On 19 September 2013, the Supreme Court of Victoria in Cityrose Trading Pty Ltd v Booth  VSC 504 found that a GST clause in a contract for the sale of land was “void for uncertainty”. The decision underscores the importance of carefully drafting GST clauses.
The Court’s decision focused on how a GST clause can be void for uncertainty and also considered associated issues in relation to misleading and deceptive conduct.
GST clause held to be ineffective
Following an auction where the property was passed in, the vendor (Cityrose Trading Pty Ltd) and the purchaser (Booth) entered into a contract of sale. In the Particulars of Sale, the purchase price was stated to be $2,250,000 but did not mention whether the price was exclusive of GST. The vendor argued that the GST clause (Special Condition 7) applied so that the purchaser would be required to account for the GST payable on the sale.
Special Condition 7 provided that expressions used in that clause which are defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act) have the same meaning as given to them in that Act. The clause 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.”
Emerton J held that the GST clause was void for uncertainty, and severable from the contract. Although the clause purported to import terms defined in the GST Act, the clause misapplied them by equating the “consideration” with the “value”. Her Honour held that Special Condition 7 was “so obscure and so incapable of any definite or precise meaning that the Court [was] unable to attribute to the parties any particular contractual intention”. Accordingly, the vendor was not entitled to be reimbursed by the purchaser in respect of the GST payable on the contract.
Importantly, her Honour refused to follow the reasoning of the earlier Victorian Civil and Administrative Tribunal decision that the GST clause should be construed to give “a point to the condition”, where competing constructions would result in the clause being superfluous. Her Honour focused on the words of the clause and their context, which were not determinative of the parties’ objective intention.
Her Honour found that, even if the clause had imposed the additional liability on the purchaser, her Honour would have held that the vendor’s conduct in the circumstances was misleading or deceptive under the Fair Trading Act 1999 (Vic). Her Honour held that it was misleading for such an obscure GST clause to be included in a contract for the sale of residential land where the contract was provided a day before the auction took place and where neither the vendor nor the real estate agent had specified that the purchase price was exclusive of GST. Accordingly, the purchaser would have been entitled to recoup any amount paid under Special Condition 7.
Important drafting implications
This case illustrates that a poorly drafted GST clause will not necessarily be upheld by a court, and can result in one party bearing an unintended additional liability of 10% of the GST-exclusive price. Such an outcome may also result in unintended stamp duty consequences.
From both a vendor’s and a purchaser’s point of view, it is prudent to seek GST advice before agreeing to a contract that includes a GST clause.