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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> CLP Holding Company Ltd v Singh & Anor [2014] EWCA Civ 1103 (31 July 2014) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2014/1103.html Cite as: [2014] STI 3023, [2014] 3 EGLR 101, [2014] EWCA Civ 1103, [2014] BVC 40, [2015] STC 214

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BIRMINGHAM COUNTY COURT
HHJ Oliver-Jones QC
2YL83125

		Royal Courts of Justice Strand, London, WC2A 2LL
		31/07/2014

Lord Justice Kitchin:

1. On 29 August 2006 the claimant agreed to sell to the defendants a freehold property at 72 Rolfe Street in Smethwick in the West Midlands ("the property"). Completion took place on that same day. The central issue on this appeal is whether the defendants are liable to pay to the claimant the VAT charge on that transaction.
2. The proceedings first came before Deputy District Judge Boynton in the Birmingham County Court upon a summary judgment application by the claimant. He concluded that the defendants had no real prospect of successfully defending the claim and so directed that there be judgment against them. On appeal by the defendants, His Honour Judge Oliver-Jones QC came to the opposite conclusion. He considered that the claim had no merit and that the appeal must be allowed, and so, by his order made on 20 December 2013, he directed that there should be judgment for the defendants. The claimant now appeals to this court against that order with the permission of Aikens LJ.
3. The facts are largely agreed. The claimant was at all material times registered for VAT and in December 1989 it gave notice to The Commissioners for Her Majesty's Revenue and Customs ("HMRC") that it had opted to waive the exemption from VAT in respect of the property.
4. The claimant first offered to sell the property to the defendants in 2002. The price was agreed at £130,000 and in January 2003, Silks Solicitors ("Silks"), the firm of solicitors instructed by the claimant, sent to Athi Kulisra Smith ("AKS"), the firm of solicitors instructed by the defendants, a draft contract. The parties contemplated the transaction would proceed to completion in the spring of that year. However, for reasons which were not explained to us but have no bearing upon this appeal, it did not do so, and it was not until 2005 that the parties resumed negotiations.
5. By letter 2 December 2005, Silks notified AKS that they were again instructed in relation to the proposed sale and indicated that they were awaiting details of the purchase price from the claimant. On 12 December 2005, AKS replied explaining that it was their understanding that the purchase price was still £130,000 and that this sum, which they described as the whole of the consideration, had already been paid to the claimant.
6. On 2 March 2006, Silks wrote to AKS acknowledging that the claimant had received the £130,000. Their letter reads, so far as material:

"We are pleased to report that our clients' have signed the contract at a sale price of £130,000 in readiness for exchange. They have acknowledged that they have received all of the sale monies of £130,000 on this matter, subject to contract.

Our clients have informed us however that the purchaser will be paying our fees on this matter which amount to £350.00 plus VAT with £8.00 for office copies of the deeds and if you would please confirm that this is the case and that a special condition may be added to the contract of that effect we are able to exchange contracts."

7. In July or early August 2006, the claimant returned the purchase monies to the defendants with a view to them being transferred back again by the defendants to the claimant, through their respective solicitors, upon completion.
8. Meanwhile, on a precise date which is not entirely clear but at the latest by 5 April 2006, AKS sent to Silks the standard requisitions on title. They included, at 5.1:

"5. MONEY

5.1 Please state the exact amount payable on completion. If it is not just the balance purchase money, please provide copy receipts for any rental service charge or other payments being apportioned."

9. On 15 August 2006, Silks replied to the requisitions and, in response to requisition 5.1, stated:

"MONEY

5.1 Balance of purchase monies."

10. Eventually, on 29 August 2006, the parties exchanged contracts and simultaneously completed the transaction. On 30 August 2006, Silks wrote to AKS enclosing the signed contract and the deed of transfer. This latter document stated that the claimant had received from the defendants the sum of £130,000 by way of consideration.
11. The contract is in conventional form and comprises special conditions and general conditions. The first page of the special conditions is headed "DEFINITIONS". Of relevance to the present appeal, "Purchase price" is defined as £130,000. No indication is given that any other sum is payable, and that is so despite the appearance at the bottom of the page of a table in which details of any "Other payments/allowances" could have been (but were not) included.
12. Clauses 1 and 2 of the special conditions deal with the transaction and the inter-relationship of the special and general conditions. They provide:

"1. The Seller [the claimant] will sell and the Buyer [the defendants] will buy the Property for the Purchase price.

2. This Agreement incorporates the Standard Conditions of Sale (4^th 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."

13. Clause 8 deals with default and reads:

"(i) In the event of default by either party on Completion and the serving of a valid Notice to complete by the non-defaulting party's solicitor the defaulting party will pay (but without prejudice to any other rights and remedies of the non-defaulting party) the sum of £100 plus VAT in respect of the non-defaulting party's solicitors additional costs.

(ii) In addition to the compensation referred to in condition 7.3.2 the Seller will also be entitled to a refund of any fees, commission and interest incurred in obtaining Bridging Finance for a sum not exceeding the unpaid balance of the purchase price."

14. Clause 12 is an entire agreement provision and reads:

"12. This Contract constitutes the entire contract between the parties and may only be varied or modified (whether by way of collateral contract or otherwise) in writing under the hands of both parties or their respective solicitors by letter or memorandum attached to both parts of the original Contract. The Buyer acknowledges that he has not entered into this agreement in reliance wholly or partly of [sic] any statement or representation made by or on behalf of the Seller save written replies to preliminary enquiries before contract and other written statements by the Seller's solicitors."

15. Turning now to the general conditions, it is made clear, by clause 1.1.4, that they apply except as varied or excluded by the special conditions. Then, importantly, clause 1.4 deals with VAT in these terms:

"1.4.1 An obligation to pay money includes an obligation to pay any value added tax chargeable in respect of that payment.

1.4.2 All sums made payable by the contract are exclusive of value added tax."

16. Finally, I should refer to clause 7.4 which provides:

"Completion does not cancel liability to perform any outstanding obligation under this contract."

17. It is common ground that, the claimant having exercised its option to waive the exemption, it was liable to pay VAT upon the transaction, and in late 2007 HMRC raised a notice of assessment. On 11 March 2008, Silks wrote to AKS informing them of the notice it had received and claiming that, under the terms of clause 1.4 of the general conditions, the defendants were liable to pay to the claimant the sum which it was obliged to pay to HMRC in respect of VAT. They indicated that, upon confirmation of the defendants' position, they would ask the claimant to prepare an appropriate VAT invoice in the sum of £22,750, the prevailing VAT rate being 17.5%. The defendants did not accept that they were liable to pay to the claimant this or, indeed, any sum in respect of VAT but it was not until August 2012 that the claimant issued these proceedings and, shortly afterwards, applied for summary judgment.
18. Before explaining the reasoning of the deputy district judge and Judge Oliver-Jones, I must say a little more about the application of the Value Added Tax Act 1994 ("the 1994 Act") to the transaction. It may, I think, be summarised in the following way. First, the transfer of the freehold of the property was a supply of goods within the meaning of the 1994 Act. Second, the transaction would, however, have been an exempt supply had the claimant not waived that exemption by exercising the option to tax. Third, the claimant having waived that exemption, the obligation to pay VAT to HMRC fell upon it as supplier. Fourth, VAT became chargeable by reference to the value of the supply which, absent some provision in the agreement, would, by virtue of s.19(1) and (2) of the 1994 Act, have been such amount as would, with the addition of VAT, have amounted to £130,000. This last point emerges clearly from Lancaster v Bird (1998) 73 Con LR 22, a case concerning the supply and erection of an agricultural building on a farm. As Chadwick LJ explained at page 26:

"Normally of course it will be made clear expressly. It is in the interests of the builder who will be receiving the price to make it clear because, as between the builder and the Commissioners for Customs and Excise, the provisions now found in section 19(1) and (2) of the Value Added Tax Act 1994 require the recipient to account for value added tax on the basis that the consideration that he receives is such amount as equals the value of the goods or services plus value added tax. So if the builder fails to make it plain to the employer that he is stipulating for the payment of value added tax in addition to the contract price, he will be left to account to the Revenue for the value added tax out of what he receives."

19. The crucial questions are, therefore, whether the contract did contain an operative provision dealing with the value of the supply and whether it imposed upon the defendants an obligation to pay the chargeable tax to the claimant. The claimant says that the answer to both questions is "yes", and it points to clause 1.4 of the general conditions. It contends that this clause makes it abundantly clear that the purchase price, that is to say £130,000, is exclusive of VAT, and that the obligation upon the defendants to pay includes an obligation to pay the chargeable tax. The defendants respond that if this is indeed the correct interpretation of clause 1.4 of the general conditions, and they argued only faintly to the contrary, then it is inconsistent with the special conditions when properly interpreted in the light of the relevant background. They therefore say that the answer to both questions is "no".
20. The deputy district judge preferred the argument of the claimant. He rejected the proposition that the purchase price was inclusive of VAT, and he did so, at least in part, because that would generate a conflict with clause 1.4 of the general conditions. On appeal, Judge Oliver-Jones was persuaded that the deputy district judge had fallen into error. He reasoned that the deputy district judge had failed to recognise that there was indeed a conflict between the special conditions and the general conditions and that in those circumstances the special conditions must prevail. He put it this way at [21]:

"The Deputy District Judge, in effect, concluded that there was no conflict between the Agreement [the special conditions] and the General Conditions. In my judgment he was wrong to do so and failed to have regard to the fact that the consideration for this transaction was clearly stated in the agreement to be £130,000. If the words 'plus VAT' had been added to the figure of £130,000 on the definitions-page of the Agreement which defined the purchase price, then there would have been no conflict with clause 1.4 of the General Conditions. Both the requisition on title and the transfer document submitted to the Land Registry make it clear that the consideration for the purchase was money in the sum of £130,000. Even if one were to ignore the requisition and Land Registry document, the purchase price is, as I say, defined in the agreement."

21. Then, after referring to s.19(2) of the 1994 Act, he continued:

"Therefore, in identifying the purchase price as being £130,000 without specifying that VAT should be added, the agreement was inconsistent with the terms of general condition 1.4(2) that all sums payable by the contract are exclusive of VAT. There is no inconsistency with 1.4(1) because all that says is that an obligation to pay money viz. £130,000, includes an obligation to pay any VAT chargeable in respect of that payment. The VAT chargeable is calculated in accordance with section 19(2) and has been paid by the defendant. So there is nothing due and owing."

22. On this appeal the parties have been represented as they were before Judge Oliver-Jones. Mr Bowmer, for the claimant, submits that the special conditions and the general conditions together constitute a single contract; that, properly understood, there is no conflict between these conditions; that the purchase price of £130,000 is exclusive of VAT; and that the defendants are bound to pay to the claimant any VAT chargeable in respect of the transaction. Mr Quirke, for the defendants, contends, in substance, that Judge Oliver-Jones approached the matter correctly, that his reasoning is unimpeachable and that he came to the right conclusion. Mr Bowmer and Mr Quirke are agreed that this case is suitable for determination, one way or the other, on a summary basis.
23. The correct approach to the interpretation of a contract is well established. The aim is to determine what the parties meant by the language they used, and this involves ascertaining what a reasonable person would have understood the parties to have meant. The relevant reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. This necessarily means that the parties' subjective intentions are irrelevant.
24. There are two aspects of this general approach which merit a little elaboration in the context of this case. The first is that, in construing the words of the contract, the court must have regard to the circumstances of the parties' relationship and the relevant facts surrounding the transaction as known to them. The second is that a contract must be construed as a whole and every effort must be made to give effect to all of its clauses. I recognise that the contract in issue comprises special and general conditions, and includes a condition which expressly provides that, in the event of a conflict, the special conditions shall prevail, but it seems to me that the court should nevertheless preserve the general conditions so far as possible.
25. As I have already intimated, clause 1.4 of the general conditions is, in my opinion, susceptible of only one reasonable interpretation, namely that any liability for VAT should fall on the buyer, that is to say, the defendants. This conclusion is supported by two authorities to which we were taken in the course of the hearing.
26. The first is the judgment of Miss Hazel Williamson QC sitting as a deputy judge of the High Court in Hostgilt Ltd v Megahart Ltd [1999] STC 141, a decision which was accepted as correct by Lord Walker in giving the judgment of the Board of the Privy Council in National Transport Authority v Mauritius Secondary Industry Ltd [2010] UKPC 31 at [18]. It concerned the purchase of a property under a contract which took the form of an option to purchase the property and then a sale pursuant to the exercise of that option. The option included a clause 7 which was in materially identical terms to clause 1.4.2 of the general conditions in the present case. It provided:

"7, Value Added Tax, Sums payable under this agreement for the supply of goods and services are exclusive of Value Added Tax on the payment."

The sale agreement, a draft of which was attached to the option agreement, provided by clause 1:

"In this agreement the Purchase Price means £400,000."

And by clause 3:

"The seller shall transfer to the purchaser the Property on the Completion Date for the Purchase Price."

27. It was common ground between the parties that the case should be approached on the assumption that the possibility of such a transaction being subject to VAT was generally known in the relevant industry, the commercial property industry, and was not therefore a possibility that would have taken either party unawares. Against that background the deputy judge held that clause 7 was clearly meant to have some effect, and that could only be to impose the obligation to pay any VAT upon the purchaser.
28. The second is the decision of this court in Wynn Realisations Ltd (in administration) v Vogue Holdings Inc [1999] STC 524. This case concerned the sale of a business park. Clause 2(a) of the sale agreement provided:

"The purchase price for the freehold property shall be the sum of two million nine hundred and thirty five thousand pounds (£2,935,000) exclusive of VAT. The vendor undertakes and warrants that that no election to charge VAT has been or will (prior to completion) be made by it in respect of the freehold property and accordingly no VAT will be payable by the purchaser on completion."

29. The sale was duly completed and it then transpired that there was a liability to tax, but it did not arise from the exercise by the vendor of the option to tax. This court held that the phrase "exclusive of tax" in the first sentence of the condition must have been put there for some purpose other than dealing with the circumstances in which the second sentence was operative. The words therefore assumed that VAT might be payable in some unspecified circumstances other than the exercise of the option to tax, and meant that, if VAT was payable, the price must be grossed up for VAT purposes.
30. These authorities therefore provide powerful support for the argument advanced by Mr Bowmer on behalf of the claimant; indeed the deputy district judge considered they were determinative of the issue before him. However, the analysis does not end with the ascertainment of the meaning of clause 1.4 for, as I have explained, the contract must be interpreted as a whole in the light of all of the circumstances of the parties' relationship and the relevant facts surrounding the transaction as known to them. In this regard it seems to me that the following points are material. First, it has never been suggested that the claimant ever communicated to the defendants that it had exercised the option to tax.
31. Second, the defendants are individuals and while I recognise that the property comprises commercial premises, there has never been any suggestion that the defendants were aware or had any reason to suppose that the transaction might be subject to a VAT charge. In this respect the circumstances of the present case are very different from those of the Hostgilt case.
32. Third, the purchase price for the property was agreed in principle a considerable time before completion. Moreover, the whole purchase price of £130,000 had been paid over by the defendants to the claimant by, at the latest, 2005. There was never any suggestion that VAT might be payable, still less that the defendants would be liable for it. To the contrary, the letter from Silks of 2 March 2006 to which I have referred contained an express acknowledgement that the claimant had received "all of the sale monies of £130,000 on this matter, subject to contract". The purchase monies were then repaid before being paid over once again on exchange and completion.
33. Fourth, the standard requisitions asked for details of the exact amount payable on completion. This elicited the response: "Balance of purchase monies", that is to say £130,000. No hint was given that VAT was or might be payable. Moreover, the importance of the requisitions and responses is specifically recognised in clause 12 of the special conditions.
34. Fifth, the special conditions specify that the "Purchase price" is £130,000. They contain no indication that this price was exclusive of VAT. Indeed they make it clear that this and no other sum was due upon completion because the table to which I have referred contains no mention of VAT or any other sum being payable by way of "other payments" in addition to the specified purchase price. Moreover, and importantly, the special conditions provide, in clause 2, that where there is any conflict with the general conditions, the special conditions are to prevail.
35. Taking all these matters into consideration and considering, as I must, the matter from the perspective of the reasonable person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, I have little doubt that such a person would conclude that the parties intended that nothing was or could become payable by the defendants over and above the specified purchase price of £130,000. In the particular circumstances of this case it is not possible to interpret "Purchase price" as the price exclusive of VAT. In my judgment the reasonable person would therefore consider the special conditions are not reconcilable with clause 1.4 of the general conditions and that the parties intended that, in these circumstances, the special conditions must prevail.
36. I would therefore dismiss this appeal.

Lady Justice Gloster:

37. I agree.

Lady Justice Arden:

38. I also agree.