7 Lot 1/1080963, so described, included that part of former Lot 2 that lay to the west of the re-aligned Highway ("the western portion"). Ms Holzheimer also wrote to Mr and Mrs Harris, enclosing copies of the updated front page of the draft contract, the schedule of lands and the special conditions, confirming that the draft contract had been forwarded to the purchaser's solicitor for consideration and comment, and:
In the event that they are satisfied with the contract, we will forward the original contract to you for execution by you.
8 Mr Harris then visited Mr Smith at the Mirrool hotel, where they discussed, amongst other things, the schedule of lands. Mr Smith claims to have said words to the effect "So this is what I'm getting, 688 acres is it?", and that Mr Harris responded, "Yes". Mr Harris denies that there was any reference to the specific acreage, but accepts that there was a discussion about the schedule of lands. I am satisfied that, at least, Mr Harris conveyed to Mr Smith that the schedule set out what Mr Smith would acquire, although the conversation might not have mentioned the specific acreage.
9 On 29 September, Ms Holzheimer sent Mr Harris the final version of the contract for execution. Mr and Mrs Harris signed it and returned it to Ms Holzheimer on 20 October 2005. Contracts were ultimately exchanged on 6 December 2000. The contract described the land sold as follows:
'Wahroonga Hill' ARDLETHAN 2665
Part Auto Consol 5014-17 being lot 1 of DP 1080963 and the whole of the land in Certification of Title Folio Identifier 6/1080963
10 That description, therefore, included the western portion, which was part of Lot 1/1080963. The schedule of lands was annexed to the contract, but not referred to anywhere in its terms. A copy of the deposited plan was also annexed to the contract.
11 Mr Smith did not have finance approved at the time of exchange of contracts. Settlement was delayed while he raised finance. Eventually, completion took place on 31 August 2006. The transfer handed over on settlement apparently described the lands transferred as "1/1080963 and 6/1080963", but was amended prior to registration, to reflect the current state of the title, as follows:
PART AUTO-CONSOL 5014-17 being Lot 1 DP 1080963 and 6/1080963
12 Again, that description included the western portion, which was part of Lot 1/1080963.
13 On 9 September 2006, Mr Smith informed Mr Harris that it appeared that the western portion had been transferred to him as well as the house block. Mr Harris informed Ms Holzheimer of this on 14 September, and she contacted Mr O'Kane of GP Evans & Englert, who asked that she put something in writing "to put to our mortgagee". Having obtained instructions, Mr O'Kane reverted to Ms Holzheimer:
I have spoken with my client, it seems we all missed it, you missed it, I missed it, and both the purchaser and vendor missed it …
14 On 20 September, Ms Holzheimer wrote to Mr O'Kane, confirming that conversation and that the intention of the parties was that only the house block be acquired by Mr Smith. She also requested a surveyor to prepare a new plan of subdivision. On 21 September, Mr O'Kane forwarded by facsimile to South Eastern Secured Investments Limited ("SESI"), the incoming mortgagee (which was then still unregistered), Ms Holzheimer's letter of 20 September. SESI proceeded to register the transfer and its mortgage on 17 October 2006.
15 During November 2006, Ms Holzheimer telephoned Mr O'Kane and informed him that because the settlement statement had been based upon the whole of the lands, Mr Smith had overpaid the rates adjustment. They agreed to adjust the rates in Mr Smith's favour. On 4 December, Ms Holzheimer forwarded to Mr O'Kane an adjusted settlement sheet giving effect to that agreement, although it does not appear that this was ever implemented. On 7 December, she submitted a draft deed providing for the retransfer of the western portion to Mr and Mrs Harris. Mr O'Kane on 12 December 2006 telephoned Ms Holzheimer and informed her:
My client is happy with the deed except he does not want to tie himself in to refinancing within twelve months …
16 On the same day he forwarded a facsimile in the following terms:
Dear Tammy
Amendments to draft deed as per our telephone conversation. David will be in tomorrow to sign if we can agree on the amendments.
17 Relevantly, the draft deed contained recitals that the "parties intended that all lands (located to the east of the Newell Highway) … would pass to the Purchaser" (recital IV), and that "the lands to the west of the highway … which was unintentionally transferred to the Purchaser" (recital V), and provided that Mr Smith agreed to transfer to Mr and Mrs Harris all his right title and interest in that part of lot 1 to the west of the Newell Highway having an area of 26.84 hectares, that Mr Smith would sign a transfer of those lands, an acknowledgement that he held the western portion on the basis that Mr and Mrs Harris were beneficially entitled to it, and an agreement that Mr and Mrs Harris would be entitled to occupy the western portion.
18 Also on 6 December, Mr Harris lodged Caveat AC789756 in respect of lot 1, claiming an interest as unregistered third mortgagee (to secure vendor finance which Mr and Mrs Harris had provided).
19 On 13 January 2007, Ms Holzheimer wrote to Mr O'Kane in respect of what was apparently the only outstanding issue in relation to the proposed deed, namely the timing for the retransfer of the western portion. On 9 March, Ms Holzheimer informed Mr O'Kane that Mr and Mrs Harris would not allow Mr Smith to refinance unless the proposed incoming mortgagee was on notice of their interest in the western portion. Mr O'Kane responded on or about 14 March that Westpac would not be interested if they knew that the western portion did not belong to Mr Smith. The initially promising negotiations deteriorated. Mr Smith instructed new solicitors, Thurlow Fisher, who on 22 March 2007 wrote:
To assert … that it was not intended to transfer the whole of lot 1 is quite preposterous.
20 Further correspondence ensued. Meanwhile Mr Smith sought to refinance through Westpac, and on 18 May 2007 executed a mortgage in favour of Westpac, securing advances of $348,000. On 31 May 2007, Ms Holzheimer wrote to "Ravi" at Westpac, in the following terms:
We refer to telephone discussion with Ravi of today and now enclose copies of the following for your reference:
1. Copy of Withdrawal of caveat
2. Copy of Letter of consent of caveator to registration of mortgage.
We confirm that the above documents will be provided at the settlement scheduled for 2pm tomorrow at Commins Hendriks Wagga Wagga on receipt of the following cheque:
1. Cheque made payable to Commins Hendriks Solicitors: $29,639.73.
We write to confirm that the caveator consents to the registration of mortgage by Westpac Bank on the basis that the equitable interest in the land as claimed by our client is not postponed to the later mortgage of Westpac Bank.
In the event that a declaration is sought and granted in relation to our clients interest in the lands as noted in the caveat our clients interest takes priority over the first mortgage of Westpac Bank and Westpac will release the portion of land as noted in the caveat from the mortgage and Westpac acknowledge that they would release this portion without receiving any consideration for the same.
…
The registration of the mortgage (to which we consent) is on the basis that Westpac acknowledge dispute between your mortgagor and our client. …
21 On the same day, Ms Holzheimer caused to be lodged a caveat in respect of lot 1, claiming a beneficial interest in the western portion "due to conveyancing error". The refinance through Westpac was completed on 1 June 2007, when SESI and Mr and Mrs Harris were paid out in respect of their secured debts. Westpac subsequently endeavoured to have its mortgage registered, but this was prevented by the Harris's caveat. On 9 July 2007, Thurlow Fisher served a lapsing notice in respect of the caveat. These proceedings were commenced on 19 July 2007, following which the caveat has been extended from time to time and until further order.
22 On 4 October 2007, Westpac itself lodged a caveat, AD250350.
23 Originally, Mr and Mrs Harris claimed as against Mr Smith an order that he reconvey the whole of lot 1 to them; alternatively, rectification of the contract (to the effect that it refer only to that portion of lot 1 located east of the Newell Highway); alternatively, a declaration that Mr Smith held the western portion on trust for them; alternatively, an order that upon the contract being so rectified and upon the Coolamon Shire Council registering a subdivision excising the western portion from the remainder of lot 1, he re-transfer the western portion to Mr and Mrs Harris; and consequential relief. Subsequently, Mr and Mrs Harris amended their claim to add Westpac as second defendant, against whom they sought a declaration that their interest had priority over any unregistered mortgage granted to Westpac by Mr Smith; and the partners of the law firm Commins Hendriks as third and fourth defendants, against whom they claimed damages for professional negligence.
24 Westpac filed a submitting appearance. The proceedings between Mr and Mrs Harris and Commins Hendriks have been settled; the terms of that settlement have not been disclosed to the court but it has been indicated that the court will be asked to dispose of that claim after judgment on the claim against Mr Smith.
25 Mr Smith has filed a cross claim against Mr and Mrs Harris, for damages for misrepresentation and/or breach of warranty, alleging that it was represented and/or warranted to him that the area of land to be conveyed was 278.535 hectares - whereas (if Mr and Mrs Harris succeed on their claim) he will have received only 251.72 hectares.
Did the contract by mistake fail to express the true agreement between Mr and Mrs Harris and Mr Smith?
26 For present purposes, the essential requirements of a claim for rectification for common mistake may be stated as follows [Pukallus v Cameron (1982) 180 CLR 447, 452; International Advisor Systems Pty Ltd v XYYX Pty Ltd [2008] NSWSC 2, [21]]:
· There must be an intention common to both parties at the time of the contract to include in their bargain a term which by mutual mistake is omitted from it (or to omit something which is by mutual mistake included in it), but there need not be a concluded antecedent contract;
· A plaintiff must advance convincing proof that the written contract does not embody the final intention of the parties; and
· The omitted ingredient must be capable of proof in clear and concise terms, so that the court must not assume for itself the task of making the contract for the parties.
27 Rectification is also available in a case of unilateral mistake, but in such a case at least knowledge on the part of the defendant of the plaintiff's mistake, coupled with silence amounting to sharp practice, is required [A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555; Taylor v Johnson (1983) 151 CLR 422, 431; Riverlate Properties Ltd v Paul [1975] Ch 133, 140; Easyfind (NSW) Pty Ltd v Paterson (1987) 11 NSWLR 98; International Advisor Systems v XYYX [22]-[24]].
28 In the present case, Mr Harris says (in his affidavit sworn 31 March 2008, paragraph 2) that in his initial discussions with Mr Smith he showed him an aerial photomap dated 22 October 2004 which depicted the proposed highway deviation and indicated on it the house block and that that was what would be transferred if the matter proceeded. The instructions given by Mr Harris to Ms Holzheimer clearly establish that it was his intention that only the land east of the realigned Newell Highway be conveyed.
29 Mr Smith (in his affidavit sworn 31 August 2007, paragraph 20) says (emphasis added):
Some time after settlement, the plaintiff once again came into the pub although I am not certain as to the date. I recall a conversation about Buster who was farming the area to the western side of the road and I agree that I did point out to Mr Harris the fact that it looked as though some of the land on the western side of the highway had been transferred to me when I had thought that it was only the land on the eastern side that was to be transferred to me . I also agree that Mr Harris said that he would ring his solicitors and try and sort it out.
30 In his defence (filed 31 August 2007), Mr Smith admits that both parties to the contract were of the mistaken belief that the land to be conveyed to him was that part of the property that remained to the east of the Newell Highway once the realignment was completed.
31 I am amply satisfied that, whereas the land the subject of the sale was described in the contract as "Part Auto Consol 5014-17 being lot 1 of DP 1080963 and the whole of the land in Certification of Title Folio Identifier 6/1080963", both parties intended that the subject matter of the sale be "Part Auto Consol 5014-17 being so much of lot 1 of DP 1080963 as is located east of the Newell Highway and north of Burley Griffin Way, and the whole of the land in Certificate of Title Folio Identifier 6/1080963".
32 This conclusion is fortified by the statement, attributed by Ms Holzheimer to Mr O'Kane and never disputed, following discovery of what had happened, to the effect "I have spoken with my client, it seems we all missed it, you missed it, I missed it and both the purchaser and vendor missed it …".
33 Accordingly, I am satisfied that the contract by mistake failed to express the true agreement between Mr and Mrs Harris and Mr Smith, insofar as it included the western portion, when they intended that it be excluded.
Should the contract be rectified in order to give effect to the true intention of the parties?
34 For Mr Smith, Mr A J Grant of counsel submits that rectification is not available, for the following reasons:
· A transfer of part of lot 1 would have required subdivision, and the court is unable to determine with the necessary degree of certainty upon what terms the parties would have agreed had they turned their minds to subdivision.
· Restitutio in integrum is impossible.
· Rectification would occasion prejudice to Westpac, a bona fide third party.
· The contract is no longer capable of performance, so that there is no utility in rectification.
· (NSW) Real Property Act 1900 , s 43A, precludes rectification.
· Rectification is not available because unconscionability is not established against Mr Smith.
· Rectification should be declined as a matter of discretion on account of delay, and sufficiency of equitable compensation.
35 The first of those submissions apparently derives support from the judgment of Hodgson J (as his Honour then was) in McGeever v Kritsotakis (NSWSC Hodgson J, 18 March 1992, unreported). In that case, it was established that a contract for sale of lots 74 and 75 in a plan was not intended by either vendor or purchaser to include the whole of lot 75 but only about one half of it, comprising building 563 Botany Road. His Honour said:
However, I think there is force in Mr Birch's submission that a contract for the building 563 Botany Road alone would have necessitated subdivision, and in the absence of express terms about subdivision, would have been subject to an implied term making the contract conditional on subdivision. Accordingly, had the mistake not occurred, I think there is no doubt that both solicitors would have sought instructions from their clients; and probably, if the contract had gone ahead, there would have been express terms relating to subdivision. One would expect that, in order to clarify the position of the parties, the solicitors would have wanted to have the proposed subdivision clearly identified, some time limit set for the subdivision application and for the obtaining of consent to the subdivision, and some terms as to what conditions of consent would be acceptable and what conditions would not be acceptable. Of course, it could also be that once that matter had been raised, there have been further negotiations as to the price.
So, it seems to me that this case does raise the following question: if the intended terms necessarily involve some further contractual term or terms as to which the parties had no intention or agreement, is rectification available? Counsel have not been able to refer me to any authority on this point. It does not seem to me that the case of Pukallus really touches this point: one way of looking at that case is that there was agreement as to the description of the land sold, but no agreement at all as to what additional land was to be included if the bore was to be included in the sale - that is, any conceivable rectified contract would have been void for uncertainty. In the absence of authority, I must try to resolve the question by application of general principle.
In my view, if the additional term or terms which the intended terms necessarily involve is an insubstantial matter, or if the Court can infer with the requisite certainty just what the parties would have agreed on this matter, rectification is still available. On the other hand, if the additional term or terms is not an insubstantial matter, and if the Court cannot infer with the requisite certainty what the parties would have agreed on it, then I do not think rectification is available.
Here, it is submitted for the plaintiffs that there is no evidence from the defendants either as to the significance of the term or as to what their attitude would have been if the problem had been realised. On the other hand, there is no evidence from the plaintiffs' side that the matter is insubstantial, nor is there any evidence whatsoever from the plaintiffs' solicitors, either explaining the exact origin of the mistake, or otherwise throwing any light on what the position would have been if the mistake had been realised. It has often been said that the plaintiff bears a very substantial onus in rectification cases to show what the true intention of the parties was. In my opinion, as the evidence stands, the plaintiffs have not discharged that onus. The matter of the contract being conditional on a subdivision approval seems to me to be not an insubstantial matter; and I do not think I can infer, with the requisite certainty, what the parties would have agreed about it had the mistake been realised.
36 It appears to me that his Honour was speaking of inference as a fact-finding exercise, as part of the search for the true intent of the parties. Where terms cannot be implied to fill the gaps left by express agreement, I agree that impossibility to infer to the requisite degree of satisfaction what the parties would (as a matter of fact) have agreed would be a bar to rectification, because the result would be a contract that was void for uncertainty [cf Pukallus]. But there are many contracts not involving any mistake in which the parties have simply not addressed some matter, in which case the law typically provides terms to fill the lacuna by implication, not by inference. The matter can be tested in the present case by asking whether a contract that described the subject matter in the way in which the parties intended that it be described would have been void for uncertainty because it did not make provision in respect of subdivision. In my opinion it would not; terms would be implied first, that the contract was subject to subdivision approval; secondly, that the vendor would do all things necessary on its part to procure that approval; and thirdly (there being no express time provision) that if approval were not obtained within a reasonable time, the purchaser would be entitled to rescind [cf the approach adopted where a contract for sale of Crown Land is silent on the obtaining of ministerial consent: O'Dwyer v Butts (1952) 52 SR (NSW) 256; Duncan v Mell (1914) 14 SR (NSW) 333; Public Trustee for New South Wales v Gavel (1927) 40 CLR 169; Brown v Heffer (1967) 116 CLR 344, 350]. Similarly, in Beaton v McDivitt (1987) 13 NSWLR 162, Young J (as his Honour the Chief Judge then was) rejected an argument that a contract for sale of a portion of land was illegal, holding that a term that it was subject to subdivision approval was to be implied.
37 If, in a case in which the contract described the subject matter in the way in which the parties intended it to be described in the present case, the law would have provided such terms by implication, why should the necessity to imply them be an obstacle to rectification? Rectification is after all concerned fundamentally with the form of an instrument, not its meaning or operation. If the parties intend an instrument to take a particular form, which by mistake it does not, it is rectified to take that form. The consequences which then flow from the rectified contract - its meaning and its enforceability for example - are then resolved by the processes of construction and implication, as I endeavoured to explain in Metlife Insurance Ltd v Visy Board Pty Ltd [2007] NSWSC 1481 (at [20]-[22]), as follows:
[20] As to the requirement for proof of the omitted ingredient in clear and precise terms, in Bush v National Australia Bank (1992) 35 NSWLR 390 Hodgson J (as his Honour then was) said (at 407):