Sale of land – Purchase price – VAT – Appellant company selling property to respondents for £130,000 – Appellant previously waiving VAT exemption on property and therefore becoming liable to VAT of £22,750 on sale – Whether respondents liable to reimburse appellant for that sum pursuant to clause 1.4 of general conditions of sale – Whether clause 1.4 giving way as being inconsistent with purchase price specified in special conditions – Appeal dismissed
In 2002, the appellant company offered to sell a property in Smethwick, in the West Midlands, to the respondents for £130,000. The appellant was registered for VAT and had previously opted to waive the exemption from VAT in respect of the property. The parties instructed solicitors to handle the conveyancing and a draft contract was produced, incorporating the standard conditions of sale (4th ed) and specifying the purchase price as £130,000, but the sale did not proceed at that time. Negotiations resumed in 2005 and the sale was completed in 2006.
In 2007, the appellant was assessed for VAT of £22,750 on the transaction. It claimed that the respondents were liable to reimburse it pursuant to the general conditions of sale, clause 1.4 of which provided that all sums payable by the contract were exclusive of VAT. The respondents contended that any such liability would be inconsistent with the special conditions in the contract, since it would require them to pay more than the stated purchase price of £130,000. By the express terms of the contract, the special conditions were to prevail in the event of any inconsistency with the general conditions.
The claim was allowed at first instance but that decision was reversed by a judge on appeal, who accepted the respondents’ contentions and held that the special conditions, specifying the purchase price as £130,000, had to prevail. The appellant appealed.
Held: The appeal was dismissed.
The contract had to be construed as a whole, with every effort made to give effect to all its clauses. Even though the contract included a condition that expressly provided for the special conditions to prevail in the event of a conflict with the general conditions, the court should still preserve the general conditions so far as possible. Clause 1.4 of the general conditions could have only one reasonable interpretation, which was that any liability for VAT should fall on the buyer: Hostgilt Ltd v Megahart Ltd [1999] STC 141, National Transport Authority v Mauritius Secondary Industry Ltd [2010] UKPC 31 and Wynn Realisations Ltd (in administration) v Vogue Holdings Inc [1999] STC 524; [1999] PLSCS 84 applied.
However, in construing the contract, the court had to have regard to the circumstances of the parties’ relationship and the relevant facts surrounding the transaction as known to them. The appellant had never communicated to the respondents that it had exercised the option to tax and the respondents had no reason to suppose that the transaction might be subject to a VAT charge. Moreover, the purchase price had been agreed in principle a considerable time before completion and there had been no suggestion that VAT might be payable, still less that the respondents would be liable for it. The purchase price had been specified as £130,000 both in the standard requisitions and responses by the parties’ solicitors and in the special conditions. The special conditions contained no indication that the price was exclusive of VAT and made no reference to any other sum being due on completion by way of “other payments”. Taking all those matters into consideration, a reasonable person, with all the background knowledge that would reasonably have been available to the parties at the time of contracting, would conclude that the parties intended nothing to be payable over and above the specified purchase price of £130,000. In the particular circumstances of the case, it was not possible to interpret “purchase price” as meaning the price exclusive of VAT.
It followed that the special conditions were irreconcilable with clause 1.4 of the general conditions and that, as the parties intended, the special conditions were to prevail.
Michael Bowmer (instructed by Bond Dickinson LLP, of Bristol) appeared for the appellant; James Quirke (instructed by Murria Solicitors Ltd, of Birmingham) appeared for the respondents.
Sally Dobson, barrister
