Cityrose Trading Pty Ltd v Booth & Anor [2008] VSC 495

In a decision handed down on 21 November 2008, the Victorian Supreme Court found that there were three possible interpretations of a GST clause in a land sale contract. The difficulties created in this case by a poorly drafted GST clause have already led to significant delays and costs for the vendor, purchaser and real estate agent involved.

Background

Mr Booth (Booth) contracted to purchase real property from Cityrose Trading Pty Ltd (Cityrose) for a price of $2,250,000. The contract was silent on whether the price was inclusive or exclusive of GST. Special Condition 7 of the contract addressed GST and provided that terms used in the contract had the same meaning as in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act). Special Condition 7 then provided:

"The consideration payable for any taxable supply made under this contract represents the value of the taxable supply for which payment is to be made;

Where a taxable supply is made under this contract for consideration which represents its value, then the party liable to pay for the taxable supply must also pay at the same time and in the same manner as the value is otherwise payable the amount of any GST payable in respect of the taxable supply."

The parties accepted that the supply of the property under the contract was a taxable supply but a dispute arose as to whether the contract required Booth to pay GST in addition to the stated price.

Relevant Law

The GST Act relevantly:

  • imposes GST of 10% on the "value" of a "taxable supply" (section 9-70)
  • provides that the "value" of a taxable supply is 10/11ths of the "price" (section 9-75) and the "price" is generally the "consideration" for the taxable supply, and
  • provides that "consideration" includes any payment in connection with a supply (section 9-15).

Decision

Whelan J found that Special Condition 7 was difficult to interpret because the terms "consideration" and "value" have different meanings under the GST Act. Therefore, Whelan J found that the phrase used in Special Condition 7 - "for consideration which represents its value" - was contradictory.

Both the selling agents, Kay & Burton, and the purchaser, Booth, argued that the effect of Special Condition 7 was that Booth must pay "value" plus GST, which then equalled the "price", in this case $2,250,000. Thus, the purpose of Special Condition 7, it was said, was to notify the purchaser (Booth) that the "price" had a GST component. Whelan J held that this interpretation was problematic as it essentially gave no meaning to the first part of Special Condition 7.

Cityrose argued that Special Condition 7 equated consideration under the Contract with "value" under the GST Act. So the $2,250,000 consideration under the Contract was the "value" under the GST Act and not the "price". Further, Cityrose argued that the Special Condition imposed an additional liability (over and above the $2,250,000) because the liable party must "also" pay the amount of GST. Whelan J held that this interpretation was also problematic as it did not accord the term "consideration" with its defined meaning under the GST Act.

Whelan J stated that a third construction was possible, being that Special Condition 7 was so unclear as to be meaningless and should be severed from the Contract.

Whelan J made no decision as to the correct interpretation, but referred the matter back to VCAT for a final decision.

Why is this case important?

This case is a reminder for all parties involved in a transaction, including vendors, purchasers, real estate agents and lawyers, of the importance of using properly drafted GST clauses that are appropriate to the specific transaction. The parties need to be very clear on whether specified prices are inclusive or exclusive of GST and thus whether a vendor can recover an amount in addition to the specified price on account of GST.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.