Reported Decision : (2004) NSW ConvR 56-086 New South Wales Supreme Court CITATION : ETO Pty Ltd v Idameneo (No 123) Pty Ltd [2003] NSWSC 1096 HEARING DATE(S) : 21/11/03 JUDGMENT DATE : 21 November 2003 JURISDICTION: Equity Division JUDGMENT OF : Young CJ in Eq DECISION : Specific performance granted. Defendant to provide the plaintiff with a tax invoice reflecting the amount of GST actually payable by the defendant. Plaintiff to pay the defendant's costs to date. CATCHWORDS : CONVEYANCING [68]- Standard form contract for sale- Construction of cl 13- GST provisions- Whether contract price includes the GST payable by the vendor- Whether GST invoice must represent the amount actually paid in GST- What happens where some of the properties being sold under the contract are a taxable supply and some are not?- "CHOICES" section of contract- Whether warranties or mere information. LEGISLATION CITED : A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 29.70 PARTIES : ETO Pty Limited (P) Idameneo (No 123) Pty Limited (D) FILE NUMBER(S) : SC 5201/03 COUNSEL : D L Warren (P) D R Pritchard (D) SOLICITORS : Robilliard Plowman Herat (P) MasseyBailey (D) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Friday 21 November 2003 5201/03 - ETO PTY LTD v IDAMENEO (NO 123) PTY LTD JUDGMENT 1 HIS HONOUR: This is a purchaser's suit for specific performance. There is no dispute between the parties that the contract should be completed. Their dispute involves the interpretation of the contract with respect to GST in the circumstances of the contract. Accordingly, at the end of these reasons I will make an order for specific performance, refer the matter to the Master for directions to implement that order, but I will also make a series of declarations as to the issues of principle which divide the parties. 2 I fear there may still be left to the Master at least two serious questions, (1) as to the valuation of part of the property; and (2) as to whether certain properties, which are claimed to be residential, were at the relevant time residential within the meaning of the GST legislation. However, it may be that once the questions of principle have been decided those issues will dissipate. 3 The issues have been set out in the document marked MI #24 and three matters are raised: 1. Whether, on the true construction of the terms of the transaction the subject of contract for sale of land dated 30 April 2003, being Ex RM1 to the affidavit of Rocco Mileto sworn 3 November 2003 (" the Contract ") and the facts which have occurred the defendant as vendor is required to provide to the plaintiff as purchaser a tax invoice on settlement of the Contract: (a) in the amount of $3,545,454.55 plus GST of $354,545.45, as contended for by the plaintiff; or (b) which reflects the amount of GST actually payable by the defendant arising out of the contract. 2. Whether the defendant is precluded by s29.70 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) or related taxation legislation from providing a tax invoice to the plaintiff on settlement of the Contract other than one which reflects the amount of GST said to be actually payable by the defendant? 3. If the defendant is obliged to provide the plaintiff a tax invoice in an amount set out in 1(b), or for some other amount but less than $354,545.45 whether by virtue of clause 13.9 of the contract the defendant is obliged to pay to the plaintiff on settlement an amount equal to one eleventh of the difference between (a) the value of the property said to constitute a taxable supply, and (b) the contract price of $3,900,000. 4 Before I deal with those issues I need to set out the background of the dispute. 5 The contract which was made on 30 April 2003 is in the 2000 edition of the standard form. The purchase price is shown as $3,900,000. On page 2 of the standard form there is a section headed "CHOICES". A subheading of this is "GST information (a New Tax System (Goods and Services Tax) Act 1999) (clause 13)". Underneath this subheading there are seven statements made on seven separate lines with a box for "NO" and a box for "yes". 6 The way in which the contract is put together suggests that one must construe the words on the third line of page 1 as included for interpretation, so that where there is no answer then the alternative in block capitals prevails. The line "This sale is taxable supply" has the "yes" box ticked against it. The line "Margin scheme applies to property" does not have any box ticked so the "NO" box is deemed to have been ticked. 7 There has been debate as to the significance of what appears on page 2, a matter to which I will return. In the meantime I will set out some other material provisions of the contract. 8 At the foot of page 1, outside the area enclosed with lines forming boxes, are the words: "NOTE: Subject to clause 13, the price INCLUDES goods and services tax (if any) payable by the vendor." Clause 13 is headed "Goods and services tax (GST)". "13.1 In this clause, enterprise, input tax credit, margin scheme, supply of a going concern, tax invoice and taxable supply have the same meanings as in the GST Act . 13.2 Normally , if a party must pay the price or any other amount to the other party under this contract, GST is not to be added to the price or amount. ... 13.7 If this contract says this sale is not a taxable supply, the purchaser promises that the property will not be used and represents that the purchaser does not intend the property to be used in a way that could make the sale a taxable supply. 13.8 If this contract says this sale is not a taxable supply, the purchaser must pay the vendor on completion in addition to the price an amount of 10% of the price if this sale is a taxable supply because of - 13.8.1 a breach of clause 13.7; or 13.8.2 something else known to the purchaser but not the vendor. 13.9 If this contract says this sale is a taxable supply and does not say the margin scheme applies to the property, the vendor must pay the purchaser on completion an amount of one-eleventh of the price if - 13.9.1 this sale is not a taxable supply; or 13.9.2 the margin scheme applies to the property. 13.10 On completion the vendor must give the purchaser a tax invoice for any taxable supply by the vendor by or under this contract." 9 The special conditions in 32.5 make it clear that the contract constitutes the entire agreement. There was a special condition 32.9 limiting the rights of the purchaser to ask for requisitions, but this has been deleted. There is a definition of "taxable supply" in the definition cl 30.1, but this seems merely to be redundant. There are some limitations on objections and requisitions in 32.2, but none seem to be material to the present problem. 10 The contract is for a lump sum of $3,900,000.00. What was being sold were five distinct lots of property; 11 and 13 Clanalpine Street, 14 Trelawney Street and 4 and 4a Rutledge Street, Eastwood. The five properties are contiguous and form one whole. There are buildings on all of those properties, save and except 4a Rutledge Street, which is vacant land. 11 There is no dispute at all that the sale of 4a Rutledge Street is a taxable supply and GST needs to be paid in respect of it. The vendor says that the balance of the land is not a taxable supply and has obtained a private tax ruling to that effect. 12 On 10 October 2003 the parties attempted to settle the conveyance. However, the settlement aborted because of the different views taken by the parties with respect to the application of the contract and the GST to the property. 13 With that background I should deal with the separate issues, though it will be necessary to discuss what is the proper construction of cl 13 of the standard contract, a matter which does not appear to have been the subject of any decided case in this Court. 14 On the hearing Mr Darryl Warren of counsel appeared for the plaintiff, and Mr David Pritchard appeared for the defendant and I am indebted to both of them for their research, which is evident from their written outline of argument and from their oral presentation. As is usually the case where the principal question is one of construction, different minds may easily approach the problem in different ways and so achieve different results. My job is, aided by those submissions, to declare what is the true construction of the contract in the events which have happened. 15 1. Mr Pritchard says that there is no dispute that the vendor is required by cl 13.10 of the contract, and indeed the GST legislation itself, to provide the purchaser with a tax invoice on settlement of the contract. Further, there is no dispute that the total amount of the invoice is to be $3.9 million, with perhaps the necessary conveyancing adjustment. The dispute between the parties is as to the way in which the GST should appear on the tax invoice. 16 It would appear that the purchaser contends that the invoice should be for a price of $3,545,454.55 plus GST of $354,545.45. The compilation of those figures being $3.9 million. 17 On the other hand, the vendor's case is the amount should reflect the GST actually payable. On the valuation it has received, 4a Rutledge Street, Eastwood, has a value such that the invoice should be for GST of $31,818.20. If, of course, the value of 4a Rutledge Street is otherwise, then a corresponding adjustment will have to be made, but for present purposes that does not concern me, I am more concerned with the question of principle. 18 The first matter that arises is what is the status of the statements made with the boxes for "CHOICES" on p 2 of the standard contract. 19 One of the few text to deal with the problem is Butterworths Conveyancing Service NSW, vol 1, [10274], which I have assumed was written by an experienced conveyancing solicitor, formerly a partner of Allens, Mr Neil M Cameron. 20 In relation to cl 13 he notes: "The status of the information is unclear. Most commonly the boxes on page 2 of the contract will be completed by the vendor with little, if any, input from the purchaser. It might be argued by a purchaser that the purchaser has entered the contract on the basis of the information and has a claim for compensation if the information is wrong. It might also be claimed that there is an implied warranty by the vendor in favour of the purchaser that the information is correct. On the other hand, it may be that the completed boxes contain the basis on which the parties have agreed to proceed irrespective of the accuracy of the information." 21 Mr Warren has contended that, indeed, the material in the "CHOICES" section is a warranty. Indeed, Mr Cameron seems to come to that view in the paragraph I have mentioned. 22 With respect, there are very great difficulties in assuming that construction, not the least of which is that cl 13 itself contains promises, such as in 13.7. Clause 13.6, which I have not set out, also contains a promise. 23 It would be very odd indeed if there are warranties in the "CHOICES" section and then the word "promises" used in cl 13 because normally the word "promises" is a warranty which sounds in damages. 24 It seems to me that all that the boxes on p 2 do is to provide some prima facie definitions for the terms used in cl 13. This is borne out by the dichotomy in 13.9 between the statement in the first line "if this contract says the sale is a taxable supply" and in 13.9.1 "this sale is not a taxable supply". It again seems to indicate that the material under "CHOICES" is just a provision of some information, or is a trigger for the operation of cll 13.6 through to 13.9. 25 The point is made both in Butterworths Conveyancing Service and by Mr Warren that this view leaves the purchaser at the mercy of the vendor's statement in CHOICES. This is not so as the purchaser can by proper requisition or inquiry find the true facts. 26 That is not to say that a purchaser who is misled by a statement under the "CHOICES" section is without remedy. First, it may constitute a warranty, though, as I say, I doubt it. Secondly, it might be said that there is an error or misdescription within cl 6 of the contract; it might be said that specific performance should only be granted with compensation; it might be said that there is a false and misleading statement within the meaning of s 42 of the Fair Trading Act 1987; there might be said to be some operative misrepresentation which has effect at law or in equity. However, none of those matters concern me because all I am doing is working out what direction should be made to implement the decree for specific performance which was asked for, without any suggestion of compensation. 27 Accordingly, one turns to the wording of 13.9 and 13.10. Section 29.70 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) requires a supplier of a taxable supply on request to give the recipient a tax invoice for the supply. The contract in 13.10 says the same in slightly different words. The Act makes it clear that a tax invoice may be for a transaction which partly involves a taxable supply and partly does not. 28 Almost every day of the week one receives a tax invoice from Woolworths or Coles for one's grocery bills, indicating which are GST items and which are not, and this is the most familiar illustration of this particular part of the GST Act. 29 Accordingly, what has to be furnished is an invoice which sets out the price, and that is $3.9 million, and then must note the GST taxable items, that is it must include any taxable supply. 30 The only taxable supply, on the assumption that I am making, is in respect of 4a Rutledge Street. Accordingly, in my view, the tax invoice only refers to the tax which is actually payable and, accordingly, I would answer question 1 (b) "Yes". 31 To make it clear, the assumption that I have been making is that the properties, other than 4a Rutledge Street, are not taxable supply because they are GST input taxed. As I have said, if this matter remains in contention, then it may have to be decided by a Master. 32 I should note that the debate appears to be over whether the other lots were actually used as residences or not, on the facts which have been presented to the court. 33 2. It seems to me that this question does not arise, in view of my answer to question 1. 34 3. This raises the construction of cl 13.9. It is certainly the case that the first line of cl 13.9 on the printed form is made out, that is the contract says it is a taxable supply, and does not say the margin scheme applies; the second line requiring the vendor to pay one-eleventh of the price, accordingly, comes into play, if the conditions in 13.9.1 or 13.9.2 apply. Obviously the latter on the facts of this case is inapplicable, so I concentrate on 13.9.1. 35 The sale is not a taxable supply in the sense that the whole of the property is not a taxable supply. However, it could not be said that the sale is not a non taxable supply because part of the sale is a taxable supply. As both counsel acknowledged in their submissions, the persons who drafted the standard contract do not seem to have directed their minds to such a situation. That, of course, is not the end of the matter, as, with respect, (and it is always easy to be wise in hindsight) those who drew this particular contract do not appear to have done so either. 36 The question then is how does one treat 13.9.1 in a case where part of the sale is a taxable supply? Mr Pritchard says it is quite simple. The sale is a taxable supply, in that 4a Rutledge Street is a taxable supply in relation to which GST is payable by the vendor. 37 On the other hand, Mr Warren says that statement in the "CHOICES" section, that it is a taxable supply, must bind the vendor in cl 13.9 and the vendor cannot equivocate by making one statement in the "CHOICES" section and then argue for another statement in 13.9.1, and the whole way in which the contract is framed is that the content of the contract falls into one of two baskets; basket A, a taxable supply; basket B, a non-taxable supply; and there is no room for any middle basket. 38 It is a question of construction, but it seems to me that Mr Pritchard's construction is correct, that is that no matter what is said in the "CHOICES" section, if the sale is not within the category of not a taxable supply then the 13.9.1 does not apply. 39 This, I think, is reinforced by the use of the word "any" in 13.10, which seems to suggest that there is, what I have termed, a middle basket, and it also fits in far better with the working out of the contract. 40 The contract proceeds on the assumption that the price includes GST. If it does not, then a refund of one-eleventh makes sense, but it does not make sense when part of the property is a taxable supply and part not. 41 Thus question 3 must be answered "No". 42 Accordingly, the orders are: 1. I make order 1 in the summons, deleting the word "hereto" and substituting "of the summons". 2. I order that the contract for sale be specifically performed. 3. I declare that on the true construction of the contract for sale the defendant is required to provide to the plaintiff a tax invoice on settlement of the contract which reflects the amount of GST actually payable by the defendant arising out of the contract. 4. I declare that the defendant is not obliged to make any payment to the plaintiff under cl 13.9 of the contract. 5. I order that the matter be referred to a Master to implement the order of specific performance. 6. I order that the plaintiff pay the defendant's costs to date. Further costs reserved. 7. The exhibits and the documents marked for identification are to remain with the papers until further order. 8. I grant liberty to either party to file a notice of motion for directions returnable before a Master on 5 December 2003, or as the Senior Master may direct. ************* Last Modified: 11/26/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.