CLP Holding Company Ltd v Singh & Anor

A contract is interpreted objectively, in context and as a whole. A general condition stating that sums are exclusive of VAT may ordinarily require the buyer to pay VAT. That condition must still be reconciled with special conditions, the parties’ background, negotiations, requisitions and completion documents. Where special conditions state a fixed purchase price, give no indication that VAT is additional and prevail over inconsistent general conditions, no further VAT is payable. Subjective intentions do not affect the analysis.

The claimant sold a freehold commercial property to the defendants. The purchase price was stated as £130,000. After HMRC assessed VAT, the claimant sought to recover the VAT from the defendants under a general contractual condition stating that sums payable were exclusive of VAT.

A deputy district judge entered summary judgment for the claimant. On appeal, HHJ Oliver-Jones QC allowed the defendants’ appeal and entered judgment for them. The claimant appealed to the Court of Appeal, raising the question whether the contract required the defendants to pay VAT in addition to the stated purchase price.

1. The appeal was dismissed. Kitchin LJ gave the judgment of the court, with Arden LJ and Gloster LJ agreeing.
2. As a matter of the Value Added Tax Act 1994, the transfer was a supply of goods. The claimant was liable to account to HMRC for VAT after exercising its option to tax. Absent an effective contractual provision, the consideration would be treated under sections 19(1) and 19(2) as an amount which, with VAT added, equalled the value of the supply (para [18]).
3. The proper approach to contractual interpretation is objective. The court must identify what a reasonable person, possessing the background knowledge reasonably available to the parties at the time of contracting, would have understood. Subjective intentions are irrelevant. The contract must be construed as a whole, with every effort made to give effect to all its provisions. A precedence clause favouring special conditions does not require the general conditions to be disregarded where they can be preserved (paras [23]–[24]).
4. Clause 1.4 of the general conditions ordinarily required the buyer to pay VAT. That construction was supported by Hostgilt Ltd v Megahart Ltd [1999] STC 141, which was accepted as correct in National Transport Authority v Mauritius Secondary Industry Ltd [2010] UKPC 31, and by Wynn Realisations Ltd (in administration) v Vogue Holdings Inc [1999] STC 524 (paras [25]–[30]).
5. Those authorities did not determine the present contract without consideration of its full context. The claimant had not disclosed its option to tax. The defendants had no reason to expect a VAT charge. The purchase price had been agreed and paid as £130,000; the requisitions referred only to the balance of the purchase monies; and the special conditions stated a fixed purchase price with no additional VAT. The special conditions therefore conflicted with the general VAT condition and prevailed under clause 2. The defendants were not liable for any sum above £130,000 (paras [30]–[36]).

• Court of Appeal (Civil Division): On appeal from the order below, dismissed the claimant’s appeal: [2014] EWCA Civ 1103.
• Birmingham County Court, HHJ Oliver-Jones QC: Allowed the defendants’ appeal from summary judgment and ordered judgment for the defendants on 20 December 2013.
• Birmingham County Court, Deputy District Judge Boynton: Granted the claimant summary judgment on the basis that the defendants had no real prospect of defending the VAT claim.