Accuracy in contracts is of course important. Especially when the contract terms involve large-number arithmetic such as in real property transactions.
A recent article from greenwoods.com.au reminds us that despite a court’s ability to interpret and give effect to the commercial intent of a contract, if the contract terms and related evidence do not sufficiently support an argued outcome, the court won’t try to second guess.
In the cited case, it was a tough lesson learned at the cost of approximately $58,000 per minute – for the likely 5 minutes it would have taken to ensure that a form was filled out correctly. On the other hand, one word single can be easily over-looked, especially if there are preconceived assumptions about how the transaction will proceed.
The facts of the case were simple: The parties in part used a standard form contract published by the Law Institute of Victoria and Real Estate Institute of Victoria Ltd. The contract documentation in essence only required GST to be paid in addition to the price if the phrase “plus GST” appeared in a specified place in the documentation. Unfortunately just the word “GST” was inserted in that place.
In the subsequent proceedings, the vendor lost its claim to an additional amount of $290,000 which was the amount of GST based on a purchase consideration of $2.9 million. The vendor was unable to persuade the court that the commercial intentions were not to cap the price at an all-up value of $2.9 million. That additional $290,000 might have come in handy when the vendor came to settle its next BAS return GST liability.
GST risk is not to be overlooked in the context of all taxable transactions, and this case confirms that the small details matter. For the vendor, the word ‘plus’ would have made all the difference. Read the full article here.
For a further discussion of this and a similar case, see Supreme Court of Victoria finds GST not to be added to purchase price