence given by Raymond Touma that, when in conference with Mr Kosmin on 27 July 2015, Mr Kosmin said nothing to Mr Touma about the price stated in the then current version of the draft contract. That price was $16,250,000, as the actual price was grossed up by an amount of $1,475,000 for GST. As a matter of standard practice, Mr Kosmin would have taken Mr Touma through the important terms of the draft contract, and it is highly improbable that Mr Kosmin would not have specifically advised Mr Touma of the price stated in the draft contract.
52. If Raymond Touma knew on 27 July 2015 that the initial draft contract that was current on that day had provided for a grossed up price that included the GST, Mr Touma could not possibly have believed that, by means of the final draft of the contract, Prowl had abandoned the status quo, which entitled Prowl to require Brookvale to pay the GST in addition to the agreed price.
53. Raymond Touma claimed that the truth of his belief that Brookvale would not be required to pay any GST in addition to the price was supported by the fact that he did not know the amount of the GST that would be payable under the margin scheme, and there is no evidence that he sought information as to the amount that would be payable before contracts were exchanged (T 185.18). It is true that there is no evidence that Mr Touma made any specific enquiry. I am sceptical of the claim that neither Raymond nor Pierre Touma took the care to review the valuation certificate in the data room, but there is no specific evidence that they did so. On the other hand, Raymond Touma would have known that the amount of the GST calculated on the basis of the margin scheme would have been less that the amount determined by the ordinary scheme, which would have been 10% of the purchase price.
54. In my view, however, the more significant point is that the only financial analysis put into evidence by Brookvale was the initial feasibility study made by Pierre Touma, which was done on the assumption that the ordinary scheme applied. It is clear from Raymond Touma's evidence that documents were prepared (see Exhibit P2) for the purpose of supporting an application by Brookvale for finance. It is likely that Brookvale would have prepared cash flow forecasts of one type or another that would have informed the bank of the total amount that Brookvale expected to pay to acquire the Brookvale property. If any such contemporaneous documents had shown that Brookvale only expected to pay the price of $14.75 million, and no allowance was made for the payment of any additional GST, that would have been telling evidence in favour of Brookvale's case. No such evidence was tendered. The absence of such evidence was not explained. Consequently, I find that Brookvale's argument based upon Mr Touma's assertion that he did not know the amount of the GST that would be payable carries relatively little weight.
55. In my view the failure of Brookvale to call Mr Kosmin to give evidence in this case is of great consequence. Kosmin & Associates are Brookvale's solicitors in these proceedings, and Mr Kosmin is expressed to be the legal representative of Brookvale in its defence. Raymond Touma accepted that Mr Kosmin was still acting for Brookvale (T 173.28).
56. It is notable that in the Powell General Sheet Metal case, a rectification case that I have referred to above, Sackar J had to consider the significance of the failure of a party to call a witness who was plainly in a position to give very material evidence in support of that party's claim as to what its true intention was concerning the terms of the relevant contract. His Honour set out extracts from the decision of the High Court in Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8, at [69]-[72], and added at [73] that the rule in Jones v Dunkel can operate against parties not bearing the burden of proof and those who do bear it as well.
57. It will be sufficient for present purposes to set out the same extracts from the decision of the High Court as did Sackar J (footnotes omitted): [69] In Jones v Dunkel, Kitto J made the following observation: One does not pass from the realm of conjecture into the realm of inference until some fact is found which positively suggests, that is to say provides a reason, special to the particular case under consideration, for thinking it likely that in that actual case a specific event happened or a specific state of affairs existed. I therefore agree that in the present case a verdict for the plaintiff could not properly have been based upon such a general reflection as that a collision on a curve, where the road is substantially banked with a fall to the inside, and where the vehicle with the outside running is travelling downhill, is more likely to have been caused by the driver of that vehicle cutting the corner than by the driver of the opposing vehicle swinging wide. But there are some specific primary facts which the jury could have found on the evidence presented to them and which, if found, would suggest, as it seems to me, that the collision probably occurred on the diesel truck's wrong side of the road and therefore, prima facie as a result of negligent driving by Hegedus. [70] Kitto J goes on to say: But what should have been added, and not being added was in the circumstances as good as denied, was that any inference favourable to the plaintiff for which there was ground in the evidence might be more confidently drawn when a person presumably able to put the true complexion on the facts relied on as the ground for that inference has not been called as a witness by the defendant and the evidence provides no sufficient explanation in his absence. The jury should at least have been told that it would be proper for them to conclude that if Hedeges had gone into the witness box his evidence would not have assisted the defendants by throwing doubt on the correctness of the inference which, as I have explained, I consider was open on the plaintiff's evidence. In my opinion what his Honour said on the point amounted to a misdirection. [71] It was also said by Menzies J, that: In my opinion a proper direction in the circumstances should have made three things clear: (i) that the absence of the defendant Hegedus as a witness cannot be used to make up any deficiency in evidence; (ii) that evidence which might have been contradicted by the defendant can be accepted more readily if the defendant fails to give evidence; (iii) that where an inference is open from facts proved by direct evidence and the question is whether it should be drawn, the circumstances that the defendant disputing it might have proved the contrary had be chosen to give evidence is properly to be taken into account as circumstances in favour of drawing the inference. [72] Windeyer J also observed: Then, I think, his Honour should, when the juryman asked his question, have given an answer in accord with the general principles stated in Wigmore on Evidence 3 rd ed (1940) vol 2 s 285 p 162 as follows: "The failure to bring before the tribunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so, and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavourable to the party. These inferences, to be sure, cannot fairly be made except upon certain conditions; and they are also open always to explanation by circumstances, which made some other hypothesis a more natural one than the party's fear of exposure. But the propriety of such an inference in general is not doubted … This is plain commonsense. If authority be needed, two passages from R v Burdett" may be cited. Abbot CJ said: "No person is to be required to explain or contradict, until enough has been proved to warrant a reasonable and just conclusion against him, in the absence of explanation or contradiction, if the conclusion to which the proof tends to be untrue, and the accused offers no explanation or contradiction; can human reason do otherwise than adopt the conclusion to which the proof tends? The premises may lead more or less strongly to the conclusion, and care must be taken not to draw the conclusion hastily, but in matters that regard the conduct of men, the certainty of mathematical demonstration cannot be required or expected." [A]nd Best J said: "Nor is it necessary that the fact not proved should be established by irrefragable inference. It is enough, if its existence be highly probably, particularly if the opposite party has it in his power to rebut it by evidence, and yet offers more; for then we have something like an admission that the presumption is just."
58. It is generally accepted that the so-called rule in Jones v Dunkel has the effect that the absence of the relevant witness cannot be used to make up any deficiency in the evidence, but that evidence which might have been contradicted by the witness can be accepted more readily if the witness fails to give evidence, and the Court may be entitled to conclude that the witness would not be able to give evidence favourable to the case of the party who has failed to call the witness.
59. The present is the clearest of cases that Mr Kosmin was available to be called as a witness, and Brookvale has offered no explanation at all for its failure to do so.
60. In my view, the proposition that in these circumstances the Court is entitled to act upon the basis that Mr Kosmin would not have been able to give evidence favourable to Brookvale's case is not merely a neutral proposition. The amplitude of the effect of the proposition will depend upon the facts of each case, and there will be cases where the failure to call a particular witness will be extremely telling, given the nature of the evidence that the witness could be expected to give.
61. In the present case, Mr Kosmin was the solicitor advising Raymond Touma on behalf of Brookvale throughout the day that culminated in the parties exchanging contracts. Events crucial to establishing what the real intention of Brookvale was concerning the terms of the contract that governed the payment of GST occurred on that day. The day started with Mr Kosmin being in possession of a version of the draft contract that provided that GST would be calculated on the ordinary basis, so that the price stipulated on the front page was clearly the agreed price grossed up to include the GST that would be calculated on the ordinary basis. Raymond Touma claimed that he did not read this statement of the price and nor did Mr Kosmin tell him what the price was. The role of a solicitor in this context is to explain the primary terms of the draft contract to the client. It would have been extraordinary for Mr Kosmin not to mention the price stated in the contract, particularly if, as Mr Touma claimed, Mr Kosmin advised him that the draft contract did not provide for GST to be dealt with on the basis of the margin scheme.
62. Furthermore, during the course of the day, Mr O'Donnell sent the email to Mr Kosmin that contained substitute pages that changed the amount of the price on the first page, and noted that the margin scheme was to apply, and also included a page that made a significant amendment to special condition 27.1, by substituting the word "exclusive" for the word "inclusive" in respect of the payment of GST. The email said that "special condition 27.1 has been amended to reflect that the price is exclusive of GST". Putting aside the debate about any conventional meaning of the expressions "inclusive of GST" and "exclusive of GST", the circumstances in which Mr Kosmin received Mr O'Donnell's email were significant in their own right. They involved the nominal price being reduced by $1.475 million in the context of the explanation of the amendment of special condition 27.1. It is self-evident that a solicitor in Mr Kosmin's position, acting even with only reasonable competence, would have provided Mr Touma with a thorough explanation of the reasons for this change. Part of that explanation would necessarily have focused on the change from "inclusive" to "exclusive" in the context of the removal of the amount of the GST from the statement of the nominal price.
63. In view of the failure of Brookvale to call Mr Kosmin, and in the light of the other conclusions that I have expressed above in response to my analysis of the evidence, I find that on 27 July 2015, Raymond Touma was aware of the terms of the penultimate draft of the contract, as well as the effect of the amendments made to the draft contract by means of Mr O'Donnell's email, so that he understood that the offer made by Prowl involved the application of the margin scheme, the removal of the GST from the price, but that the amendment to special condition 27.1 was to have the effect that Brookvale would pay the GST in addition to the price. Knowing that Prowl made the offer to sell on that basis, it was Mr Touma's intention to cause Brookvale to enter into the contract on the basis of his understanding that special condition 27.1 would oblige Brookvale to pay the GST.
64. Accordingly, Prowl is entitled to an order that the contract be rectified in the manner sought in prayer 1 of the amended statement of claim.
65. As a result of the rectification of the contract, Prowl is entitled to judgment against Brookvale for $1,145,000 plus interest. The parties should agree the amount of the interest and submit appropriate short minutes of order to my associate.
66. Brookvale must pay Prowl's costs of the proceedings. I will hear from the parties concerning Prowl's costs of its claim against Mr Willoughby, if the parties cannot agree on the appropriate order.

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. Decision last updated: 17 September 2018