Verbal statements made at auction must be in accordance with the Contract
Overview
A recent NSW Supreme Court decision highlights the potential cost that can arise if Goods and Services Tax (GST) clauses are not properly and thoroughly reviewed in a Contract for Sale of land (Contract).
The case below demonstrates the necessity for consistency between a Contract and the words of an auctioneer or agent. Verbal statements at an auction must confirm the Contract, as the Contract terms were held to prevail notwithstanding that comments made differing from what was stated in the Contract.
Case
The case of Tam v Mannall [2010] NSWSC 250 involved the sale of a property by way of an auction. A dispute arose in regard to GST.
The Purchaser claimed that the Contract price was fixed at $2,820,000 including GST, and that the Vendor was liable to pay the GST component to the Australian Taxation Office out of that sum. The Vendor argued that the price was GST exclusive and that the Purchaser was required to pay the price of $2,820,000 plus 10% GST of $282,000, being a total of $3,102,000.
It was acknowledged that the auctioneer had announced prior to the auction that GST would be payable in addition to the purchase price. The auctioneer gave evidence to this effect as did other parties present at the auction.
The Contract indicated that the sale was a taxable supply, but there was no other provision in the Contract that stated that GST would be paid in addition to the price.
The Contract stated:
“Normally, if a party must pay the price or any other amount to the other party under this contract, GST is not to be added to the price or amount.”
Result
The Court held that the Vendor was unable to prove that the Purchaser understood that GST would be payable in addition to the purchase price. Although several people gave evidence that the auctioneer did in fact state the GST would be payable in addition, the successful bidder claimed not to have heard this.
The Court also considered whether the written Contract could be rectified on the basis of common mistake. For that to occur, the Vendor was required to provide convincing proof that it was the common intention of the parties that the purchase price should be GST exclusive. The Court concluded that the evidence was inconsistent and there was not enough to indicate the Purchaser shared a common intention with the Vendor that GST should be in addition to the purchase price.
The Vendor had to complete the sale to the Purchaser and pay the GST component of $256,363.64 from the purchase price of $2,820,000. If the Contract had been shown to be GST exclusive the Vendor would have provided a tax invoice to the Purchaser for the GST and no doubt the Purchaser would have recovered the GST as an input tax credit. Stamp duty would have been payable on the GST component increasing the cost to the Purchaser.
The Vendor
also had to pay the Purchaser’s legal costs of the proceedings – the whole matter being a very costly experience for the Vendor.
Action
The Vendor may still bring an action against the auctioneer or agent, you must ensure that before entering into any Contract, the GST provisions must be clearly stated in the Contract.
Watkins Tapsell have experts in this area who are committed to addressing these issues and ensuring that your rights are protected.
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