By Clare Kent, Senior Content Specialist
In the decision of A & A Property Developers Pty Ltd v MCCA Asset Management Ltd  VSCA 365 from the Victorian Supreme Court of Appeal, a failure to consider whether GST was payable on the sale of a $2.9 million property proved to be a costly mistake for the purchaser.
A & A Property Developers Pty Ltd (the vendor) entered into a contract of sale with MCCA Asset Management Ltd (the purchaser) in relation to a property situated in Victoria. The purchase price noted on the contract was $2.9 million.
There was an existing, uninhabitable dwelling on the property which the purchaser intended to knock down in order to build units. The vendor was aware of the purchaser’s development plans.
The standard form contract of sale was used. The particulars of sale in the standard contract state that “The price includes GST (if any) unless the words ‘plus GST’ appear in this box”. Clause 13.1 of the General Conditions provides that “The purchaser does not have to pay the vendor any GST payable by the vendor in respect of a taxable supply made under this contract in addition to the price unless the particulars of sale specify that the price is ‘plus GST’”.
In other words, the default position in the standard contract is that the vendor has the liability to pay any GST. General condition 13.1 and the box provided in the particulars of sale provide a mechanism to depart from that default position, namely, by inserting the expression ‘plus GST’.
The contract executed between the parties included only the letters ‘GST’, rather than the words ‘plus GST’, in the relevant box provided in the particulars of sale.
Around the time of settlement, a dispute arose as to whether the purchase price was exclusive or inclusive of GST.
The vendor sought a declaration that the total price payable by the purchaser under the contract was ‘plus GST [that is, $3.19 million] and not inclusive of GST [that is, $2.9 million].
The trial judge made a declaration that the purchaser was not liable to pay GST – see A & A Property Developers Pty Ltd v MCCA Asset Management Ltd  VSC 653. The trial judge accepted the purchaser’s position, finding that the language in the particulars of sale was clear and that GST could only be payable in addition to the purchase price if there had been strict compliance with the mechanism provided to reverse the default position under the contract. The trial judge also found that at least implicitly, the letters ‘GST’ must have been retained in the box in error and that there was no ambiguity justifying reference to surrounding circumstances.
The vendor then appealed the trial judge’s decision.
Appeal court’s decision
The Appeal Court allowed the vendor’s appeal finding that:
· there was sufficient indication in the contract that the parties agreed to reverse the default allocation of the risk of liability for GST. Further, strict compliance with the mechanism under condition 13.1 to make the contract GST exclusive was not required.
· the trial judge’s decision did not adequately account for the presence of the letters ‘GST’ in the relevant box or for other indications of contractual intention, objectively construed.
The Appeal Court noted that most of the other check boxes in the particulars of sale were left blank. The court found that it could be inferred, objectively, from the “systematic manner” in which the particulars of sale were completed that where the parties left a box blank they intended not to attract the operation of the relevant general condition or other relevant scheme.
The presence of the letters ‘GST’ in the relevant box was held to be of greater significance as an objective indicia of contractual intention than was the absence of the word ‘plus’. That presence revealed that there was an attempt at compliance with the mechanism in general condition 13.1, albeit that strict compliance was not achieved.
Despite GST being introduced almost 20 years ago, disputes continue to arise in relation to the treatment of GST in sale of land transactions.
This decision illustrates the importance of:
- parties discussing the treatment of GST in pre-contractual negotiations with each other and their respective advisers especially in the context of a commercial transaction for a property development. Presumably if the purchaser in this decision had been aware before it signed the contract that GST was payable on the sale, it would have attempted to negotiate to ensure that the vendor was liable for its payment. The inclusion of a special condition in the sale contract may also assist in crystalizing the parties’ responsibilities in relation to the payment of GST.
- carefully completing the particulars of sale. Even though the vendor was successful on appeal with the court finding that strict compliance with the GST provisions was not required, the vendor may have avoided risky and protracted litigation if it had merely included the word “plus” in the GST box of the particulars of sale.