Supreme Court of WA|2007-04-03|Before: Mr J

ERRICHETTI NOMINEES PTY LTD -v- PATERSON GROUP ARCHITECTS PTY LTD [2007] WASC 77 (3 April 2007)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : ERRICHETTI NOMINEES PTY LTD -v- PATERSON GROUP ARCHITECTS PTY LTD [2007] WASC 77

BETWEEN : ERRICHETTI NOMINEES PTY LTD (ACN 008 792 916)

PATERSON GROUP ARCHITECTS PTY LTD (ACN 009 238 617)

Corporations - Application to set aside statutory demand - Whether deed entered into under common mistake - Whether unilateral mistake - Relevant principles - Whether unconscionable conduct by defendant - Turns on own facts

Trade Practices Act 1974 (Cth), s 51AA, s 51AC

Application to set aside statutory demand dismissed

Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328

Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447

Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407; [2003] QB 679

Grist v Bailey [1967] Ch 532

Leibler v Air New Zealand Ltd (No 2) [1999] 1 VR 1

McRae v Commonwealth Disposals Commission [1951] HCA 79; (1951) 84 CLR 377

Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290

Pacer v Westpac Banking Corporation, unreported; SCt of NSW; 2 August 1996

PDR Pty Ltd v Cottesloe Constructions Pty Ltd [2000] WASCA 62

Smith v Smith [2004] NSWSC 663

Solle v Butcher [1950] 1 KB 671

Svanosio v McNamara [1956] HCA 55; (1956) 96 CLR 186

Torrance v Bolton (1872) LR 8 Ch App 118

Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294

Tutt v Doyle (1997) 42 NSWLR 10

1 MASTER NEWNES: This is an application to set aside a statutory demand served on the plaintiff, requiring payment of the sum of $50,380.13, the balance owing under a settlement deed (the "deed") dated 16 November 2004 made between the plaintiff and the defendant. The plaintiff contends that the deed was entered into by the parties under a mistake as to the amount of the plaintiff's indebtedness, or in circumstances where the defendant's conduct was unconscionable, and the deed is therefore liable to be set aside.

2 On 10 October 2006, the defendant served on the plaintiff a statutory demand for the sum of $50,380.13. In the accompanying affidavit, the managing director of the defendant, Mr Gregory Paterson ("Mr Paterson"), said that the money was owed pursuant to the deed, by which the plaintiff had agreed to pay to the defendant by way of instalments the total sum of $127,155.33. Mr Paterson said that the plaintiff had paid some of the instalments but on 12 October 2005 had failed to pay the instalment then due. In accordance with the terms of the deed, the balance of the settlement sum and interest accrued to that date, an amount of $45,704.03, became immediately due and payable. Further interest thereafter accrued so that, as at the date of the statutory demand, the amount owing by the plaintiff was $50,380.13.

3 In support of the application to set aside the statutory demand, an affidavit has been sworn by Ms Donna Di Camillo ("Ms Di Camillo"), a director of the plaintiff. The other directors are Ms Di Camillo's father, Dominic Errichetti, who is 89 years of age, and her mother, Rosina Errichetti, who is 87 years of age. Ms Di Camillo's brother, Mr Peter Errichetti ("Peter Errichetti"), was previously a director of the plaintiff, but ceased to be a director on 11 July 2002 when he was disqualified by a delegate of the Australian Securities and Investments Commission from being a director of a company for a period of two years and six months. That period of disqualification was subsequently reduced to 12 months on appeal to the Administrative Appeals Tribunal.

4 Ms Di Camillo says that, following his disqualification, Peter Errichetti was not re-appointed a director of the plaintiff. He is, however, recorded on the ASIC database as having been re-appointed as a director of the plaintiff on or about 14 July 2003. Ms Di Camillo says that the database is incorrect; Peter Errichetti was not re-appointed at any stage as a director of the plaintiff. The position of Peter Errichetti is significant for reasons I will come to shortly.

5 The statutory demand has its genesis in the acquisition by the plaintiff of three contiguous parcels of land in Rockingham (the "Rockingham properties") of which the plaintiff became the registered proprietor on 10 June 2002.

6 It appears from documents attached to Ms Di Camillo's affidavit that, on or about 31 December 2001, Kingcroft Pty Ltd ("Kingcroft"), a company controlled by Peter Errichetti, entered into contracts to purchase the Rockingham properties from Charles Hop Pty Ltd for a total sum of some $3,200,000.

7 Some five months later, on 28 May 2002, the plaintiff entered into contracts to purchase the Rockingham properties from Charles Hop Pty Ltd for the same price. The contracts of sale to the plaintiff were apparently settled on 24 June 2002, at which time a mortgage to National Australia Bank was also registered. The mortgage was stamped to secure the sum of $3,600,000. It appears from the record of certificate of title that, on 10 February 2005, the National Australia Bank mortgage was transferred to Permanent Trustee Australia Ltd and a mortgage to the latter registered. On the same day, a mortgage to Bank of Western Australia Ltd was also registered.

8 Ms Di Camillo says that the Rockingham properties were acquired by the plaintiff without her knowledge or the knowledge of her parents. The signatures of her mother and father which appear on the contracts of sale and the transfers of land on behalf of the plaintiff are not their signatures, but are forgeries. Similarly, their signatures on behalf of the plaintiff on the mortgage to National Australia Bank are forgeries.

9 Ms Di Camillo says she understands that when the Rockingham properties were the subject of the contracts of sale to Kingcroft, the services of the defendant were engaged by Kingcroft to carry out certain architectural work. The defendant issued invoices to Kingcroft for the work. Ms Di Camillo says she understands that when the plaintiff became the registered proprietor of the Rockingham properties the defendant continued to act upon the instructions of Peter Errichetti and performed architectural services. The defendant rendered invoices to the plaintiff.

10 According to Ms Di Camillo, all dealings the defendant had in relation to the Rockingham properties were with either Peter Errichetti or a Mr Ralph O'Brien ("Mr O'Brien") of O'Brien Business Consultancy. Neither Ms Di Camillo nor her parents had any knowledge of the purchase of the properties or the fact that the defendant was providing architectural services. Peter Errichetti was not at any time authorised by the plaintiff to engage the services of the defendant.

11 In or about late 2004, Ms Di Camillo and her parents became aware that the plaintiff was the registered proprietor of the properties. At about that time, the defendant served statutory demands on the plaintiff claiming a total amount of $102,146.25, being the balance of amounts said to be owing in respect of invoices for architectural services supplied by the defendant to the plaintiff.

12 Ms Di Camillo says that, relying upon the advice of Mr O'Brien and on the basis that the plaintiff was indebted to the defendant in that sum, the plaintiff and her father, Dominic Errichetti, as guarantor, entered into the deed. On behalf of the defendant, the deed was executed by Mr Paterson and Debbie Paterson, as directors.

13 A copy of the deed was put into evidence. In the "Introduction", it is recited as follows:

"A. [The defendant] performed architectural and related services for [the plaintiff] in relation to the Rockingham Properties during 2002 and 2003 and [the plaintiff] was invoiced by [the defendant] for those services.

B. [The plaintiff] paid some amounts in respect of those invoices, but a debt of $102,646.25 ('Debt') has remained outstanding for more than 1 year.

C. [The plaintiff] admits that the Debt is owed by it to [the defendant] and also that [the defendant] is entitled to recover its costs and interest on the Debt from at least April 2003.

D. On 21 October 2004, [the defendant] served two statutory demands on [the plaintiff] in respect of the Debt.

E. The Parties have agreed to settle matters between them on the terms and conditions set out in this deed."

14 The deed then provides, so far as presently relevant, that in consideration of the defendant forbearing from applying to have the plaintiff wound up in insolvency, the plaintiff agrees to pay the sum of $127,155.53 by an initial payment of $15,000 by bank cheque on 12 November 2004 and thereafter by monthly instalments of $7500, and to pay interest on the monthly reducible balance at the rate of 13.05 per cent per annum. The means by which the sum of $127,155.53 was arrived at is not evident but presumably it included interest on the amount claimed up to the date of the deed.

15 The deed was executed by Rosina and Dominic Errichetti on behalf of the plaintiff and by Dominic Errichetti as guarantor.

16 Following execution of the deed, the plaintiff made payments to the defendant totalling $90,000.

17 According to Ms Di Camillo, it subsequently came to the attention of the plaintiff that it was not indebted to the defendant in the amount claimed but at most was indebted in the sum of $72,146.25. Ms Di Camillo does not explain how it came to the plaintiff's attention.

18 On 10 October 2005, the solicitors for the plaintiff wrote to the defendant's solicitors saying that the deed had been entered into by the parties in the mistaken belief that the plaintiff was in fact indebted to the defendant in the sum of $102,646.25, but that the plaintiff had now ascertained from the invoices rendered by the defendant that the plaintiff had paid to the defendant an amount considerably in excess of the amount actually owing.

19 The defendant's solicitors replied by letter of 14 October 2005. They said that the question of the plaintiff's indebtedness had been resolved when the plaintiff had chosen to enter into the deed rather than attempt to set aside the statutory demands which had been served upon it. In the letter, demand was made for the balance of the moneys due under the deed.

20 Ms Di Camillo says in her affidavit that the deed was executed under the mistaken belief that the plaintiff was indebted to the defendant in the sum of $102,646.25 or that it is otherwise unconscionable for the deed to be enforced. The payments that have already been made under the deed substantially exceed any amount for which the plaintiff was truly indebted to the defendant.

21 In an affidavit in opposition to the application, Mr Paterson, the managing director of the defendant, says that at the time of entering into the deed he was unaware of any of the allegations made by Ms Di Camillo concerning Peter Errichetti's conduct and the transfers relating to the Rockingham properties, and he was also unaware of any other matter that suggested any doubt as to the plaintiff's liability to pay the amount set out in the deed.

22 Mr Paterson says that when the deed was entered into he believed the plaintiff was liable for the debts described in it and he was not aware of anything that cast any doubt upon that. There was no indication during the negotiations leading up to the execution of the deed of any doubt that the plaintiff owed the sum claimed.

23 Mr Paterson says that although he dealt mostly with Mr O'Brien of O'Brien Business Consultancy in the course of those negotiations, on 5 November 2004 he had a meeting attended by Ms Di Camillo and Mr O'Brien. At that meeting he was told by Mr O'Brien and Ms Di Camillo that the plaintiff could not pay the debt of approximately $102,000 to the defendant as a lump sum and would require time to pay it by instalments. He says there was no indication from Ms Di Camillo or Mr O'Brien that they were confused or had any misgivings about the amounts claimed and the discussion focused mainly on the question of whether some agreement might be reached for payment by the plaintiff by instalments.

24 Mr Paterson says that after the deed was signed, the plaintiff paid an amount of $15,000 by bank cheque on 12 November 2004. Mr Paterson says he signed the deed on behalf of the defendant on 16 November 2004. The plaintiff then proceeded to make a further 10 payments of $7500 each month until October 2005, a total of $90,000.

25 It is necessary, in order to make the current application explicable, to turn to the contents of the two statutory demands dated 20 October 2004, which preceded the deed. The statutory demands were for the sums of $30,500 and $72,146.25 respectively. That is, a total amount of $102,646.25.

26 The statutory demand in which the sum of $30,500 was demanded refers to three invoices totalling $49,500 and also to payments of $19,000 in respect of those invoices. The invoices are identified simply by number and amount, and the payments are identified by date and amount. The invoices are stated to be, invoice 12538 in the sum of $19,800, invoice 12554 in the sum of $24,200 and invoice 12560 in the sum of $5500.

27 The three invoices referred to in the statutory demand are annexed to a further affidavit of Ms Di Camillo, filed on behalf of the plaintiff. Each of the invoices is addressed to Broad Construction Services Pty Ltd ("Broad Construction Services"). The invoices are, invoice 12538 dated 15 March 2002 in the sum of $19,800, invoice 12554 dated 12 April 2002 in the sum of $24,200 and invoice 12560 dated 2 May 2002 in the sum of $5500.

28 Ms Di Camillo says that neither she nor her parents (the other directors of the plaintiff) nor Mr O'Brien, had seen the invoices until they were supplied by the defendant's solicitors under cover of a letter dated 7 December 2006.

29 The other statutory demand, for the sum of $72,146.25, refers to four invoices, again identified only by number and amount. The invoices are, however, annexed to Ms Di Camillo's first affidavit. All are addressed to the plaintiff. They are invoice 12772 dated 14 March 2003 in the sum of $60,500, invoice 12781 dated 11 April 2003 in the sum of $8250, invoice 12801 dated 16 May 2003 in the sum of $2750 and invoice 12963 dated 14 November 2003 in the sum of $642.25.

30 There is also in evidence a statement of account rendered by the defendant to the plaintiff on 11 August 2005. The statement of account commences with an invoice number 12672 dated 8 October 2002 for an amount of $49,500 (including GST). The statement records a payment of $5000 on the same day, leaving a balance owing of $44,500. The statement records two further payments of $5000, on 20 December 2002 and 17 February 2003 respectively, in reduction of the debt, leaving an outstanding debit balance as at 17 February 2003 of $34,500.

31 The statement of account then records the four invoices referred to in the statutory demand for the sum of $72,146.25. The statement of account records a payment of $4000 on 1 September 2003.

32 According to the statement of account the balance owing as at 14 November 2003 was $102,646.25.

33 The payments, totalling $19,000, shown on the statement of account coincide with the payments shown in the statutory demand for $30,500 as having been made in respect of the invoices there recorded; that is, the invoices which were addressed to Broad Construction Services.

34 There is in evidence an invoice numbered 12672, dated 8 October 2002, for the sum of $49,500 (including GST), addressed to Kingcroft. The invoice records a payment of $5000 on 8 October 2002, leaving a balance of $44,500 owing. It will be recalled that the total amount of the invoices addressed to Broad Construction Services (referred to in the statutory demand for $30,500) was $49,500. The statutory demand also records a payment of $5000 on 8 October 2002. It will also be recalled that the statement of account addressed to the plaintiff refers to an invoice number 126782 dated 8 October 2002, for the sum of $49,500 and records a payment of $5000 on 8 October 2002.

35 On the material before me it is impossible to reach any final conclusion as to the reconciliation of the statement of account of 11 August 2005 and the statutory demands of 20 October 2004. It appears, however, that the total sum of $49,500 was initially invoiced to Broad Construction Services, in the period 15 March to 2 May 2002, for services rendered to that company by means of the invoices referred to in the statutory demand. That amount was then re-invoiced to Kingcroft on 8 October 2002, in invoice 12762 of that date, in the sum of $49,500, against which a payment of $5000 was credited.

36 The invoice to Kingcroft then appeared on the statement of account, which is addressed to the plaintiff, of 11 August 2005, debiting the plaintiff's account in the sum of $49,500, against which a payment of $5000 on 8 October 2002 was credited. The statement of account then records the other payments, totalling $14,000, which are referred to in the statutory demand of 20 October 2004 for $30,500.

37 It was submitted on behalf of the plaintiff that it had entered into the deed under a mistake as to its indebtedness to the defendant. At the time of execution of the deed, the plaintiff had been misled by the defendant into believing that the amount of $102,646.25 was owing by it to the defendant. The plaintiff says that, as appears from the recital to the deed and the statutory demands, the defendant asserted that the plaintiff had been invoiced by the defendant for architectural services in the total sum of $102,646.25, whereas it has now turned out that an amount of $49,500 was in fact invoiced to Broad Construction Services.

38 Had the plaintiff known that it was not indebted to the defendant, it would not have entered into the deed. The deed was therefore entered into under a mistake and should be set aside. In its written outline of submissions, the plaintiff relied upon a common mistake, but in the course of argument reference was also made to a unilateral mistake by the plaintiff.

39 It was also submitted that, having regard to the circumstances in which the deed was signed, the defendant took advantage of the plaintiff in having the plaintiff execute the deed. There was therefore unconscionable conduct on the part of the defendant, contrary to s 51AA or s 51AC of the Trade Practices Act 1974 (Cth).

40 It was submitted on behalf of the defendant that there was nothing in the affidavit evidence that could make out any arguable case as to mistake or unconscionability. The debt had been the subject of two previous statutory demands served on the plaintiff, those statutory demands containing a detailed summary of the relevant invoices. In the deed, the plaintiff expressly acknowledged its indebtedness. The execution of the deed followed negotiations with Ms Di Camillo and a business advisor, Mr O'Brien.

41 There is no suggestion that the defendant knew that the plaintiff was labouring under a mistake, nor any evidence that the defendant was aware of any relevant disadvantage suffered by the plaintiff - if indeed the plaintiff suffered any relevant disadvantage - at the time the deed was entered into. On the contrary, Mr Paterson has deposed to his genuine belief that the plaintiff owed the debt which was the subject of the deed.

42 It was submitted that as the deed resolved any dispute as to the indebtedness and as the current statutory demand is based upon the compromise reached between the plaintiff and the defendant and recorded in the deed, there can be no genuine dispute as to the plaintiff's indebtedness.

43 The principles to be applied on an application to set aside a statutory demand are well known. They are conveniently summarised in Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294, where Owen J, with whom Pidgeon and Wallwork JJ agreed, said at [27]:

"From the relevant authorities on the issue of what amounts to a 'genuine dispute' under s 459H there can be discerned an emphasis on two overriding considerations. First, that in determining whether there is a genuine dispute a court is required to undertake an investigation that raises much the same sort of considerations as the 'serious question to be tried' criterion which arises in an application for an interlocutory injunction or for the extension or removal of a caveat: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669 per McLelland J at 671. Further, to reach a finding that there is a genuine dispute the applicant must satisfy the court that:

(a) the dispute is bona fide and truly exists in fact; and

(b) the grounds alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived: Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 15 ACLC 1001 per Northrop, Merkel and Goldberg JJ.

This formulation has been adopted in a number of recent decisions: see Goldspar Australia v KWA Design Group (1999) 17 ACLC 456 per Austin J at 462 and Universal Greening Pty Ltd v Sabine & Anor [1999] FCA 529; (1999) 17 ACLC 880 per Kenny J at 885. In the interests of consistency in the various courts that have to apply the Corporations Law, I think this is the approach to be preferred."

44 On an application of this sort the Court will confine itself to the question whether a real dispute exists rather than attempt to determine the merits of the respective positions of the disputants: PDR Pty Ltd v Cottesloe Constructions Pty Ltd [2000] WASCA 62 at [6] - [7]. In that case the Full Court referred with approval to Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290 at 295, where Hayne J, having considered the terms of s 459H and its place in the statutory scheme, said that:

"At least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute."

45 The plaintiff does not dispute its liability for the sum of $72,146.25 and it was not in dispute that that amount, or more, has now been paid to the defendant. It does, however, dispute that it is, and was, at the time the deed was entered into, indebted to the defendant in the sum of $30,500. The plaintiff says that in fact the sum of $49,500 had been invoiced to and was payable by Broad Construction Services and, moreover, the sum of $19,000 paid by the plaintiff has wrongly been credited against that debt.

46 As I have mentioned, Ms Di Camillo says that she and her parents first became aware that the plaintiff was the registered proprietor of the Rockingham properties in or about late 2004, at about the time the defendant served the two statutory demands. Ms Di Camillo says that until that time neither she nor her parents were aware that the defendant was providing architectural services. Ms Di Camillo also says that she had not seen, and nor had her parents or Mr O'Brien seen, the invoices referred to in the statutory demand for $30,500 until they were received under cover of a letter from the defendant's solicitor of 7 December 2006. I should mention in passing that the plaintiff did not adduce any evidence from Mr O'Brien.

47 On Ms Di Camillo's evidence, it was in that context that the plaintiff entered into the deed in November 2004 in the mistaken belief that it was in fact indebted to the defendant in the amount of $30,500 that had been demanded. It is said that, as it has now turned out that the relevant invoices were in fact addressed to Broad Construction Services, there is at least a genuine dispute as to the plaintiff's indebtedness.

48 The plaintiff contended that it followed from that that there was a genuine dispute as to whether the plaintiff was entitled to have the deed set aside. As I understood it, the case for the plaintiff was put on the basis that if the defendant was similarly mistaken as to the amount of the plaintiff's indebtedness then there was a common mistake. If the defendant was aware of the true position, it had remained silent and there was a unilateral mistake. In either event, as the deed was entered into under a mistake, the plaintiff was entitled to have it set aside.

49 The defendant's case on this application was founded on the proposition that the deed was conclusive and, moreover, at the time the deed was entered into the defendant believed the plaintiff was indebted to it in the total sum of $102,646.25 and had no notice of any doubt as to the plaintiff's indebtedness, so that no claim of mistake was sustainable.

50 One commentator has observed that the law relating to mistake "is old, arcane, uncertain in application, complex and controversial": N Seddon in (2006) 80 ALJ 92 at 95 - 6. That, I think, is a view from which few would be inclined to dissent. Fortunately, in the present case it is not necessary to enter into a detailed discussion of the law of mistake. In fact, the relevant principles were touched upon only very briefly in argument and the only authority cited (by counsel for the defendant) was Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422, a case of unilateral mistake. But as the plaintiff's case was put, in the alternative, on the basis of common mistake, some consideration of the current position is necessary.

51 In Solle v Butcher [1950] 1 KB 671, Denning LJ expressed the principle of common mistake as being that a contract was liable to be set aside in equity if the parties were under a common misapprehension either as to the facts or as to their relative and respective rights, provided that the misapprehension was fundamental and the party seeking to set it aside was not at fault. The learned authors of the Australian edition of Cheshire and Fifoot's Law of Contract, 8th ed, (at 12.25) regard that approach as having been unreservedly endorsed by the High Court in Taylor v Johnson (supra).

52 But recently in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407; [2003] QB 679, after an extensive review of the authorities, the Court of Appeal overruled Solle v Butcher (supra) and the English decisions which had followed it. The Court of Appeal held (at 703) that a contract will be void at common law by reason of common mistake if the following elements are present:

(i) there must be a common assumption as to the existence of a state of affairs;

(ii) there must be no warranty by either party that that state of affairs exists;

(iii) the non-existence of the state of affairs must not be attributable to the fault of either party;

(iv) the non-existence of the state of affairs must render performance of the contract impossible;

(v) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible.

53 In the light of that decision it is necessary to look again to the Australian position.

54 The dicta of Denning LJ in Solle v Butcher (supra) has been the subject of consideration by the High Court on several occasions. The first occasion appears to have been in McRae v Commonwealth Disposals Commission [1951] HCA 79; (1951) 84 CLR 377, a case involving a contract for the sale by the respondent of a submerged oil tanker that, unbeknown to both parties, did not in fact exist. The High Court rejected a contention that the contract was void for mistake. In the course of their judgment, Dixon and Fullagar JJ, whilst agreeing with a particular observation of Denning LJ as to the application of a doctrine of French law relating to mistake, said, perhaps somewhat enigmatically, that they "would not be prepared to assent to everything said by Denning LJ in the course of [his] judgment [in Solle v Butcher]."

55 Subsequently, in Svanosio v McNamara [1956] HCA 55; (1956) 96 CLR 186, a case in which the parties were under a common mistake as to the land upon which a hotel stood, Dixon CJ and Fullagar J referred to their judgment in McRae v Commonwealth Disposals Commission (supra) and quoted with approval the following further passage from the judgment of Denning LJ in Solle v Butcher (supra):

"... once a contract has been made, this is to say, once the parties, whatever their inmost states of mind, have to all outward appearances agreed with sufficient certainty in the same terms on the same subject matter, then the contract is good unless and until it is set aside for failure of some condition on which the existence of the contract depends, or for fraud, or on some equitable ground. Neither party can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake. A fortiori, if the other party did not know of the mistake, but shared it."

56 Dixon CJ and Fullagar J went on to say (at 196):

" 'Mistake' might, of course, afford a ground on which equity would refuse specific performance of a contract, and there may be cases of 'mistake' in which it would be so inequitable that a party should be held to his contract that equity would set it aside. No rule can be laid down a priori as to such cases ... But ... it is difficult to conceive any circumstances in which equity could properly give relief by setting aside the contract unless there has been fraud or misrepresentation or a condition can be found expressed or implied in the contract."

57 In Taylor v Johnson (supra), one party, while not inducing the other party's mistake, had stood by knowing that the other party was under a fundamental misapprehension as to the term of the contract. That is, it was a unilateral mistake case. In their joint judgment, Mason ACJ, Murphy and Deane JJ referred to the last passage I have quoted above from the joint judgment of Dixon CJ and Fullagar J in Svanosio v McNamara (supra), and continued:

"Dixon CJ and Fullagar J referred ... to a difficulty in conceiving circumstances in which equity could properly give relief by setting aside the contract unless there had been fraud or misrepresentation or a condition could be found expressed or implied in the contract. Presumably, their Honours were referring to 'fraud' in the wide equitable sense which includes unconscionable dealing. If they were not, we do not share the difficulty to which they referred. To the contrary, it seems to us that the reported cases, including Solle v Butcher itself, readily provide concrete examples of such circumstances."

58 Mason ACJ, Murphy and Deane JJ approved (at 431) the statement by James LJ in Torrance v Bolton (1872) LR 8 Ch App 118 at 124, that the basis upon which a contract was set aside in a case of unilateral mistake was the ordinary jurisdiction of equity to deal with any instrument or other transaction "in which the Court is of the opinion that it is unconscientious for a person to avail himself of the legal advantage which he has obtained". Their Honours said that special circumstances would ordinarily need to be shown before it would be unconscientious for one party to a contract to enforce it against another party who was under a mistake as to its terms or subject matter.

59 That line of cases has given rise to very different views among text writers as to whether in Australia there is a general jurisdiction to set aside a contract, in the absence of a misrepresentation or "fraud" in the strict sense, where there are circumstances which render it unconscionable for the party who seeks to uphold the contract to have it enforced. The range of views was described by Santow J in Pacer v Westpac Banking Corporation, unreported; SCt of NSW; 2 August 1996, and it is not necessary to canvass them in the present context.

60 Most recently, in Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328, Atkinson J (with whom Jerrard JA agreed, McMurdo P considering it unnecessary to decide the question of mistake) reviewed the Australian authorities, including the decisions of the High Court to which I have referred above, in the light of the decision of the English Court of Appeal in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (supra), and concluded that Solle v Butcher was no longer good law in Australia. Her Honour concluded that the test to be applied in a case of common mistake is that found in the five elements set out in Great Peace Shipping v Tsavliris.

61 The decisions in Great Peace Shipping v Tsavliris and Australia Estates Pty Ltd v Cairns City Council have, in turn, been the subject of a critical note in the Australian Law Journal by Dr Seddon, one of the current authors of the Australian edition of Cheshire and Fifoot's Law of Contract. In addition to deprecating what he regards as a retrograde step in the law, Dr Seddon suggests that the decision in Australia Estates Pty Ltd v Cairns City Council is inconsistent with the decision of the High Court in Taylor v Johnson (supra), albeit Dr Seddon notes that it remains an unresolved issue whether the High Court's approach in that case is applicable to cases of common mistake: see (2006) 80 ALJ 92 at 95 - 6.

62 In light of the most recent developments, it is, I think, fair to say that the law in relation to common mistake has now become, if anything, even more "arcane, uncertain in application, complex and controversial".

63 In the end, in the present case I do not think it matters whether the correct approach in a case of common mistake is that stated by the English Court of Appeal in Great Peace Shipping v Tsavliris, and adopted by the majority of the Queensland Court of Appeal in Australia Estates Pty Ltd v Cairns City Council, or the wider approach expressed by Denning LJ in Solle v Butcher. In my view, on the material in evidence on neither basis is there anything capable of giving rise to a genuine dispute on the ground of a common mistake.

64 The mistake relied upon by the plaintiff in this case was as to the precise amount owing to the defendant; that is, whether the sum of $102,646.25 was owing or only an amount of $72,146.25. In relation to the Solle v Butcher approach, there is some support for the view that a common mistake as to the value of the subject matter of a contract may be grounds upon which the contract will be set aside in equity.

65 The highwater mark appears to be Grist v Bailey [1967] Ch 532, where the defendant agreed to sell to the plaintiff a freehold house for the sum of 850 pounds, subject to the existing tenancy. Both parties mistakenly thought that the property was occupied by a protected tenant (in which case the fair value of the property was 850 pounds). In fact there was no protected tenancy, so that the fair value of the property was actually 2250 pounds. The contract was set aside on the ground that the mistake was fundamental.

66 In my view, however, the mistake alleged in the present case is a long way indeed from a fundamental mistake of the kind required to render the contract voidable in equity for common mistake. It is not a mistake as to the nature or essential terms of the contract, or as to the existence of the subject matter of the contract, but simply as to the value of the subject matter. And there is, in my view, a distinct difference between, on the one hand, the alleged mistake involved in the settlement of a claim for a debt believed to be $102,000 when it is in fact $72,000, and on the other hand, one involving a contract for the sale of land for 850 pounds when the real value is 2250 pounds.

67 I do not consider that in this case the mistake relied upon is of such a nature as is capable of attracting the intervention of equity. On that basis alone, in the present case there is, in my view, no question of a common mistake of the kind that could lead to the deed being set aside under the Solle v Butcher approach.

68 On the approach taken by the English Court of Appeal in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (supra), it is, I think, plain that on the facts of this case no question of a common mistake rendering the deed void could arise.

69 I do not, therefore, consider that there is a genuine dispute as to whether the deed is void or should be set aside on the ground of common mistake.

70 In Taylor v Johnson (supra), the High Court stated the law in respect of unilateral mistake as follows (at 432):

"... a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering into the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that first party does not become aware of the existence of his mistake or misapprehension."

"... it is unfair that the mistaken party should be held to the written contract by the other party whose lack of precise knowledge of the first party's actual mistake proceeds from wilful ignorance because, knowing or having reason to know that there is some mistake or misapprehension, he engages deliberately in a course of conduct which is designed to inhibit discovery of it."

72 Although the position may not be entirely free from doubt, it seems the better view is that it is sufficient that the other party is aware that the first party is acting under a mistake and simply remains silent. The decision of the New South Wales Court of Appeal in Tutt v Doyle (1997) 42 NSWLR 10, appears to support the proposition that silence about the mistake is sufficient.

73 In Smith v Smith [2004] NSWSC 663, Barrett J having reviewed a number of authorities including Taylor v Johnson (supra), Tutt v Doyle (supra) and Leibler v Air New Zealand Ltd (No 2) [1999] 1 VR 1, said (at [50]) in relation to a claim of unilateral mistake:

"The essential elements are, first, that one person enters into a contract under a serious mistake about its content in relation to a fundamental matter; second, that the other party is aware that circumstances exist indicating that the first person is entering into the contract under a serious mistake about the content or subject matter of that aspect of the contract; and, third, that the second party deliberately sets out to ensure that the first party does not become aware of the existence of the mistake, either by positive acts or omitting to bring it to their attention."

74 I would respectfully adopt that statement of the relevant principles.

75 The plaintiff's case on unilateral mistake necessarily involves establishing, not only that the plaintiff was mistaken, but also that the defendant was aware that the plaintiff was mistaken and, at least, that the defendant stood by and allowed the plaintiff to enter into the deed under that mistake. Assuming for present purposes that the alleged mistake as to the amount of the debt was of the requisite fundamental nature, in this instance the plaintiff's case must inevitably involve the contention that, by demanding payment of a debt that was not in fact owed by the plaintiff, the defendant induced the plaintiff to believe it was so indebted and then, knowing of the plaintiff's mistaken belief, allowed the plaintiff to enter into a deed admitting the debt and agreeing to pay it with interest.

76 It hardly needs saying that such a claim involves a serious allegation against the defendant. The question on this application is whether there is a genuine dispute as to it.

77 It is, in the end, a claim built essentially upon the facts, first, that, unbeknown to the plaintiff at the time, the invoices referred to in the statutory demand for $30,500 were addressed to Broad Construction Services and, secondly, that the defendant has not explained how the plaintiff came to be charged with that debt. In the circumstances, that, in my view, is not sufficient to establish a genuine dispute in respect of an allegation of such a serious nature.

78 In determining whether there is a genuine dispute it is, of course, necessary to have regard to the totality of the evidence. On behalf of the defendant, Mr Paterson said in his affidavit in support of the original statutory demand that the amount was due and owing by the plaintiff. He says again in his affidavit in opposition to this application that when the deed was entered into he believed that the plaintiff was indebted to the defendant in the full amount claimed and there was nothing that cast any doubt upon that.

79 The plaintiff did not dispute Mr Paterson's evidence that at the time the deed was entered into he was unaware both of the allegations that Peter Errichetti had acted without the plaintiff's authority and that prior to about the time of service of the statutory demand the directors of the plaintiff had had no knowledge of the transactions with the defendant.

80 Although Ms Di Camillo says that all the dealings between the defendant and the plaintiff in relation to the architectural work were conducted by Peter Errichetti and Mr O'Brien, to the exclusion of the directors of the plaintiff, she also says that when the plaintiff entered into the deed it did so, among other things, on the advice of Mr O'Brien. Despite his involvement in the earlier dealings with the defendant in relation to the architectural work, Mr O'Brien apparently did not suggest that the claim for the $30,500 may be unfounded. As I have mentioned, the plaintiff did not seek to adduce any evidence from Mr O'Brien.

81 Moreover, it was not suggested that the directors of the plaintiff did not have access to the books and records of the plaintiff to verify its debts before expressly admitting the debt in the deed, much less that the defendant was aware that they had not done so. On the evidence, in the negotiations leading up to the execution of the deed no concerns were raised by the plaintiff's representatives as to the existence, nature or circumstances of the plaintiff's liability; the negotiations were concerned with how it was to be repaid.

82 It is true that how the plaintiff came to be indebted to the defendant for the sum originally invoiced to Broad Construction Services was not explained in the evidence, the defendant's case being that in light of the express terms of the deed it was irrelevant. But in the present circumstances it is a great leap from that to a finding that there are grounds for a genuine dispute as to whether the defendant was not simply in error in respect of the debt, but had engaged in conduct that is, in essence, fraudulent. That is particularly so in circumstances where it is not at all difficult to understand why the plaintiff might have assumed, or to have been understood to have assumed, liability for the debt. In that respect, it is relevant that the architectural work which is the subject of the invoices was in respect of a property which, during the progress of the work, was acquired by the plaintiff, which therefore stood to derive the benefit from the work.

83 Having regard to all of the evidence, I am not satisfied that there is a genuine dispute as to whether the plaintiff entered into the deed on the basis of a unilateral mistake. In my view, that ground has not been made out.

84 In the course of argument, counsel for the plaintiff also sought to rely on an argument that the deed had been brought about by misleading or deceptive conduct on the part of the defendant, contrary to s 52 of the Trade Practices Act 1974 (Cth), in that by the statutory demand the defendant had misrepresented to the plaintiff that it was indebted to the defendant in the sum of $30,500, and the plaintiff had relied on that representation in entering into the deed. The argument, I think, sprang from comments made by me in the course of submissions. It was not contained in the plaintiff's written outline of submissions and no notice of it had been given to the defendant. I might say that it was not developed by the plaintiff's counsel, nor did he seem to advance it with any enthusiasm.

85 In the event, I do not consider that, on the material before me, such a case is sustainable, even at the level of an application of this nature. I do not consider that, in circumstances such as the present, the service of a statutory demand is capable of constituting misleading or deceptive conduct on the part of the party serving it simply because (if it is the case) it turns out the debt is not in fact owed.

86 The final ground relied upon by the plaintiff was that the conduct of the defendant was unconscionable under s 51AA, or alternatively s 51AC, of the Trade Practices Act. I do not consider that that has any substance.

87 It is clear that the concept of unconscionability under s 51AA is the same as that under the general law. The metes and bounds of the concept of unconscionability under the general law remain indeterminate, and probably indeterminable, but the essential elements have been sufficiently stated for present purposes in some oft-cited passages from two decisions of the High Court.

88 In Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362, Fullagar J said at 405:

"The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-a-vis the other."

89 In the same case, Kitto J described the power of a court of equity to set aside a transaction as arising:

"... whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands."

90 In Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 at 461, Mason J referred to those passages in the judgments of Fullagar J and Kitto J in Blomley v Ryan (supra) and said:

"It is made plain enough, especially by Fullagar J, that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition [or] circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word 'disadvantage' by the adjective 'special' in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party."

91 Mason J went on to emphasise the need for the plaintiff seeking relief to establish the taking of unconscientious advantage of the plaintiff's disabling condition or circumstance. It is clear that the special disadvantage must be one seriously affecting the ability of the innocent party to make a judgment as to that party's own best interests.

92 There is, in my view, no evidence that in the present case the plaintiff suffered anything in the nature of a special disadvantage. While the directors of the plaintiff had had no involvement with the defendant in respect of the matters that were the subject of the defendant's claim, there is nothing to suggest that at the time the deed was executed the directors could not have made appropriate enquiries of their own to determine if in fact it was indebted to the defendant as alleged. I might add that there is also no evidence that the defendant was aware that the representatives of the plaintiff had made no enquiries as to whether or not the plaintiff was indebted to the defendant in the amount claimed.

93 I do not consider that there is a genuine dispute as to whether the conduct of the defendant was unconscionable under s 51AA.

94 The provisions of s 51AC apply only to conduct in connection with the supply, or acquisition, of goods or services. Counsel for the plaintiff did not indicate what goods or services had been supplied or acquired, to which s 51AC might apply, nor in what respect the conduct of the defendant might be unconscionable within the meaning of s 51AC. I can discern no basis for this ground. In my view it is without merit.

95 As the matter was touched on briefly in argument as a separate head, I should say for completeness that I also do not consider that on the evidence there is a genuine dispute as to whether the conduct of the defendant was unconscionable under the general law.

96 In the circumstances, I do not consider there is a genuine dispute as to the plaintiff's liability for the sum demanded and I would dismiss the application to set aside the statutory demand.

97 I will hear the parties on the costs of the application.

Australia Estates Pty Ltd v Cairns City Council

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (140 paragraphs)

ERRICHETTI NOMINEES PTY LTD -v- PATERSON GROUP ARCHITECTS PTY LTD [2007] WASC 77 (3 April 2007)

Parties

Legislation Cited (1)

Cases Cited (6)