Tam v Mannall

Tam v Mannall - [2010] NSWSC 250 - NSWSC 2010 case summary — Zoe

[10]

2 The vendors are Dulce Edith Mannall and Peter Lumsden Mannall ("the Mannalls"). They are the defendants and cross-claimants. The purchaser is Peter Man Leung Tam ("Dr Tam"). He is the plaintiff and cross-defendant. 3 The property was sold at auction on 7 March 2009. Dr Tam was the successful bidder at $2,820,000. The contract is in the form of the 2005 edition approved by the Law Society of New South Wales and the Real Estate Institute of New South Wales. Parts of the contract were signed and exchanged immediately after the auction. 4 The purchase price stated in the contract is $2,820,000. In the section headed "Tax information", there is an indication that the sale is a "taxable supply" in full for the purposes of the legislation concerning goods and services tax ("GST"). 5 The matter in dispute concerns responsibility for the payment of GST in respect of the "supply" that the contract for sale entails. 6 Clause 13.2 of the contract says: " Normally , if a party must pay the price or any other amount to the other party under this contract, GST is not to be added to the price or amount." 7 The word "normally" is given the following meaning by clause 1: " normally subject to any other provision of this contract." 8 It is common ground that the sale is a "taxable supply" for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) and that the tax impost is upon the vendors as the persons making the supply. It is also common ground that Dr Tam, the recipient of the supply made to him as part of an enterprise, will be able to claim a credit (or "input tax credit") for the cost of the GST in the price paid by him for the supply. 9 The controversy between the parties goes to whether the contract price is fixed at $2,820,000 and the Mannalls, in effect, have to pay GST out of that sum; or whether Dr Tam as purchaser must pay a price that includes an amount over and above $2,820,000 sufficient to ensure that the Mannalls enjoy $2,820,000 after having borne the burden of GST. 10 In the course of the trial, these competing concepts or bases of calculation were described as a price "inclusive of GST" and a price "with GST on top". 11 In view of clause 13.2 and the absence of any other provision modifying its operation, it is clear that the price of $2,820,000 for which the contract provides is a price inclusive of GST. The Mannalls contend, however, that the written contract signed and exchanged after the auction is supplemented by a collateral oral contract, made at the auction, which causes the applicable price to be the bid sum of $2,820,000 with GST on top. They seek, by their cross-claim, an order for specific performance of the written contract as varied.

[12]

14 Attention was focussed in submissions almost exclusively on the rectification claim. This is not surprising, given the parol evidence rule and the very narrow scope it allows for the efficacy of an antecedent oral contract in a conveyancing transaction. The relevant principles were stated by Knox CJ in Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133 at 139: "(a) When parties negotiate an agreement by parol and subsequently reduce it to writing, the writing constitutes the contract ( Knight v Barber 16 M&W 66, at p. 69), or at any rate is conclusive evidence of its terms ( Wake v Harrop 1 H&C 202), subject, of course, to the right of either party to proceed for its rectification or rescission on sufficient grounds. (b) A distinct collateral agreement, whether oral or in writing, and whether prior to or contemporaneous with the main agreement, is valid and enforceable even though the main agreement be in writing, provided the two may consistently stand together so that the provisions of the main agreement remain in full force and effect notwithstanding the collateral agreement. 15 In the present case, it is the concluding proviso regarding consistency between the earlier agreement and the written form the parties in fact adopt that presents a problem for the Mannalls (see also Maybury v Atlantic Union Oil Co Ltd [1953] HCA 89; (1953) 89 CLR 507 and Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1). The parties obviously contemplated that the contract "negotiated" by the making of the highest bid and the fall of the auctioneer's hammer should be reduced to writing and signed. The creation of a written contract was not only required by item (h) of the auction conditions in clause 18(1) of the Property Stock and Business Agents Regulation 2003 but also necessary under s 54A of the Conveyancing Act 1919 to ensure enforceability. The whole of the context indicated a wholly written contract. Consistently with that, the parties acted immediately after the auction to sign a contract at $2,820,000 containing clause 13.2 in the form that had been circulated to persons interested in bidding. 16 The antecedent oral contract the Mannalls seek to set up is inconsistent with the written contract. It conflicts with the written contract's specification of the price as $2,820,000 and the statement in clause 13.2 about GST not being added to the price. The antecedent oral contract cannot be asserted consistently with the parol evidence rule. 17 Like counsel for the Mannalls, therefore, I concentrate on the rectification claim based on alleged common mistake. In doing so, I note that the legal rules are not in dispute. The basic principle was stated by Campbell JA in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 at [444]: "In considering whether to grant rectification of a written contract, equity does not use any of its own principles to decide what the terms of the contract are, or how they are construed - those matters are decided solely by the common law. Rather, equity focuses on what it is unconscientious for a party to assert about the contract. The rationale is that it is unconscientious for a party to a contract to seek to apply the contract inconsistently with what he or she knows to be the common intention of the parties at the time that the written contract was entered. In other words, when a plaintiff succeeds in a claim for rectification, the plaintiff is found to have been justified in in effect saying to the defendant 'you and I both knew, when we entered this contract, what our intention was concerning it, and you cannot in conscience now try to enforce the contract in accordance with its terms in a way that is inconsistent with our common intention'." 18 His Honour also said (at [446]): "The remedy that is granted is, as with all equity's remedies, one that will seek to undo, so far as is in practice possible, the departure, that the litigation has shown to exist, from equity's standards of conscientious behaviour. The way this is achieved, when a remedy of rectification is granted, is by rewriting the contract so that it is no longer departs from the common intention of the parties. The rewriting is done in a quite literal sense - the proper form of order identifies the precise words of the contract that are to be struck out, the precise words that are to be inserted, and where those words are to be inserted: Seton's Judgments and Orders , 7 th ed (1912) vol 2, p 1638-43." 19 Campbell JA added (at [447]): "That this is the type of remedy that is granted has an effect on the sort of 'common intention' that is relevant for rectification. The common intention of the parties has to relate to what the mutual rights and obligations of the parties will be, and has to be sufficiently well-defined and clear to be able to be stated in words that can be incorporated in a contract." 20 Authoritative guidance as to the correct approach to a rectification claim of this kind is provided by members of the High Court in Pukallus v Cameron [1982] HCA 63; (1982) 180 CLR 447. Wilson J said (at 452):

[13]

"The case raises no issue as to the principles which govern the rectification of a contract. Those principles are not in dispute. There need not be a concluded antecedent contract, but there must be an intention common to both parties at the time of contract to include in their bargain a term which by mutual mistake is omitted therefrom: Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 at p.664; Slee v Warke (1949) 86 CLR 271 at p.280; Joscelyne v Nissen [1970] 2 QB 86, at p.98; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336, at p.350. So long as there is a continuing common intention of the parties, it may not be necessary to show that the accord found outward expression, notwithstanding the views expressed to the contrary in Joscelyne at p.98, and Maralinga at p.350. The opposing view is argued by Mr Bromley QC in an article in the Law Quarterly Review vol 887 (1987) p.532. It is unnecessary to pursue the distinction in the present case because the representation of the respondent and its acceptance by the appellants plainly established such an accord. The second principle governing the rectification of a contract which is material to this case is that which requires the plaintiff to advance 'convincing proof' that the written contract does not embody the final intention of the parties. The omitted ingredient must be capable of such proof in clear and precise terms. The Court must not assume for itself the task of making the contract for the parties." 21 Brennan J said (at 456): "Although the remedy of rectification is no longer held to depend upon proof of an antecedent concluded contract, Slee at p.280; Maralinga at p.336, it is necessary to show a concurrent intention of the parties, existing at the time when the written contract is executed, as to a term which would have been embodied in the contract if the parties had not made a mistake in expressing their intention. Proof of such an intention is necessary to 'displace the hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties' Maralinga at p.351." 22 To these observations may be added that of Mason J in Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336 at 350: "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 [1936] Ch 375; Slee v. Warke (1949) 86 CLR 271). But this circumstance does not affect what I have already said." 23 Against that background, I turn to the facts of this case in order to ascertain whether there is "clear and convincing proof" that the common intention of the parties, as at 7 March 2009, was not that reflected in clause 13.2 but rather an intention that the sale was to be a sale "with GST on top". For rectification to be ordered, it must be established that both sides knew, when they entered into the contract, that their common intention was to provide for a price consisting of the successful bid amount plus GST; and that it would be unconscionable for Dr Tam to try to enforce the written contract on the basis stated in clause 13.2. 24 The Mannalls retained Raine & Horne, Burwood, as the selling agent. Mr Lorello of that firm accompanied Dr Tam on an inspection of the property on or about 11 February 2009. Mr Lorello's affidavit evidence is that he said to all potential buyers who showed real interest: "Whatever price the property is sold for at auction there is GST payable on top of that price"; and "You will have to pay stamp duty on the contract for sale based on the purchase price plus GST." 25 Although Mr Lorello's affidavit does not record what he actually said to Dr Tam during the inspection, he did refer to that matter in cross-examination: "Q. What did you say to him? A. I said, 'There will be GST payable because the property is not being sold as a going concern and also you will have to pay extra on stamp duty because whatever the price will be, there will be GST on top of it and you will be paying stamp duty on the full price, including the GST'.

[20]

28 Dr Tam did, however, see the form of contract that Mr Herrmann had obtained. He saw it some time after the inspection with Mr Lorello on or about 11 February 2009. Dr Tam said in evidence that he looked at the contract and read the section about the sale being a taxable supply in full for GST purposes. He did not read clause 13.2 but he did form an opinion - he eventually called it an assumption - that the purchaser would not be required to pay GST on top of the bid price. 29 I move now to events at the auction which took place on-site in the vacant shop premises on 7 March 2009. All accounts are consistent in putting the number of persons present at more than 100. The auction was conducted by Mr Panos, a licensed auctioneer whose services are often retained by the vendors' agent, Mr Lorello. Mr Panos took his instructions from Mr Lorello. Mr Panos's only involvement was in the actual conduct of the auction, one of several at which he presided on that particular Saturday. 30 Mr Panos testified that he was told by Mr Lorello that he should announce before starting the auction that the property sale price would exclude GST and that GST would be payable in addition to the final selling price. He says in his affidavit that he gave a brief introduction of the property, followed by words to this effect: "Bidding is exclusive of GST. GST will be payable on top of the sale price." 31 Mr Panos says that he also spoke identical words on one occasion during the course of bidding. 32 Mr Lorello's affidavit evidence is that he had a one-on-one conversation with Mr Panos before proceedings began in which he said: "The reserve price is $2,500,000. The sale of the property is a taxable supply. Announce to all those present that the bidding is exclusive of GST and that GST is payable on top of the price." 33 Mr Lorello explained in cross-examination that he also gave Mr Panos a piece of paper with the reserve on it. 34 Mr Lorello said in evidence that he heard Mr Panos say at the auction the words he had asked him to speak concerning GST. 35 Dr Tam says in an affidavit that, when he attended the auction, he stood on one side of the shop with Mr Herrmann (Ms Jennifer Mannall, whose evidence will be mentioned presently, says that Dr Tam and Mr Herrmann - described by her as "an older grey-haired Caucasian gentleman who reminded me of Placido Domingo" - were "leaning on the butcher's wall side of the premises"). Dr Tam was feeling quite tense as he had never purchased a property at auction. He refers to things said in the auctioneer's introductory remarks, including that the property was a "unique offering" in a prime location and had been in the one family for over seventy years. He says that he has no recollection of any announcement by the auctioneer concerning the incidence of GST and that, immediately before and during the auction, he did not turn his mind specifically to the question of the incidence of GST. The matter was dealt with in cross-examination as follows: "Q. Your evidence is that you have no recollection of any particular announcement concerning the incidence of GST being payable on top of the bids made by the auctioneer? A. I did not hear any announcement by the auctioneer concerning the incidence of GST on the biddings.

[23]

Q. But you're not saying that the auctioneer didn't make that announcement? A. I couldn't be certain." 37 Other persons present at the auction gave evidence about what was said. 38 Mr Peter Mannall, one of the vendors, says that, before the start of bidding, he heard the auctioneer say "to the Real Estate Agent, Guy Lorello of Raine and Horne in a loud and clear voice" words to the following effect: "What is happening about GST?" 39 Mr Mannall's evidence is that Mr Lorello answered loudly: "The property is being sold exclusive of GST and the price for bidding does not include GST." 40 Mr Mannall repeated this recollection in cross-examination, describing it as "absolutely crystal clear". 41 Ms Jennifer Mannall, a daughter of the other vendor, was present at the auction. She gave evidence in her affidavit about introductory remarks made by the auctioneer (named by her as Mr Panos) concerning the property, its being well known and a "unique offering" and that he also said: "The auction will proceed with the final sale, ie, being the highest and final bid placed and it will be paid plus the GST on top." 42 Ms Jennifer Mannall's elaboration in cross-examination was: "A. . . . He instructed those present as to the auction proceeding, to the final bid being placed, the highest bid and he said when that would be taken, when the knockdown apparently, and then he said that would be the price paid plus he said, GST would be on top." 43 Mr John Saxby, a friend of Mr Peter Mannall, was present at the auction. He says in his affidavit that the auctioneer said to those present before the start of bidding: "As you will see the property is not tenanted and therefore GST is payable on the price bid by a successful bidder; in no way can the sale be the sale of a going concern." 44 Mr Saxby gave a slightly different version of Mr Panos's remarks in cross-examination: "What I heard him say was - in the preamble to the bidding - that this was clearly not a going concern and GST would be payable by the successful bidder and he also spoke about the attributes of the property, as most auctioneers do." 45 Ms Susan Mannall, the sister of Ms Jennifer Mannall, was present at the auction. Her affidavit was read but she was not cross-examined. She says nothing about statements on GST being made at the auction and attributes to "Mr Guy Lorello, the Real Estate Agent" - not, it may be noted, the auctioneer - the introductory statements about the historic value of the property as a unique family business in Burwood for 86 years. Ms Susan Mannall also deposed: "During the introduction, my attention was distracted momentarily. It was an emotional day. I reflected on the memories of my father/grandfather and the business and possibly, for a brief moment, turned to speak to Wendy Mannall. My focus returned to the start of the bidding and the nervous anticipation of the auction." 46 I infer from Ms Susan Mannall's evidence that she has no recollection of hearing anything said at the auction on the subject of GST. The statement in her affidavit implies a belief on her part that, through emotion, distraction, conversation with Wendy Mannall or a combination of these, she did not hear everything said to the persons at the auction

[31]

7 Mr Panos says that he repeated his initial statement about GST on one occasion GST during the course of bidding. No witness reports having heard him do so. 49 We have here a good example of what Isaacs J, in Bacchus Marsh Concentrated Milk Co Ltd (in Liq) v Joseph Nathan & Co Ltd [1919] HCA 18; (1919) 26 CLR 410 at 453, called "uncertain testimony of slippery memory". I say that without intending the slightest criticism of or disrespect to any witness. I have no doubt whatsoever that every one of them made an honest and conscientious effort to recall the events of the day and did his or her best to give a true and faithful account. The problem is that human memory is fragile and prone to unconscious shifts, particularly when the mind has had a long time to dwell on important events. In Longman v The Queen [1989] HCA 60; (1989) 168 CLR 79, McHugh J said (at 107): "The fallibility of human recollection and the effect of imagination, emotion, prejudice and suggestion on the capacity to 'remember' is well documented." 50 The witnesses who maintain that something was said about GST at the auction have different recollections of what was said and by whom. Mr Panos, Mr Lorello, Ms Jennifer Mannall and Mr Saxby all recall that it was the auctioneer who said something about GST to those present. None of those witnesses referred to anything said by Mr Lorello. Mr Peter Mannall's recollection, by contrast, is that Mr Lorello made a statement about GST in response to a question asked by Mr Panos and that Mr Panos said nothing on the subject beyond asking Mr Lorello the question. Three versions of what was said about GST - those of Mr Panos, Mr Lorello and Ms Jennifer Mannall - include the words "on top". The accounts of Mr Peter Mannall (attributed to Mr Lorello, not Mr Panos) and Mr Saxby (attributed to Mr Panos) make no reference to the words "on top". Mr Peter Mannall's version is merely that the sale was exclusive of GST and the price did not include GST, without anything specific about liability for GST or the incidence of it. Mr Saxby's recollection refers to GST being "payable on the price by a successful bidder". 51 And, of course, neither Dr Tam nor Mr Herrmann, who were standing together to one side of the shop, has any recollection of hearing any statement about GST made at the auction by anyone. Nor does Ms Susan Mannall. Added to that, there is evidence from a number of witnesses that there was a general hum of conversation among the more than 100 persons present; and there is no clear indication of if and when the hum subsided as proceedings got underway or when, in relation to any lull there may have been, any statement about GST was made. 52 Central to the Mannalls' common mistake case must be the proposition that Dr Tam had a particular and clear-cut intention as to the inclusion in the written contract of a particular term that was omitted by mistake; also that the Mannalls, as the vendors, themselves had an intention identical with that of Dr Tam. The task of proving these propositions rests with the Mannalls.

At a glance

Court

Decision date

Before

Source

Judgment (38 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (17)

Cited By (2)