James Adam Pty Ltd v Fobeza Pty Ltd

Catchwords

99 ER 247 Bowler v Hilda Pty Ltd (2001) 112 FCR 59[2001] FCA 342 Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101[2009] UKHL 38 East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61 Energy World Corporation Ltd v Maurice Hayes & Associates Pty Ltd [2007] FCAFC 34239 ALR 457 Fitzgerald v Masters (1956) 95 CLR 420[1956] HCA 53 Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603[2009] NSWCA 407 Green Growth No 2 Ltd v Queen Elizabeth the Second National Trust [2019] 1 NZLR 161[2002] 2 P & CR 11 Hunt v Hunt (1862) 4 De GF & J 22145 ER 1168 ING Bank NV v Ros Roca SA [2011] EWCA Civ 353[2012] 1 WLR 472 Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633[2014] NSWCA 184 McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd (2008) 73 NSWLR 5314 BPR 27,213 Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liquidation) (2019) 99 NSWLR 317[2019] NSWCA 11 Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85[2016] HCA 47 SZOXP v Minister for Immigration and Border Protection (2015) 231 FCR 1[2015] FCAFC 69 Tatham v Huxtable (1950) 81 CLR 639

Judgment (13 paragraphs)

[1]

Background

There are no contested facts. The appellant, James Adam Pty Ltd, and the first respondent, Fobeza Pty Ltd, entered into a contract for the sale of land near Cowra. James Adam was the vendor, Fobeza was the purchaser, and the purchase price was $2,250,000 with a deposit of $112,500. One of the parcels of land to be sold had not come into existence at the date of the contract (17 May 2019). It was described as "Lot 102 in proposed plan of subdivision, as referred to in clause 39 of 'Padua' 1380 Reg Hailstone Way Woodstock, being Lot 1 in Deposited Plan 841539, folio 1/841539."
Clause 39 was as follows: "39.0 Subdivision of Lot 1 in Deposited Plan 841539 39.1 The Vendor discloses that it has agreed to transfer 2001 square metres of the subject lot, being Lot 1 in DP 841539, to the Cowra Council and Rural Fire Services for use as its depot for the area. 39.2 Annexed herewith is an email dated 14 May 2019 from Core Rural Consulting to the Vendor's Solicitor, including a sketch plan of the proposed subdivision of the subject lot and in which is described proposed Lots 101 and 102, and showing the location and width of a proposed easement for electricity mains. The vendor discloses and the purchaser agrees and acknowledges that proposed Lot 101 is excluded from the sale, and that proposed Lot 102 is included in the sale. 39.3 Completion of the contract is conditional upon the registration of the plan of subdivision in accordance with the sketch plan, including creation, location and width of the proposed easement. In the event the subdivision is not effected on or before the date for completion clause 41 hereof shall apply."
The sketch plan annexed to the contract, to which cl 39.2 referred, was as follows.
The sketch plan contains a great deal of information. It is convenient to notice certain aspects immediately. 1. The plan was derived from the existing Deposited Plan identifying the vendor's land, Lot 1 of Deposited Plan 841539. It was styled a "Plan of Subdivision". If and when something like it but in registrable form was registered, two new lots would be created: lot 102 (the number appears to the left/west of the depot) and lot 101 (the number appears towards the eastern boundary of the depot, to the east of the circled water tank). 2. The draft sketch includes a box, under the heading "DRAFT PLAN", which contains the following: "THIS PLAN IS NOT CHECKED OR REGISTERED BY THE LAND TITLES OFFICE ALTERATIONS MAY BE REQUIRED PRIOR TO ITS ACCEPTANCE AND REGISTRATION ALL DIMENSIONS AND AREAS STATED ON THIS PLAN ARE PRELIMINARY ONLY AND ARE SUBJECT TO CONFIRMATION AND FURTHER SURVEY THE POSITION AND NATURE OF EASEMENTS TO BE CREATED ARE SUBJECT TO FURTHER SURVEY. ADDITIONAL EASEMENTS MAY BE REQUIRED" 1. The boundaries of proposed lot 101 are precisely defined. Their lengths and bearings are stated to be 71.905m with a bearing of 351º12'40" (western boundary), 38.465m with a bearing of 270º (southern boundary), 33.935m with a bearing 180º (eastern boundary) and 61.835m with a bearing 126º54' (boundary adjoining road reserve). The placement of the boundaries on the physical land is also clear. The western boundary follows an existing "HINGE JOINT FENCE". The southern and eastern boundaries are described as "NOT FENCED", but the eastern boundary meets the road reserve at a spot where the bearing of the road reserve alters from 102º28'40" to 126º54'. The boundary along the road reserve corresponds with a "NETTING FENCE". It will be noted that the plan, although a "sketch plan", was drawn by a registered surveyor. 2. Proposed lot 101 is stated to be "2001 m2". Proposed lot 102 is stated to be 101.525 ha "(BY DED'N)". There was evidence establishing that that was a reference to "by deduction", based on the subtraction of the area of lot 101 from the area of the existing lot in the plan. 3. The area of Lot 101 as stated in the sketch plan is wrong. Although stated to be 2001m2, it was in fact some 10% larger. That was readily demonstrable on the face of the sketch plan, although there was no suggestion that either vendor or purchaser was aware of this. Areas of parcels of land with straight line boundaries are easily calculated by dividing them into triangles. If a line is drawn connecting the north east corner with the south west corner, the areas of the two triangles may easily be determined. One is a right angled triangle, with approximate area ½ x 33.935m x 38.465m = 652.7m2. The other is a triangle with sides measuring 71.905m and 61.835m, with the included angle in the north western corner being 171º12'40" - 126º54' = 44º18'40", and thus with an approximate area of ½ x 71.905m x 61.835m x sin (44º18'40") = 1553.0m2. The sum of those two areas is some 2205.7m2. 4. No explanation for the error appeared in the evidence, despite the surveyor making an affidavit. He was not cross-examined. As will be seen, the area in fact of proposed lot 101 in the (very slightly altered) plan which was registered was 2205m2.
Clause 39.3 made the contract conditional upon the registration of the plan of subdivision "in accordance with the sketch plan", and provided further that if the subdivision were not effected on or before the date for completion, cl 41 would apply.
Clause 41 was (by some margin) the longest and most elaborate separately negotiated clause in the contract. It was headed "DA, Subdivision and Completion". That is unsurprising. Until and unless lots 101 and 102 were created, the conveyance could not proceed in the form agreed, and the timing of and the conditions upon the subdivision were not within the control of either party.
Clause 41.1(a) provided that the Vendor and Purchaser agreed that "The Vendor must promptly lodge and use all reasonable endeavours at its cost, and without contribution from the Purchaser, to procure approval of any development application or other application necessary for the registration of the plan of subdivision in the terms set out in clause 39."
It is not necessary to summarise all aspects of clauses 41.1(b)-(j). Clauses 41.1(b) and (c) required notice to be given by the vendor to the purchaser of the application. Clause 41.1(d) provided that if the subdivision was refused, the purchaser had a right to rescind or else to acquire the entirety of the (unsubdivided) land. Clauses 41.1(f) and (g) required the vendor to notify the purchaser of any approval of the subdivision, and to satisfy any conditions to approval.
Clauses 41.2, 41.3 and 41.4 relevantly provided: "41.2 Subdivision a) Completion of this contract is subject to and conditional on the registration by LRS NSW of the plan of subdivision in the terms set out in clause 39, and as provided in this clause. b) The Vendor must promptly use all reasonable endeavours, at its cost, and without contribution from the Purchaser, to procure the lodgement and registration of the plan of subdivision on or before the date for completion. c) The Vendor must promptly provide to the Purchaser a copy of the plan as lodged with LRS NSW, and at its cost, and without contribution from the Purchaser, promptly satisfy any requisition on timely basis to allow registration of the plan of subdivision, and the creation and issue of separate title deeds for proposed lots 101 and 102 by the date for completion. d) The Vendor must notify the Purchaser within 2 business days after the plan of subdivision is registered, and must provide to the Purchaser registration details of the plan, and details of the folio identifier for the proposed lot 102. e) If the plan of subdivision is not registered by 1 November 2019, then the Purchaser may, within 2 business days after that date, either: i. by notice to the Vendor, rescind this Contract, and clause 19 applies; or ii. by notice to the Vendor, extend the date for completion to a date on or before 31 January 2020. … 41.3 Purchaser's right of rescission a) The Purchaser may rescind this contract if the area of lot 102 in the plan of subdivision as registered is shown on the plan as being 2,100 sq. m or more, or if the location or the width of the easement are substantially different to that shown on the sketch plan set out in clause 39. b) A right of rescission under clause 41.3(a) may only be exercised within 5 business days after notice is given under clause 42.2(d). c) If the Purchaser does not serve a notice in accordance with clause 41.3(b), the Purchaser must proceed to completion within 15 business days after notice is given under clause 41.2(d). 41.4 Completion The date for completion is the date which is the latest of: a) 1 November 2019; and b) 15 business days after the day on which the Purchaser serves a notice on the Vendor under clause 41.1(d)ii; and c) If notice has been given under clause 41.2(e)ii, 31 January 2020."
There are errors in cl 41. The reference in cl 41.3(a) to "lot 102" is obviously an error for lot 101; lot 102 was the residual land after the fire depot lot had been removed, and was expected to be more than 1,000,000m2. Further, the reference in cl 41.3(b) to "clause 42.2(d)" must be read (for there is no cl 42.2(d)) as a reference to cl 41.2(d). That makes sense of the provision, as well as corresponding with what appears in the otherwise identical closing words of cl 41.3(c). The parties were agreed as to this. These are two uncontroversial instances of "obvious errors" - where the literal meaning is an absurdity and it is obvious what the intended wording must have been. As the primary judge observed at [42], these are good examples of where merely as a matter of construction the written form of the contract may and should be departed from.
A plan very similar to the sketch plan was registered on 22 October 2019. Unlike the sketch plan, it appears to have been in registrable form (in particular, it appears to comply with cl 66 of the Surveying and Spatial Information Regulation 2017 (NSW) by providing the details of the GNSS validation). Nonetheless, it had almost precisely the same dimensions and bearings as the sketch plan. The lineal dimensions of the lot which became lot 101 were identical, and the only difference in the bearing was that the eastern boundary was at 179º58'20" (ie a mere 1 minute and 40 seconds of arc difference). The registered plan identified the area as 2205m2. There was unchallenged evidence that that was the correct area.
The plan of subdivision was in fact registered on 22 October 2019 as Deposited Plan 1257896. The vendor notified the purchaser in accordance with the contract, on 24 October 2019. The purchaser later that day purported to rescind, pursuant to cl 41.3(a). The purchaser purported to do so on two independent bases: 1. the small parcel comprising lot 101 was more than the 2100m2, noting that the reference to lot 102 was "clearly intended to refer to lot 101", and 2. "the location of the easement is substantially different to the location shown in the contract".
The vendor denied the validity of the notice of rescission, and served a notice to complete. Proceedings were commenced shortly thereafter, on 8 November 2019. The purchaser sued for a declaration that it had validly rescinded, and sought the return of the deposit. The vendor by cross-summons sought an order for specific performance, and joined Mr Young who had guaranteed the purchaser's obligations.

[2]

The reasons of the primary judge

The primary judge found that the purchaser was entitled to rescind on the first basis, but not entitled to rescind on the second. There is no notice of contention, so the latter may be passed over. There is no challenge to the primary judge's finding that the area of proposed lot 101 on the sketch plan should in fact have been 2205m2.
The critical issue was the construction of the contract (there were other issues, but none mattered). The vendor sought an order in its cross-summons that the contract be construed so as to read "2100" as "2205" in cl 41.3(a) or alternatively that the contract be rectified by replacing "2100" in cl 41.3(a) by "2205". By the time of the hearing, the vendor had eschewed rectification in equity, but was maintaining that "2100" should be replaced by "2310", on the basis that because 2100 was around 5% greater than 2001, a figure of 2310 should replace 2100, being around 5% greater than the actual area of 2205m2.
There was no dispute as to the applicable principles. The primary judge recorded the clear distinction between rectification as a matter of construction, as opposed to rectification in equity, at [39], by reference to Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [116] and Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11 at [5]. His Honour framed the test to be applied as follows, at [40]-[41]: "In order for a mistake to be corrected as a matter of construction it is necessary that two conditions be satisfied. These are, first, that the literal meaning of the contractual words is an absurdity, and secondly, that it is self-evident what the objective intention is to be taken to have been (see National Australia Bank Ltd v Clowes [2013] NSWCA 179 at [34]; Mainteck Services Pty Ltd v Stein Heurtey SA (supra) at [117]; Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liquidation) (supra) at [8]-[9]). The Court must be satisfied of those matters to a high level of conviction (see Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liquidation) (supra) at [10]). Where those conditions are met, ordinary processes of contractual construction operate so that an absurd literal meaning is displaced by a meaningful legal meaning (see National Australia Bank Ltd v Clowes (supra) at [34])."

[3]

Comparing and contrasting the doctrines at law and in equity

[4]

Nomenclature

Some find it natural to use "rectification by construction" and "rectification in equity" to refer to the distinct doctrines at common law and in equity. Both doctrines "rectify", which is to say "correct", a demonstrable mistake in a written instrument. The reference to "construction" in the first, and "equity" in the second, captures the principal distinction between the doctrines. The fact that the doctrines are distinct, and some of the differences between them, were summarised in Seymour Whyte Constructions at [15]: "The doctrines at law and in equity remain conceptually distinct ... Conceptually, there is a world of difference. The requirements of ex facie absurdity or inconsistency and clarity as to what the parties must be taken to have intended ensure that rectification by construction remains an aspect of determining the objectively manifested legal meaning of contractual words, and accommodates the truth that sometimes, even in a formal legal document, the parties will make mistakes which are nonetheless readily identified and corrected. On the other hand, rectification in equity turns on the discrepancy between the written instrument and a separately proven contrary common intention, which was intended to have been incorporated into the instrument, such that it is unconscientious for a party to insist on performance in accordance with the written instrument. Rectification in equity is a departure - albeit one which is narrowly circumscribed by the insistence on cogent proof - from the objective theory of contract."
The Australian legal system often uses similar names for different doctrines which resemble each other; consider statutory contribution (between tortfeasors) and equitable contribution (where there are coordinate liabilities). Moreover, the legal system regularly gives different meanings to the same word, depending on context; consider the multiplicity of meanings given to such basic words as "equity" and "right", or the difference between "contributory negligence" at common law (where it was a complete defence) and under statute (where it authorises a reduction in damages). Perhaps the clearest example is the word "law" itself. The poverty of the English language continues to disappoint and confuse civilian lawyers nearly two and a half centuries after Jeremy Bentham's complaint: "In most of the European languages there are two different words for distinguishing the abstract and the concrete senses of the word law: which words are so wide asunder as not even to have any etymological affinity. In Latin, for example, there is lex for the concrete sense, jus for the abstract: in Italian, legge and diritto: in French, loi and droit: in Spanish, ley and derecho: in German, gesetz and recht. The English is at present destitute of this advantage": J Bentham, An Introduction to the Principles of Morals and Legislation (University of London, The Athlone Press, 1970), p 294.

[5]

Common features of both doctrines

Both doctrines are founded on an error in the expression of an instrument. Both doctrines result in the legal meaning departing from what would otherwise be the ordinary meaning of the instrument. And both doctrines involve an elevated standard of proof. Like other doctrines which displace the orthodox approach to construction, such as sham or non est factum, there is a need to keep these doctrines within narrow limits. Although rectification by construction does not resort to the parties' subjective intentions, it remains an aspect of construction which is circumscribed lest it detract from the certainty and predictability of ordinary principles of the construction of written documents.
In the case of rectification in equity, reference is regularly made to the need for "clear and convincing proof" (or variants to the same effect), as explained in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [451]-[461] and Newey v Westpac Banking Corporation [2014] NSWCA 319 at [170]. Rectification in equity turns upon establishing that the document does not reflect the parties' actual intentions, viewed objectively from their words or actions: Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [41]-[42] and [103]-[104].
Evidence of the parties' intentions is not to the point in rectification by construction. Instead, as the primary judge said, it is necessary to conclude that the literal meaning is absurd or inconsistent, and that it is clear what the objective intention is to be taken to have been. The elevated standard of proof applies to both limbs of that test. 1. In respect of the existence of an obvious error, Lord Hoffmann explained that the court does "not readily accept that people have made mistakes in formal documents": Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101; [2009] UKHL 38 at [23]. Further, "[c]ourts which are asked to delete, insert or rewrite part of a contract because of what is said to be an obvious error should bear steadily in mind that imperfections and infelicities and ambiguities in contractual language commonly reflect the give and take of negotiations, or the parties' appreciation that some obscurities are incapable of resolution": Seymour Whyte Constructions at [10]. 2. The condition that the correct meaning be "self-evident" or "clear" must also be satisfied to a high level of conviction. It must be "perfectly clear what legal meaning [was] to be given to the literally absurd words": National Australia Bank Ltd v Clowes [2013] NSWCA 179 at [38].

[6]

Ordinarily, construction before rectification in equity

Further, there is a hierarchy in the two doctrines, in the manner indicated by this Court's decision in Harker-Mortlock v Commonwealth Bank of Australia at [43], endorsing what had been said in Saxby Soft Drinks Pty Ltd v George Saxby Beverages Pty Ltd [2009] NSWSC 1486; 14 BPR 27,213 at [10]: "Generally speaking, proceedings for rectification ought not be brought if whatever mistake appearing in the written instrument is such that the true meaning of the document could be ascertained as a matter of construction without recourse to extrinsic evidence. A decision as to the true construction of an instrument may be adequate relief. Courts both of law and of equity regularly insert, delete, alter and interpret words in such a fashion as to make the document sensible, without necessary recourse to any doctrine of rectification. In effect they employ a doctrine of rectification by construction ..."
The same point was made more recently by the Supreme Court of New Zealand in Green Growth No 2 Ltd v Queen Elizabeth the Second National Trust [2019] 1 NZLR 161; [2018] NZSC 75 at [55] (William Young and O'Regan JJ) and [140] (Elias CJ, with whom Ellen France J agreed in this respect). That is not to deny that sometimes rectification in equity may be appropriate even where the error can be rectified as a matter of construction, for example out of an abundance of caution lest there be confusion: see Franklins Pty Ltd v Metcash Trading Ltd at [539].

[7]

Absurdity or inconsistency of the literal construction of cl 41.3(a)

Mr Ashhurst, who appeared for the vendor at first instance and in this Court, challenged both limbs of the reasoning of the primary judge, as he needed to do if the appeal were to succeed. I shall deal with each in turn.
The vendor submitted that the primary judge had failed to address its submission that the mistake was not merely the wrong area stated on the sketch plan, but also that that wrong area had been carried through to the contractual right of rescission in cl 41. It submitted that the consequence of construing cl 41 in accordance with its literal meaning was that a vendor who complied with the contractual obligation to lodge a plan in accordance with the sketch plan would thereby inevitably trigger the purchaser's right of rescission. This was, so it was said, sufficiently absurd or inconsistent to engage the doctrine of contractual rectification.
One aspect of the vendor's submission was that the area shown in the sketch plan was wholly derivative from the primary information recorded in the sketch plan, namely, the dimensions and bearings. The appellant contended that the precise lengths and bearings of the proposed new lot were unambiguously identified on the sketch plan, drawing comfort from the fact that in very substantial measure, those bearings and distances also appeared on the plan as registered.
Against this, Mr Price, who appeared for the purchaser in this Court and at first instance, supported the workability of the construction upheld by the primary judge, maintaining that it was open to the vendor to lodge for registration a lot which was around 2001m2 in area (or, in any event, was less than 2100m2 in area), in the vicinity identified on the plan. There might be debate as to whether doing so would be "in accordance with" the sketch plan, but in circumstances where dimensions and areas were expressly preliminary, it was contended that there was no reason to doubt that it would be.
The purchaser made an elaborate submission to the effect that it was not possible on the face of the sketch plan to identify from the sketch plan where precisely the proposed eastern and western boundaries of the new lot met Reg Hailstone Way. I do not accept this. That after all is the point of a survey, even one which is a "sketch plan". My reasons follow from what has already been said concerning the plan above. The northern extremity of the eastern boundary runs from a "kink" in the road reserve, where the bearing of the reserve shifts from 102º28'40" to 126º54'. Along the boundary of the lot and the road reserve the sketch plan discloses a series of little "x"'s, and also the words "netting fence". It is to be expected that the boundary between the private land and the road reserve would be fenced. There is no reason to doubt that that point is readily identifiable on the land. Similarly, the western boundary of the proposed lot coincides with something described on the sketch plan as "hinge joint fence". Those two identifiable features easily enable the sketch plan to identify a precise area of land (in fact one would be sufficient). So identified, the plan states that the four boundaries of the proposed lot are of dimensions 71.905m, 38.465m, 33.935m, and 61.835m.

[8]

Wilson v Wilson

Mr John Wright Henniker Wilson and Mrs Mary Wright Henniker Wilson had married in 1839. Mary had brought very substantial estates to the marriage, all of which under the marriage settlement went to John, save for two estates (Drayton Lodge and Chelsea Park) and £3,000 in consols (I am simplifying slightly). The freehold in Drayton Lodge had been held to her use under her aunt's will, and that was continued under the marriage settlement. Her leasehold interest in Chelsea Park was held on trust for John during his life, thereafter for Mary for her life, and thereafter for John absolutely (see earlier proceedings before the Vice Chancellor Wilson v Wilson (1845) 14 Sim 405 at 406; 60 ER 415 at 416).
In 1843, Mary instituted a suit for nullity of marriage in the Consistory Court of London. (This civilian court pre-dated the short-lived Court for Divorce and Matrimonial Causes created in 1858 which was in turn replaced by the Probate, Divorce and Admiralty Division of the High Court of Judicature in 1875.) That suit was compromised by a deed of separation. The parties to the deed were John, Mary, and the two trustees of Mary's marriage settlement. Deeds of separation were very common at the time. Sir Lancelot Shadwell VC said (in relation to the controversial seventh article of the deed which became the subject of the second appeal to the House of Lords): "I looked also into Wood's Conveyancing, published in 1770, that is seventy-five years ago, and there are a vast number of precedents of articles of separation, with the usual accompaniment of the trustees covenanting to indemnify the husband against the debts of the wife: and, therefore, I must say that I have no doubt on that part of the case:" at 419; ER 420.
Under the deed, by the first article John permitted Mary to live separately from him. Under the second article Chelsea Park was resettled so as to be held for Mary's separate use during her and John's joint lives. Drayton Lodge and the consols continued to be held under the marriage settlement (third article), and all other property received by John on marriage was to be reconveyed to trustees for Mary's separate use during their joint lives (fourth article). This took place decades before the Married Women's Property Act 1882 (UK), which explains the use of trustees holding property to Mary's separate use, and their being parties to the deed.

[9]

Is the intended meaning self-evident?

Accepting as I do that the first condition necessary for correction of the contract by construction is satisfied, it does not follow that the vendor's construction may be upheld. The second condition necessary for correction of the contract by construction is that "it is self-evident what the objective intention is to be taken to have been": Seymour Whyte Constructions at [8]. In Tatham v Huxtable (1950) 81 CLR 639 at 645; [1950] HCA 56, Latham CJ approved what had been said in the first edition of Jarman on Wills: "It often happens, however, that the misuse of some word or phrase is so palpable on the face of the will, as that no difficulty occurs in pronouncing the testator to have employed an expression which does not accurately convey his meaning. But this is not enough: it must be apparent, not only that he has used the wrong word or phrase, but also what is the right one; and, if this be clear, the alteration of language is warranted by the established principles of construction."
In England, this requirement was expressed by Brightman LJ in East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61 as follows: "it must be clear what correction ought to be made in order to cure the mistake". Lord Hoffmann quoted that statement approvingly in Chartbrook Ltd v Persimmon Homes Ltd at [22], but expressed the second condition for correction by construction as requiring that "it should be clear what a reasonable person would have understood the parties to have meant": at [25].
This further requirement is essential, and for at least two reasons. First, the conclusion that an instrument is "absurd" may be contestable in any particular case. This is well recognised. Thus Professor McLauchlan has said that "distinguishing between an unduly favourable bargain and a commercially absurd bargain that was not intended is no easy task": D McLauchlan, "The lingering confusion and uncertainty in the law of contract interpretation" [2015] LMCLQ 406 at 436. Dr Catterwell writes that "[t]he distinction between absurdity and unreasonableness is difficult to define beyond illustrative examples": R Catterwell, A Unified Approach to Contract Interpretation (Hart Publishing, 2020), p 62. The judgments in ING Bank NV v Ros Roca SA [2011] EWCA Civ 353; [2012] 1 WLR 472 (mentioned below) are an example.
Secondly, as Meagher JA and Ball J said in HDI Global Specialty SE at [53], "the application of those criteria should not obscure the fact that the question remains one of the ascertainment of the parties' objective intention through the application of ordinary principles of construction. That is not to say that the two criteria need not be satisfied. It is rather to emphasise that they are merely steps involved in reasoning to a conclusion that by one word or phrase the parties meant something else."

[10]

Cases where there is a binary choice and cases where there are many possibilities

A common class of case is where there are precisely two possibilities, and the wrong one has been recorded in the instrument. The decisions mentioned above fall into that class. When "John" was read as "Mary" in Wilson v Wilson, when "inconsistent" was read as "consistent" in Fitzgerald v Masters, and when "lessor" was read as "lessee" in McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd (2008) 73 NSWLR 53; [2008] NSWSC 542, the absurdity or inconsistency was obvious, and so too was what had been intended. The only people with debts to be indemnified in the separation deed were the husband John and the wife Mary. The confusion between "inconsistent" and "consistent", and between "lessor" and "lessee" is similarly binary. Similarly, the "palpable mistake" mentioned by Buller J in Bache v Proctor (1780) 1 Dougl 382 at 384; 99 ER 247 at 247 where a bond provided that it should be void if the obligor did not pay was readily cured by deleting the word "not".
In contrast, even where it is clear that something has gone awry, construction is to no avail if it is unclear how the absurdity or inconsistency should be resolved. In Energy World Corporation Ltd v Maurice Hayes & Associates Pty Ltd [2007] FCAFC 34; 239 ALR 457, a Full Court of the Federal Court (Moore, Tamberlin and Gyles JJ) allowed an appeal on this point, saying at [11]: "It may be accepted that the word 'lesser' gives no practical content to the words 'or the Term (as extended or renewed) is not renewed'. In that sense, it may be said that there is an inconsistency. However, the terms of cl 8.6 do not enable a conclusion to be drawn as to how the inconsistency should be resolved. It could be cured just as easily by omitting the words 'or the Term (as extended or renewed) is not renewed' as by substituting 'greater' for 'lesser'. Put another way, the terms of the clause do not enable the conclusion to be drawn that the contractual intention was to provide the Consultant with a termination payment of a minimum of six months on non-renewal of the term. The principle of construction in question does not enable a court to speculate as to the proper resolution of the inconsistency."
That paragraph was also endorsed by the Victorian Court of Appeal in Perpetual Ltd v Myer Pty Ltd at [124] and [146].
A similar instance is the decision of the Court of Appeal of England and Wales in ING Bank NV v Ros Roca SA, where a fee for financial services was calculated by a formula including a fraction with a denominator "EBITDA 2006". The transaction did not take place until the end of 2007. The company's earnings before interest, tax, depreciation and amortisation were significantly different in 2006 and 2007; the consequence of using the different EBITDA amounts upon the fee was the difference between €6,700,000 or €943,922.44. Carnwath LJ, as he then was, doubted that the first limb of the test was satisfied, but rested his decision on the fact that "EBITDA 2006" could not be replaced by "EBITDA 2007" as a matter of construction, because: "there was no expectation that the Transaction would necessarily be linked to any form of EBITDA valuation. It is equally plausible that the very uncertainty of the concept would have led the parties to wish to define EBITDA by reference to a particular year. If so, it is understandable that they should have adopted the year 2006, given their reasonable expectation that the transaction would be concluded within a timescale for which the 2006 EBITDA would remain relevant. The fact that no-one may have contemplated the actual transaction being delayed beyond that time is not in itself a reason for rewriting the agreed formula": at [28]. Stanley Burnton LJ agreed. Rix LJ wrote to similar effect at [80]-[83], although his Lordship was unpersuaded that the first limb of the test was satisfied, on the basis that the contract would have operated perfectly well if the timing had proceeded as expected.

[11]

Impossible to determine what should replace "2,100 sq m" in cl 41.3

The vendor maintained that the reference to "2,100 sq m" in cl 41.3 was from the incorrect area of 2001m2 found in the sketch plan and in cl 39.1, to which some 5% had been added. That may be so. But this is quite different from the binary choices in the cases mentioned above. Here there are a number of possibilities.
It is far from clear that the figure of 2100m2 was objectively intended to represent an area larger than the area of 2001m2 stated on the sketch plan and in cl 39.1 by a specific proportion. The vendor says it is approximately 5% larger, and so it is, but that is not sufficient to identify the basis on which 2100m2 has been selected. It may be the multiple of 100 which is larger than the area indicated on the sketch plan. It may also be the multiple of 10 which is closest to 5% larger than the area indicated on the sketch plan. There are other possibilities too.
The actual area of the land delineated by the dimensions and bearings on the sketch plan is found to be 2205m2. What number should be inserted into cl 39.1 and 41.3(a)? Should it be 2300m2 (which is the multiple of 100 larger than the area), or 2320m2 (which is the multiple of 10 closest to 5% larger than the area) or (as was raised when the appeal was heard) should it indeed be exactly 5% greater than 2205 which (to the nearest square metre) is 2315m2? There is no way of determining.
(I note for completeness that one further possibility canvassed in argument may be put to one side. This was whether the reference to "2,100 sq m" in cl 41.3(a) was merely a typographical error for "2,001 sq m". It is easy to see how such a purely typographical error might have been made, in a provision in which the error confusing lots 101 and 102 was not detected. However, I do not accept that is so. The same area appears in cl 39.1, where it is directly linked to the sketch plan. Further, if the area shown on the sketch plan had been correct and the vendor complied with its obligations to register a plan in accordance with the sketch plan, then if the reference in cl 41.3 was to 2,001 sq m, the contractual right of rescission would be engaged. That is not a sensible intention to impute to the parties.)
True it is that it would not matter if cl 41.3(a) had contained a reference to 2300m2 or 2315m2 or 2320m2. In any case, there would not have been a right to rescind, as the area of 2205m2 stated on the registered plan would not exceed any of them. But while each of those possible figures may be arguable, none is self-evident. And although the differences are slight, as a matter of construction that is of no import, for it is on the precise figure determined by the contractual "correction" that the purchaser's right to rescind will depend. Clause 41 is a bespoke clause which was essential to the parties' bargain to produce a presently binding agreement to convey lots of land which were not at the time of contract in existence, and the contract must be construed in light of the circumstances which existed at the time of execution, rather than in the light of events as they actually occurred: Energy World Corporation Ltd at [11].

[12]

Conclusion and orders

It does not matter that in the present case the notice of rescission would be invalid irrespective of whether the reference in cl 41.3(a) to "2,100 sq m" were rectified to "2300 sq m" or "2315 sq m" or "2320 sq m" or some other area. In order for the contract to be rectified as a matter of construction, it is necessary for it to be self-evident what the objective intention is taken to have been. The primary judge was correct in reasoning, at [51], that this was not self-evident. This is not a case of a mere slip, where a word is missing, a concept confused with its antonym, or a clause misnumbered or incorrectly cross-referenced in the contract. There is no clear or self-evident solution to the absurdity that the figure of 2100m2 presents.
In summary, it is clear that something has gone wrong. But the error is not one which can be cured as a matter of construction. That outcome ought not to come as a surprise. The parties' written bargain was informed by the erroneous area on the surveyor's sketch plan, but where neither appreciated that there was an error, it is impossible as a matter of construction to impute to them how their bargain would have been framed had the error not been made.
I propose that the appeal be dismissed, with costs.

[13]

Amendments 07 December 2020 - [60] - "Meagher and Ball JJ" changed to "Meagher JA and Ball J" 10 May 2021 - [11]: "endeavors" changed to "endeavours" in the quote. [65]: "Stanley Burton LJ" changed to "Stanley Burnton LJ". DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 May 2021

HEADNOTE [This headnote is not to be read as part of the decision] James Adam as vendor and Fobeza as purchaser entered into a contract for the sale of rural land. One of the parcels of land to be sold had not come into existence at the date of contract, and was described as "Lot 102" in a proposed plan of subdivision. "Lot 101" in the proposed subdivision was to be excluded from the sale. Annexed to the contract was a sketch plan of the proposed subdivision, and cl 39 of the contract provided that completion of the contract was conditional "upon the registration of the plan of subdivision in accordance with the sketch plan". The sketch plan was drawn by a registered surveyor, and stated that all dimensions and areas on the plan were "preliminary only". The boundaries of proposed Lot 101 were precisely defined in the sketch plan by lengths and bearings, but its area was incorrectly stated to be "2001m2". The correct area of proposed Lot 101 was in fact 2205m2, and this area was stated on the plan of subdivision when it was registered. The registered plan of subdivision had almost precisely the same dimensions and bearings as the sketch plan. The vendor notified the purchaser of the subdivision following registration, in accordance with the contact, and later that day the purchaser purported to rescind pursuant to cl 41 of the contract. Clause 41 granted the purchaser a right to rescind if the area of Lot 101 "in the plan of subdivision as registered is shown on the plan as being 2,100 sq. m or more". The vendor denied the validity of the notice of rescission, and served a notice to complete. The purchaser brought proceedings seeking a declaration that it had validly rescinded and the return of its deposit. The vendor sought a declaration that the contract be construed so as to read "2100" as "2310" in cl 41, on the basis that because 2100 was approximately 5% greater than 2001 (the incorrect area of Lot 1), a figure of 2310 was appropriate, being approximately 5% greater than 2205 (the correct area of Lot 1). The primary judge held that the purchaser had validly rescinded. The vendor appealed to the Court of Appeal. The issues in the appeal were: i) Whether the literal construction of cl 41 was absurd; and ii) Whether, if so, the intended meaning of cl 41 was self-evident. Consideration was also given to: iii) The distinction between rectification by construction and rectification in equity. The Court (Leeming JA, Bell P and Macfarlan JA agreeing) held, dismissing the appeal: As to issue (i):

The contract contained an error sufficiently absurd or inconsistent to engage the first limb of the doctrine of rectification by construction. The absurdity or inconsistency flowed from the fact that the sketch plan identified both a precise physical area by dimensions and bearings and an area of 2001m2, the latter being used to derive the area in cl 41 on which the purchaser's right of rescission depended. The vendor's obligation to register the plan of subdivision "in accordance with the sketch plan" was apt to pick up the precise dimensions and bearings, but if the vendor complied with this obligation, as it did in this case, the purchaser would have a right to rescind. There was no rational basis for imputing such an intention to the parties: at [1], [3], [44]-[46], [55]-[56]. Wilson v Wilson (1854) 5 HL Cas 40; 10 ER 811; and HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296 discussed. As to issue (ii):

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