Maralinga Pty Ltd v Major Enterprises Pty Ltd

The auctioneer was instructed that the terms on which the land was to be sold in one lot were to include:

(A) The purchaser shall have the option whether or not it required the vendor (respondent) to demolish the buildings and improvements and

(B) the vendor (respondent) requires a cash payment of $75,000 on completion and will take a mortgage for the balance of the purchase price, the mortgage to provide for repayment at the expiration of three years, to be non-reducible in the meanwhile and to carry interest at the rate of eight per cent per annum.

A contract of sale for the land in one lot was prepared prior to the auction in the form approved by the Real Estate Institute and the Law Society of New South Wales. The form contained a special clause, no. 23, as follows: The property is sold subject to the demolition of all buildings and improvements to ground level by the Vendor Company at its own expense. The form provided for payment of the whole of the balance of the price in cash on completion. Having regard to the auctioneer's instructions this form was prepared in error.

The property was described in the order of the sale of the auction as "6 Vaucluse. 20B New South Head Road. Home site with Harbour views. Approx. 15,038 sq. feet. Approved for sub-division in two equal blocks. Finance available at eight per cent."

The announced terms of the auction sale were as follows:

(a) The highest bidder shall be the purchaser. In case of any dispute the property shall be put up again at any former bidding and no bidding shall be retracted.

(b) The sale is subject to a reserve price and the right to bid is reserved on behalf of the Vendor.

(c) Upon the fall of the hammer, the Purchaser shall sign the following agreement, the conditions of which, with these conditions, are the conditions of the sale by auction.

Before commencing the auction, the auctioneer called attention to the above conditions which were displayed in enlarged form on the walls of the auction room. When he reached the subject land, which was item six on the day's list, he read its description as in the form of contract, went on to describe the provisions which had been made in the printed form, said that the vendor was to give vacant possession, that the sale was subject to cl. 23 which he read, that there were certain restrictive covenants, that the terms of sale provided by the contract were for the payment of a deposit of ten per cent and the balance in cash on completion. However, he also expressly said that the terms (A) and (B) above, reading them out in full, were part of the conditions on which the land was offered.

The appellant was the highest bidder for the property at $155,000. As this was below the reserve, the auctioneer inquired of Mr. Brady who was present whether the property was on the market at that price. Mr. Brady instructed the auctioneer that it was. Thereupon the property was knocked down at $155,000 to the appellant's representative, Mr. Mutton, who had been bidding on its behalf.

Mr. Mutton then went with a representative of the auctioneer to a nearby room where the already prepared form of contract signed on behalf of the respondent by Mr. Brady, was proffered to him for signature. He had already seen the form and indeed had discussed it with a Mr. Walsh who was associated with the appellant. Mr. Mutton raised with the auctioneer's representative a question as to whether cl. 23 was apt to give the appellant the option of taking the land with the dwelling thereon rather than requiring the dwelling to be demolished, and suggested a verbal change to make that matter clear. The auctioneer's representative carried the question and the proposed change in verbiage to Mr. Brady, but he refused to make any change in the language of cl. 23 and required the form to be signed as it was drawn. Without reading the proposed variation of the clause he said "If they are not happy with it, they can tear up the contract".

On being told by the auctioneer's representative that "They won't be in any alteration. Sign it as it is or the deal is off", Mr. Mutton signed the form on behalf of the appellant and paid the deposit. No question was raised at this time as to the availability to, or requirement by, the appellant of finance in respect of any part of the balance of the price.

The appellant's intention in buying the property was to enable Mr. Walsh and his family to live in Ormonde Hall. Also it was the appellant intention to rely upon the terms as to payment of the price (B above) which had been announced by the auctioneer. In fact the appellant would only be able to complete the transaction if the respondent required only $75,000 in cash on completion.

I need not trouble to detail the subsequent endeavours made on behalf of the appellant to have the terms on which the property was offered for and bought at auction carried out. Suffice it to say that the Supreme Court in the appellant's suit for rectification found that " when the property was knocked down to Mr. Mutton, an oral contract came into being which included terms that the purchaser could pay the balance of the purchase money in cash on completion or, at his election, could pay $75,000 in cash and give the vendor a mortgage for the balance on the terms which the auctioneer had announced, and that the purchaser could elect to have the buildings and improvements remain on the property". The Supreme Court further found that "A written contract, or a written memorandum, to have the same effect as this oral contract, would have to contain provisions giving the purchaser these options".

The Supreme Court was satisfied that notwithstanding the terms of the document he signed " Mr. Mutton did believe that the terms as to finance stated by the auctioneer as being offered by the vendor were part of the contract between the parties, that is, as part of the contract for the purchase of the property, the plaintiffs had a right to require finance to be provided by the defendant on the terms and up to the limit stated by the auctioneer". The Supreme Court was also satisfied that " Mr. Mutton believed that the purchaser was entitled under cl. 23 in the form in which it appeared in the executed contract to elect to have the improvements remain upon the property, and that although he thought there was an ambiguity about the clause which he would have preferred to remove, he was confirmed in his view as to what he regarded was its proper construction by the auctioneer's statement, and by what Mr. Walsh had told him had been said by the vendor on the subject".

The Supreme Court thought that the written contract was susceptible of rectification so as to express the appellant's option to take the land in its improved state and not require the demolition of Ormonde Hall but that there had been no mutual mistake as to the provision of the contract requiring cash on completion: Mr. Mutton had signed the document deliberately knowing that it called for the payment on completion of the balance of the price: any mistake was on his part alone. Accordingly, the Supreme Court refused rectification, there being no request for performance of the contract rectified only as to the option affecting the demolition of the dwelling on the land.

I do not trouble to discuss the question of rectification of the contract in order to clarify cl. 23. I can see no basis, however, on which the respondent could insist against the appellant's wishes on demolition of the buildings on the land, cl. 23 remaining in the terms in which it appears in the contract. The land being sold in one lot, the vendor could have no interest whatever to insist on demolition. Of course, cl. 23 would have a different significance in a sale in two lots, or in two separate lots. But as the property was described for sale at the auction and was sold in one lot, it is my opinion that quite clearly the purchaser can insist on taking the land as it is with the building thereon and the vendor could not in that event attempt to demolish it.

I turn now to the substantial matter of whether the written document should be rectified. It is quite clear on the findings of the Supreme Court that we have these cardinal facts. The parties made an oral agreement which was binding upon them though for want of writing might not be enforceable. No attempt was made before the Supreme Court to use the auctioneer's record of the sale as a memorandum. The Supreme Court has found what that agreement quite clearly was: it expressly included the two terms which it is now sought to insert into the writing. The parties in making the oral agreement intended that it should be recorded in writing. If it was the common intention of the parties in signing the writing that it was to record their oral agreement, the appellant's case for rectification has, in my opinion, been made out. The appellant's case for rectification is for the reformation of a writing which purports, though erroneously, to record an already concluded agreement. Indeed, for long this was thought to be the only class of case in which rectification was available: see McKenzie v. Coulson [1] ; W. Higgins Ltd. v. Mayor, Aldermen and Burgesses of Northampton [2] ; Australian Gypsum Ltd. v. Hume Steel Ltd. [3] ; Shipley Urban District Council v. Bradford Corporation [4] ; Crane v. Hegeman-Harris Co. Inc. [5] ; Slee v. Warke [6] .

1. (1869) L.R. 8 Eq. 368, at p. 375. 2. [1927] 1 Ch. 128. 3. (1930) 45 C.L.R. 54. 4. [1936] Ch. 375. 5. [1939] 1 All E.R. 662; [1939] 4 All E.R. 68. 6. (1949) 86 C.L.R. 271, at p. 280.

The remaining question in this case therefore, in my opinion, is whether it was the common intention of the parties in signing the agreement to record the oral agreement which they had already concluded or whether, on the other hand, they intended to make a new and different contract by the writing which they signed.

It is abundantly clear from the judgment of the Supreme Court that when the written contract was proffered for signature to the appellant it was not proffered as some offer in a new negotiation for the sale of the land or in order to make some agreement other than the oral agreement resulting from the auction; that is to say, there could have been no intention on the part of Mr. Brady by the writing to make an agreement at variance with the oral agreement which had already been made by and through the auction. It was the form of contract referred to by the auctioneer. Mr. Brady had signed it before he had seen or heard from Mr. Mutton. We do not know by any evidence what Mr. Brady had in mind for he gave no evidence. But he could not have truthfully said that he signed the form of contract with any other intention than as a record of the contract made by and at the auction. He may have thought that in its terms he saw some possibility of advantage for the respondent at the expense of the appellant in the form of record which the form of contract took. But this, like some of the possibilities spoken of by the learned primary judge, is no more than speculation, not founded on evidence. It does not constitute any solid ground on which to form a conclusion of fact.

It may be, of course, that Mr. Brady may not have had the same recollection or belief as to what all the terms of that agreement were as the Supreme Court found them to be. In this connexion it must be borne in mind that the agreement was not directly made between the representatives of the parties personally. Mr. Brady had given instructions to the auctioneers. The auctioneer was instrumental in announcing the terms of the auction so as to communicate them to Mr. Mutton. After having received the highest bid he obtained from Mr. Brady express authority to accept it; thus the agreement was made on behalf of the parties by a combination of these events, the appellant's highest bid and the fall of the hammer. Further, the auctioneer had both announced the two specific options and referred as well to the signature of the form of contract. But whatever view he may have had of the terms of the oral contract Mr. Brady none the less, in my opinion, signed the form of contract as a record of the agreement made in and by the auction.

It is quite clear from the findings of the Supreme Court that in signing the form of contract Mr. Mutton was not intending to vary the auction contract. He thought apparently that there was no need to include the term as to finance in the writing in order that there should be a record of the earlier agreement. In this he was clearly mistaken. But again it might be said that the auctioneer had not seen anything amiss in terms of sale which included the two options and yet required the signature of the prepared form of contract. Having the belief which the Supreme Court attributed to him, quite clearly Mr. Mutton did not intend when signing the contract to enter into a new and different contract from that resulting from the auction. Of course, he signed the writing intentionally and with knowledge of its contents. But that fact does not deny that with the belief he had, he signed it mistakenly as a record of the agreement which had in fact been made.

I would conclude, therefore, that the common intention of the parties in signing the form was to record the oral agreement made by and at the auction and that there was no intention on the part of either by the writing to make an agreement in any respect at variance with that oral agreement.

The case therefore falls, in my opinion, into that class of claim for rectification where there has been a concluded oral agreement and the whole purpose of the writing has been merely to record what has already been agreed. The Supreme Court thought there was no common mistake as to the provision of the contract calling for the payment in cash on completion of the balance of the price. There was, in its view, merely a unilateral mistake on the part of Mr. Mutton in that he thought that the condition of the auction as to the acceptance of $75,000 with the balance secured by mortgage was not inconsistent with the writing and continued to form part of the entire contract between the parties. But the form of contract did not record the bargain which had been made between the parties. The parties' mutual mistake is in thinking contrary to the fact that the writing was recording what they had agreed. It is nothing to the point that they or one of them was foolish so to think. It is enough, in my opinion, that the document was signed for no other purpose than to record an already concluded agreement of which the terms are definitely known by the findings of the Supreme Court. Of course, if a document, as being itself the formation of the agreement between the parties, is signed with a clear knowledge of its contents there will be no basis for rectification. The writing will precisely represent the intention of the parties. If this occurs where there has been a prior concluded agreement, upon a proper analysis they will have made a new and different agreement from that which they originally intended to record. The likelihood of such an intention in all the circumstances ought to be a considerable factor in deciding whether in fact they did so intend.

The question in such a case is whether the executed writing has carried out the mutual intention of the parties. Deliberate execution of the writing in such a case with knowledge of its provisions, even if there is a lack of understanding as to the effect of the expressions used in the writing, may conclude the matter. But this is not such a case, though I am inclined to think that the Supreme Court treated it as if it were. In my opinion, there is a clear case for rectification of the writing to make it accord with the oral agreement which had in fact been made. It should be so rectified and as so rectified ought specifically to be performed.

I have read the judgment prepared by Mason J. and I agree with it.

In my opinion, there can be rectification of a written contract on the ground of mutual mistake only if it be established that, through common error, the document signed by the parties did not express their mutual intention. Here there was no such error. Both parties knew that the document (a) contained cl. 23 which would operate according to its terms and (b) did provide for payment of the balance of the purchase price upon completion. Mr. Mutton, for the purchaser, thought, mistakenly perhaps, that (1) in addition to the document, there was a collateral agreement relating to terms for payment of the balance giving effect to what the auctioneer had said, and (2) cl. 23 gave the purchaser the option which the auctioneer stated the purchaser would have. As to (1) a belief that the sale at auction was being effectuated by two contracts, the document and a collateral contract, itself negatives a mistake that the document gave full effect to the sale. As to (2) any mistake as to what cl. 23 meant was his own private error of law.

It was not proved that Mr. Brady was under any mistake at all. It seems likely that he knew very well the terms of the document because he abruptly refused a request to alter the wording of cl. 23 and the purchaser was given the option to sign or tear up the contract. However that may be, there was just no evidence that he mistakenly thought that the written agreement accorded with the terms of the sale at auction.

It may be that this is a hard case, but I have no doubt that the law as established does not provide for the relief which the appellant claimed.

The respondent submitted for sale at auction a residential property at Vaucluse, Sydney. It was knocked down to the appellant for $155,000. Before the sale it had been made known to the appellant that the contract would incorporate the conditions contained in the standard form of contract approved by the Law Society and the Real Estate Institute of New South Wales. At the auction the auctioneer stated that a deposit of ten per cent of the price was to be paid on the signing of the contract and that the sale was subject to special condition 23 which he read out. It was in the following terms:

The property is sold subject to the demolition of all buildings and improvements to ground level by the Vendor Company at its own expense. He went on to say that the purchaser would have the option of requiring the vendor to demolish the very large house which was on the land or allowing it to remain. He also stated that the respondent was offering finance, that it required a cash payment of $75,000 and would allow the balance of the purchase price to remain on first mortgage over three years at eight per cent fixed interest. The draft contract, of which the appellant was aware, provided for the payment of the balance of the purchase price on completion and did not contain a provision for any part of the price to remain on mortgage for three years.

At the conclusion of the sale Mr. Mutton, a director of the appellant, who was employed as a clerk by the appellant's solicitors and advised the appellant in connexion with the sale, when asked to sign the contract on behalf of the appellant, sought to obtain an alteration in special condition 23 so that it would more clearly reflect the notion that the purchaser had an option to require the vendor to demolish the building on the site, as the appellant wished to purchase the property as a residence for Mr. Walsh, its principal shareholder. On the instructions of Mr. Brady, the managing director of the respondent, this request was met with a curt refusal, "Sign it as it is or the deal is off". Why the respondent took this attitude is not revealed by the evidence, for Mr. Brady did not enter the witness box. There was some suggestion that the purchase price was lower than anticipated and perhaps Mr. Brady hoped to force some additional concession from the appellant or to have the opportunity of a further sale. Be that as it may, faced with Mr. Brady's ultimatum, Mr. Mutton signed the contract in the form in which it had been presented.

The appellant sued for rectification and specific performance of the contract as rectified. The appellant sought to have the contract rectified in two respects: first, so that special condition 23 should be so expressed as to confer an option on the purchaser to require the vendor to demolish or not; secondly, so that in lieu of payment of cash on completion provision was made for a mortgage back to the vendor in the sum of $64,500 for three years at eight per cent per annum.

The appellant's suit for rectification and specific performance of the contract was dismissed by the Supreme Court of New South Wales in its Equity Division. Hope J. held that, although the appellant would have been entitled to relief by way of rectification of special condition 23 had it stood alone, it was not entitled to rectification so as to include the provision for finance by way of mortgage back, and it had wrongly insisted on performance of the contract on the footing that it should be rectified in both respects.

The primary judge found that Mr. Mutton when he signed the contract knew that it contained special condition 23 and provision for payment of cash on completion and that it did not contain the two provisions which the appellant now seeks to have included in the contract. However, his Honour also found that at the time Mr. Mutton believed that special condition 23, although not clearly worded, would be interpreted as conferring an option on the purchaser. It was for this reason that Mr. Mutton signed the contract without insisting on the amendment which he had proposed. The primary judge also found that Mr. Mutton believed that the auctioneer's statement that $64,500 would be available on mortgage back to the vendor for three years at eight per cent fixed interest per annum was enforceable as a warranty forming part of the contract or collateral to it. Although the statement conflicted with an express term of the written contract calling for the payment of cash on completion, Mr. Mutton evidently attributed no significance to that circumstance and, accordingly, did not request an amendment to the contract to cover the point.

The appellant's case is that it is entitled to rectification and specific performance on the ground that at the conclusion of the auction the parties had arrived at an oral, albeit unenforceable, contract, incorporating the terms which it now seeks to have included in it. The written instrument does not accord with the antecedent agreement and should be re-formed so as to give accurate expression to it, so the argument runs.

The first step in the argument is the proposition that the written instrument was intended by the parties merely to record the terms of the bargain reached when the property was knocked down to the appellant. The primary judge did not make a finding on this issue of fact, perhaps because the evidence did not lend itself to such a finding, but he came to conclusions which are relevant to it. His Honour found that Mr. Mutton in signing the contract believed that he was executing a written instrument which, when taken together with the warranty as to finance which he considered to be enforceable, gave effect to the terms of the auction sale. But his Honour made it equally clear that Mr. Mutton knew that the contract contained an inconsistent provision.

The intentions of the respondent with respect to the written instrument are not as clear, because those acting for the respondent did not give evidence. The primary judge said, with reference to Mr. Brady:

In insisting upon the execution of the contract in the form which had been prepared, he was requiring the purchaser to sign a contract which he knew to be different in its effect to the basis on which the property had been knocked down to the purchaser, and I think that his firm decision as to the contract was the reason why he refused even to read Mr. Mutton's draft clause which Mr. Pillinger brought to show him. Although Mr. Brady did not give evidence, I am not persuaded that his Honour's conclusion was incorrect.

In these circumstances the statement that the written instrument was signed merely to record the terms of the oral bargain is in my view neither sufficient nor accurate. Both parties knew that the written instrument contained a provision for payment of cash on completion and that it differed from the terms of the antecedent bargain; yet they signed it. So in this respect the written instrument was not executed as the result of a mistaken belief as to what it contained. Mr. Mutton was mistaken as to its effect but not as to its contents.

The conditions according to which relief by way of rectification will be granted have been variously stated. In Fowler v. Fowler [1] , Lord Chelmsford L.C. said that the person seeking rectification must establish clearly "that the alleged intention to which he desires" [the instrument] "to be made conformable continued concurrently in the minds of all parties down to the time of its execution, and also must be able to shew exactly and precisely the form to which the deed ought to be brought". On other occasions statements have been made which emphasize that it is for the plaintiff to show that by the writing sought to be rectified the parties intended to record the terms of an antecedent oral bargain and that by common mistake there is a disconformity between the oral bargain and the writing (United States of America v. Motor Trucks Ltd. per Earl of Birkenhead [2] ).

1. (1859) 4 De G. & J. 250, at p. 265 [45 E.R. 97, at p. 103]. 2. [1924] A.C. 196, at p. 200.

The difference in expression is not of importance. It is explained partly by the difference in the character of written instruments sought to be rectified and partly by the more recent desire to emphasize that the remedy is designed to relieve against the mistaken expression of the true agreement of the parties.

As Buckley L.J. said in Lovell & Christmas Ltd. v. Wall [3] :

For rectification it is not enough to set about to find what one or even both of the parties to the contract intended. What you have to find out is what intention was communicated by one side to the other, and with what common intention and common agreement they made their bargain. 1. (1911) 104 L.T. 85, at p. 93.

What is of importance is that the purpose of the remedy is to make the instrument conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately. And there has been a firm insistence on the requirement that the mistake as to the writing must be common to the parties and not merely unilateral, except in cases of a special class to which I shall later refer.

It is now settled that the existence of an antecedent agreement is not essential to the grant of relief by way of rectification. It may be granted in cases in which the instrument sought to be rectified constitutes the only agreement between the parties, but does not reflect their common intention (Shipley Urban District Council v. Bradford Corporation [1] ; Slee v. Warke [2] ). But this circumstance does not affect what I have already said.

The strength of the appellant's case is that at the conclusion of the auction there was a valid albeit unenforceable agreement between the parties and the written instrument does not conform to it. Moreover, at all times up to the conclusion of the auction the parties intended that a written contract would be executed to record the terms of the auction sale.

Even so, in order to succeed the appellant must show that the parties intended by the writing to give effect to the whole of the antecedent agreement and that by common mistake it failed to do so. In Craddock Bros v. Hunt [3] , speaking of the jurisdiction to grant relief when the written instrument is preceded by a verbal agreement, Warrington L.J. said:

The conditions to its exercise are that there must be an antecedent contract and the common intention of embodying or giving effect to the whole of that contract by the writing, and there must be clear evidence that the document by common mistake failed to embody such contract and either contained provisions not agreed upon or omitted something that was agreed upon, or otherwise departed from its terms. 1. [1923] 2 Ch. 136, at p. 159.

It may be asked why should a plaintiff be required to establish more than disconformity between the antecedent agreement and the written instrument. Why should he be called upon to show that the writing was intended to give effect to the whole of the oral contract and that by common mistake the written instrument failed to do so? The answer lies in the circumstance that the court must be satisfied that the instrument does not reflect the true agreement of the parties. It cannot be so satisfied unless the writing was intended to record the earlier agreement and by the mistake of the parties it fails to do so. If the plaintiff fails to establish these elements he does not displace the hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties.

Mr. Mutton did not intend to give effect to the entire antecedent agreement by the writing. He was content to allow the auctioneer's statement as to finance to remain apart from the written contract. Furthermore, the appellant and the respondent, knowing through Mr. Mutton and Mr. Brady respectively that the contract contained a provision requiring payment of cash on completion, executed the contract with that knowledge.

Accordingly, the appellant has not shown that in this respect the instrument was intended to record the antecedent oral agreement or that the instrument by common mistake failed to conform to that agreement. The parties assented to a provision calling for payment of cash on completion which differed from that agreement. They were not mistaken as to the contents of the written instrument. Although Mr. Mutton was mistaken in the reason which led him to accept the contract in its written form, the unilateral mistake which he made as to its legal effect was not a mistake of the kind that grounds rectification.

An alternative argument was advanced by the appellant based on a series of authorities which are said to decide that if one party to a transaction knows that the instrument contains a mistake in his favour but does nothing to correct it, he will be precluded from asserting that the mistake is unilateral and not common: see Whiteley v. Delaney [1] ; Monaghan County Council v. Vaughan [2] ; George Cohen, Sons & Co. Ltd. v. Docks and Inland Waterways Executive [3] . In my opinion this principle has no application to this case as there was no relevant mistake on the part of the appellant as to the contents of the written contract.

1. [1914] A.C. 132. 2. [1948] I.R. 306. 3. (1950) 84 Ll.L.R. 97.

In the result I am of opinion that the primary judge was correct in concluding that the appellant was not entitled to rectification by inserting in the contract a provision for finance conforming to the auctioneer's statement. There is little point in considering the appellant's case in so far as it relates to special condition 23 as the appellant has always insisted on performance of the contract on the footing that it contained, or should contain, the provision for finance, but for my part I do not consider that the appellant established a case for rectification of the special condition.

Accordingly, I would dismiss the appeal. I would also dismiss the cross-appeal against his Honour's declaration that the contract was not validly rescinded, the respondent's counsel having indicated that he did not wish to argue it.