Clause For Thought

Cityrose Trading Pty Ltd v Booth & Anor [2008]

Victorian Supreme Court, Commercial & Equity Division

 In 2006, Noel Booth bought a property in Victoria from Cityrose Trading Pty Ltd. The contract contained a special condition referring to GST but it did not stipulate whether GST was payable on the sale. Just before settlement, Cityrose advised Mr Booth that GST was in fact payable, and that he had to pay it. He objected but paid the relevant amount of $225,000.00 under protest, then went to the Victorian Civil and Administrative Tribunal (VCAT). VCAT declared that the contract price was inclusive of GST and ordered the vendor and agent to repay the full amount plus interest, totalling 281,970.37.

 On appeal, the Supreme Court of Victoria concluded that VCAT had not analysed the relevant clause properly. Clause 7 of the contract stated that the expressions used in the clause take on their meaning as defined in the GST legislation. It then stated that: “7.2 The consideration payable for any taxable supply made under this contract represents the value of the taxable supply for which the payment is to be made…” The law, however, defines value as the GST-exclusive price and consideration as the GST-inclusive price of a taxable supply. “Consideration” cannot therefore represent “value”.

 The Supreme Court ruled that the clause and therefore the GST payable could be interpreted in any of three ways, and sent the matter back to VCAT to determine which was correct. (The third possibility was that the clause was so meaningless it should be excised from the contract altogether.)

 Conclusion

This case underlines the importance of simple and careful wording of contracts, also provisions relating to GST which must state unambiguously whether the contract price is GST-inclusive or exclusive, and if appropriate with a GST gross-up right.