B.2 Relevant principles
17 Steller Development contends, in summary, that the declaration it seeks overcomes obvious absurdities in the literal meaning of the text of the 7 March 2017 Deed in circumstances where it is self-evident what the objective intention of the Guarantors is to be taken to have been.
18 The principles relevant to the correction of obvious errors by the application of the principles of construction were restated by Steward J (Griffiths and Derrington JJ agreeing) in Federal Commissioner of Taxation v Trustee for the Michael Hayes Family Trust [2019] FCAFC 226; (2019) 273 FCR 567 at 583 to 585 ([34] to [38]):
34 The correction of obvious errors by an application of the ordinary principles of construction is well known. As Dixon CJ and Fullagar J said in Fitzgerald v Masters (1956) 95 CLR 420 at 426-427:
Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency.
In that case, the word "inconsistent" was read as meaning "consistent" in a contract for sale.
35 The principle is premised on absurdity and not ambiguity. Indeed, it is applicable even where the language is unambiguous: National Australia Bank Ltd v Clowes (2013) 8 BFRA 600 at [34]-[35] per Leeming JA, citing Westpac Banking Corporation v Tanzone Pty Ltd (2000) 9 BPR 17,521 at [21] per Priestley, Fitzgerald JJA and Foster AJA and Noon v Bondi Beach Astra Retirement Village Pty Ltd (2010) 15 BPR 28,221 at [46] per Giles JA (with whom Macfarlan JA agreed).
36 Once again, I turn to Leeming JA for the most recent expression of the principle. In Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317, his Honour said at [6]-[10]:
Rectification by construction
At common law, if the error is clear, and it is also clear what a reasonable person would have understood the parties to have meant, then the mistake may be corrected as a matter of construction. This is old law. Lord St Leonards said in Wilson v Wilson (1854) 5 HL Cas 40 at 66-67; 10 ER 811 at 822:
Now it is a great mistake if it is supposed that even a Court of Law cannot correct a mistake, or error, on the face of an instrument: there is no magic in words. If you find a clear mistake, and it admits of no other construction, a Court of Law, as well as a Court of Equity, without impugning any doctrine about correcting those things which can only be shown by parol evidence to be mistakes - without, I say, going into those cases at all, both Courts of Law and of Equity may correct an obvious mistake on the face of an instrument without the slightest difficulty.
Examples may be found in linguistic errors, such as "inconsistent" being read as "consistent" in Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53, or conceptual errors, such as "lessor" being read as "lessee" in McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd (2008) 73 NSWLR 53; [2008] NSWSC 542. The language of a contract is not read like a computer program, such that any slip is fatal.
Two conditions are necessary in order to correct the contractual language in this manner: (a) that the literal meaning of the contractual words is an absurdity and (b) that it is self-evident what the objective intention is to be taken to have been: see Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [117]-[119], approving National Australia Bank Ltd v Clowes [2013] NSWCA 179; 8 BFRA 600, where it was stated at [34]:
Where both those elements are present … ordinary processes of contractual construction displace an absurd literal meaning by a meaningful legal meaning.
Likewise, in the United Kingdom, the court must be satisfied both as to the mistake and the nature of the correction: Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429; [2011] 1 WLR 770 at [21] (Lord Neuberger); Arnold v Britton [2015] AC 1619; [2015] UKSC 36 at [78] (Lord Hodge).
The court must be satisfied of those matters to a high level of conviction. To use the language of Dixon CJ and Fullagar J in Fitzgerald v Masters at 426-427, it must be "clearly necessary in order to avoid absurdity or inconsistency". As this Court said in Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297 at [18], the test of absurdity is not easily satisfied. Any question of absurdity or inconsistency must be identified according to established principles, by reference to the text of the agreement as understood in its factual and legal context: Wyllie v Tarrison Pty Ltd [2007] NSWCA 184 at [46]; Newey v Westpac Banking Corporation [2014] NSWCA 319 at [85]. Courts which are asked to delete, insert or rewrite part of a contract because of what is said to be an obvious error should bear steadily in mind that imperfections and infelicities and ambiguities in contractual language commonly reflect the give and take of negotiations, or the parties' appreciation that some obscurities are incapable of resolution. As Lord Hoffmann explained, the court does "not readily accept that people have made mistakes in formal documents": Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101; [2009] UKHL 38 at [23].
37 I note the expression of the test as involving two conditions which must be satisfied, namely:
(1) that the literal meaning of the contractual words is an absurdity; and
(2) that it is self-evident what the objective intention is to be taken to have been.
The level of satisfaction about these matters must be "high".
38 See also Perpetual Ltd v Myer Pty Ltd [2019] VSCA 98 at [122]-[127] per Whelan, Niall and Hargrave JJA and Tokio Marine & Nichido Fire Insurance Company Ltd v Holgersson [2019] WASCA 114 at [77] per Buss P, Beech and Pritchard JJA.
19 More recently, and to similar effect are decisions of the Court of Appeal of the Supreme Court of New South Wales in: James Adam Pty Ltd v Fobeza Pty Ltd [2020] NSWCA 311; (2020) 103 NSWLR 850 (Leeming JA; Bell P and Macfarlan JA agreeing, save as to the use of the descriptor "rectification by construction"); HDI Global Specialty SE v Wonkana No 3 Pty Ltd [2020] NSWCA 296; (2020) 104 NSWLR 634 (Bathurst CJ, Bell P, Meagher JA, Hammerschlag and Ball JJ); and Zhong v Guan [2024] NSWCA 300 at [23] to [38] (Kirk JA; Payne JA and Price AJA agreeing).
20 In HDI Global, Meagher JA and Ball J explained at 645 to 646 ([48] to [53]):
Correcting the language by construction
48 It is an ordinary feature of human communication that what a person means may be obvious even though what they write or say, taken literally, is nonsense, or means the opposite. Contracts are not an ordinary mode of human communication, and courts do not "readily accept" that mistakes have been made in the drafting of a formal document: Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; [2009] UKHL 38 at [23] (Lord Hoffmann). But contracts are nevertheless to be read on the basis that their drafters will on occasion fail to express correctly what they intend to say. The "correction" of mistakes by interpretation is therefore an aspect of "the single task of interpreting the agreement … in order to get as close as possible to the meaning which the parties intended": KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336; [2007] EWCA Civ 363 at [50] (Carnwath LJ); Chartbrook at [23].
49 As the exercise is one of construction, the "meaning which the parties intended" can only be ascertained objectively, in accordance with the principles summarised earlier in these reasons. Construing a written agreement in accordance with those principles may reveal that its literal meaning is quite different from the meaning it was intended to bear. The latter is to prevail. As Lord St Leonards observed in Wilson v Wilson (1854) 10 ER 811 at 823; 5 HL Cas 40 at 70, construing an indemnity in favour of John Wilson for the debts of "John", in a separation agreement between John and Mary Wilson:
"Then has the Court a power to rectify the error without doing any violence to the words? because I entirely reject any intention of putting violence upon words. We are bound as a Court of Justice to put a rational construction upon words, and to give to every word its proper sense. I do not think that I am breaking in upon any rule in advising your Lordships to consider 'John' as erroneously inserted, as it clearly appears by the context to have been, instead of 'Mary,' and by so considering it to make that part compatible with the rest, and thus give effect to what was the clear intention of the parties."
50 The application of this principle is ordinarily dependent on the satisfaction of two criteria: that the literal meaning of the language of the agreement is absurd; and that it is clear what the parties' objective intention "is to be taken to have been": Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317; [2019] NSWCA 11 at [8]. Substantially the same approach has been adopted in England: see Brightman LJ's formulation of the two conditions in East v Pantiles, and the qualifications subject to which those conditions are to be understood, as explained in KPMG v Network Rail and summarised in Chartbrook at [22]-[24]; and the discussion in Mainteck Services Pty Ltd v Stein Heurtey SA (2015) 89 NSWLR 633; [2014] NSWCA 184 at [119]-[120] (Leeming JA). Three points should be made about the criteria which must be satisfied.
51 First, "absurdity or inconsistency" may not strictly be required: cf Fitzgerald v Masters (1956) 95 CLR 420 at 426-427; [1956] HCA 53 (Dixon CJ and Fullagar J). The reasons of the plurality in Fitzgerald v Masters made no reference to such a requirement, treating the problem simply as one of the discernment of the parties' intention from the whole of the agreement, while earlier authorities referred only to the presence of a "palpable" or "obvious" mistake: Bache v Proctor (1780) 99 ER 247 at 247; 1 Doug 382 at 384 (Buller J); Wilson v Wilson at ER 822, 823; HL Cas 66, 70 (Lord St Leonards). There is accordingly much to be said for the modern English position, which requires a "clear" mistake: Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429 at [21] (Lord Neuberger MR; Laws and Carnwath LJJ agreeing on that point). In any event, if absurdity is required, "something opposed to reason" will suffice: Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSW ConvR 56-289; [2011] NSWCA 297 at [13] (Basten JA; McColl and Campbell JJA agreeing).
52 Secondly, satisfaction of the first criterion follows from satisfaction of the second. Where it is clear that the literal meaning of contractual language is inconsistent with the parties' objective intention discerned from the agreement as a whole, there is a clear mistake, and likely also absurdity in the relevant sense. What the first criterion reflects is that a court will not lightly conclude that "imperfections and infelicities and ambiguities" in the language of an agreement reflect a mistake, rather than the give and take of commercial negotiation: Seymour Whyte at [10], citing Chartbrook at [23].
53 Finally, the application of those criteria should not obscure the fact that the question remains one of the ascertainment of the parties' objective intention through the application of ordinary principles of construction. That is not to say that the two criteria need not be satisfied. It is rather to emphasise that they are merely steps involved in reasoning to a conclusion that by one word or phrase the parties meant something else.
21 Thus, in summary, the Court is required to ascertain the parties' objective intention using the ordinary principles of construction; and the Court may construe an instrument so as to correct an absurdity in the literal meaning of the words used where it is self-evident what the objective intention is to be taken to have been.
22 As to the requirement that the objective intention be self-evident, Leeming JA in James Adam explained at 866 to 867 ([62] to [64]):
Cases where there is a binary choice and cases where there are many possibilities
62 A common class of case is where there are precisely two possibilities, and the wrong one has been recorded in the instrument. The decisions mentioned above fall into that class. When "John" was read as "Mary" in Wilson v Wilson, when "inconsistent" was read as "consistent" in Fitzgerald v Masters, and when "lessor" was read as "lessee" in McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd (2008) 73 NSWLR 53; [2008] NSWSC 542, the absurdity or inconsistency was obvious, and so too was what had been intended. The only people with debts to be indemnified in the separation deed were the husband John and the wife Mary. The confusion between "inconsistent" and "consistent", and between "lessor" and "lessee" is similarly binary. Similarly, the "palpable mistake" mentioned by Buller J in Bache v Proctor (1780) 1 Doug 382 at 384; 99 ER 247 at 247 where a bond provided that it should be void if the obligor did not pay was readily cured by deleting the word "not".
63 In contrast, even where it is clear that something has gone awry, construction is to no avail if it is unclear how the absurdity or inconsistency should be resolved. In Energy World Corporation Ltd v Maurice Hayes & Associates Pty Ltd (2007) 239 ALR 457; [2007] FCAFC 34, a Full Court of the Federal Court (Moore, Tamberlin and Gyles JJ) allowed an appeal on this point, saying at [11]:
"[11] It may be accepted that the word 'lesser' gives no practical content to the words 'or the Term (as extended or renewed) is not renewed'. In that sense, it may be said that there is an inconsistency. However, the terms of cl 8.6 do not enable a conclusion to be drawn as to how the inconsistency should be resolved. It could be cured just as easily by omitting the words 'or the Term (as extended or renewed) is not renewed' as by substituting 'greater' for 'lesser'. Put another way, the terms of the clause do not enable the conclusion to be drawn that the contractual intention was to provide the Consultant with a termination payment of a minimum of six months on non-renewal of the term. The principle of construction in question does not enable a court to speculate as to the proper resolution of the inconsistency."
64 That paragraph was also endorsed by the Victorian Court of Appeal in Perpetual Ltd v Myer Pty Ltd at [124] and [146].
23 The limits of the power of the Court to correct an error by construction must be borne in mind. As the Full Court of this Court noted in Energy World Corporation Ltd v Maurice Hayes & Associates Pty Ltd [2007] FCAFC 34; (2007) 239 ALR 457 at 460 [11] (Moore, Tamberlin and Gyles JJ), in the passage extracted in the previous paragraph, construction of instruments so as to resolve obvious errors does not enable the Court to engage in speculation as to the common intention of the contracting parties. In QBT Pty Ltd v Wilson [2024] NSWCA 114, Leeming JA (Bell CJ and Ward P agreeing) explained at [73] to [74]:
73 Sometimes obvious errors in written contracts can be resolved by construction. But there are limits to courts' powers to do so. It is necessary not merely to identify the obvious error, but also to be clear how the absurdity is to be resolved. It must be "self-evident what the objective intention is to be taken to have been": Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317; [2019] NSWCA 11 at [8]. As was said by Latham CJ in Tatham v Huxtable (1950) 81 CLR 639 at 645; [1950] HCA 56, applying the principle to a will:
It often happens, however, that the misuse of some word or phrase is so palpable on the face of the will, as that no difficulty occurs in pronouncing the testator to have employed an expression which does not accurately convey his meaning. But this is not enough: it must be apparent, not only that he has used the wrong word or phrase, but also what is the right one; and, if this be clear, the alteration of language is warranted by the established principles of construction.
74 Sometimes a court may be confident that the literal meaning contains an absurd mistake, but cannot be confident of what the parties are to be taken to have intended in that eventuality. James Adam Pty Ltd v Fobeza Pty Ltd (2020) 103 NSWLR 850; [2020] NSWCA 311 is one example, and others are given at [63]-[65] of that decision. If it is unclear how the absurdity is to be resolved, then the principles of construction where there is an obvious error are not available to authorise a departure from the ordinary literal meaning.