Court rules “purchase price exclusive of GST” ≠ buyer must pay GST in addition

A court has ruled that a land contract provision specifying “the Purchase Price is exclusive of GST” does not have the effect of obliging the purchaser to pay GST in addition to a specified purchase price.

mixed use development deal had contract drafting issueThe dispute which led to the ruling was the July 2015 sale of a $14.75 mil development site in which both buyer and seller agreed GST would have to be paid but claimed such payment was the responsibility of the other party.

The standard form NSW contract under which Prowl Pty Ltd sold the North Manly site – which had an existing DA for 75 home units, shops and offices – omitted the words “plus GST” in the description of the sell price.

Neither was an amount of GST inserted in the space provided in the final version of the document because – given the option to apply the margin scheme – that sum could only be inserted after valuation of the site as at the date of its purchase by the seller and the seller’s decision as to its preferred method of GST determination.

The margin scheme special condition clearly stated “the Purchase Price is exclusive of GST” and included an acknowledgement by buyer Brookvale Pty Ltd that it was not entitled to an input tax credit or any tax invoice from the seller.

Brookvale contended though – that because the contract unambiguously specified the price at $14.75 mil – it was obliged on completion to pay $13.275 mil to the seller for purchase price plus an additional $1.475 mil for the GST the seller was required to remit to the ATO.

The parties agreed to settle on the deal and then seek a determination from the court as to the proper construction of the contract.

The matter came before Justice Stephen Robb in the NSW Supreme Court where Prowl pointed out “exclusive of” necessarily meant the opposite of “inclusive of”.

It therefore followed – so ran its argument – that by the ordinary meaning of the expression, the buyer was required to pay the unincluded GST.

Prowl did not contend for any generally accepted meaning of the expression in the property industry. Rather it presented its case solely on the basis that its plain meaning required the additional payment by the buyer.

Ultimately the court rejected that argument finding that a statement that a price stipulated in the contract to be “exclusive of GST” was not “sufficient by itself to have the additional effect of obliging the purchaser to pay the GST”.

“The fact that the GST act imposes on the vendor obligation to pay GST could be a circumstance entirely unconnected with the effect of the special condition,” observed Justice Robb.

“It would be wrong to seize upon the expression ‘exclusive of GST’ as being sufficiently clear to create an implied obligation on the purchaser to pay the GST as a departure from the normal operation of the contract”.

The decision illustrates the absolute importance the amount payable by the buyer being stated clearly in land contracts.

Prowl Pty Ltd v DL Brookvale Pty Ltd [2018] NSWSC 1255 Robb J, 14 August 2018

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