Resolving GST ambiguity: A & A Property Developers Pty Ltd v MCCA Asset Management Ltd

The proper approach to the construction of commercial contracts has been the subject of a number of recent decisions of the High Court.[1] There remain some differences in the approaches of appellate courts in Victoria and New South Wales regarding the circumstances in which evidence of surrounding circumstances, external to the contract, is admissible to aid in the construction of a term.

In this article, we explore the Victorian Court of Appeal’s approach to resolving ambiguity in the meaning of a GST provision in a sale of land contract in A & A Property Developers Pty Ltd v MCCA Asset Management Ltd[2] (A & A Property Developers).

Background

The default provision in a Victorian sale of land contract is that the vendor is liable to pay any GST, but this position may be reversed (so that the purchaser is liable for GST) if the purchase price is expressed to be “plus GST”.[3] Practically, this is effected by inserting the words “plus GST” in a box adjacent to the purchase price on the standard form contract.

In A & A Property Developers, the relevant box in the contract executed by the parties included only the letters “GST”, rather than “plus GST”. When the purchaser’s conveyancer prepared the transfer documents, disagreement arose as to whether an additional amount for GST was payable to the vendor. The purchaser asserted that at no time had it been informed that the purchase price was exclusive of GST.

The vendor commenced a proceeding in the Supreme Court of Victoria seeking declaratory relief as to the price payable under the contract. The issue was whether the insertion of the words “GST” was enough to depart from the “default position” of the contract and make the purchaser liable for GST on top of the purchase price.

Resolving ambiguity in contracts

The starting point in the interpretation of a contractual term is that if the words used are unambiguous, the court must give effect to them regardless of the outcome.[4] However, if the words employed by the parties are susceptible to being given more than one meaning, evidence of surrounding circumstances is admissible to assist in the interpretation of the contract.[5] This is often referred to as the “true rule” in Codelfa Construction Pty Ltd v State Rail Authority (NSW).[6] Ambiguity may be apparent on the face of a contractual document or it may otherwise be revealed by a consideration of context.

French CJ, Nettle and Gordon JJ further explained the “true rule” in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd[7] (Mount Bruce) holding that when determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood the terms to mean by taking into account:

• the language used by the parties in the contract
• the circumstances addressed by the contract
• the subject matter of the contract

Their Honours held further that where there is ambiguity, recourse to events, circumstances and matters external to the contract is necessary when interpreting or constructing it.

Since the High Court’s decision in Mount Bruce, the New South Wales Court of Appeal and the Victorian Supreme Court of Appeal have taken different approaches to the admissibility of evidence of surrounding circumstances in contract construction cases.

The Victorian position[8] is that Mount Bruce does not stand for the proposition that evidence of surrounding circumstances is admissible to both resolve an ambiguity and to raise one. Rather, the proper approach is that the matters of text, context and purpose of a contract to which a court is entitled to have regard are generally those intrinsic to the contract. Evidence external to the contract is admissible to illuminate the commercial purpose of a contract but, absent ambiguity, for no other purpose. In other words, evidence of surrounding circumstances, external to the contract, cannot be employed to contradict the plain meaning of the terms of the contract.[9]

The New South Wales approach, recently confirmed in Cherry v Steele-Park,[10] is that there is no need to identify ambiguity in a contract before regard may be had to surrounding circumstances.

Decision in A & A Property Developers

The trial judge (Ginnane J) held that the requirements that were to be satisfied to reverse the liability for GST warranted strict application. Thus, the absence of the word “plus” was fatal. Ginnane J considered three possible explanations for the presence of the letters “GST” as they appeared in the contract, namely:[11]

• the purchase price was GST-exclusive, and the purchaser was liable to pay GST on top of the purchase price
• when negotiating the contract, the parties had considered the liability of GST and who should bear it, but did not ultimately reach agreement
• the letters were inserted in error

His Honour concluded that the letters “GST” must have been retained in the box in error and that there was no ambiguity justifying reference to surrounding circumstances.

The Court of Appeal found no error in the principles identified by Ginnane J (which were consistent with the Victorian approach discussed above). Instead, error was identified in the application of those principles. The essence of the Court of Appeal’s disagreement with the trial judge’s conclusion was a rejection of the notion that the inclusion of the letters “GST” in the contract was in error. That being the case, the letters “GST” had to be given some meaning, and the court’s task was to do so. Their Honours identified a number of matters supporting the conclusion that the presence of the letters “GST” in the relevant box was a sufficient indication that the parties agreed to reverse the default allocation of liability for GST.

First was the presence of the letters themselves. Secondly, four other boxes (in which other particulars of sale could have been inserted) were left blank, however a sixth box, which identified the presence of any special conditions, was completed. Thirdly, it was evident from the contract that the relevant property had commercial potential as a development site, such that the potential liability of the vendor for GST could not have been said to be theoretical. Moreover, the vendor statement appended to the contract attached a planning permit relevant to the potential development of the property. One of the special conditions also specifically adverted to the development potential of the property.

The court concluded that, objectively viewed from the perspective of an ordinary businessperson, the parties intentionally inserted the letters “GST” into the contract for the purpose of transferring the liability for the payment of GST from the vendor to the purchaser.

Conclusion

The decision in A & A Property Developers brought us no closer to a resolution to the question of the circumstances in which it is permissible to admit evidence of matters external to the contract. In our view (with respect), the New South Wales approach, which permits external evidence to raise an ambiguity, is the correct one. The point was lucidly articulated by Barrett AJA in WIN Corp Pty Ltd v Nine Network Australia Pty Ltd[12] in which his Honour observed that:

… to recognise words as bearing a “plain meaning” is merely to state a conclusion arrived at by some process of interpretation which cannot, as a matter of logic, exclude context.[13]

A famous example is “the shortest will ever drafted” which was considered in Thorn v Dickens[14] and simply provided “All for Mother”. While the meaning would seem to be plain, evidence that the testator’s practice to refer to his wife — and mother of his children — as “Mother” persuaded the court that she was the correct beneficiary. Such examples, while rare (particularly in a commercial context), demonstrate the force in Barrett AJA’s observations.