HEADNOTE
[This headnote is not to be read as part of the judgment]
This appeal concerns a challenge to a successful claim for the rectification of eight equipment leases. The appellant (Ms Mayo) was a long-term employee of the first respondent (the company) and a close personal friend of the second respondent (Mr Leonard), who was the sole director and ultimate proprietor of the company. The company conducted a civil construction business.
By September 2005, the company was experiencing difficulties raising finance to acquire equipment. Ms Mayo raised the possibility with Mr Leonard and the company's accountant (who also acted for Ms Mayo) of Ms Mayo borrowing money to obtain funds to acquire equipment using her home as security, and leasing that equipment to the company. In December 2005, the company and Ms Mayo entered into the first two of what would ultimately be eight such leases (although one remained unexecuted). The lease documentation was prepared by Ms Mayo and the accountant, and the accountant included all the relevant numerical particulars (rental payments, GST, bank fees, rental frequency and cost of the equipment) for each lease. All the leases were in relevantly identical terms except for these particulars.
The monthly rental payment amounts were calculated by the accountant on a flat interest basis, which equated to a higher reducible rate of interest. There was a dispute between the accountant and Mr Leonard as to whether the accountant told him that interest was to be charged on a flat basis. Other features of the leases were that GST was charged twice for six of the eight leases, and all the leases included a $10 monthly bank fee. The respondents sought to have the eight leases rectified in four respects. By the time of the trial, the company was in liquidation.
Mr Leonard was successful before the primary judge. The primary judge found that: (a) Ms Mayo and Mr Leonard had a common intention that interest would be charged on a reducible basis; (b) Ms Mayo and Mr Leonard had left the calculation of GST to the accountant on the assumption that he would appropriately account for it, and had a positive common intention that GST would be correctly treated in the leases; (c) the parties did not intend that bank fees would be charged; and (d) the parties intended for the transfer of the title to the machinery to the company at the end of the leases provided it made the lease payments.
Ms Mayo appealed the primary judge's decision. The issues on appeal were limited to whether the primary judge erred in finding:
- that Mr Leonard had the governing intention that the rental payments be calculated on the basis of reducible as opposed to flat interest;
- the parties had a common intention that GST be "appropriately treated" in the leases; and
- the parties had a common intention that there be no monthly payments in respect of each lease of $10 on account of "bank fees".
Held per Gleeson JA (Meagher JA and Sackville AJA agreeing):
In relation to (1)
There was no error in the primary judge's factual findings in rejecting the evidence of the accountant and accepting the evidence of Mr Leonard that his intention was that the rental payments be calculated on the basis of reducible interest. These findings were not glaringly improbable or contrary to compelling inferences: [65]-[92].
Applied: Fox v Percy [2003] HCA 22; 214 CLR 118.
In relation to (2)
The accountant made a mistake when preparing the leases by charging GST (in six of the leases). The primary judge did not err in finding that the parties intended the leases to achieve a particular effect, namely for GST to be charged correctly and that the leases failed to achieve that intended effect: [95]-[100].
Considered: Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603; Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; 149 CLR 337.
In relation to (3)
The primary judge erred in finding that the parties had a common intention that bank fees were not to be charged in the leases because his Honour did not make a finding in respect of Mr Leonard's intention on this subject, and Mr Leonard gave no evidence that he intended that the payment of bank fees was not required: [103]-[118].
Applied: Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; 69 NSWLR 603.
The parties had accepted at trial that the eighth lease, although unsigned, was binding by reason of a course of conduct and the primary judge ordered rectification of the eighth lease. The Court noted that Ms Mayo did not contend at trial, or on appeal, that rectification should not be ordered in the absence of a written document signed by the parties: [117], [119]-[121].
Considered: Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; 128 CLR 336; Sindel v Georgiou [1984] HCA 58; 154 CLR 661; Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21.
The Court dismissed the appeal except on the bank fees issue. The orders of the primary judge were varied so as to reinstate the charge for bank fees in the leases.