The accountant advised that the way to achieve the goal was as follows:-

Baird, Elliott and Clack could transfer their respective shares in ACE to BCE without capital gains tax exposure, because they already held equally between them all of the issued capital of BCE, but Page could not join in the transactions because he did not already hold shares in BCE;

There would be no capital gains tax exposure in relation to Baird, Elliott and Clack because of the roll-over provisions of s 16OZZN of Division 17 of Part IIIA of the Income Tax Assessment Act, 1936 as amended, but there would be such exposure on the part of Page.

The advice of the accountant was accepted and implemented, and each of Baird, Elliott and Clack transferred their respective individual shares in ACE to BCE for the sole consideration of $1.00, without any increase in their respective shareholdings in BCE taking place.

The accountant's advice was misconceived as he now accepts. Each of the transferors now claim that they entered into their respective transfers under a mistake as to the fiscal effect and consequences of the transfer. Since the transferors represent the present corporators (In re Duomatic Ltd [1969] 2 Ch 365) of the transferee BCE, they claim that their collective minds represent the mind of BCE for all material purposes.

The parties to the transfers, that is to say, the three individual transferors and BCE as transferee, would not have entered into the transaction were it not for their belief in the accuracy of the accountant's advice. Page as the fourth director of ACE acquiesces in the relief sought.

The parties seek the equitable relief of setting aside of a transaction, in order that the transfers be rendered void ab initio.

I reserved my decision because it seemed to me that there were a number of rules of law and equity dealing with the law of mistake. It is only when one realizes that delving into the law of mistake is allowing oneself to be completely misdirected that the case begins to make sense. The proper concentration is not on principles of mistake, but on the law of rescission.

A contract or transaction may be rescinded in three situations, namely:

Where the contract or transaction is voidable at law and a person entitled to take advantage of the vitiating factor elects to avoid it;

Where there is a reason in equity for the contract or transaction to be avoided and a person entitled to take advantage of a vitiating factor elects to avoid it;

Where the contract or transaction is avoided by agreement.

A strange thing about the jurisdiction of a court to declare or order rescission ab initio of a transaction is that, apart from some special situations, the act of rescission is the act of the parties or some of them; the court's role is merely declaratory.

The fact that rescission is ordinarily the act of the parties is fundamental to the understanding of this branch of the law. To emphasize this, it is useful to note what eminent judges have said on the matter.

In Abram Steamship Co Ltd v Westville Shipping Co Ltd [1923] AC 773, 781, Lord Atkinson said, "Where one party to a contract expresses by word or act in an unequivocal manner that by reason of fraud or essential error of a material kind inducing him to enter into the contract he has resolved to rescind it, and refuses to be bound by it, the expression of his election, if justified by the facts, terminates the contract, puts the parties in status quo ante and restores things, as between them, to the position in which they stood before the contract was entered into. It may be that the facts impose upon the party desiring to rescind the duty of making restitutio in integrum. If so, he must discharge that duty before the rescission is, in effect, accomplished; but if the other party to the contract questions the right of the first to rescind, thus obliging the latter to bring an action at law to enforce the right he has secured for himself by his election, and the latter gets a verdict, it is an entire mistake to suppose that it is this verdict which by itself terminates the contract and restores the antecedent status. The verdict is merely the judicial determination of the fact that the expression by the plaintiff of his election to rescind was justified, was effective, and put an end to the contract."

In Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216, four Justices said in a joint judgment at 224, "It is not that equity asserts a power by its decree to avoid a contract which the defrauded party himself has no right to disaffirm, and to revest property the title to which the party cannot affect. Rescission for misrepresentation is always the act of the party himself.... The function of a court in which proceedings for rescission are taken is to adjudicate upon the validity of a purported disaffirmance as an act avoiding the transaction ab initio, and, if it is valid, to give effect to it and make appropriate consequential orders." See also Kramer v McMahon (1969) 89 WN (NSW) (Pt 1) 584, 588-9.

There is no evidence that the parties have ever actually rescinded the transaction. Indeed, Clack says in paragraph 10 of his affidavit, "In view of the fundamental error I now wish to cancel the transaction." Elliott's affidavit, paragraph 12 is to similar effect. However, in law, an election to rescind is made when parties commence proceedings for rescission, Reese River Silver Mining Co v Smith (1869) LR 4 HL 64, 79. That election once made, is irrevocable, R v Inhabitants of Gresham (1786) 1 Term Rep 101; [1786] EngR 37; 99 ER 996; Lightwood Park Pty Ltd v Balmer, Supreme Court of NSW, Helsham, J 9.10.1975 unreported (Eq 2148/1975) at p 23 and see Chitty on Contracts 25th ed (Sweet & Maxwell, London 1983) para 1483.

The case appears to be a simple one of rescission by agreement. There are, of course, limits to the circumstances in which the parties may agree to rescind a valid contract.

In Foster v Dawber [1851] EngR 671; (1851) 6 Ex 839, 851; [1851] EngR 671; 155 ER 785, 790, Parke, B said, "Now, it is competent for both parties to an executory contract, by mutual agreement, without any satisfaction, to discharge the obligation of that contract. But an executed contract cannot be discharged except by release under seal, or by performance of the obligation...." Chitty on Contracts, 25th ed para 1482 defines what is meant by "executory" in this passage as the situation "where neither party has performed the whole of his obligations under it."

(a) Is a transfer of shares considered to be an executory contract?

(b) The rule in Seddon v The North Eastern Salt Co Ltd

[1905] 1 Ch 326.

(c) If a contract is "rescinded" by agreement, is it determined as from the time of that agreement to

As to (a), the principles set out in Foster's case must be distinguished from later learning which deals with limitations on a court of equity ordering rescission for innocent misrepresentation. This must be stated else it is easy to confuse the two. The principle in Foster's case deals with when one ceases to be able to rescind ab initio an agreement by consent. It states the position at common law.

In equity, a contract made by deed could be released by parol agreement for valuable consideration: Hill v Gomme [1839] EngR 989; (1839) 1 Beav 540; 48 ER 1050 and this is now the position both at law and equity: Creamoata Ltd v The Rice Equalisation Association Ltd [1953] HCA 40; (1953) 89 CLR 286, 306.

However, the rule as laid down by Chitty does not rely on any formal or technical rules about deeds or about contracts becoming merged in conveyances. Corbin on Contracts Vol 5A (West Publishing Co St Paul 1964) para 1236 p 534 says, "As long as any primary contractual right and duty are recognised by the law as existing, they are subject to discharge by rescission, even though there has been a breach of the contract creating a secondary right to compensatory damages." The rule applies whilst the contract is in force even though it may have been partly performed so long as it has not been finally performed. Thus in Rose & Frank Co v JR Crompton & Bros Ltd [1924] UKHL 2; [1925] AC 445, 456, an ongoing arrangement between traders was able to be cancelled by consent even though it had been partly performed. Once there is no longer anything that remains of the primary contractual regime, there is nothing to rescind.

If there has been a conveyance or transfer, then again it would seem that the parties are incompetent to rescind the transaction by agreement but would, of course, be entitled by virtue of their agreement to rescind, to have a reconveyance.

An analogous situation is where the court of equity gives relief against forfeiture. If a court gives relief before the lessor has re-entered and terminated the lease at law, the form of relief given is to injunct the lessor from terminating the lease. The effect of the forfeiture is that the right of the landlord to cancel the lease is gone and the lease continues in its existing form. However, if the lessor has already re-entered, then the court orders a new lease to be executed and delivered to the tenant; see Dendy v Evans [1910] 1 KB 263, 266.

In the instant case, as there has been a transfer of shares registered and all parties have done all they are bound to do under the contract, the contractual regime is at an end. Thus there is no executory contract that can now be rescinded. Alternatively, if the parties do now rescind, there has to be a reconveyance so that capital gains tax will not only be payable once it may be payable twice. For these reasons it does not seem to me that this matter of rescission by agreement need be pursued further.

As to (b), the general rule is that rescission cannot be granted once a transaction has passed out of the region of contract into that of conveyance. Except in some cases of fraud, it cannot be granted where the contract has been consummated by formal transfer of property: Seddon v The North Eastern Salt Co Ltd. That proposition does not prevent the court from rescinding contracts for allotment of shares on the ground of innocent misrepresentation even though the allottee's name has been placed on the register of members, First National Reinsurance Co Ltd v Greenfield [1921] 2 KB 260, 272. However, Long Innes, J said in Grogan v "The Astor" Ltd [1925] NSWStRp 35; (1925) 25 SR (NSW) 409, 411, that there was an essential difference between the allotment situation and the case where there has been a contract for the sale of shares followed by a transfer. This latter situation "may properly be called an executed contract which has passed into the realm of conveyance or completion." Thus, this is no longer a contract that can be rescinded by the parties by agreement.

There has been a large amount of criticism of the rule in Seddon's case. Almost every academic writing makes it quite clear that Joyce, J apparently misconceived the whole regime that had existed in equity since the epoch making decision of Redgrave v Hurd (1881) 20 Ch D 1. There is no reason of principle behind the rule at all. The rule has been criticised not only in avant garde legal texts, but also in such sound and usually conservative works as Kerr on Fraud and Mistake 7th ed (Sweet & Maxwell, London, 1952) at p 535 and Meagher Gummow and Lehane Equity Doctrines and Remedies 3rd ed (Butterworths 1992) at [1317].

As long ago as 1939, a contributor to the Law Quarterly Review (1939) 55 LQR 90 said of Seddon's case that it is "one decision by a single Chancery judge who laid down a wide and new principle without any exhaustive examination of the authorities. ... this decision is unsatisfactory and its consequences dangerous ...".

The only reason for following Seddon's case, at least to its full extent, is that at least three eminent judges in New South Wales have followed it and regarded it as binding. I have already referred to the judgment of Long Innes, J in Grogan's case. In addition, both C McLelland, J in Kramer v Duggan (1955) 55 SR (NSW) 385, 389 and Wood, J in Vimig Pty Ltd v Contract Tooling Pty Ltd (1986) 9 NSWLR 731, 736, did not think that a single judge should declare that Joyce, J in Seddon's case was just mistaken. Wood, J sitting in the Common Law Division, did not himself perceive how any of the arguments presented by the academics were sufficiently convincing to make that declaration in any event.

Helsham, CJ in Eq in Leason Pty Ltd v Princes Farm Pty Ltd [1983] 2 NSWLR 381, did severely limit the rule and accept most of the criticisms made about Seddon's case. His Honour held that Seddon's case did not apply to the transfer of chattels such as a race horse.

Meagher Gummow and Lehane say that single judges should be more resolute in the 90s than they were in the past about this matter. I think this is correct. Gone are the days when the Court of Appeal had time and resources to re-examine the law and it is often the case that litigation stops at the single judge level in he Supreme Court. In my view, the court should no longer apply the mistaken view of the law set out in Seddon's case.

I am fortified in taking this view because of the large number of cases since 1905 which have distinguished Seddon's case on almost all possible grounds. In Grogan's case, there was the seemingly artificial distinction between an allotment of shares and a transfer of shares and one might be forgiven for thinking this is only because Seddon's case itself was dealing with a transfer of shares. There have been many other instances where the court has found it unnecessary to consider the correctness of Seddon's case because it has outflanked it. In argument in the Privy Council in Senanayake v Cheng [1966] AC 63 at 74, counsel set out a series of cases since 1905 where decisions had been made inconsistent with Seddon's case. Where one gets this plethora of instances of a case being distinguished, remembering the reticence of earlier judges to come out and say that a decision of a former generation of judges was wrong, one gets to the position without too much difficulty of coming out and saying that the case should no longer be followed.

In saying this, there seems to my mind little doubt that the basic proposition in Wilde v Gibson [1848] EngR 658; (1848) 1 HLC 605; 9 ER 897, on which Seddon's case was mistakenly based, is still good law, at least with Old System land. Once a contract for the sale of land has merged in the conveyance, then rescission is no longer able to be declared as such though in the appropriate case the court may order a reconveyance. Probably, for the reasons set out by Speight, J in Montgomery v Continental Bags (NZ) Ltd [1972] NZLR 884, the rule does not apply to Torrens System land because orders can be made rectifying the Register without the need for reconveyance.

As to (c) if a contract is properly rescinded, it is set aside ab initio. However, the terms of the rescission agreement may set up additional terms and those terms will apply by virtue of the new (rescission) agreement, even though the original agreement has been avoided ab initio.

Thus in Davis v Street [1823] EngR 798; (1823) 1 C & P 18; 171 ER 1084, parties agreed that a contract for the sale of a horse would be rescinded, the plaintiff would return the horse and get another horse, paying a further ten pounds. Park, J held that that agreement had rescinded as opposed to had terminated the earlier contract and the money paid thereunder could be recovered under a count for money had and received. A more modern example is Bankoff v Wycoff [1956] USCA10 85; 233 F (2d) 476 (1956) (USCA 10th) where an oil drilling contract was agreed to be rescinded, but the driller was to receive compensation for the work performed.

As the contract or transaction cannot be rescinded by simple agreement, I must look to see whether it may be otherwise rescinded at common law or equity.

At common law, a contract is binding and valid unless there is some vitiating factor such as infancy, fraud etc. Unless such a vitiating factor is present, a person will not be considered by the common law to be able to rescind the contract or transaction.

Mr Conti QC and Mr Raphael for the plaintiffs, relied on the statements in Cheshire and Fifoot's Law of Contract (6th Australian Edition) paras 622 and 624 as to the width of the jurisdiction of equity to give relief, even in the absence of res extincta or res sua. They submit that, in cases of mistake, equity "will be far more forgiving of error than has been the case at common law." It is of course, always dangerous to treat the glosses of textbook writers as if they were the language of statutes. This case is no exception. Talk of equity being "forgiving" is loose language and does not represent any principle.

The rule as to rescission in equity is given in the joint judgment in Alati v Kruger at 224, "The difference between the legal and the equitable rules on the subject simply was that equity, having means which the common law lacked to ascertain and provide for the adjustments necessary to be made between the parties in cases where a simple handing back of property or repayment of money would not put them in as good a position as before they entered into their transaction, was able to see the possibility of restitutio in integrum, and therefore to concede the right of a defrauded party to rescind, in a much wider variety of cases than those which the common law could recognize as admitting of rescission. Of course, a rescission which the common law courts would not accept as valid cannot of its own force revest the legal title to property which had passed, but if a court of equity would treat it as effectual the equitable title to such property revests upon the rescission." In short, the principle is the same at common law as in equity.

Plaintiffs' counsel then put that there is a line of authority in England, reviewed in the Chancery Division in Gibbon v Mitchell [1990] 1 WLR 1304, where voluntary dispositions have been set aside by the Court where the Court was satisfied that the disponor did not intend the transactions to have the effect which they did, in the sense that the instrument of disposition did not reflect the conveyancing transaction intended. In Gibbon's case and in cases cited therein, dispositions were set aside notwithstanding that the purpose of the dispositions was fiscal in character. Millett, J referred to a series of cases. The first of these in chronological order is Meadows v Meadows [1853] EngR 135; (1853) 16 Beav 401; 51 ER 833. That was a simple case of a settlement made by a person with insufficient understanding as to what he was doing. Then there is Walker v Armstrong [1856] EngR 779; (1856) 8 De GM & G 531; 44 ER 495, where a series of drafting errors by a solicitor brought about an effect which the settlor never intended. He then referred to Phillipson v Kerry [1863] EngR 677; (1863) 32 Beav 628; 55 ER 247. That was a suit to set aside a voluntary deed executed by a lady where the nature of it was not properly explained to her and whereby she left herself and her estate destitute and benefited the donee far more than she could have intended. As far as I can see this is just a classic case of unconscionability. Then there is Ellis v Ellis (1909) 26 TLR 166 where, Warrington, J making the distinction that he was dealing with a gift made by mistake, not a contract, set aside a gift on the ground that the husband donor did not realize that any gift to his wife would not be hers absolutely as he intended, but would be held on trust pursuant to her marriage settlement. Finally, In re Walton's Settlement [1922] 2 Ch 509 was another case of an effect produced by a solicitor's drafting quite unintended by the settlor.

In Gibbon's case at 1309, Millett, J said, "In my judgment, these cases show that, wherever there is a voluntary transaction by which one party intends to confer a bounty on another, the deed will be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect which it did. It will be set aside for mistake whether the mistake is a mistake of law or of fact, so long as the mistake is as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it. The proposition that equity will never relieve against mistakes of law is clearly too widely stated: see Stone v Godfrey [1854] EngR 359; (1854) 5 De G M & G 76; 43 ER 798, and Whiteside v Whiteside [1950] Ch 65, 74."

Plaintiffs' counsel submit that, particularly in the light of the decision of the High Court in David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1991-2) 175 CLR 353, I should follow Lord Westbury's dictum in Cooper v Phibbs [1867] UKHL 1; (1867) LR 2 HL 149, 170. Lord Westbury said, " ...if parties contract under a mutual mistake and misapprehension as to their relative and respective rights, the result is, that the agreement is liable to be set aside as having proceeded upon a common mistake."

I will not spend time on whether Lord Westbury's dictum should be followed (see (1989) 105 LQR 599, 607). Gibbon's case provides no authority in the current situation for the reasons shown by Warrington, J in Ellis v Ellis. The present case concerns a contract, not a voluntary gift.

There is not, so far as I am aware, any general principle of equity which permits equity to relieve against mistake. Apart from the head of equity called "Accident" which will be dealt with under the next heading, equity only gives relief on the ground of mistake if it would be unconscionable for the defendant to rely on the mistake in all the circumstances.

Plaintiffs' counsel conceded that, in the present case, there was no mistake as to the conveyancing effect of the transaction. However, they submit that it is inapposite to speak of the mistake as one merely as to consequences of the transaction or to the advantages to be gained by entering into it. The gaining of roll-over relief was fundamental to the effectuation of the transfers being entered into in the first place. Even if that not be so, the jurisdiction in equity would not be so limited, but would depend on all the circumstances of the case as to the extent to which equity should be "forgiving".

Pomeroy, A Treatise on Equity Jurisprudence, 5th ed (Bancroft-Whitney Co San Francisco 1941) deals with mistake at para 838 commencing on p 282 of Volume 3. Pomeroy validly complains that many definitions of mistake confuse the essential elements of the conception with its effects. He approves the definition in an American work by Hayne, "Mistake may be said to exist, ... where a person, acting upon some erroneous conviction, either of law or of fact, executes some instrument or does some act which but for that erroneous conviction he would not have executed or done." As Pomeroy says at para 839, "it is a mental condition, a conception, a conviction of the understanding,- erroneous, indeed, but none the less a conviction,- which influences the will and leads to some outward physical manifestation....Its essential prerequisite is ignorance."

Operative mistake in equity is almost always something which happens without negligence. Thus in Luckenbach v Thomas 166 SW 99 (1914) (Tex) there was no operative mistake where both parties consented to an omission of a stipulation from a written contract on the assurance of an attorney that it could be supplied by parol. See also Thiel v Miller 209 P 1081 (1922) (Wash) which is also reported with annotations in 26 Am LR 523.

Kerr on Fraud and Mistake says at p 562, of rectification because of mistake, "The principle... will not apply in a case in which a matter has been completely overlooked on both sides ... or in a case where the instrument is in accordance with the expressed intention of the parties, and has been prepared with full knowledge of their rights, but has failed only because the parties have been ill-advised as to the way of giving effect to their intention."

The authority for the last part of the passage I have quoted from Kerr is Farr v Sheriffe [1845] EngR 1348; (1845) 4 Hare 512, 67 ER 750. In that case at ER 755, Wigram, VC distinguished the case before him from others where equity had given the remedy of rectification on a number of grounds. The relevant ground for present purposes is "the instrument is in accordance with the expressed intention of the parties, and was prepared with full knowledge of their rights. The difficulty arises from the fact that the parties have mistaken the way of giving effect to their own intentions, correctly expressed in the deed."

A slightly different case which points in the same direction is Carpmael v Powis [1846] EngR 1227; (1846) 10 Beav 36; 50 ER 495. In that case the plaintiff agreed to purchase property from the defendant for [sterling]1800. Later an annuity was substituted for the [sterling]1800. Because of a miscalculation by an "expert" retained by the defendant the plaintiff agreed to pay the defendant [sterling]22 more per year than he intended. Lord Longdale, MR refused rectification as the document set out the parties' intention. However he ordered rescission because of the error for which the defendant's agent was responsible.

At para 842, Pomeroy states a similar general rule as to relief against mistake as follows:-

"in general, a mistake of law, pure and simple, is not adequate ground for relief. Where a party with knowledge of all the material facts, and without any other special circumstances giving rise to an equity in his behalf, enters into a transaction affecting his interests, rights, and liabilities, under an ignorance or error with respect to the rules of law controlling the case, courts will not, in general, relieve him from the consequences of his mistake." Pomeroy however recognizes that there are exceptions. One is inherent in the general rule itself, namely that there is some independent equity entitling the plaintiff to the aid of equity. He cites Lord Westbury in Cooper v Phibbs, but says that there is no general criterion for these exceptional cases.

The position in the United States also is that Equity does not interfere for the purpose of carrying out an intention which the parties did not have when they entered into a transaction, but which they might or even would have had if they had been more correctly informed as to the law, see Dinwiddie v Self 33 NE 892 (1893)(Ill).

Indeed one must always distinguish the motive for the transaction from the intention to enter into the transaction and the transaction itself. It is difficult to think of an example in contract law. However, one in crime will serve. In R v Johnson [1968] SASR 132, the master in charge of a reformatory caned two boys on their bare backsides. The act was caning. The intention was to punish. However, Johnson's motivation for deciding to cane them may well have been his own sexual gratification. Normally, but not always, the motive will be irrelevant. Likewise with contract. Mistakes in the recording of the transaction may be dealt with, as may mistakes as to the subject matter, but not problems associated with a mistake which motivate the transaction.

An analogous thought in taxation law is found in the judgment of the Privy Council in Newton v Federal Commissioner of Taxation (1958) 98 CLR 8, where the Board said of s 260 of the Income Tax Assessment Act 1936 which referred to the purpose and effect of a contract, "the section is not concerned with the motives of individuals. It is not concerned with their desire to avoid tax, but only the means they employ to do it ... In applying the section you must ... look at the arrangement itself and see which is its effect - which it does - irrespective of the motives of the persons who made it."

Indeed, in the present case, no mistake was made in putting the parties' agreement into effect. The parties were under a misapprehension as to the tax implications of the transaction, but this was in the words of McLelland, AJA in Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 31 ATR 281, 294 an error with respect to "legal or factual consequences of the operation of the instrument of a more remote, or collateral, kind" and is not the type of error which the court will recognize as a mistake which justifies rectification. There was no "disconformity between the intention and the written instrument" (Carlenka at 289 per Sheller JA). Sheller, JA at 290 quoted with approval from Spry, Principles of Equitable Remedies 4th ed (LBC 1990) at pp 597-8 where the learned author states that there is no basis for rectification where the relevant mistake arises through an error underlying the intention, rather than the expression of the intention itself. At 291 Sheller JA says that the Court does not grant rectification in the situation where "An error of law or other error may have related only to the expected consequences of an agreement and not to what the parties actually agreed."

In that case, a rectification order was upheld on the grounds of mistake. The intention of the parties to a trust deed was to make a certain corporation an income beneficiary. However the resulting document inadvertently rendered the company a capital beneficiary as well. It being established that the written instrument was a mistaken expression of the true agreement between the parties, rectification was allowed so as to bring the document into conformity with the intention of the parties at the time the deed was executed.

In the present case, the parties cannot say that they did not intend the share transfer to take effect in the way it did. Unlike the trust deed in Carlenka, which failed to express the true intention and agreement of the parties, the execution of share transfers and alteration of the share register was a true reflection of the parties' agreement. What the parties appear to be seeking is, in effect, a rectification of the transaction, and not the documents which embody it. This cannot be granted because "Courts of Equity do not rectify contracts; they may and do rectify instruments purporting to have been made in pursuance of the terms of contracts": Mackenzie v Coulson (1869) LR 8 Eq 368

Accordingly, I cannot see how the authorities on equity's power to relieve against mistake assist the case.

There is also the equitable remedy of cancellation of documents. As was well said at 13 Am Jur 2d, Cancellation of Instruments para 2, there is a real difference between the equitable remedy of rectification and the remedy of cancellation. The latter is given when it is necessary to remove a possible cloud on a title. The present case does not fall within this category.

Accident was one of the three original grounds for equitable relief. As Maitland on Equity, Chaytor & Whittaker eds says at p 7, these were "fraud, accident and breach of confidence." Accident has not been to the fore in Australian or English Equity Jurisprudence, but it has continued to flower in the United States.

The American authorities prefer the definition of "accident" given in Pomeroy at p 260, namely "Accident is an unforeseen and unexpected event, occurring external to the party affected by it, and of which his own agency is not the proximate cause, whereby, contrary to his own intention and wish, he loses some legal right or becomes subjected to legal liability, and another person acquires a corresponding legal right, which it would be a violation of good conscience for the latter person, under the circumstances, to retain."

This definition has been applied in many American authorities including Kopper v Dyer 9 A 4 (1887) (Vt) and State v Innes 118 SW 1168 (1909) (Missouri).

According to the Corpus Juris Secundum Vol 30A para 43 which follows in general the line taken by Pomeroy, "by `accident,' as a ground of equity jurisdiction, is meant an occurrence unforeseen and not reasonably to be anticipated, whereby the legal rights of a party are affected as to his injury without neglect or misconduct on his part. The terms `accident' and `surprise,' although not strictly synonymous, have, as employed in legal parlance, substantially the same meaning, as each is used to denote some condition or situation in which a party to a cause is unexpectedly placed, to his detriment, without fault or negligence of his own, and against which ordinary prudence could not have guarded. Accident differs from mistake in that mistake always supposes the operation of the will of the agent in producing the event, although that will is caused by erroneous impressions on the mind.

"Equity will relieve against the unjust consequences of accident. The common law protected parties against the consequences of certain accidents; in cases not within the protection of the common law equity has jurisdiction to grant relief. Accident is an ancient and well established ground of equity jurisdiction, and continues as such notwithstanding adequate legal remedies have become available.

"The principle on which relief is granted in cases of accident is that in good conscience a plaintiff should be restored to a right lost, or relieved from a liability incurred, by reason of something not intended or contemplated by the parties, and not due to the plaintiff's negligence or fault. Relief from the consequences of accident is not given when the party against whom it is asked has an equity equal to, or greater than, that of the party seeking it, as where it is sought against a purchaser for value without notice of the accident, or where the accident is the result of the negligence or fault of the party invoking the aid of the court."

I cannot see how the principle of accident can assist in the instant case. There has not been any event which has surprised the parties against which they could hardly have avoided.

The only other equity that could be called in aid is Lord Cottenham's Golden Rule. His Lordship set out this rule in Wallworth v Holt (1841) 4 My & Cr 619, 635; 41 ER 238, 244 as follows, "I think it is the duty of this Court to adapt its practice and course of proceeding to the existing state of society, and not by too strict an adherence to forms and rules, established under different circumstances, to decline to administer justice, and to enforce rights for which there is no other remedy. This has always been the principle of this Court, though not at all times sufficiently attended to." The rule has a respectable pedigree; see for instance Cockburn v Thompson [1809] EngR 474; (1809) 16 Ves 321; 33 ER 1005 and Adley v The Whitstable Co (1810) 17 Ves 316, 324; [1810] EngR 515; 34 ER 122, 125. It was applied by Wigram VC in Foss v Harbottle (1843) 2 Hare 461, 492; [1843] EngR 478; 67 ER 189, 203, where his Lordship said, "The principle so forcibly laid down by Lord Cottenham in Wallworth v Holt ... would apply, and the claims of justice would be found superior to any difficulties arising out of technical rules ...".

Even, however, applying Lord Cottenham's Golden Rule which is given added strength in New South Wales by s 23 of the Supreme Court Act, I cannot see how the present is a situation where any technical rules are impeding the court from giving justice. It must be remembered that as Mahoney, P said in Lacey v Bank of New Zealand (NSWCA 22 July 1996, unreported), "The Court must deal with the matter in accordance with justice but justice is settled by the law." The substantive reason why the plaintiffs cannot succeed in the instant case is that the contract has been completed and fully executed and any agreement to go back to taws really involves a reconveyance.

Accordingly, there is no ground for rescission in equity.

I should now say something about s 216H of the Corporations Law. This section simply states "A company or a person aggrieved may apply to the Court to have a register kept by the company under this Part corrected." Section 216H does not broaden the scope of the Court's equitable powers of rectification, except to the extent that it cures the locus standi problem which some applicants would otherwise face under the rule in Foss v Harbottle (supra); Provident International Corp v International Leasing Corp [1969] 1 NSWR 424 at 441-2; 89 WN (NSW) (Pt 1) 370, 382-4.

The Supreme Court of Queensland in Whitehouse v Carlton Hotel Pty Ltd (1983) 1 ACLC 746 held that the power of the Court to rectify the share register pursuant to an earlier version of s 216H, s 155 of the Companies Act 1961 (Qld), was "merely procedural ... no new rights of substance are conferred" (at 748). In reaching this conclusion, Thomas J cited Re New Pinnacle Group Silver Mining Co NL [1897] NSWLawRp 80; (1897) 18 LR (NSW) Eq 168, and referred also to the obiter comments of Stephen J in Kathleen Investments (Australia) Ltd v Australian Atomic Energy Commission [1977] HCA 55; (1977) 3 ACLR 21 at 45 (HC). See also Fire & All Risks Insurance Co Ltd v Pioneer Concrete Services Ltd (1986) 10 ACLR 760 at 767. Street CJ in Eq in Reinvestment v Murray Securities (1974) CLC 40-105 at 27, 751 stated that the equivalent provision in the previous Companies Act was "not an original source of power. It is confined to conferring on the Court power of an executive nature available to put right the register so as to reflect correctly that which under some other power, whether originating in the statute or in equity, has been or ought to have been done".

In Reinvestment v Murray Securities, Street CJ in Eq refused to allow rectification of the share register under s 155 of the former Companies Act where an allotment of shares had been made but, due to difficulties with the Stock Exchange, both parties decided to rescind the transaction. In this case, his Honour had regard to the "basic proposition that the absolute correctness of a company's share structure is a matter of public concern" (at 27,751). He concluded that there was no ground for allowing rectification He said, "The power under s 155 is not available in a case ... where there is no error requiring rectification. The whole basis of s 155 is ... bound up within the word used in that section - 'rectification' - that is to say, the putting right of something which is wrong. That section is not an original source of power."

Thus, before the Register can be rectified, there must be some legal or equitable warrant for so acting. The need for the existence of some equity which the Court will protect is noted in Grant v John Grant & Sons Pty Ltd [1950] HCA 54; (1950) 82 CLR 1 at 51 per Fullagar J. His Honour also stated that "the power of court of equity to order rectification is no more and no less than a part of its general jurisdiction to `act in personam' in aid of a legal right, and it must be subject to the same principles which apply generally to equitable remedies." See also Provident International Corporation v International Leasing Corporation Ltd at NSWR 441, WN 383.

If rectification of the Register is allowed, the effect of the order is as if title to the shares had never been transferred (and so, presumably, no capital gains tax is payable). This is because:

(b) legal title to shares does not pass until registration.

Generally, rectification relates back to time at which the document is executed, with the consequence that a document which is rectified is treated as if it had always assumed its rectified form: Malmesbury v Malmesbury [1862] EngR 952; (1862) 31 Beav 407, 418; [1862] EngR 952; 54 ER 1196, 1200. In Issa v Berisha [1981] 1 NSWLR 261, 265, Powell J said, "the effect of rectification, when granted, is to relate back to the time of execution of the document, and, after rectification, the document is to be read as if it had originally been executed in its rectified form." See also Wongala Holdings Pty Ltd v Mulinglebar Pty Ltd (1994) 6 BPR 13,527 at 13,533-4 per Clarke, JA and Craddock Bros v Hunt [1923] 2 Ch 136, 151 where Lord Sterndale MR said: "After rectification the written agreement ... is to be read as if it had been originally drawn in its rectified form."

This principle was applied to rectification of a share register in Pulbrook v Richmond Consolidated Mining Company (1878) 9 Ch D 610, which case concerned an application made under s 35 of the relevant Companies Act to rectify the register where a transfer had been registered by mistake. Jessel MR, at 615 in ordering rectification, concluded that, "[T]he effect of [striking a name off the register] is exactly the same as if it had never been put in. That is the meaning of 'rectified'. You strike it out by way of rectification, and the Court has therefore declared that it ought never to have been entered at all. The result is, so far as regards registration of that transfer, there is no registration, and never was... ."

Pulbrook was cited by Latham CJ in Commonwealth Homes and Investment Co Ltd v MacKellar [1939] HCA 34; (1939) 63 CLR 351, 366 as authority for the proposition that "[w]here a claim for rectification succeeds upon the ground of misrepresentation the contract is avoided ab initio and the shareholder's name is removed as from the time when it was put on the register." An order under s 216H is often made as a consequence of some equitable fraud of a party to litigation; see eg Ampol Petroleum Pty Ltd v RW Miller (Holdings) Ltd [1972] 2 NSWLR 850, 885-6. There must always, however, be some cause outside s 216H for making an order under the section.

All these comments about rectification of the Register meaning that the transaction has never taken place must be read in the light of the fact that almost all the cases were cases where there had been some ground at law or equity for rescinding the contract ab intitio. None of them deal with the situation where rescission was by consent or where there is a completed transaction and the requirement for a reconveyance. They do not seem to me to lead to the conclusion that in the situation of rescission by consent, the transaction is to be treated by the company as a transaction which had never taken place nor need the court so consider it in its order.

The company has a duty to carry out the order for rectification: McLaughlin v Vale of Clwydd Coal Mining Co Ltd (1906) 23 WN (NSW) 244.

I should state that I would not have denied rescission simply because the parties might save considerable tax if that were done. It is necessary to point out that granting of the relief sought would mean that the transfers would be cancelled ab initio for all purposes of the general law, including the law of taxation: MacFarlane v FCT [1986] FCA 266; (1986) 17 ATR 808, 819-820.

In the analogous situation of rectification for mistake, the remedy has not been denied merely because the order would mean that the instrument or transaction would deprive the Crown of tax by some legitimate means, see Re Slocock's Will Trusts [1979] 1 All ER 358 and Case T37 (1986) 86 ATC 309. A good example is Re Colebrook's Conveyances, Taylor v Taylor [1973] 1 All ER 132, where farmland was mistakenly conveyed to the plaintiff and his son as joint tenants, it always being intended that they should hold it as tenants in common. The conveyances were duly rectified, and it was no bar to relief that rectification would, or might, incidentally give one of the parties a tax advantage. In these cases, rectification was granted because of mistake, where agreements or transactions designed to (legitimately) avoid tax failed to do so because of a mistake in the way in which such agreements/transactions were expressed.

I regret that it has taken so long to present these reasons. I reached a preliminary view a little time ago that, despite the willingness of all parties, I would not be able to give relief. I have tried to explore every available avenue and this has taken time. Unfortunately, I remain of the view that the claim must be dismissed.

Accordingly, I dismiss the proceedings. In the circumstances, there should be no order as to costs.