Sky Profit Properties Development Pty Ltd trading as Sky Profit Properties Development Pty Limited v Dean Street Holdings Pty Limited trading as Dean Street Holdings Pty Limited

Jurisdiction: Civil

Before: Newlinds SC DCJ

Decision: (1) The Plaintiff’s claim is dismissed.
(2) Verdict for the Defendant.
(3) The Cross-Claim is dismissed.
(4) No order as to costs of the Cross-Claim, with the intent that each party bear its own costs of the Cross-Claim.
(5) The Plaintiff is to pay the Defendant’s costs of the proceedings – not including any costs only incurred because of the Cross-Claim.

Catchwords: CONTRACTS – Construction and interpretation – Commercial setting known to both parties at the time of contract – Proper construction of liquidated damages provision – Does it apply to Goods and Services Tax not expected or able to be paid on completion – Construction of contract that provides sensible commercial outcome to be preferred
CONTRACTS – Remedies – Damages – Purpose of liquidated damages provision is to provide agreed mechanism for proof of damages for breach of contract – Only has work to do in circumstances of breach

Legislation Cited: A New Tax System (Goods and Services Tax) Act 1999 (Cth) Div 25.

Cases Cited: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Cao v ISPT Pty Ltd [2024] NSWCA 188
CH Bailey Ltd v Memorial Enterprises Ltd [1974] 1 WLR 728
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Glynn v Margetson & Co [1893] AC 351
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
Pan Foods Co Importers & Distributors Pty Ltd v Australia & New Zealand Banking Group Ltd (2000) 170 ALR 579
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522

Category: Principal judgment

Parties: Sky Profit Properties Development Pty Ltd trading as Sky Profit Properties Development Pty Limited (Plaintiff/Cross-Defendant)
Dean Street Holdings Pty Limited trading as Dean Street Holdings Pty Limited (Defendant/Cross-Claimant)

Representation: Counsel:
J Dooley (Plaintiff/Cross-Defendant)
K Lord (Defendant/Cross-Claimant)
Solicitors:
HWL Ebsworth (Plaintiff/Cross-Defendant)
Strathfield Law (Defendant/Cross-Claimant)

File Number(s): 2023/251697

Publication restriction: Nil

JUDGMENT

Introduction

1. The issue for determination is the proper construction of a contract for the sale of land between the Plaintiff (“Sky”) as vendor and the Defendant (“Dean Street”) as purchaser (“the Contract”). Specifically, the question is, are liquidated damages payable by Dean Street to Sky on an amount of Goods and Services Tax (“GST”) paid pursuant to an obligation created by the Contract, by Dean Street to Sky some years after the completion date of the Contract?

2. The sale of the land was one part of an overall transaction between the parties which involved a suite of contracts, being the Contract, an agreement described as a development agreement which provided for Dean Street to take over the development of the land, a call option deed which gave Sky the ability to call for a number of units in the completed development, and a loan agreement by which Sky lent Dean Street $500,000 to assist Dean Street in completing the development.

3. The transaction was negotiated in a hurry because Sky was under extreme pressure from a judgment creditor who had lodged caveats on the title to the land. Ultimately, the majority of the purchase price paid on settlement went directly to that creditor to discharge the judgment debt in return for the withdrawal of those caveats.

4. Prior to the Contract being entered into, there were negotiations between the parties where the GST treatment of the sale was discussed and the question of whether the “margin scheme” provisions of Division 25 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) applies. That GST was applicable was agreed by the parties. They also agreed that the GST “margin scheme" was applicable. The consensus at the time the Contract was made was that the amount of that GST would be worked out by Sky and paid by Dean Street after completion. Neither party had the benefit of expert accounting or tax advice or a private ruling from the ATO as to how GST should properly be calculated. Once the amount had been properly calculated, it would be paid by Dean Street to Sky at that point in time.

5. In other words, the common understanding of the parties as at the date of the Contract was that, whilst there would be an amount of money payable by Dean Street to Sky, being the amount of GST referable to the transaction, that amount would not be paid on settlement, but rather would be paid at some later unidentified point in time.

6. This case does not concern whether GST was payable on the transaction or if the margin scheme applies. It is common ground that it was. The amount has been paid by Sky to the Deputy Commissioner of Taxation and an amount equal to that amount of tax has been paid by Dean Street to Sky. Indeed, for a period of time, there was an overpayment because the amount claimed by Sky originally exceeded the amount of its actual tax liability.

7. All of this happened some three or four years after the Contract was made and completed in 2018. Letters of demand were issued in April 2022, Sky lodged an amended Activity Statement with the ATO, recording a liability of $2.3 million in October 2022, and on 16 May 2023, Dean Street paid $2.3 million to Sky in respect of the claimed GST amount, which was in excess of the $1.87 million ultimately determined to be payable. The excess amount paid by Dean Street to Sky has now been refunded. The amount claimed by Sky in these proceedings is calculated at 7% of that amount from 7 days after completion of the Contract until the date it was paid and is $849,953.42.

8. The case concerns whether, in circumstances where a payment of an obligation created by the Contract occurred many years after the completion of the Contract, liquidated damages pursuant to clause 37 of the Contract are payable by Dean Street to Sky.

9. Sky’s case is that Dean Street is liable to pay liquidated damages calculated at 7% per annum from 14 December 2018, being seven days after the completion date nominated in the Contract, to 16 May 2023, when the amount of the GST was actually paid by Dean Street to Sky. This liability is said to be created by the operation of a “Liquidated Damages” provision – clause 37.1 of the Contract.

Relevant terms of the Contract

10. Before coming to the proper construction of clause 37, the following are relevant aspects of the Contract:

11. The Contract was made on 7 December 2018.

12. The front page of the Contract specifies the date for completion as 7 December 2018.

13. The front page of the Contract contains the following:

“price $9,921,894.45

deposit $1.00 (10% of the price, unless otherwise stated)

balance $9,921,893.45

contract date 7 December 2018”

4. The second page contains the heading “Tax information.” Under that heading, relevantly:

(a) For the line “GST: Taxable supply”, there is a cross in the box “yes in full” (and the boxes “NO” and “yes to an extent” are left empty). (b) For the line “margin scheme will be used in making the taxable supply”, the “yes” box has a cross (and the “NO” box is empty).

5. Clause 1 defines “GST Act” and “GST rate” in unremarkable terms.

6. Clause 13 deals with GST.

7. Clause 16.7 is in the following terms:

**“**16.7 On completion the purchaser must pay to the vendor, by cash (up to $2,000) or settlement cheque -

16.7.1 the price less any:

• deposit paid;

• remittance amount payable;

• RW payment, and

• amount payable by the vendor to the purchaser under this contract; and

16.7.2 any other amount payable by the purchaser under this contract”

12. Clause 34 is relevantly in the following terms:

“34. Goods and Services Tax

34.1 Preliminary

Words or expressions used in this clause that are defined in A New Tax System (Goods and Services Tax) Act 1999 (GST Act) have the same meaning given to them in that Act.

34.2 GST exclusive

Unless otherwise stated, any amount specified in this contract as the consideration payable for any taxable supply does not include any GST payable in respect of that supply.

34.3 Liability to pay GST

If the vendor makes a taxable supply under this contract then the purchaser must also pay, in addition to the consideration for that supply, the amount of GST payable in respect of the taxable supply as follows:

(a) in relation to the supply of the property, on the earlier of Completion and the date on which a taxable supply of the property occurs; and

(b) in relation to any other supply, at the time the consideration for that supply is payable.

34.4 Margin Scheme

Provided that the vendor is eligible, the parties agree that the GST payable on the taxable supply of the Property will be calculated by the vendor using the Margin Scheme under Division 75 of the GST Act. The parties agree that if the Margin Scheme applies the purchaser will (at the purchaser's cost) obtain a written opinion from a first tier accounting firm supporting the contention that the Margin scheme can be applied.

34.5 Taxable supply

…

34.6 Reimbursement of Expenses

…

34.7 Non Merger

This clause does not merge on Completion and will continue to apply after expiration or termination of this contract.”

13. Clause 37 is in the following terms:

“37. Damages

37.1 Without prejudice to the vendor's other rights, if the balance of the purchase price is not paid by the purchaser to the vendor by the completion date, the purchaser must pay to the vendor as liquidated damages an amount calculated:

(a) at the rate of 7% per annum on the balance of the purchase price; and

(b) from seven (7) days after the completion date or if applicable from the date the vendor rectifies the vendor's default until the first to happen of completion or termination of this contract by the vendor.

37.2 The parties agree that it is an essential term of this clause that the money to be paid under it will be paid on completion.

37.3 This clause does not apply if the delay in completion is due to the fault of the vendor.”

Other relevant matters

14. The Contract provided for settlement or completion to occur on 7 December 2018, being that same day as the Contract was exchanged. In other words, at the time the Contract was made, the parties contemplated there being simultaneous exchange and settlement. This is in fact what occurred.

15. There is no definition of “price,” “purchase price,” or “the consideration” in the Contract.

16. The context of the Contract known to both parties was of a common understanding by the parties that GST calculated by reference to the margin scheme needed to be calculated by Sky pursuant to its obligations under clause 34.4.

17. The information required to perform the arithmetical calculation to arrive at an amount for the GST was only available to Sky and Dean Street had no means itself of calculating that amount.

A question of construction

Some propositions of law

18. The principles applicable to the construction of commercial contracts are well-known. Although, none of these so-called principles are determinative. The various “maxims” or principles often stand in contradiction, one to the other, in the context of consideration of a particular contract and will often point to different outcomes.

19. For example, how much weight should be given to the text of a contract depends on an understanding of its purpose and content. Whether a contract should be construed so as to allow operation of all of its provisions in a congruent way will often conflict with the principle that contracts should be given, if possible, commercially sensible meanings.

20. That being said, the following principles seem to me to be relevant to the determination of this matter.

21. The ultimate principle is that the proper construction of a contract must be determined objectively by reference to its text, content, and purpose. The meaning of the terms of a commercial contract are to be determined by what a reasonable businessperson would have understood those terms to mean, working on the presumption that the parties intended to produce a commercial result. The contract is to be construed so as to avoid making commercial nonsense or working commercial inconvenience: Cao v ISPT Pty Ltd [2024] NSWCA 188 at [44].

22. The objective theory of contract requires that, when the issue is which of two or more possible meanings is to be preferred, courts look not to the actual intentions, aspirations, or expectations of the parties before or at the time of the contract, except insofar as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence and to the parties presumed intention in that setting: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 (“Codelfa”) at 352; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40].

23. A construction of a commercial contract supplying a congruent operation to various components of the whole contract is to be preferred: Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 (“Wilkie”) at [16].

24. A Court construing a contract must strive to give meaning to every word of a provision. This is so that sense is to be made upon the whole, so that no clause, sentence, or word shall prove superfluous, void, or insignificant if, by any other construction, they may all be made useful and pertinent: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [71] in the context of statutory construction but adopted by the High Court in the context of considering the construction of an insurance contract in Wilkie.

25. It is the whole of the contract which must be considered rather than any particular word or clause in the contract without reference to its setting in the instrument. Courts may reject words, indeed whole provisions, if they are inconsistent with what one assumes to be the main purpose (G**lynn v Ma**rgetson & Co [1893] AC 351 at 355).

26. Courts identifying what is commercial sense and what is commercial nonsense can be a difficult exercise, but nonetheless, courts should eschew artificialities and excessive technicalities for these will not be imputed to the ordinary businessperson. Business is entitled to look to the law to keep people to commercial promises:: Pan Foods Co Importers & Distributors Pty Ltd v Australia & New Zealand Banking Group Ltd (2000) 170 ALR 579 at 24.

27. There can be a real tension between the literal meaning of words or phrases in a contract and its commercial purpose which is not without its difficulties for both advocates and courts: CH Bailey Ltd v Memorial Enterprises Ltd [1974] 1 WLR 728 at 733.

28. As to commercial sense, Kirby P explained the rationale in Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-314 as in the following way:

“it is the fundamental rule, that a court should give the words of a written agreement the natural meaning that they bear. Subject to that rule, in giving meaning to the words of an agreement between commercial parties, courts will endeavour to avoid a construction which makes commercial nonsense or is shown to be commercially inconvenient. This is because courts will infer that commercial parties would not themselves normally agree in such a way.”

9. Although, in contrast, is Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99, where Gibbs J said:

“If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different.”

10. Finally, there is the “parole evidence rule” which provides that, where a contract is wholly in writing, evidence is not admissible to subtract from, add to, vary, or contradict the language of the written contract. However, as is well known, there are many exceptions to this so-called rule, the most well-known – and often misunderstood and much debated – is what was said by Mason J in Codelfa at 347, which provides that, where there is ambiguity in the words, courts can look at what is known as the matrix of facts or commercial setting in which the contract is made, so long as those matrix of facts were facts known to both parties to the contract at the time of the contract.

The parties’ competing submissions

21. Mr Dooley, who appeared for Sky, put the matter in writing and orally as follows:

22. Clause 34.3 creates an obligation on Dean Street to pay GST in respect of the taxable supply. That taxable supply, being the conveyance of the land, occurred on the date of completion.

23. Clause 16.7 operates to firstly, provide for the “price” as identified on the front page of the Contract, less the deposit of one dollar to be paid on completion, and secondly, by clause 16.7.2 “any other amount payable by the purchaser under this Contract” to be paid on completion.

24. That phrase captures the liability of Dean Street to pay Sky the GST pursuant to clause 34.3, because it is an amount payable by the purchaser under the Contract.

25. Clause 16 provides all amounts so described are payable on completion.

26. It is accepted that clause 34.4 casts on Sky the obligation to calculate the amount of GST payable and that it was contemplated by the parties that such payment would not happen on completion because the amount had not been calculated.

27. There is no temporal requirement on the obligation of Sky to calculate the amount created by clause 34.4.

28. The word “price” is the amount on the front page of the Contract, being the amount of monetary consideration, without reference to any amount of GST payable pursuant to clause 34.3 and is synonymous with the phrase “purchase price" in clause 37.

29. Finally, when considering clause 37 itself, any liability under clause 34.3 is captured by the phrase “the balance of the purchase price" in clause 37.1 and, if that amount is not paid by Dean Street to Sky on completion, i.e. 7 December 2018, then interest at 7% is payable as liquidated damages from seven days after 7 December 2018 until the amount is paid.

30. In the context of the simultaneous exchange and settlement, any other construction of clause 37 leaves it with no work to do.

31. Mr Dooley accepts that his construction of clause 37.1 has a “curious operation." This is because he accepts that there can be no debate that GST was not expected by the parties to be paid on completion, that it was not possible for Dean Street to pay GST on completion because it had not been calculated by Sky and Dean Street was not able to do the calculation itself, and because of that, GST was to be payable sometime after completion. It was because of this that the regime was created by clause 34 for payment of that amount of money by the parties after it was calculated, which would be after that same amount had become payable.

32. In short, Mr Dooley accepts that his construction means the parties created a regime which, to the knowledge of both parties, put Dean Street immediately in breach of Contract on completion, in circumstances where that consequence could not be avoided.

33. Mr Dooley, whilst accepting this curiosity, submits curiosities are unavoidable on either parties construction of clause 37.1.

34. Turning then to the submissions of Mr Lord, who appeared for Dean Street. He analysed the matter as follows:

35. The ability to calculate the amount of GST payable pursuant to clause 34.3 was known to the parties to be entirely in the hands of Sky. The parties knew it would not be known at completion. That is the commercial context and purpose against which the words of the Contract must be considered.

36. Any delay in calculating that amount would inevitably result in the money not being paid by Dean Street to Sky.

37. It is a curious and uncommercial outcome that, in those circumstances, Dean Street would be liable to pay liquidated damages in failing to do something that it could not do because Sky had failed to do what it had promised to do under clause 34.4.

38. As to the words used by the parties, Mr Lord focuses on the phrase in clause 34.3, “in addition to the consideration for that supply." He contends that, properly construed, the consideration for th**at supply being referred to is the balance of the purchase price payable under the Contract identified on the front page of the Contract. In other words, the cash amount payable on completion. “Price,” “Purchase price,” and “the balance of the consideration for that supply” are synonymous. On that analysis, clause 34.3 is speaking in terms of something in addition to that amount.

39. Even though clause 34.3 creates an obligation to pay the GST, it does not expressly state when it is to be paid. The parties cannot be taken to have intended it to be paid on completion because they knew that compliance with that obligation so construed was an impossibility and would remain an impossibility unless and until Sky performed its obligations under clause 34.3.

40. Coming then to clause 37.1, Mr Lord submits that the phrase “the balance of the purchase price” does not capture the obligation created by clause 34. Rather, he characterises it as an obligation in addition to the obligation to pay the “price,” “purchase price,” or “consideration for that supply”.

41. Clause 37 was intended by the parties to only have work to do in circumstances where there has been a failure by the purchaser to pay some or all of the purchase price by the completion date and that failure has led to completion being delayed. So long as that failure is not a consequence of any conduct by Sky, in those and only those circumstances, liquidated damages are payable. For the purpose of clause 37, any GST payable under clause 34 is not part of the “purchase price.”

42. To this last point, Mr Dooley responds and says that part of the context known to the parties was there was going to be simultaneous exchange and settlement. He submits that Mr Lord’s construction of clause 37.1 leaves it with no work to do because, obviously enough, if Dean Street did not attend on settlement with the full amount of the balance of the price payable, the Contract would not have settled.

43. Nonetheless, Mr Lord submits that there are a number of clear portions of clause 37 which compel the conclusion that clause 37 only has work to do if there is a delayed completion. He refers to the requirement for monies to be paid “by the completion date" and clause 37.2, which makes it an essential term that any amount of liquidated damages payable under clause 37 be paid on completion. That provision becomes a nonsense if clause 37 applies to a circumstance post-completion.

44. This then leads to a difficult question of the proper construction of clause 37.1(b), which turns upon the meaning “or" and “until" have in that sentence.

45. Mr Dooley submits that clause 37.1(b) provides a start date for the paying of liquidated damages but does not provide, in the circumstances of this Contract, being one where there was contemplated simultaneous settlement and exchange, an end date and that the “until” only relates to the portion of the clause after the word “or.” In other words, he construes clause 37.1(b) as providing a start date for the payment of interest but providing no end date. He says that the end date is to be implied as the date that the balance of the purchase price is paid.

46. On the other hand, Mr Lord submits that, properly construed, if clause 37 has any application to the circumstances, which he says it does not, then there is no period for the liquidated damages to run because that period should be seven days after the date of completion until completion which is no time at all because completion actually occurred on 7 December. This is because he submits that the word “until” relates to both the scenarios and the clear intent of the closing words of clause 37.1(b) is to provide an end date.

Resolution

31. The Contract is awkwardly drawn. It is tolerably clear that this awkwardness, or as Mr Dooley describes it, the various “curiosities" that arise upon considering its proper construction, are the consequence of the Contract probably being drafted at a time when it was contemplated that there would be a time elapsed between exchange and settlement. Many of the provisions do not sit comfortably in circumstances of a simultaneous exchange and settlement.

32. In my opinion, Sky’s construction of the Contract must be rejected and Dean Street’s preferred for the following reasons.

33. The reference in clause 37 to “the balance of the purchase price" is a reference back to the price referred to on the front page of the Contract. This is because this is the only amount that it was contemplated by the parties would be paid by completion and was the only amount that could be paid by completion.

34. The reference in clause 34.3 to “the purchaser must also pay in addition to the consideration for that supply the amount of GST payable…" Is an obligation imposed on Dean Street over and above its obligation to pay the “price” or the “purchase price”. Payment of that additional amount was not required on completion.

35. This is not just supported by the context and purpose. The text also provides support. The “non merger” provision in clause 34.7 expressly contemplates the GST amount not being paid on completion.

36. In my judgement, the most sensible construction of clauses 16, 34, and 37, when read together, is that the obligation to pay GST created by clause 34 is not caught by clause 16.7.2 as “any other amount payable by the purchaser under this Contract" because, if it was, the Contract would, to the knowledge of the parties, have been impossible to perform on the completion date. Such a construction is, in my opinion, commercially absurd but also leaves clause 34 with no work to do. I consider that clause 16.7.2 is referring to any other amount payable on completion because of an adjustment for rates and other expenses only.

37. When clause 34.3 speaks in terms of “in addition to the consideration for that suppl**y," it is making it plain enough that the liability created to pay the GST is over and above, or in addition to, and different to the purchase price which is the price (or purchase price) which is payable on completion. In other words, the “consideration” being referred to is the cash payable identified on the front page.

38. It follows from the above that the “balance of the purchase price payable by the purchaser to the vendor by the completion date” is the price as identified on the front page of the Contract, less the $1 deposit, and does not capture the liability, which the parties knew would be unliquidated at the date of settlement created by clause 34.3.

39. Another way of looking at it, which gets to the same result, is that clause 37 only operates in circumstance of a failure by Dean Street to perform its obligations under the Contract, i.e. pay the purchase price as defined on the front page of the Contract by the completion date. If that failure is not due to any fault of Sky, then liquidated damages are payable, but only during the period of delay until the Contract is actually completed, thus giving work to clause 37.1(b).

40. At that delayed completion, not only would the purchase price as defined on the front page of the Contract be paid, the amount of liquidated damages would also be payable (cl 37.2). Clause 37.2 is rendered wholly meaningless on any other construction.

41. The separate and distinct obligation to pay GST created by clause 34 was, on that analysis, never intended to be payable on completion and therefore, failure to pay it could never have held up completion. This is consistent with the commercial setting and purpose of the Contract at the time it was made, as known to both parties. Clause 34.3 creates a liability to pay an amount of money, at the time unknown and unknowable to Dean Street, at some unknown time in the future. That obligation was in addition to the amount of money payable on completion and was to be paid on a date after completion.

42. I think the contrary construction propounded by Mr Dooley does work at least commercial inconvenience, and perhaps even nonsense. Certainly, to my mind, it produces a surprising result, being that parties knowingly entered into an agreement which contemplated one party would immediately not be able to perform its obligations, thus breaching the Contract, and would thereafter incur liquidated damages for an open-ended period of time, wholly under the control of the counter-party. I think that outcome is close to what is sometimes referred to as a commercial nonsense. I certainly think it is an unlikely outcome for commercial parties to have intended.

43. As to the timing provided for by clause 37.1, I accept Mr Lord’s submission. Apart from anything else, there is otherwise no end date specified, which I do not consider can be cured by an implied term because, properly construed, the parties expressly agreed on an end date. Again, I think it highly unlikely that the parties intended there to be no end date.

44. I consider this construction of clause 34 is the best that can be done to harmonise the various provisions of the Contract in a sensible, commercial way so as to produce a meaning from the words of the parties, in the context that a sensible commercial businessperson would reach, looking at the question objectively. It is not perfect and still leaves some awkwardness, but I think such an observation can be made about either side’s construction and is a consequence of the Contract not really contemplating that it would be exchanged and completed at the same time.

45. I do not think the words of the Contract compel the outcome advanced by Sky. I consider they can be construed as I have explained in a way that demonstrates that outcome was not intended. The context and purpose of the Contract strongly support that conclusion. The matrix of facts known to both parties also is only consistent with Dean Street’s construction.

46. I have not lost sight of Mr Dooley's ultimate submission that any commercial awkwardness or “curiosity" is simply the consequence of how the parties allocated the risk of a delay in the GST being paid.

47. I do not accept that submission. It seems to me that the party with the entire control over the calculation of and therefore the payment of the GST was Sky. It could have calculated the GST component many years earlier than it did. Indeed, it was obliged under the income tax legislation to do so, but it chose not to do so. Looked at in that way, it had within its own power the ability to control the risk of a delayed payment of GST. There is no commercial justification to allocate that risk to Dean Street. If it took on that risk, it would be exposed to whatever timing Sky chose.

48. Finally, I think the same result can be reached by starting from the premise that the liquidated damages provision is a mechanism whereby the parties agreed as to the consequence of any breach of Contract in the sense that they agreed how damages would be assessed. In other words, the premise must be that liquidated damages will be payable in circumstances where Dean Street is in default of an obligation it has under the Contract.

49. I do not think that the failure by Dean Street to pay an amount of GST on completion, in circumstances where it did not know what that amount was, could not work it out for itself, and had to wait and rely on Sky telling it the amount, was a breach of any contractual obligation by Dean Street, and thus, it seems entirely unlikely that the parties agreed as to the damages that would flow from an event which was not a breach of Contract. Sky would not have been able to refuse to complete because Dean Street did not tender the GST on completion. This is because there was no contractual promise by Dean Street to do so. Neither party expected it to be paid. Neither party knew how much it was. I consider this simpler analysis also supports my ultimate conclusion that, properly construed, clause 37 only has operation in circumstances where completion did not take place on the completion date because of the fault of Dean Street and not caused by any fault of Sky. That did not occur. Completion occurred on the due date.

50. For those reasons, I have decided to dismiss Sky’s claim based on clause 37.

The alternative claim

51. Sky brings an alternative claim, being for actual damages caused by what it says was a delayed payment by Dean Street of the amount of GST. If successful on this alternative claim, Sky quantifies its damages at $93,036.35.

52. I consider this claim fails for one of the reasons that I have found in rejecting the construction of liquidated damages claim, that is I am not satisfied that, at any point in time, Dean Street was in default of any contractual obligations to pay the amount of GST. There was considerable delay by Sky in calculating that amount. When it finally made a demand for the GST, it is now accepted that the amount claimed was not only wrong, but on the face of the demand, was calculated not in accordance with the relevant legislation. Ultimately, Dean Street overpaid the actual amount due under the Contract because of this defect in the claim which has resulted in a repayment after the ATO assessed the amount actually payable.

53. Moreover, even if I am wrong, I am not satisfied on the evidence that Sky has suffered any loss. Very confusing evidence was put before me to try and demonstrate that bank costs incurred by a related entity have been passed on to Sky as a result of it having to borrow money from that related entity so as to pay the GST.

54. That evidence is not satisfactory. Firstly, the evidence of the Director, Mr Chen, made it clear that he has no knowledge at all as to how the accounting arrangements between the various companies apparently under his control operated. Second, the business record tendered, being a running account ledger of the related company, demonstrates that, far from Sky borrowing money from the related entity so as to pay the GST, it in fact called in a loan it was owed by the related entity, which the related entity paid. Finally, there is no evidence at all that the related entity passed on, by virtue of any agreement or otherwise, any cost it might have incurred in borrowing that amount from a bank.

55. For those reasons, the claim for damages for breach of Contract, not based on the liquidated damages provision, would fail in any event for want of proof.

Cross-claim

56. There was a Cross-Claim filed by Dean Street seeking repayment of the overpaid amount of the GST.

57. About three months after the Cross-Claim was filed and before any Defence was put on, Sky repaid the amount claimed. Dean Street seeks an order for pre-interest judgement, which I do not think is available to it because, in those circumstances, obviously no judgment can be entered on the Cross-Claim. It should be dismissed as it was rendered unnecessary when the money claimed was paid. As far as costs of the Cross-Claim are concerned, I think the appropriate order is that each party should pay their own costs of the Cross-Claim, which, in the circumstances, will be minimal and easy to identify. All work needed for the Cross-Claim other than its drafting, filing, and service was necessary to defend the Claim in any event.

Conclusion

58. For the reasons I have stated, I have determined that both the Claim and the Cross-Claim must be dismissed.

Costs

59. As to costs, the parties told me that they might want to put on evidence on the question. Absent such evidence, Dean Street is, prima facie, entitled to an order for its costs. I propose to make that order but give liberty to the parties to apply to set aside or vary the costs order on evidence.

Orders

60. My orders are:

61. The Plaintiff’s claim is dismissed.

62. Verdict for the Defendant.

63. The Cross-Claim is dismissed.

64. No order as to costs of the Cross-Claim, with the intent that each party bear its own costs of the Cross-Claim.

65. The Plaintiff is to pay the Defendant’s costs of the proceedings – not including any costs only incurred because of the Cross-Claim.

66. Grant liberty to either party to apply to set aside or vary that costs order on making application within 14 days of these orders, which application can be made by notification by email to my associate, in which event, arrangements will be made to relist the matter.

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