New South Wales Supreme Court CITATION : Moobi v Les Gunn Properties [2008] NSWSC 719 HEARING DATE(S) : 1 July 2008 JUDGMENT DATE : 16 July 2008 JUDGMENT OF : Gzell J DECISION : Rectification of contract by substitution of $2,255,000 as purchase price. CATCHWORDS : CONTRACT - Mistake - Rectification - Contract for sale of land at $2,050,000 - Whether common intention that price was $2,050,000 plus GST - Whether unilateral mistake by vendor to the knowledge of purchaser and with intention to conceal mistake LEGISLATION CITED : A New Tax System (Goods and Services Tax) Act 1999 (Cth) CATEGORY : Principal judgment Pukallus v Cameron (1982) 180 CLR 447 Westland Savings Bank v Hancock [1987] 2 NZLR 21 CASES CITED : Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 Taylor v Johnson (1982-1983) 151 CLR 422 Tutt v Doyle (1997) 42 NSWLR 10 Leibler v Air New Zealand Ltd (No 2) [1999] 1 VR 1 PARTIES : Moobi Pty Ltd (Plaintiff) Les Gunn Properties Pty Ltd (Defendant) FILE NUMBER(S) : SC 2883/05 COUNSEL : Mr M Zammit (Plaintiff) Mr C Withers (Defendant) SOLICITORS : Moin & Associates Pty Ltd (Plaintiff) Sparke Helmore (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J 2883/08 MOOBI PTY LTD v LES GUNN PROPERTIES PTY LTD JUDGMENT Introduction 1 The plaintiff, Moobi Pty Ltd, as vendor, exchanged counterparts of a contract for sale of land with the defendant, Les Gunn Properties Pty Ltd. The contract specified a purchase price of $2,050,000. Moobi claims the agreement was for a purchase price of $2,050,000 plus GST under A New Tax System (Goods and Services Tax) Act 1999 (Cth). Moobi seeks rectification for common or, alternatively, unilateral mistake. The factual matrix 2 Moobi was the registered proprietor of land known as Kurrajong Estate in Scone. It had approval to subdivide the land into 94 residential lots. Moobi placed the land for sale with Patrick Arthur Gleeson, a director of Pat Gleeson Real Estate Pty Ltd. 3 Mr Gleeson understood his instructions to be that the lots were available for sale at $100,000 each inclusive of GST. James Alexander Hook was the managing director of Moobi. He thought he had instructed Mr Gleeson to sell lots for $100,000 plus GST. 4 Lesley Charles Gunn was the sole director of Les Gunn Properties. He told Mr Gleeson he was prepared to purchase three lots for $100,000 each. Mr Gleeson thought the offer complied with his instructions. When informed of the offer, Mr Hook said he realised there had been a misunderstanding between him and Mr Gleeson and he made a commercial decision to sell the lots at $100,000 inclusive of GST. 5 Nothing happened with respect to this offer because negotiations with a third party to sell the entire Estate took place. When they failed, Mr Gleeson asked Mr Gunn if he was still interested in buying three lots for $100,000 plus GST. Mr Gunn responded that the agreement had been for $100,000 inclusive of GST. Mr Gleeson subsequently told Mr Gunn that Moobi was prepared to sell the lots on that basis. To avoid the problem arising in the future, Mr Gleeson sent a facsimile message to Mr Hook suggesting that the price of lots be increased to $112,000 inclusive of GST. 6 Mr Gunn told Mr Gleeson that he was interested in acquiring the whole Estate and asked for what Mr Hook would sell it. Mr Gunn's recollection was that Mr Gleeson said $2.1 million and that the vendor was interested in applying the margin scheme to the transaction. 7 Under A New Tax System (Goods and Services Tax) Act, s 75-10 if a taxable supply of real property is made under the margin scheme the amount of GST on the supply is one eleventh of the margin for the supply. The margin for the supply is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the real property interest. If GST is calculated under the margin scheme, it will be less than GST ordinarily charged on taxable supplies at 10 per cent. 8 Mr Gleeson's recollection was that he told Mr Gunn that Mr Hook was prepared to sell for $2.1 million plus GST and he made no mention of the margin scheme. 9 Mr Hook said he gave no instructions to Mr Gleeson about applying the margin scheme. He said it made no difference to Moobi one way or the other to a sale at $2.1 million plus GST. 10 Les Gunn Properties wrote to Mr Gleeson offering to purchase the Estate for $1.95 million. Mr Gleeson telephoned Mr Gunn and asked whether the offer was $1.95 million plus GST. Mr Gunn said "OK". 11 In cross-examination, Mr Gunn said that Mr Gleeson had earlier advised him that the margin scheme would lead to GST of approximately $35,000 and when he said "OK", he was prepared to add an amount of this order to the $1.95 million. No reference to such a conversation with Mr Gleeson was made in Mr Gunn's affidavit or in the affidavits of Mr Gleeson. 12 Les Gunn Properties' offer was rejected. Mr Gunn said he increased his offer to $2 million. Mr Gleeson said he was asked to put to Mr Hook $2 million plus GST. Mr Gleeson sent a facsimile message to Mr Hook stating there was an updated offer of $2 million plus GST. 13 Mr Gleeson told Mr Gunn that the amended offer was rejected. Mr Gunn's recollection of the conversation was that Mr Gleeson said the vendor wanted $2.05 million to which he responded that he was prepared to purchase the property for that price. Mr Gleeson's version of the conversation was that if Mr Gunn made an offer of $2.05 million plus GST, he was pretty sure that Mr Hook would buy it and Mr Gunn asked him to make that offer. 14 Mr Gleeson sent a facsimile message to Mr Hook referring to a further updated offer of $2.05 million plus GST. Mr Hook made a calculation on the earlier facsimile from Mr Gleeson stating in part "$2.05m is price". The note also contained a reference to commission inclusive of GST if that figure was reached. 15 Mr Hook instructed David Arthur Richard Noonan, his solicitor, that he had decided to accept Mr Gunn's offer at $2.05 million plus GST and the margin scheme would apply. He had agreed to a 2.5 per cent deposit to be released to him and had negotiated a commission with Mr Gleeson of $45,000 including GST. Settlement was to take place on a specified date. Mr Noonan's diary note of this conversation was: "Settle by 1/4/08 2.05 mil (+ GST) margin scheme 2½% released 45 incl GST." 16 Mr Gleeson said that Mr Gunn told him that he would like to talk to Mr Hook about GST. He was not sure which way to go and he wanted to see if he could minimise GST. Mr Gleeson said that was a matter he should take up with Mr Hook. Mr Gunn said he did not say to Mr Gleeson that he wanted to minimise GST. He said he never agreed with Mr Hook or Mr Gleeson that he would purchase the property for $2.05 million plus GST. 17 Mr Hook wrote to Mr Gleeson advising that Moobi would accept the offer of $2.05 million plus GST. The letter stated that the sale would be completed under the margin scheme and Moobi would accept the deposit of 2.5 per cent to be released to Moobi at contract exchange. Settlement was to occur on or before a specified date and the agreed sales commission would be $45,000 including GST. 18 Mr Gleeson sent a preliminary sales advice to Mr Noonan whom he knew was acting for Moobi and to Rebecca Louise Houston the solicitor he knew was acting for Les Gunn Properties. The advice consisted of the front page of a contract for sale of land and a sheet containing special conditions. The front page of the contract for sale contained Mr Gleeson's handwritten details. It specified a price of $2,050,000. It did not say $2,050,000 plus GST. Mr Gleeson had obtained the front page from Mr Noonan in blank except that boxes at the bottom indicating that the transaction was a taxable supply in full and that the margin scheme would be used had been crossed. 19 In cross-examination, Mr Gleeson said he did not regard the price of $2,050,000 he had inserted on the front page as being inclusive of GST because, following his conversation with Mr Gunn about GST, he regarded GST as a matter with which Mr Hook and Mr Gunn had yet to deal. 20 When he received Mr Hook's letter advising Moobi's acceptance, Mr Gleeson sent copies to Mr Noonan and to Ms Houston. Ms Houston did not discuss the letter with Mr Gunn. She was waiting for the contract. 21 Mr Noonan gave Mr Gleeson's preliminary sales advice to his conveyancing paralegal and asked her to prepare a draft contract. When he received Mr Hook's letter advising that Moobi wished to accept an offer to purchase at $2.05 million plus GST he gave a copy of the letter to the paralegal. When she completed her task, Mr Noonan sent copies of the front page and special conditions to Mr Hook and Ms Houston. The front page specified the price as $2,050,000. Boxes stating that the transaction was a taxable supply to an extent and that the margin scheme would apply were crossed. 22 Mr Hook said that following receipt of Mr Noonan's letter he had a conversation with Mr Gunn in which Mr Gunn requested that the margin scheme not apply. He said he would pay GST in full because if the margin scheme applied he would not be able to claim the GST he paid. Mr Hook said it made no difference to him as long as the net proceeds of sale were $2.05 million. Mr Hook made a diary note: "Les wants to pay full GST". Mr Noonan said he received a telephone conversation from Mr Hook saying that he and Mr Gunn had decided not to have the margin scheme. 23 Mr Noonan altered the crossed boxes on the front page of the contract for sale to state that the transaction was a taxable supply in the full and the margin scheme was not to be used. He made no adjustment to the purchase price of $2,050,000. He gave the amended front page to his paralegal to prepare a new front page for the contract. 24 Mr Gunn denied that he had a conversation with Mr Hook requesting that the margin scheme not apply. He reiterated that he never said to Mr Hook or to Mr Gleeson that he would purchase the property for $2.05 million plus GST. 25 If the margin scheme applied, Les Gunn Properties would not have been entitled to any input tax credit for GST because a person is entitled to an input tax credit for a creditable acquisition under A New Tax System (Goods and Services Tax) Act, s 11-20 and s 75-20(1) provides that an acquisition of a freehold interest in land is not a creditable acquisition if the supply is under the margin scheme. 26 Mr Noonan sent a new front page to Mr Hook and Ms Houston. The document stated the price as $2,050,000. Mr Noonan did not increase the price for GST at 10 per cent, the extent of the liability if the margin scheme did not apply. 27 Ms Houston reviewed the new front page and understood, as she had when she received Mr Gleeson's document and the first draft of the contract from Mr Noonan, that the purchase price was $2,050,000 inclusive of GST. 28 Mr Noonan said he had a telephone conversation with Ms Houston shortly after sending the second version of the front page in which he confirmed that the margin scheme was not to apply and GST was payable in full. In cross-examination, Mr Noonan agreed that he had not told Ms Houston that her client was responsible for paying 10 per cent GST in addition to the $2.05 million purchase price. He agreed that he did not at any time prior to the execution of the contract say that. When it was put to him that there was no increase in the purchase price to cover GST he answered: "Regrettably, no." 29 The front page was adjusted again to indicate that land tax was not adjustable. Otherwise it was in the same form as the earlier draft. That was the form in which the counterparts were signed and exchanged. 30 Before execution, Mr Gunn asked and was advised by Ms Houston that the purchase price of $2,050,000 included GST. She said that was what the contract said and the vendor was obliged to supply a tax invoice for $2,050,000. 31 Moobi issued a tax invoice inclusive of GST in the amount of $2,255,000. Ms Houston pointed out that the contract price was $2,050,000. It was then that Mr Noonan realised that the contract had been drawn incorrectly in relation to his client's instructions. 32 Mr Gleeson had a conversation with Mr Gunn trying to persuade him to pay GST in addition to the $2,050,000. Mr Gunn could not recall saying: "Others have put things over me, why should I do the right thing now?" He said he could not recall exactly what was said. Common mistake 33 In Pukallus v Cameron (1982) 180 CLR 447 at 452, Wilson J stated the essential elements constituting an entitlement to rectification for common mistake as, first, while there need not be a concluded antecedent contract, there must be an intention common to both parties at the time of contract to include in their bargain a term which by mutual mistake was omitted. Secondly, the plaintiff must advance convincing proof that the written contract does not embody the final intention of the parties. Thirdly, the omitted ingredient must be capable of such proof in clear and precise terms. The court must not assume for itself the task of making the contract for the parties. 34 The requirements for rectification for common mistake were described by Tipping J in Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 29-30 in the following terms: "Having considered these decisions and the cases I am of the view that some outward expression of accord is not necessary but that before rectification can be ordered the Court must be satisfied that the following points are established: (1) That, whether there is an antecedent agreement or not, the parties formed and continued to hold a single corresponding intention on the point in question. (2) That such intention continued to exist in the minds of both or all parties right up to the moment of execution of the formal instrument of which rectification is sought. (3) That while there need be no formal communication of the common intention by each party to the other or outward expression of accord, it must be objectively apparent from the words or actions of each party that each party held and continued to hold an intention on the point in question corresponding with the same intention held by each other party. (4) That the document sought to be rectified does not reflect that matching intention but would do so if rectified in the manner requested." 35 This statement of the principles was adopted by Hodgson J in Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 at 405-406. 36 There is no doubt that Mr Hook's intention was that the purchase price for the Estate was $2.05 million plus GST. Initially, GST was to be determined according to the margin scheme. Subsequently, and up to the time of execution of the counterparts, Mr Hook's intention was that the purchase price was $2.05 million plus GST at 10 per cent. In other words, the purchase price was to be $2,255,000. 37 GST at 10 per cent is calculated as one eleventh of the sale price. A New Tax System (Goods and Services Tax) Act, s 9-70 provides that GST is 10 per cent of the value of the taxable supply. Section 9-75 provides that the value of the taxable supply is the price multiplied by ten over eleven. 38 Whatever the resolution of the conflicting testimonies as to the oral conversations may be, Mr Gunn did not share Mr Hook's intention at the time of contract that the purchase price be $2.05 million plus GST. He sought advice from Ms Houston before executing the Les Gunn Properties counterpart as to the purchase price. Ms Houston informed him that it was $2.05 million inclusive of GST. His intention in executing the contract was that Les Gunn Properties pay no more than $2.05 million. Any intention he may have had at an earlier stage in the negotiations that the price was a specified amount plus GST had been supplanted by the course of action he adopted. 39 In my view, it has not been established that the parties shared a common intention at the time the contract was executed. Moobi has failed to establish an entitlement to rectification of the contract for sale based on common mistake. Unilateral mistake 40 In Taylor v Johnson (1982-1983) 151 CLR 422 at 432 the Court described the elements necessary to an order rescinding a contract for unilateral mistake. A party who enters a written contract under a serious mistake about its contents in relation to a fundamental term, is entitled, in equity, to an order rescinding the contract if the other party is aware that circumstances exist that indicate that the first party entered the contract under some serious mistake or misapprehension about the content or subject matter of that term and deliberately set out to ensure that the first party did not become aware of the existence of the mistake or misapprehension. The remedy of rescission is available because it would be unconscionable for one party, knowingly, to take advantage of the other party's mistake. 41 That general underlying proposition that equity will grant relief against unconscionable conduct means that if the above elements are established, relief is not confined to rescission. In Tutt v Doyle (1997) 42 NSWLR 10 and in Leibler v Air New Zealand Ltd (No 2) [1999] 1 VR 1 relief was extended to rectification. 42 Mr Gunn denied any conversation in which he agreed that Les Gunn Properties would pay any amount of GST in addition to the $2.05 million. Mr Gleeson and Mr Hook assert that Mr Gunn, on behalf of Les Gunn Properties, agreed to pay GST in addition to the $2.05 million. 43 It is necessary to resolve this conflict because, if Mr Gunn's evidence is accepted, not only was there no sharp practice amounting to unconscionable conduct on his part, but also there was no awareness by him of any mistake on Mr Hook's part. Ms Houston did not refer Moobi's letter accepting an offer of $2.05 million plus GST to her client. 44 It is clear that someone initiated a change from the margin scheme applying to the contract for sale to its non-operation. If Mr Gunn's version of events is accepted and the offer of $2.05 million was inclusive of GST, Mr Hook's acceptance of the change made no commercial sense. GST under the margin scheme is lower than GST at 10 per cent because it is charged on the difference between the sale price and the cost of acquisition of the real property interest. Why would Moobi accept a reduction in the net proceeds of sale after its payment of GST? 45 If Mr Hook's version of events is accepted, his agreement to the change is explicable. As he said, it made no difference to Moobi whether or not the margin scheme applied. A sale at $2.05 million plus GST would, in either event, return $2.05 million net after payment of the GST. 46 Mr Hook's version of the conversation that led to the change reflects the input tax credit position under the legislation. If the margin scheme applied, Les Gunn Properties was not entitled to an input tax credit for the amount of GST payable under the contract for sale. On the other hand, if the margin scheme did not apply, Les Gunn Properties was entitled to an input tax credit for the amount of GST passed on by Moobi that it might offset against its liabilities for GST under A New Tax System (Goods and Services Tax) Act, s 17-5(1). 47 Mr Hook's notes on the Moobi letter to Mr Gleeson advising of its acceptance of an offer of $2.05 million plus GST not only contained the note that Mr Gunn wanted to pay full GST, but also contained a calculation of the selling price that, under the margin scheme, would be necessary to return $2.05 million clear. The note contained a cost figure, a calculation of the margin, a calculation of GST on the margin at $133,389.20 and the calculation of a sale price of $2,183,389.20 to receive $2.05 million net of GST. 48 There was some criticism of Mr Hook's ascribing an incorrect date to his telephone call with Mr Gunn recording Mr Gunn's desire to pay full GST. I regard that as a minor aberration. 49 Of his earlier note on one of the facsimile messages from Mr Gleeson that $2.05 million was the price, it was pointed out that the note did not say $2.05 million plus GST. I regard that, also, as a minor aberration when the evidence as a whole is taken into consideration. The facsimile message upon which the note was made stated the then offer at $2 million plus GST. I think the note was a shorthand way of recording the new figure for an offer. 50 All the correspondence between Mr Hook and Mr Gleeson and between Mr Hook and Mr Noonan consistently referred to the purchase price as a figure plus GST. 51 Mr Gunn had been prepared to pay an amount in excess of $1.95 million for GST calculated under the margin scheme. 52 While I place far less weight upon the evidence, Mr Gunn did not deny Mr Noonan's evidence of what he had said to Mr Gleeson when pressed to pay the GST. "Les said to me that others had put things over him so why should he do the right thing now". He said he could not remember what he had said. 53 All these matters favour the version of events given by Mr Hook and Mr Gleeson and I prefer their versions of the conversations to those given by Mr Gunn. 54 Given my finding in favour of the evidence of Mr Hook and Mr Gleeson, it must follow that Mr Gunn was aware that there was a mistake in the purchase price in the documents presented to his solicitor, at the least when it was agreed that the margin scheme no longer applied, if not before. The price then should have been $2,255,000. 55 Mr Gunn engaged in sharp practice by failing to tell his solicitor or Mr Hook that the price had been misstated. He must have been aware that Moobi would execute a counterpart under a serious mistake about a fundamental term, the price. By failing to inform Ms Houston that the price was misstated, Mr Gunn deliberately set out to ensure that Moobi did not become aware of the existence of the mistake. 56 Mr Gunn deliberately engaged in a course of conduct designed to inhibit discovery of the mistake by Moobi. In so doing he was guilty of sharp practice and it would be unconscionable for him to hold Moobi to the contract. 57 In my view, Moobi has made out a case for rectification for unilateral mistake. Conclusion 58 By its summons, Moobi sought declarations that the purchase price was $2,050,000 plus GST and rectification by the addition of a further clause in the contract in relation to GST. Counsel agreed, however, that if I resolved the dispute in favour of Moobi rectification should take the form of an adjustment of the purchase price. I do not think it necessary to make the declarations. 59 I order that the contract for sale of land dated 26 October 2007 between the plaintiff as vendor and the defendant as purchaser be rectified by the substitution of $2,255,000 for the stated purchase price of $2,050,000. I order the defendant to pay the plaintiff's costs. ********** 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.