RHG Mortgage Securities Pty Limited & Ors v Elektra Purchase No. 19 Limited

RHG Mortgage Securities Pty Limited & Ors v Elektra Purchase No. 19 Limited - [2009] NSWSC 258 - NSWSC 2009 case summary — Zoe

[31]

[and see further as to the distinction between the evidence admissible upon construction as opposed to rectification: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 per Mason J at 352; Toll (FCGT) Pty Ltd v Alphapharm P/L (2004) 219 CLR 165 per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ at 178-179.] Outward expression of accord 14 Campbell JA dealt with this matter [at 273] and following. That analysis repays careful reading. Importantly his Honour observed as follows: "[281] In my view, when the fundamental requirement for granting rectification is a continuing common intention of the parties, it is of more assistance to concentrate on what is needed before an intention of the parties to a negotiation counts as a common intention. In my view, when that intention relates to the terms upon which they will contract with each other, it is still necessary for them to know enough of each other's intentions for it to be said that there is a common intention. They might come to know of each other's intentions in this way through those intentions being directly stated, or they might come to know of them through the various other means by which one person's intention can become known to another person. Those means can sometimes involve a process of conscious and deliberate inference. Those means can sometimes involve simply perceiving a gestalt in a series of events. Those means can depend to some extent on the people involved sharing a common understanding of how particular bodies of knowledge or markets or social institutions they are operating in work - the experienced surgeon, or the experienced chess player, can sometimes see what another surgeon, or chess player, is seeking to do, in a way that an inexperienced person cannot. What matters for present purposes is that for a negotiating party to perform actions or say words from which the other party can gather his or her intention is itself a form of communication. Negotiation of any contract takes place in a context in which various facts are known or assumed by the negotiating parties. Sometimes, for example, if a contract is negotiated in a context where there are well understood business practices and conventions, and nothing is said about those practices and conventions not applying, it can be legitimate to conclude that both parties to the contract intended to act in accordance with those practices and conventions, even if they did not expressly communicate to each other that they intended to act in accordance with those practices and conventions. This view of what is needed before an intention is a common intention, accords, it seems to me, with the Australian case law since Joscelyne.

[37]

[286] The passage from Street J was also adopted by Tipping J in Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 30, who regarded it as supporting the conclusion that he drew, that … while there need be no formal communication of the common intention by each party to the other or outward expression of accord, it must be objectively apparent from the words or actions of each party that each party held and continued to hold an intention on the point in question corresponding with the same intention held by each party." 15 His Honour concluded as follows: "[316 ] For the reasons I have given, the common intention that is required to grant rectification is subjective. Even though there is a requirement for the intention to be disclosed before it can count as a common intention, that disclosure need not be by words that say in substance "this is my intention" . The need for disclosure fills the role of being a limitation on the types of subjective intention that can be enforced through the remedy of rectification, or a limitation on the circumstances in which a subjective intention must exist before it can be enforced through the remedy of rectification. It still remains that proof of the subjective intention of the parties to the contract is fundamental to the grant of rectification. 16 Hence the following propositions hold true: i. For a party seeking to obtain a decree of rectification of the Agreement, it must adduce clear and convincing evidence that proves the document embodying the Agreement does not reflect the parties "common intention": Ryledar Pty Ltd v Euphoric Pty Ltd (2007) Aust Contract R 90-254; [2007] NSWCA 65 per Tobias JA at [151]; Pukallus v Cameron (1982) 180 CLR 447 at 452, 456; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 per Mason J at 349, 350. ii. The requirement of common intention sets a very high standard. The Court of Appeal in Ryledar Pty Ltd v Euphoric Pty Ltd (2007) Aust Contract R 90-254; [2007] NSWCA 65 per Tobias JA at [122] recently approved Lord Denning's statement of the law in Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB 450 at 461, that: "In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by error wrote them down wrongly…".

[116]

Q. But as you understood it the ratings agencies had no problem if that indemnity were dealt with in (f) onwards? A. Correct, but to satisfy the obligations of the swap is crucial to the notes being repaid." See also the email of 17 December 2007 1147am. [Mr Williams' cross-examination:] 71 The defendant submits and I accept that none of those matters required the absence of a fully assignable uncapped funding indemnity. It would appear that whatever problem there was would not differentiate between an assignment of 99.9% of the notes and 100% of the notes. 72 Insofar as Mr Williams gave evidence under cross-examination of wishing to protect against the situation where a new assignee might have an unlimited claim for an indemnity for currency costs, that evidence is not accepted as reliable. 73 The matter generally related to Mr Williams' evidence that where HVB hypothetically would assign some but not all of the notes, he had an understanding that both HVB and the new assignee would be making a claim for indemnity for currency costs. 74 Mr Williams' evidence was that he had anticipated that HVB's claim would be no more than approximately 12 basis points and drawn attention to his perception that in a situation of partial assignment, there would be a question of reasonable costs. 75 When he was asked as to whether he had had any understanding or expectation as at 10 January as to whether the fact that HVB was still there, would have had an impact on what in a practical sense, the new assignee might be charging, his answer was that the costs should be in line with the costs that HVB had agreed to through the Costs Agreement of 16 January 2008. 76 I formed the view during the hearing that the entirety of his evidence of this suggested concern was unreliable. The materials before the Court gave no reason to imagine that RAMS subjectively considered itself so exposed that it would not permit a continuation of the funding indemnity if there were an assignment of 100% of the notes: whilst it was prepared to have that exposure to an unknown assignee in an uncapped amount with 99% or all but one of the notes. 77 In so far as the Costs Agreement was put forward it is important to note that this agreement was not made until 16 January 2008. It was not established that as at 10 January 2008 the parties contemplated that agreement. There was no evidence to suggest that as at 10 January 2008 there was any commitment binding or in principle by HVB to limit the collective indemnity under both agreements to 12 basis points. And even if it had been the case that RAMS had had some expectation that the Costs Agreement would be entered into, that would not have assisted the plaintiff's position with respect to the six months during which it was to subsist. It simply bound an assignee so that if HVB purported to assign its rights under the Subscription Agreement with respect to some notes, the assignee of those rights would also take with it, this, in effect variation to those rights for the first six months. In short if it bound the assignee in that way for the first six months it would make no difference in terms of the total exposure to the funding indemnity as to who held notes and in what combinations. As Mr Speakman contended:

[161]

"…This instance of a Jones v Dunkel inference ( Jones v Dunkel (1959) 101 CLR 298), also available where there is unexplained failure by the party to call a witness or tender documentary evidence, can entitle the judge or jury more readily to accept the evidence of the opposite party which might have been contradicted, or more readily to draw any inference fairly available from the evidence called by the other party. A Jones v Dunkel inference cannot fill gaps in the evidence, or convert conjecture and suspicion into inference, but unless it is to be empty of content the inference if drawn may weigh the scales, however slightly, in favour of the opposing party." ( Adler v Australian Securities and Investments Commission [2003] NSWCA 131 at [649] per Giles JA, Mason P and Beazley JA agreeing). 109 Neither of the litigating parties saw fit to call on its solicitors who were essentially responsible for the drafting and iterations earlier dealt with in these reasons. Both sought to take advantage by reference to Jones v Dunkel. 110 Naturally the defendant had to discharge the onus of proof in relation to its rectification claim. It however contended that it had discharged that onus by reference to what Mr Jenkins had stated in sundry e-mails and by reference to the detailed corroboration in the term sheet, the drafting history and similar. The proposition was that a solicitor could discharge his or her responsibility to the client by providing a marked up document for the client to read by going through the important clauses [but not necessary by going through each and every clause]. 111 It is often difficult for the Court to treat with the submission that a Jones v Dunkel inference should be drawn against a particular party especially because that inference is not able to fill gaps in the evidence. In the circumstances which presently obtain it does not seem to me appropriate for the Court to do otherwise than to draw the inference that the respective parties determined not to call Mr Jenkins nor Mr Smith for the simple reason that the uncalled evidence would likely not have assisted their respective cases. 112 At the end of the day there was sufficient material in evidence which emanated from the respective solicitors to permit the Court to determine the rectification issue: in particular the evidence of those who were called by the parties and the detail within the documents before the Court were of special assistance. 113 The pervasive findings accept that a common intention of the type contended for by the defendant has been established. The reasons have already set out the inherently implausible proposition that the parties would have agreed:

[232]

… HVB has a right under the transaction documents to change the funding cost percentage to any amount that reflects is currency exchange and basis swap costs for providing AUD funding to the client over a longer horizon than anticipated, as long as these costs are calculated in good faith and a commercially reasonable manner … 174 A list of the references in the evidence to the steps that Mr Tyndall took to confirm that the amounts to be charged to RAMS were commercially reasonable makes the point: 18 June 2008 Sought legal advice from Allens Arthur Robinson on the content of the obligation to calculate amounts in good faith an a commercially reasonable manner 25 June 2008 Emailed funding costs memorandum to Clive Parfitt for advice 26 June 2008 Flew to Munich to meet with Helmut Petit for advice. Discussed the funding costs memorandum with him. 27 June 2008 Sought confirmation from Helmut Petit that his calculation was reasonable. Provided Allens Arthur Robinson advice to Helmut Petit. 27 June 2008 Flew to London to meet with Clive Parfitt for advice 27 June 2008 Sought confirmation from Clive Parfitt that his calculation was reasonable. Provided Allens Arthur Robinson advice to Clive Parfitt. 28 June 2008 Sought advice from Brian Wong of HVB 1 July 2008 Sought advice from Jasper Gale of Lehman Bros. 4 July 2008 Telephone call with Helmut Petit. 4 July 2008 Sought advice from Dean Muir of ANZ 8 July 2008 Sought advice from Jasper Gale of Lehman Bros. 4 July 2008 Sought advice from Chad Quinn of NAB 11 July 2008 Sought confirmation from Mark Lewis and Philippe Blin of HVB 14 August 2008 Sought advice from Helmut Petit 14 August 2008 Sought advice from Jasper Gale of Lehman Bros. 14 August 2008 Sought advice from Brian Wong of HVB 17 September 2008 Sought advice from Peter Berckelman of Barclays Capital 9 October 2008 Sought advice from Brian Wong 16 October 2008 Sought advice from Clive Parfitt

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Judgment (236 paragraphs)

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