Kelly v Ollis

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

JUDGMENT 1 HIS HONOUR: This is a purchaser's suit for specific performance. The defendant's principal answer to it is that the relevant contract for sale should be rectified and if so rectified had been validly terminated. If the contract is rectified, the purchaser probably cannot succeed in the suit. If the contract is not rectified, the vendor probably cannot resist specific performance. It is thus appropriate to deal first with the rectification issue. 2 The proceedings were heard by me on 30 October 2003. Mr M Ashhurst appeared for the plaintiff and Mr R Parsons for the defendant. At the conclusion of the hearing I requested some additional written submissions which duly arrived earlier this week. I am grateful to both counsel for their assistance. 3 It would seem that the defendant, Mr Ollis, is connected with the organizing of monthly investment coach tours of the country areas of NSW. His salesman, Mr Street, who appears not to hold any licence, but may be qualified to obtain a licence, travels on the coach. A brochure showing the properties available for "investment' is available on the coach and updated monthly. 4 The plaintiff, Mr Kelly did not take the coach tour, but, as a result of one of the defendant's mailouts, made a telephone call to the defendant's organisation. As a result, Mr Street called on Mr Kelly with a copy of the defendant's then latest brochure. 5 Mr Street says that during this meeting he gave Mr Kelly his normal sales presentation which included the formula that the defendant's modus operandi was to have the prospective purchaser enter into a seven day option during which period a formal contract had to be entered into; "a standard 42 day contract". 6 There is no doubt that as a result of Mr Street's activities, Mr Kelly agreed to purchase Lot 1 in Kelly Street, Parkes. Mr Kelly, however, says that there were a number of meetings with Mr Street at Mr Kelly's home and a number of properties were discussed, the option procedure was discussed, but at no time did Mr Street ever mention a "standard 42 day contract". 7 The brochure contained a page which reads, "BONUS "free" Legals for your purchase if you use AUSTATES CONVEYANCING TONY MELISSARI PHONE: 9281 0078 FAX: 9211 5507 We have found them to be very efficient and our solicitor "Stephen Holmes" of Gosford has remarked how good they are to deal with". 8 It was clear to everyone, that Lot 1 occupied ten acres and could and probably would be subdivided into ten one acre blocks. 9 On 11 April 2003, Mr Kelly signed a piece of paper described as "OPTION AGREEMENT/TO PURCHASE". This piece of paper noted that Victor Ollis granted to Mr Kelly a 7 day option to enter into a contract to purchase four parcels of real estate including the Kelly Street property for $900,000. The piece of paper was probably of no value to anybody as Mr Ollis did not own the relevant land at Kelly Street (he only entered into a contract to purchase it on 2 May, 2003), Mr Ollis never signed it and Mr Kelly never paid the option fee. However, this is of no moment. 10 A second "OPTION AGREEMENT/TO PURCHASE" was signed by both parties dated 16 April 2003 this time for two properties at Wellington plus the Kelly Street property for a total price of $360,000. The option fee of $7,200 was paid by cheque. 11 Despite the fact that Mr Kelly appeared in the witness box to be a shrewd business man, he elected to take advantage of the "free legals" provided by the vendor and chose to be assisted by Austates Conveyancing. I say this because normally, a wise purchaser would keep miles away from a lawyer who was being paid by the vendor and who appeared closely associated with the vendor, especially where the vendor's solicitor had always found the lawyer easy to deal with. Any wise purchaser would want an independent skilled person who would be practical, but who would challenge the vendor's solicitor whenever appropriate. 12 There is little information about Austates Conveyancing. Its letterhead shows that it is an unincorporated entity claiming to be "Licensed Conveyancers Specialising in Property Law, Licensee : Mary C Melissari, Macquarie University-Conveyancing Law and Practice Member of the Australian Institute of Conveyancers." 13 No information was provided to the court as to the qualifications, if any, of Tony Melissari or as to the extent to which his activities were overseen by the licensee. However, it must be said that apart from a complete failure to understand that the draft contract contained many nonsensical clauses and allegedly giving the purchaser misleading advice about the contract, the firm's conduct is not open to criticism. 14 On 14 April 2003, Mr Holmes, the vendor's solicitor sent to Austates Conveyancing a draft contract "subject to final approval by our client" with a note that contracts should be exchanged by 17 April "as our client has other parties interested". No evidence was ever proffered as to the truth of this assertion. 15 On 21 April 2003, Mr Kelly wrote to Mr Ollis making three objections to the form of contract. On 22 April, Mr Holmes faxed Austates Conveyancing to the effect that he agreed that the name of the agent and special condition 19 could be deleted from the draft contract. 16 The third matter raised by Mr Kelly was that there were two sales advices to his knowledge of sub-sales of two of the one acre lots. He thought that there should be some reference to this in the contract. Mr Holmes disagreed. 17 Contracts in the 2000 edition of the standard form were duly exchanged, the documents bearing date 30 April 2003. 18 Page 1 of the contract has space for a completion date to be inserted. This was not filled in so that the form reads that the completion date "[blank] after the date of this contract (clause 15)." 19 Special conditions 3, 4, 8 and 9 contain some provisions which are clearly nonsensical. They read as follows: "3. This Agreement is condition upon registration by the Land Titles Office of a plan of subdivision prepared substantially in accordance with the sketch plan annexed hereto marked "A" provided that in the event of such registration not being effected within six (6) months from the date hereof then either party shall have the right at any time thereafter (but prior to registration being effected) to rescind this Agreement by notice in writing to the other of them or the Solicitor named in this Agreement or such other party thereupon the provisions of printed condition 19 hereof shall be deemed to apply. The Vendor covenants to do all things reasonably within its power to effect registration of the plan of subdivision within the time hereinbefore limited and to sign such applications and do all things necessary and incidental to give effect thereto. 4. (a) Notwithstanding anything herein contained all measurements lot numbers, easements and other encumbrances shown on the sketch plan annexed hereto marked "A" are provisional only and are subject to those measurements, lot numbers, easements and other encumbrances which may appear on the plan of subdivision which shall be registered as a Deposited Plan. (b) The Vendor reserves the right to make such minor alterations to the plan of subdivision as may be necessary or required for the approval thereof by Gosford City Council, the Sydney County Council or the Land Titles Office and the Purchaser shall not be entitled to make any objection requisition or claim for compensation in respect of any such minor alterations between the dimensions, areas and other measurements appearing on the sketch plan annexed hereto and those shown on the plan of subdivision which shall be registered as a Deposited Plan. (c) Without limiting the generally of this condition any alteration of the dimensions or area of the lot sold to the Purchaser which is not more than five per cent (5%) in disparity with the dimensions and area appearing on the sketch plan annexed hereto shall be deemed to be minor. (d) If any alteration is other than minor the Purchaser may elect within seven (7) days of being notified of registration of the plan of subdivision to rescind this Agreement by notice in writing to the Vendor (or the Vendor's Solicitor) and in this respect time shall be of the essence of this Agreement. In the event the Purchaser shall elect to rescind this Agreement the provisions of printed condition 19 hereof shall apply. In the event that the Purchaser shall fail or omit to elect to rescind this Agreement within the time hereinbefore limited the Purchaser shall proceed to complete this Agreement in accordance with the terms of this Agreement. 8. Completion of this Agreement shall take place within fourteen (14) days from the date on which the Vendors serve notice in writing upon the Purchasers or their solicitors that the plan of subdivision has been registered as a Deposited Plan by the Land Titles Office or within six weeks from the date hereof whichever is the later date. 9. Should separate assessments not have issued in respect of each Lot and in particular in respect of the Lot hereby sold, then for purposes of Clause 14 hereof the amount of Municipal rates shall be deemed to be $1,300.00 for the Lot hereby sold in respect of the current rating year plus any water availability rate that may, at the time of settlement, have been assessed. The adjustment of those rates shall be a paid basis and the Vendor shall make payment of the individual assessment when issued by the local Council. This condition shall remain in force and effect notwithstanding the completion of this Contract and the merger thereof in the transfer of the subject land." 20 The relevant land was at Parkes which is not in Gosford City. Moreover the whole of the land was being sold, not a subdivided lot. 21 However, there would be a subdivision of the land involved. Mr Kelly would have to subdivide the land so that he could proceed with the sub-sales. 22 There was some cross-examination of Mr Kelly about Special Condition 3. He said that he considered that the clause was in order because there would need to be a subdivision which he would effect and he read the final sentence of clause 3 as requiring the vendor to do what was necessary to assist the subdivision by signing the appropriate forms for council approval and the like.

23 The cross claim seeks rectification of the contract by inserting in the blank "completion date" space the words and figures "42 days" and by deleting special conditions 3, 4, 8 and 9. 24 In my view, there are two distinct aspects of the rectification claim: (1) whether there should be rectification with respect to the time of completion; and (2) whether there should be rectification with respect to special conditions 3, 4, 8 and 9. 25 It must be noted that Mr Kelly says that he has spent about $78,500 in connection with the physical subdivision of the relevant land and associated professional fees. The cross claimant has recognized his duty to do equity and has conceded that, if the contract is rectified and his termination of the rectified contract is upheld, he is obliged to refund the deposit and to reimburse Mr Kelly that $78,500. 26 I will consider the facts and then deal with those two claims. 27 The circumstances in which the contract was prepared in the vendor's solicitor's office are material. These can be gleaned from the affidavits and cross-examination of Messrs Ollis and Holmes. 28 It would appear that Mr Ollis is a consistent dealer in real estate and that Mr Holmes is his usual if not sole solicitor. Their practice is that Mr Ollis calls on Mr Holmes daily and gives him oral instructions about a number of sales. There is rarely or never any formal cost agreement, retainer or written instructions about any individual contract. 29 On 11 April 2003, Mr Ollis instructed Mr Holmes that he should send out a contract for the Kelly Street property. Mr Holmes asked whether the contract was to be for the whole property or for the property less the two lots in respect of which there were notices of sale from the local estate agents. Mr Ollis said that the purchaser could choose, but that he wanted the contracts sent out that day. 30 There were virtually no notes of instructions still in existence which could corroborate the recollections of Messrs Ollis and Holmes. I considered that there was considerable reconstruction in their evidence as to what probably was said based on many other transactions. However, this is not a crucial finding in this case as will appear from the following discussion. 31 Mr Holmes asked his secretary to prepare the contracts. He says in his affidavit that she used the wrong precedent. Mr Holmes did not check the contract before it went out, nor did Mr Ollis. 32 However, it is clear that Mr Holmes intended that there be some conditions with respect to subdivision included in the contract as it was unclear as to whether the vendor or the purchaser would be handling the subdivision. 33 Thus, whilst the contract as sent out did include inappropriate clauses including the clause referring to the Gosford Council, the solicitor was expecting to adjust it when he knew what election the purchaser had made. 34 Unfortunately this did not happen. When the contract was returned by the purchaser, Mr Holmes did not make any adjustment and Mr Ollis signed it without reading it. 35 Mr Tony Melissari did not give evidence. However, Mr Kelly swore that he discussed the draft contract with Mr Melissari and believed that it was in accordance with the arrangement he thought he had made with Mr Street. 36 Mr Kelly was challenged on this in cross-examination. How could it be consistent with an arrangement whereby the purchaser was to do the subdivision that the Vendor had the obligation to register the plan, he was asked. I have already given his answer (vide para 22 supra). 37 Mr Kelly deposed that he received the draft contract from Mr Melissari. After the correspondence to which I have already referred, he called at Mr Melissari's office and signed the contract as amended. He then says that over the next week or two he called Mr Melissari on several occasions trying to get confirmation that contracts had been exchanged. He says this was because he considered he only had six months to complete and would need that time to subdivide and on-sell. However, it was not until 16 May 2003 that he became aware that contracts had been exchanged. 38 Mr Kelly continually asserted that he knew he had six months to complete and to deny that there ever was any talk of a 42 day contract with respect to Kelly Street. Mr Kelly approached his subdivision work and expended $78,500 on the basis that he had six months to complete. 39 There were other contracts between the parties in respect of other properties exchanged about the same time. At least some of these were 42 day contracts which were duly completed. 40 The vendor relied on the evidence of Mr Street. I found his evidence unconvincing for a number of reasons. I do not accept that he told Mr Kelly that there was a standard 42 day contract. 41 Mr Street relied on his normal sales presentation being given to Mr Kelly rather than any particular recollection of so doing. Mr Kelly's recollection of a more unique event in his life is more likely to be accurate. Mr Kelly accused Mr Street of misleading him about another property at Cecile Street. Mr Street did not deny this charge, he merely passed it off as inaccurate information he had received from another estate agent and had not checked it. He was unfazed by the probability that his misinformation had misled his customer. He gave clearly misleading information about development costs, though this misleading information appeared in the brochure, Mr Street well knew that the figure was for the cut rate that the vendor could develop the land, not what it was likely to cost a prospective purchaser. This gave, at the very least, the flavour of a very casual approach to his position. Further, his general demeanour during cross-examination did not inspire confidence in the accuracy of his evidence. 42 Although Mr Kelly made one clear mistake in his cross-examination, generally I considered that there was nothing about his evidence that I should disbelieve. 43 Turning now to the first aspect of rectification, I need to consider whether there was any operative mistake in not including "42 days" in the formula for calculating the completion date. 44 Rectification may be granted in cases where both parties have made the same mistake or where there has been an operative unilateral mistake. I will define this latter term subsequently in these reasons.

45 Rectification is granted of written contracts where there has been an error in recording the parties' agreement. It is important to note that equity gives rectification of instruments purporting to have been made to record a contract. It does not rectify contracts let alone rectify transactions, MacKenzie v Coulson (1869) LR 8 Eq 368, 375. 46 In considering whether it will rectify an instrument, the Court needs to ascertain the contract, consider whether there has been operative mistake in its recording and make a decision after considering any discretionary defence. 47 The solution to the present problem has not been assisted by the cavalier way in which the transaction was handled by the vendor and his advisors and the fact that the purchaser did not have the assistance of an independent solicitor. 48 As to cases where both parties have made the same mistake, LW Street J said in Australasian Performing Right Association Ltd v Austarama Television Pty Ltd [1972] 2 NSWLR 467, 473 (a passage expressly adopted by Menzies J in Hooker Town Developments Pty Ltd v Director of War Service Homes (1973) 47 ALJR 320, 323-4): "The true principle involves finding an identical corresponding contractual intention on each side, manifested by some act or conduct from which one can see that the contractual intention of each party met and satisfied that of the other."

49 It must be remembered, as MH McLelland AJA said in Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329, 345 that the court only acts in rectification suits where: "it is established by clear and convincing proof that at the time of the execution of the instrument the relevant party or parties as the case may be had an actual intention (if more than one party, a common intention) as to the effect which the instrument would have which was inconsistent with the effect which the instrument as executed did have in some clearly identified way." 50 The phrase "clear and convincing proof" is a key element in this statement. This indeed is a modernization of the requirement in the older authorities that the case for rectification must be established by "strong irrefragable evidence" (per Lord Thurlow in Shelburne (Countess) v Inchiquin (Earl) (1784) 1 Bro CC 338, 341; 28 ER 1166, 1168). 51 Has there been a mistake made in recording the agreement on the vendor's side? 52 The case is really one where the vendor's solicitors made the mistake of signing off on the draft presented by the purchaser rather than realising that the contract needed to be adjusted in the light of the purchaser's election. The case was not one where the parties had reached an agreement which was mis-transcribed. 53 Even if this approach is wrong and one looks at the purchaser's side, there is insufficient evidence that the purchaser made any mistake. 54 Mr Holmes says that after 22 April it became clear to him that the sale was for the entire lot and that a 42 day period should be inserted in the "completion date" section of the contract. He also did not bring to mind that the subdivision clauses in the contract needed to be deleted or adjusted. 55 As I have already said, I accept Mr Kelly and do not accept Mr Street that there was any mention of a 42 day contract with respect to Kelly Street. Thus, I find that there was no such mention. 56 The case as to the 42 day contract must thus fail. 57 Even if this finding is erroneous, the case is not one where there is clear and convincing proof as noted by MH McLelland AJA, nor does it fall within the principle enunciated by LW Street J. 58 The case does not get any better if treated as one of unilateral mistake. As made clear by Buckley LJ in Thomas Bates & Son Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505, 516, for there to be rectification in cases of unilateral mistake: "it must be shown: first, that one party A erroneously believed that the document sought to be rectified contained a particular term or provision, or possibly did not contain a particular term of provision which, mistakenly, it did contain; secondly, that the other party B was aware of the omission or the inclusion and that it was due to a mistake on the part of A; thirdly, that B has omitted to draw the mistake to the notice of A… there must be a fourth element involved, namely, that the mistake must be one calculated to benefit B." 59 This analysis has been followed in Australia; see eg Budget Stationery Supplies Pty Ltd v National Australia Bank Ltd (1996) 7 BPR 14,891, 14,936 (Santow J affirmed by Court of Appeal (1997) 9 BPR 17, 413, 17,428); Re Freehouse Pty Ltd (1997) 26 ACSR 662, 682 (Victorian Supreme Court) and the murmur of approval by the High Court in Taylor v Johnson (1983) 151 CLR 422, 431. 60 The facts in the instant case get nowhere near satisfying the matters listed by Buckley LJ. In the Thomas Bates case. 61 I should note here that neither party wished to argue that in the light of what occurred, there was no contract between the parties at all. 62 Accordingly, there should be no rectification with respect to the completion date. 63 The special conditions relating to subdivision, do not make sense in the present contract. However, it seems to me that they are merely nonsense and can just be disregarded: see Nicolene Ltd v Simmonds [1953] 1 QB 543. 64 Mr Parsons did make the point that special condition 18 would increase the liability for GST if the purchaser completed the subdivision before completion of the contract. If this is so it may be unfortunate, but it is not a matter which the parties seemed to have considered when contracts were exchanged. 65 Accordingly, I do not consider that I should grant rectification at all. 66 This makes it unnecessary to consider the question as to whether there was a discretionary defence that the conduct of the vendor was so grossly in disregard for his interests that equity should not listen to a claim for rectification. However, in view of the submissions on the point, I should make some brief comments on the point. 67 Surely there must be a point where equity says to a contracting party who has left the drafting to a secretary and has signed the contract without either the party or his solicitor ever reading the contract and considering whether it is what is wanted, "Well, you have brought about your own destruction, why should equity intervene?" 68 This line of thought is supported by the attitude of the High Court to the allied principle of accident considered in Tanwar Enterprises Pty Ltd v Cauchi (2003) 201 ALR 359. The Court seemed to consider that equity would withhold relief in cases of accident where the parties, acting reasonably, should have directed their minds to the possible event which in fact occurred and from which relief is sought (see [66]). 69 Can one progress this thought and transfer it to the law of rectification and say that where the conduct of the person seeking rectification has been so grossly careless, relief should be refused by way of rectification? This suggestion is reinforced by the trite law that rectification is a discretionary remedy "which must be cautiously watched and jealously guarded": per Evershed MR Whiteside v Whiteside [1950] Ch 65, 71. 70 In his written submissions, Mr Parsons made the point that even though they may have sprung from a common root, nowadays accident and rectification are separate equities which have developed along their own separate lines. 71 There is also the matter that it is almost a given in most cases of rectification that someone has been careless. Indeed, for centuries, it has been held that a plaintiff's negligence does not disqualify him from rectification; see eg Ball v Storie (1823) 1 Sim & St 210, 219; 57 ER 84, 88; Monaghan County Council v Vaughan [1948] Ir R 306, 315; Weeds v Blaney [1978] 2 EGLR 84, 85 per Lord Denning MR and Katsaounis v Belehris [1995] ANZ ConvR 114, 118 (SA Supreme Court). However as Debelle J said in the lastmentioned case the principle is that "in general negligence is an irrelevant consideration"; see also Snell's Equity, 30th ed (Sweet & Maxwell, London, 2000) 43-22. Halsbury 4th ed (Butterworths, 1980) para 32 merely says that negligence is no defence to cases of common mistake or unilateral mistake where there is sharp practice. 72 It seems to me that there may be cases where there has been such conduct on the part of the person claiming rectification that the court cannot see any unconscionable conduct on the part of the other part requiring it to award rectification. However, despite the fact that I raised the matter in argument, I do not consider that the Tanwar case has changed the law as expounded in cases such as Weeds v Blaney. 73 It follows that the claim for rectification must be dismissed. 74 I think it also follows that a decree must be made for specific performance in the plaintiff's favour. However, as little emphasis was placed on this aspect of the case, it is better that I merely publish these reasons and stand the matter over for the plaintiff to bring in short minutes of order. 75 I will tentatively fix Tuesday 18 November 2003 at 9:30 am for the short minutes to be discussed. However, if that date is inconvenient, it may be changed by arrangement with my Associate provided she is consulted no later than 4:30 pm on 14 November, 2003.

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