The Supreme Court of Victoria has allowed an appeal from a Magistrate’s decision concerning rectification of a contract for the sale of a property concerning the GST component of the sale price.
In September 2009, Mr Leong purchased a property from Duoedge Pty Ltd for a price specified in the contract as “$916,000 GST inclusive”. Mr Leong is the director of OCMC Pty Ltd, which intended to develop the land. OCMC was later nominated by Mr Leong as purchaser. In October 2009, at OCMC’s request, Duoedge provided it with a tax invoice for the sale of the property which specified the following breakdown: (i) To Contract/Purchase Price $832,727.27; (ii) PLUS GST $ 83,272.73; (iii) Total payable $916,000 [but this was erroneous as the property sold was residential, and there was no GST to pay]. On 10 November, 2009 the contract settled.
The Supreme Court said OCMC commenced its development and in 2010 submitted a BAS for the 2009 fourth quarter that claimed a GST input tax credit of $83,272. On 12 May 2010, the ATO revised OCMC’s BAS rejecting its claimed entitlement to an input tax credit for the GST component of the purchase from Duoedge.
Mr Leong and OCMC contended successfully before a Magistrate for an entitlement to a refund from Duoedge of 1/11th of the purchase price. The Magistrate held that the contract contained an implied term entitling Mr Leong and OCMC to that refund and ordered rectification of the contract as follows: (a) The purchase price of $916,000 GST inclusive is amended to read $832,727.27 plus GST of $83,272.73; (b) the words “Plus GST” be inserted into the GST box on Page 2 of the Particulars of Sale. The Magistrate also ordered payment of the sum of $83,272.73 by Duoedge to OCMC [holding that there was a joint understanding that if there was no GST to pay, as it transpired there was not, the vendor would refund the purchaser this extra $82k amount].
Duoedge contended that the Magistrate had erred and appealed to the Supreme Court of Victoria. The Supreme Court allowed the appeal and ordered that the judgment of the Magistrates’ Court be set aside [because the purchaser had a high onus to establish for rectification, the Magistrate found the wrong things, and it was pointless sending the matter back to the Magistrate to retry according to law given the evidence which showed that the risk of whether there was GST to pay (and thus an input tax credit for the purchaser) fell as stated in the contract – see reasoning extracted below].
(Duoedge Pty Ltd v Leong & Anor [2013] VSC 36, Supreme Court of Victoria, Dixon J, 13 February 2013.)
[LTN 35, 21/2/13]
Extract from [2013] VSC 36
47 Rectification was pleaded and was an issue at trial. OCMC and Mr Leong bore the onus to show that the clearly predominant intention of both the vendor and the purchaser was of an actual agreement as I have described. The magistrate’s finding that the parties ‘effectively took the view’ that the agreed price inclusive of GST was not a finding of a clear predominant intention that the vendor had agreed not to retain any more than $832,727.27 as the price. That the agreed price was inclusive of GST can only support an inference that the common intention was the purchaser had no further obligation to pay if the transaction was a taxable supply. Such a finding cannot sustain an entitlement to rectification of the contract.
48 Not having made appropriate findings, it was not open to the magistrate to rectify the written contract and in so ordering, the primary court fell into error. The remaining issue is whether the proceeding should be sent back to the magistrate to be determined in accordance with these reasons. Unless it was open to the magistrate to find the actual agreement or common intention that Mr Leong and OCMC contend for, to do so would be a futile exercise exposing the parties to unecessary expense?
49 The evidence given by the agent concerning the negotiations was accepted by the magistrate. One Susan Pettifer stated that the property was marketed at 900+ and the offer made by Mr Leung was $916,000. The offer ‘included GST’ but not by reason of any statement to her by Mr Leong. Ms Pettifer had dealt with Mr Leong over several years and his offers were always ‘including GST’, as that was the way he worked. Ms Pettifer had no conversation with Mr Mavro because ‘well he knew that that’s what it was including on the contract of sale, yeah’. Ms Pettifer completed the particulars of sale in her handwriting. She added special condition 2 because Mr Leong requested it because he told her he wanted a tax invoice to claim the GST back. When cross-examined, Ms Pettifer recalled that the question whether the sale was subject to GST came up with Mr Mavro and he responded that it was ‘including GST’. This conversation was at the time that he signed the contract that so provided. It seems clear on Ms Pettifer’s evidence that the parties agreed on a price of $916,000 and the vendor bore the GST liability. On her evidence, these negotiations were not open to an interpretation that an agreed price was grossed up for GST, to be refunded if not remitted to the ATO, when the contract was prepared and signed.
50 Mr Leong gave evidence that before signing the contract he turned his mind to a breakdown of the purchase price into a component for GST and a component representing the value of the property. He did not give evidence of any discussion with Mr Mavro or the agent from which an agreement with the vendor different from that which he signed might be found. The only conclusion open was that an offer of $832,727.27 plus GST was never put or discussed. If it was Mr Leong’s intention to reach an agreement with the vendor that he would not pay any more than $832,727.27 for the property and would get the benefit of an input credit for the balance of $916,000, he did not reveal it in negotiations.
51 Accepting Mr Leong’s evidence and that of relevant witnesses, there was not revealed by it an actual agreement entered into, or a common intention possessed, that was by common mistake recorded incorrectly in the written contract.