CLP Holding Company Ltd v Singh & Kaur [2014] EWCA Civ 1103 shows the dangers in using a standard pre-printed form of contract and relying upon standard conditions of sale to prevail over the other conditions of the contract – in this case, as regards the VAT status of the transaction.
In this case, the claimant, CLP Holding, was selling property for £130,000 in respect of which it had exercised the VAT option to tax. As it had opted to tax, VAT was therefore payable in respect of the purchase price. In late August 2006, the sale was completed without payment of VAT. Just over a year later, HMRC raised a notice of assessment for VAT in respect of the transaction. The seller sought payment of the VAT element from the buyer, citing relevant standard conditions of sale. However, the buyer declined to pay, citing the manner in which the purchase price was defined in the special conditions, and pointing out how the standard conditions of sale were to give way to the special conditions in the case of a conflict. The Court of Appeal agreed with the buyer.
The background to the sale was slightly muddled. For reasons not explained before the court, the purchase price had been paid by the buyer to the seller before contracts had been exchanged. In correspondence, the seller’s solicitor confirmed that his client had “acknowledged that they have received all of the sale monies of £130,000.” Notwithstanding this, the money was repaid to the buyer before exchange, and the parties then proceeded to an exchange and completion with £130,000 being paid over once again. At no time was VAT asked to be paid. The contract was described by the court as being “in conventional form” with general conditions (i.e. the Standard Conditions of Sale 4th Edition) and various special conditions. In the special conditions, the purchase price was defined as £130,000 with no indication as to whether or not this was to include VAT. Clause 2 of the special conditions stated as follows:
“This Agreement incorporates the Standard Conditions of Sale (4th edition) (“the general conditions”). Where there is a conflict between the general conditions and this Agreement or the general conditions are not consistent with the express terms of this Agreement, this Agreement shall prevail. Terms used or defined in this Agreement have the same meaning as in the general conditions save as otherwise defined in this Agreement.”
Clause 2 of the special conditions
Condition 1.4 of the Standard Conditions of Sale provides [at 1.4.1] that: “An obligation to pay money includes an obligation to pay any value added tax chargeable in respect of that payment;” and further provides [at 1.4.2] that: “All sums made payable by the contract are exclusive of value added tax.”
Hence, to summarise: the seller was selling property in respect of which it had opted to tax; the purchase price (defined in the special conditions) was stated simply to be £130,000; the general conditions stated that the purchase price was payable exclusive of VAT; but Clause 2 of the special conditions stated that the general conditions would give way to the special conditions in the case of a conflict.
The Court of Appeal said that the correct approach to interpretation of a contract was to determine what the parties meant by the language they used. This involved ascertaining what a reasonable person would have understood the parties to have meant. Interpreting the contract as a whole, and having regard to the fact that the seller had never communicated to the buyer that it had opted to tax, that there had never been any suggestion that VAT was payable in respect of the sale, that the seller had acknowledged before completion that it had received “all of the sale monies”, and that the definition of the purchase price did not state that it was payable “exclusive of VAT”, the reasonable person would conclude that the parties had only intended that £130,000 was to be payable by the buyer. The statement in the special conditions as to the purchase price was not reconcilable with standard condition 1.4, and therefore the special conditions were to prevail.
The moral of this case is to make sure that, in addition to express terms of the sale agreement which state the purchase price to be subject to VAT, the purchase price should always be expressed to be payable “exclusive of VAT” so that if there is any VAT to pay, it is clear that the buyer must pay it.