W & K Holdings (NSW) Pty Ltd v Laureen Margaret Mayo

Supreme Court of NSW|2013-07-19|Before: Sackar J

420 Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450 GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 Henkle v Royal Exchange Assurance Co (1749) 1 Ves Sen 317 Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715 Hume Steel v Attorney-General (1927) 39 CLR 455 Hurley v McDonalds Australia Ltd (2000) ATPR 41-741 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 Kakavas v Crown Melbourne Ltd (2013) 298 ALR 35 Louth v Diprose (1992) 175 CLR 621 McGowan v Commissioner of Stamp Duties [2002] 2 Qd R 499 Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 New South Wales Medical Defence Union v Transport Industries Insurance Co (1986) 6 NSWLR 740 Parlux SpA v M & U Imports Pty Ltd (2008) 21 VR 170 Provident Capital Ltd v Papa [2013] NSWCA 36 Pukallus v Cameron (1982) 180 CLR 447 Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 Saxby Soft Drinks Pty Ltd v George Saxby Beverages Pty Ltd (2009) 14 BPR 27,213 Slee v Warke (1949) 86 CLR 271 Tantau v Macfarlane [2010] NSWSC 224 Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 Thomas Bates & Son Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505 Tinyow v Lee and Another [2006] NSWCA 80 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 Virginia Nemeth (by her tutor) v Australian Litigation Funders Pty Ltd and Ors [2013] NSWSC 529 Wentworth Partners Estate Agents Pty Ltd Trading As Re Max Gold v Gordony [2007] NSWSC 1135 West v AGC (Advances) Ltd and Others (1986) 5 NSWLR 610 Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604 Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 Winks v W H Heck & Sons Pty Ltd [1986] 1 Qd R 226 Texts Cited: J W Carter, Contract Law in Australia, 6th ed (2013) LexisNexis Butterworths J W Carter, The Construction of Commercial Contracts (2013) Hart Publishing K Lewison and D Hughes, The Interpretation of Contracts in Australia (2012) Thomson Reuters N Seddon and M Ellinghaus, Cheshire and Fifoot's Law of Contract, 9th Australian edition (2008) LexisNexis Butterworths R Meagher, D Heydon and M Leeming, Equity: Doctrines and Remedies, 4th ed (2002) LexisNexis Butterworths Spry, The Principles of Equitable Remedies, 8th ed (2010) Lawbook Co Story, Commentaries on Equity Jurisprudence, 1st ed (1884) Stevens and Haynes Category: Principal judgment Parties: W & K Holdings (NSW) Pty Ltd (Plaintiff and First Cross-Defendant to the First Cross-Claim) Laureen Margaret Mayo (Defendant, Cross-Claimant in the First Cross-Claim, Cross-Defendant to the Second Cross-Claim) William Arthur Leonard (Second Cross-Defendant to the First Cross Claim and Cross-Claimant in the Second Cross-Claim) Representation: Counsel: D Allen (W & K Holdings (NSW) Pty Ltd and William Arthur Leonard) H Stowe (Laureen Margaret Mayo) Solicitors: Catalyst Legal Pty Ltd (W & K Holdings (NSW) Pty Ltd and William Arthur Leonard) Mason Lawyers (Laureen Margaret Mayo) File Number(s): 2009/289575

Proceedings 1These proceedings arise from a number of commercial leases and related security documentation under which W & K Holdings (NSW) Pty Ltd (the plaintiff or the company) leased from Laureen Margaret Mayo (the defendant or Ms Mayo) various machinery and commercial equipment for use in its business. The inclusion of Mr William Arthur Leonard (Mr Leonard) as a party to these proceedings arises from his provision of personal guarantees securing the obligations of the plaintiff to the defendant. The principal issue between the parties is whether the leases should be rectified and whether the related security documentation should be set aside. 2In its latest further amended statement of claim, the plaintiff seeks rectification of eight leases to provide, in respect of each lease: (1)that the interest rate specified in each lease should be charged on a reducible basis and not on a flat basis (the meaning of these alternatives is explained below); (2)that GST only be charged in one of two particular ways, and not in both ways; (3)that no bank fees are payable by the plaintiff to the defendant; and (4)that ownership of the equipment the subject of the respective leases be transferred to the plaintiff at the conclusion of the term of the respective leases. 3The plaintiff also seeks to rely on general law unconscionability and various provisions of consumer protection legislation to set aside or prevent the defendant from enforcing her rights under various documents securing the plaintiff's obligations under the leases. The plaintiff's case in final written submissions was presented on a narrower and more focussed basis than in its pleadings. For example, despite including in its pleading, among other things, a claim for damages for breach of contract, a claim for equitable compensation, allegations of deceit, references to breach of fiduciary duties, non est factum, claims for relief pursuant to sections 23 and 66 of the Supreme Court Act 1970 and s 1317H of the Corporations Act 2001 (Cth) and seeking various declarations, none of those claims was pressed in final submissions. Unsurprisingly, the defendant's submissions were based on the premise that the plaintiff only pressed what was included in its final submissions. 4In summary, the plaintiff's case raises the following issues: (1)(construction) whether the leases, as a matter of construction, provide for interest on a reducible basis or a flat basis; (2)(rectification) whether the leases should be rectified (in four respects identified above) on the basis of either common or unilateral mistake; and (3)(general law and statutory unconscionability) whether the debenture dated 13 May 2008, should be set aside or rendered incapable of enforcement by the defendant, on the basis of general law unconscionability or alternatively s 80 of the Trade Practices Act 1974 (Cth) for contravention of sections 51AC(2) and 52 (I note for completeness that the parties entered into three debentures, but that only the last debenture is the subject of dispute between the parties). 5The defendant opposes each of the plaintiff's claims and has filed a cross-claim against both the plaintiff and Mr Leonard, seeking, in broad terms, all outstanding instalments under the leases, damages, delivery up of the equipment, future rental payments, declarations of validity of security documents, and consequential orders. This is the first cross-claim in the proceedings. The defendant also contends that the leases were at some point varied to provide for an increased rate of interest. The defendant's cross-claim raises the following issues: (1)(variation) whether the first to seventh leases were at some point varied to provide for an increased rate of interest; (2)(damages) whether the defendant is entitled to damages under the following heads: (a)all outstanding instalments to date under the leases; (b)damages for wrongful detention of equipment following the expiry of the relevant leases; and (c)future rental repayments under the sixth to eighth leases (unless the leases have expired by the date of this judgment, in which case, any unpaid instalments would be caught under the claim for outstanding instalments); (3)(delivery up) whether the defendant is entitled to have the equipment the subject of the leases returned to her (or alternatively entitled to a payment of their value); (4)(declaration as to debentures) whether the defendant is entitled to a declaration that the debenture deeds are valid and subsisting (I note that this will depend on my determination of aspects of the plaintiff's claim); (5)(declaration as to receiver and manager) whether the defendant is entitled to a declaration that she is entitled to appoint a receiver or manager (or both) to the property of the plaintiff (I note again that this will depend on my determination of certain aspects of the plaintiff's claim); and (6)(repudiation) whether the plaintiff has repudiated the leases on the bases that the plaintiff has failed to make outstanding payments under the leases (as alleged by the defendant) and refused to return the equipment following the expiry of the leases (I note that the determination of this claim will depend on my determination on rectification). 6The defendant also seeks consequential orders for interest and costs. The cross-defendants (namely W & K Holdings (NSW) Pty Ltd and Mr Leonard) oppose the cross-claim. 7Mr Leonard has also filed a cross-claim against Ms Mayo, seeking to set aside, pursuant to s 7 of the Contracts Review Act 1980, the personal guarantees provided by Mr Leonard to Ms Mayo in the third to seventh leases. This is the second cross-claim in these proceedings. I will address this cross-claim when I consider the plaintiff's claim for relief under general law and statutory unconscionability.

Factual background 8The plaintiff company is, and was at all relevant times, involved in the civil construction industry, performing mostly direction drilling, trenching and excavation for the installation of underground services. Mr Leonard was, at all relevant times, the managing director, sole director, and ultimate proprietor of the plaintiff. He was responsible for overseeing the performance of all work done by the plaintiff and for making decisions in relation to strategy, quoting and tendering for projects, the purchase of equipment, employment within the company, and contracting with third party customers. Although I will come to address this in some more detail, it is common ground between the parties that Mr Leonard possesses an unusually high level of numerical literacy and arithmetic ability, but has difficulty reading and alleges he has dyslexia, though no medical evidence was led to support that allegation. 9Ms Mayo was a long-term employee of the company whose role was exclusively related to the administrative aspects of the company's business, including acting as secretary, office manager and performing bookkeeping functions. It is also common ground that on several separate occasions, between about May 2006 and July 2008, Ms Mayo advanced short-term loans to the company to alleviate its cash flow difficulties when faced with pressing liabilities or to supply a shortfall in working capital. Those advances are not the subject of the present proceedings, but they are part of the relevant factual background against which the transactions the subject of these proceedings took place. 10In about September 2005, new equipment was sought for the company's business. The evidence of Mr Leonard, Ms Mayo and Mr David John Doberer (Mr Doberer, the company's accountant since November 2004), indicates that almost all attempts made on behalf of the plaintiff to obtain finance to purchase the new equipment, were unsuccessful. Mr Leonard gave evidence that Mr Doberer's attempts to obtain finance for the company from "traditional" lending institutions, were unsuccessful. He also gave evidence that Mr Doberer made unsuccessful attempts to secure finance through a Mr Glen Witherspoon, through a Ms Christine Matthew of CBFC Ltd (a lender which had previously provided finance to the plaintiff), and probably through a Mr Brian Smedley of a finance broker known as Town & Country. Mr Doberer's own evidence about his largely unsuccessful efforts to obtain finance for the company in mid to late 2005 is generally consistent with the evidence given by Mr Leonard. There is, however, non-controversial evidence indicating that the company received but rejected an offer from a financier in Sydney to provide finance at an interest rate of 25%, as the company could not afford to service a loan at that rate of interest. 11In both his written and oral evidence, Mr Leonard accepted that the company's prospects of obtaining finance were limited. In his oral evidence he indicated that he understood that his heavily encumbered home, which had a mortgage and two caveats registered against its title, together with the adverse notations on his credit file as a result of a default against CBFC Ltd, limited his own prospects of personally obtaining finance. Mr Doberer, the company's accountant, gave evidence that the company was not in a good financial position and owed debts to, among others, the Australian Taxation Office. 12According to Ms Mayo's evidence, her involvement in the provision of finance to the company commenced when one of the finance brokers from whom Mr Leonard was then seeking finance called the company's office to obtain financial details from Ms Mayo about the company and Mr Leonard in order to progress the finance application. After Ms Mayo provided the relevant financial information, the finance broker immediately advised, among other things, that no finance could be offered. Ms Mayo alleges she then asked the finance broker whether she could borrow money, secured against her unencumbered property at Tingira Heights, with a view to using that money to purchase equipment, which she would lease to the company for use in its business. Ms Mayo alleges the finance broker said this might be possible, depending on the outcome of the broker's review of Ms Mayo's personal financial position. 13There is an inconsistency between Ms Mayo's affidavit and her oral evidence as to whether she first spoke to Mr Leonard or Mr Doberer about the newly discovered possibility of personally borrowing funds to finance the acquisition of equipment. The evidence of both Ms Mayo and Mr Leonard is, again, unclear as to whether an interest rate for the proposed leases between Ms Mayo and the company was mentioned during Ms Mayo's first discussion or later discussions with Mr Leonard. However, nothing turns on the precise sequence of these events. I will come back to these events in more detail. 14At about the same time that Ms Mayo was having discussions with Mr Leonard about the possibility of providing finance, she met with Mr Doberer to discuss the details of a lease financing proposal. As I have mentioned, Mr Doberer was the company's accountant since about November 2004. He is not legally qualified. It is not disputed that Mr Doberer acted as an accountant and adviser to Ms Mayo, the company and Mr Leonard in relation to the proposed lease transactions. Ms Mayo alleges that during her initial conversations with him, Mr Doberer advised her he was able to assist to prepare lease facilities by reference to the lease documentation previously provided to the company by CBFC Ltd, and to prepare appropriate security documentation to protect Ms Mayo's position. Ms Mayo says he also advised her against providing finance because the company was not trading well. However, Mr Doberer appreciated Ms Mayo's desire to provide finance because of her friendship with Mr Leonard. Mr Doberer's evidence as to the effect of the conversations which took place between Ms Mayo and himself, is consistent with Ms Mayo's evidence. 15It is not disputed that Ms Mayo proceeded to borrow funds on the security of her home for the purpose of financing her acquisition of equipment to be leased to the company for use in its business. It appears to have been understood by all parties concerned that Mr Doberer was acting for and advising the company, Mr Leonard and Ms Mayo. Mr Doberer, for example, gave evidence that though he agreed to act for Ms Mayo, he understood he was continuing to act for Mr Leonard and the company. Likewise, Mr Leonard, in oral evidence, indicated that he understood Mr Doberer to be acting in his (i.e. Mr Leonard's) interests. Ms Mayo also indicated in oral evidence that she understood that Mr Doberer was not acting solely in her interests, but was also acting as the company's accountant and also in Mr Leonard's interests in relation to the proposed lease transactions. No party appears to have adverted to the significance of Mr Doberer's clear conflict of interest in acting for all parties. 16Mr Doberer arranged for the registration of the business name "Mayo Spirit" for the purpose of Ms Mayo's provision of finance to the company. Ms Mayo must, at some point during or around these negotiations, have finalised and obtained approval of personal finance. Ms Mayo, Mr Leonard and Mr Doberer all agree that they had discussions about the appropriate rate of interest for the leases and about the basis on which such interest would be charged. However, the recollections of each of Mr Leonard, Ms Mayo and Mr Doberer are not entirely internally consistent, nor entirely consistent as between each other. The competing evidence in relation to these discussions about interest, which is obviously critical to the question of rectification in relation to the basis on which interest would be charged, is considered in further detail under a separate heading in my discussion and analysis below. 17The lease documentation was prepared using a previous CBFC Ltd lease as a template. The original CBFC Ltd template was not in evidence. According to the evidence of both Ms Mayo and Mr Doberer, the decision to adopt this template appears to have been made by Ms Mayo and Mr Doberer. The template used for each lease, as typed by Ms Mayo and reviewed by Mr Doberer, was entirely in typescript except for (in the first to fourth leases) the handwritten details of the date of execution of the lease, the date of commencement of the lease, the end date for the lease, the rate percentage and all numerical figures (including rental payments, GST, bank fees, rental frequency and cost of the equipment). Mr Doberer gave evidence that he had personally provided the numerical particulars for each lease. Critically, it is apparent from the monthly payment figures that Mr Doberer calculated the amount of the monthly payments for each lease on a flat interest rate basis. 18The first and second leases, and related security documentation, were executed on 2 December 2005 in the kitchen of Mr Doberer's home office. Those present were Ms Mayo, Mr Leonard, Mr Doberer and Mr Doberer's wife, Ms Joy Doberer. The first lease was for a "Jet Trac Drilling Rig", which had been acquired from "Ditch Witch Australia Division" of Batequip Pty Ltd for $129,950, and stipulated monthly payments by the company to Ms Mayo of $3,140.46 for rental, $314.04 for GST and $10 for bank fees (i.e. a total of $3,464,50 per month). 19The second lease was for a second hand boat which had been acquired from a Mr Wayne Dark for $9,100, and stipulated monthly payments to Ms Mayo of $219.92 for rental, $21.99 for GST and $10 for bank fees (i.e. a total monthly payment of $251.91). 20The first debenture is also dated 2 December 2005. As this document is not the subject of any dispute between the parties, I do not propose to elaborate on its terms. Broadly, it secured the company's obligations under the leases by charging assets of the company in Ms Mayo's favour. 21In respect of both the first and second leases, the company was required to make monthly payments, of the amounts specified in the respective leases, commencing from 2 December 2005 and ending on 2 November 2011 (i.e. a period of 60 months), the residual value of the equipment at the expiry of the respective leases was nil, and personal guarantees were signed by Mr Leonard in favour of Ms Mayo in respect of the company's payment obligations under the leases. 22Also, for both leases, a rate of 9% "Diminishing Value" was specified under the heading "Tax depreciation rate and type". This is the only rate ever specified in the leases. In the template document that was prepared and ultimately executed by the parties, the heading "Tax depreciation rate and type" appears on the bottom of a page, and the boxes within which "9%" (in handwriting) and "Diminishing Value" (in typescript) appear, were on the top of a new page. The parties and Mr Doberer accept that the inclusion of "9%" under the heading "Tax depreciation rate and type" was an error made by Mr Doberer, and that the value of 9% in fact specifies the rate of interest. However, the parties are in disagreement as to whether the words "Diminishing Value" (located immediately beside the rate "9%") refer to the basis on which interest would be charged, or were kept in the document by error and should have been deleted or omitted. The plaintiff alleges that the words "Diminishing Value" refer to the basis on which interest at 9% would be charged, while the defendant alleges that those words were included by error, that they relate to depreciation, that they are remnants from the CBFC Ltd lease template, and that they should have been crossed out. 23The plaintiff bases on this apparent inconsistency in the terms of the leases an argument that, as a matter of construction, the leases actually provide for an interest rate of 9% assessed on a diminishing basis and that the figures displaying monthly calculations assessed on a flat rate are incorrect. This argument was made by the plaintiff in relation to each of the eight leases. I will address it in due course. 24It is important to identify in some detail precisely the procedure the parties followed when the lease and security documents came to be signed. According to Mr Doberer, prior to or at the time of the execution of the first and second leases, he provided to Mr Leonard a general summary or overview of the documents in accordance with his "usual practice", which he alleged included a description of the asset being financed, the term of the agreement, the number of payments required, the amount of each periodic payment, the amount of any residual payment, the rate of interest, and whether or not a personal guarantee was being provided. Mr Doberer said he specifically recalls handing the documents to Mr Leonard, page by page, and following his usual practice when the first to third leases were executed. Mr Doberer alleges he probably followed the same procedure for the fourth lease, but concedes that has no specific recollection of following that procedure or providing explanations to Mr Leonard in relation to the subsequent leases, but that the lease transactions became "a stock standard repetition of previous agreements". Mr Doberer gave oral evidence consistent with his affidavit evidence. 25Ms Mayo's evidence is generally consistent with Mr Doberer's evidence. She alleges that at the time of execution of each of the seven leases (the documentation for the eighth lease is unexecuted), Mr Doberer explained to Mr Leonard the equipment the subject of the lease, the interest rate, the cost of the equipment, the monthly rental, GST and bank fee charges, and that a personal guarantee was required. Ms Mayo gave oral evidence, consistent with her affidavit evidence, that the meeting at which the first and second leases were executed took most of one to one and a half hours, and that Mr Doberer "went through" the documents with Mr Leonard. 26Mr Leonard's affidavit evidence suggests that no explanation was given of the terms of the first two leases, and that he was simply asked to sign the relevant documents at the relevant places. Despite his initial persistent denials, in his oral evidence, of receiving any explanation of the terms of the leases prior to or at the time of execution, Mr Leonard ultimately conceded during cross-examination that Mr Doberer did in fact provide an explanation of the number of repayments, the rate of interest, the term of the leases and "advice about the terms of the agreements" (T80.33-T80.39). Mr Leonard also conceded that he would have had no difficulty understanding what was conveyed by the numbers in the lease schedule, whatever other difficulties he may have had in attempting to read and comprehend the terms. 27As I indicated above, Mr Doberer also alleges he told Mr Leonard, prior to the execution of the first to thirds leases and probably the fourth lease, that one of the documents was a personal guarantee. Mr Doberer has no specific recollection in respect of the subsequent leases. Ms Mayo alleges in her affidavit evidence that Mr Doberer advised Mr Leonard at the time of execution of each of the seven executed leases, that Mr Leonard was providing a personal guarantee in respect of the company's obligations. Again, Mr Leonard denied, in both his affidavit and initially in giving oral evidence, that he was advised he was providing a personal guarantee, but ultimately conceded that Mr Doberer in fact mentioned it to him at the time of execution of the first two leases (T86.46-T87.3), and that he understood the effect of personal exposure in providing a personal guarantee (T65.42-T66.5). 28As to the debenture deed which was executed on the same day as the first and second leases, Mr Doberer alleges, in both his affidavit and oral evidence, that he explained to Mr Leonard that the effect of the debenture deed was to charge all the assets and undertaking of the company to secure his borrowings from Ms Mayo, and that in the event of default, Ms Mayo would be entitled to appoint a receiver and manager. The extent of Ms Mayo's recollection is that Mr Doberer made statements to Mr Leonard about the debenture deed, but it was clear from her oral evidence that she was unable to recall the effect of what Mr Doberer allegedly said. Again, Mr Leonard initially denied being advised of the effect of the debenture deed, or that he was even told he was signing one, but later conceded that he had a recollection of Mr Doberer making statements "about a debenture" and another statement reminding Mr Leonard that he (i.e. Mr Leonard) was familiar with debenture deeds from his prior experience with lenders. 29Ms Mayo alleges that each of the subsequent lease transactions commenced with an inquiry from Mr Leonard to Ms Mayo of whether she was prepared to finance the acquisition of a further item of equipment for the company. The evidence of both Mr Doberer and Ms Mayo was that the preparation of subsequent lease documentation was repetitive, and generally involved Ms Mayo notifying Mr Doberer that she was willing to finance the acquisition of further equipment, the preparation of template lease documentation by Ms Mayo, and the insertion of particulars (including figures) into the documentation by Mr Doberer or the provision of such information to Ms Mayo, who would then insert it into the documentation. In my view, the evidence strongly indicates that the understanding which the parties developed about the terms of the first two leases carried through to subsequent lease transactions. 30The third lease, dated 22 December 2005, was for a second hand "International 1850D Truck", acquired from "Midcoast Trucks" for $42,000, stipulated monthly payments to Ms Mayo from the company of $1,015 for rental, $101.50 for GST and $10 for bank fees (i.e. a total monthly payment of $1,126.50), and commenced 22 December 2005 and ended on 22 November 2010 (i.e. a period of 60 months). The residual value of the truck was nil, and Mr Leonard again signed a personal guarantee of the company's obligations under the third lease. The "Rate" was specified as 9%, and, as with the previous and subsequent leases, the words "Diminishing Value" appear immediately beside it, despite the monthly rental payment figure being calculated on a flat basis. At the time of execution of the third lease (i.e. 22 December 2005), Ms Mayo and the company also executed a second debenture deed. Again, as the second debenture deed is not relevant to any dispute between the parties, I do not propose to set out its terms. 31The fourth lease is dated 23 February 2006. According to Mr Doberer, prior to the execution of the fourth lease, he expressed to Ms Mayo concern about her position and warned her of the possibility that she could "lose everything" as a result of these transactions, but Ms Mayo indicated that she wished to continue with the transaction to assist Mr Leonard in his business. The fourth lease was for an "Enviro Clean Vacuum Pump Tank", acquired from "Orara Construction & Maintenance" for $19,800, and stipulated a rate of 9%, monthly payments of $478.50 for rental, $47.85 for GST and $10 for bank fees (i.e. a total monthly payment of $536.35) and commenced 23 February 2006 and ended 23 January 2011 (i.e. a period of 60 months). Again, the residual value of the equipment was nil, and Mr Leonard signed a personal guarantee of the company's obligations in favour of Ms Mayo. No further debenture deed was executed on this occasion. 32The fifth lease, dated 18 August 2006, was for a "Kubota KX91-3HGLA Excavator" with various accessories, acquired from "All Class Construction Equipment" for $41,500, stipulated a rate of 9.2% and monthly payments of $1,009.83 for rental, $11.98 for GST and $10 for bank fees (i.e. a total monthly payment of $1,120.81). The sixth lease, dated 17 May 2007, was for a 1985 "Hino Tipper Truck", acquired from a Mr Robert White for $17,000, stipulated a rate of 9.45% and monthly payments of $417.20 for rental, $41.72 for GST and $10 for bank fees (i.e. a total monthly payment of $468.92). The seventh lease, dated 26 November 2007, was for a new 2007 "Toyota Work Mate" utility, acquired from "Cardiff Toyota" for $21,500, stipulated a rate of 10.2% and monthly payments of $541.08 for rental, $54.11 for GST and $10 for bank fees (i.e. a total monthly payment of $605.19). 33As with the other leases, the fifth to seventh leases were each for a period of 60 months commencing on their respective dates of execution, the residual value of the equipment in respect of each lease was nil, and Mr Leonard signed personal guarantees in favour of Ms Mayo to secure the company's repayment obligations. Again, immediately beside the percentage rate specified in each lease, the words "Diminishing Value" appeared, but the monthly payment figures were actually calculated on a flat rate basis. 34The defendant alleges that in or about April 2008, in response to concerns she had expressed to Mr Doberer about her rising borrowing costs, Mr Doberer proposed to seek Mr Leonard's agreement to vary the leases by increasing the interest rate and relevantly backdating the variations so that the defendant would not be out of pocket. The defendant says a meeting then took place at the company's office, attended by Mr Doberer, Mr Leonard and herself, at which Mr Leonard agreed to Mr Doberer's variation proposal as explained at that meeting. Accordingly, with Mr Doberer's assistance, Ms Mayo prepared a spreadsheet which, in respect of each of the seven leases then on foot, calculated additional charges arising from the backdated variation, and recalculated future charges on the basis of the varied terms. Ms Mayo alleges she then issued invoices to the company seeking a back-payment of additional interest for each of the seven leases, and she also adjusted the regular amount due for future monthly payments. The invoices are all dated 22 May 2008, addressed to the company, and range from $40.32 to $2,017.55 (though mostly in the lower range). 35Mr Leonard denies having any involvement in the variations or being aware that any adjustments were made to the repayment figures. Mr Doberer gave evidence that he recalls learning of an agreement being reached between Mr Leonard and Ms Mayo to adjust the repayments under the leases, and assisting Ms Mayo in calculating the adjusted repayments. Mr Doberer does not recall who first raised the proposal of the variations. Nor does he specifically recall discussing the variations with Mr Leonard or Ms Mayo, though he gave evidence that, based on his practice, it is unlikely he would have implemented a change affecting his client's financial position (i.e. the company's financial position) without first discussing the proposed change with his client. 36A third debenture deed was executed on 13 May 2008. Ms Mayo said that the third debenture deed was prepared on advice from Mr Doberer that it was necessary to do so to protect her position, as she had entered into further leases subsequent to the second debenture deed, and the previous debenture deeds were not stamped or registered. Ms Mayo says that on 12 May 2008 she prepared the third debenture deed at the company's business premises using the second debenture deed as a template, in the presence and with the assistance of Mr Doberer. On the next day, when the deed was executed, Mr Leonard signed a sole director's minute for the company resolving to enter into the debenture deed, the deed was stamped for duty, and appropriate forms were completed to register the debenture deed with the Australian Securities and Investments Commission (ASIC). Mr Doberer had prepared the ASIC forms and the sole director's minute and attended to the lodgement of the necessary documents with ASIC. A certificate of entry of charge was issued by ASIC on 20 May 2008. In summary, the effect of the debenture deed is to secure the sum of $310,000 over the whole of the company's undertaking and present and future-acquired property, and to confer on Ms Mayo the right to appoint, in appropriate circumstances, an administrator or a receiver (or both) to the company's property. 37Ms Mayo did not give evidence of having specifically informed Mr Leonard about the nature of the document he was signing. Mr Doberer's evidence is consistent with Ms Mayo's evidence, and he too does not give evidence of any explanation being given to Mr Leonard about the nature of the third debenture deed, nor does he specifically recall Mr Leonard being present at the meeting at which he explained the need for executing a third debenture deed. 38In his evidence, Mr Leonard accepts that he signed the third debenture deed, but says he did not know, nor did Ms Mayo inform him about, what he was signing. The plaintiff seeks to set aside the third debenture deed on the basis of general law unconscionability or s 51AC(2) of the Trade Practices Act 1974 (Cth). 39Ms Mayo alleges, and Mr Leonard does not dispute, that in May or June 2008, Mr Leonard asked Ms Mayo whether she could finance the acquisition of an excavator. 40An eighth lease, dated 24 June 2008 (but unsigned), was for a second hand "Kubota KX161-3HLA Excavator" with various accessories, acquired from "Allclass Construction Equipment" for $52,000, stipulated a rate of 11.15%, monthly payments of $1,349.83 for rental, $134.98 for GST and $10 for bank fees (i.e. a total monthly payment of $1,494.81), commencing from 24 June 2008 and ending on 24 June 2013, with a residual value of nil. As with the previous leases, the words "Diminishing Value" appear immediately beside the specified rate, and the monthly payments were calculated on the basis of a flat rate of interest. 41The parties do not dispute that, at the time the excavator was acquired, no lease or security documentation was executed, nor was such documentation ever executed. Ms Mayo included in her written evidence the unsigned lease and personal guarantee documents, which she had prepared in accordance with the practice established over the previous seven leases. Ms Mayo alleges she made multiple attempts to arrange for the execution of the documents by Mr Leonard, but that Mr Leonard refused or was unable to meet to execute the documents. In his affidavit evidence, Mr Leonard denies that Ms Mayo requested him to sign the lease documentation, but is otherwise silent as to the circumstances surrounding the acquisition of the excavator and as to why the documents never came to be signed. It was only in cross-examination that he positively accepted that he asked Ms Mayo to finance the acquisition of the excavator. The defendant says that the unsigned eighth lease and related security documentation is binding by reason of the course of conduct between the parties on previous occasions. The plaintiff does not appear to dispute this proposition (subject of course to the relief it seeks). 42By around 9 April 2008, the plaintiff had ceased to engage Mr Doberer as its accountant, and instead engaged Mr Barry Douglas (Mr Douglas). The plaintiff also terminated the defendant's employment some time between about 25 July 2008 and 20 August 2008.

Interest on a reducible or flat basis 43Perhaps it is appropriate, to avoid any potential confusion, to briefly and basically articulate the distinction between charging interest on a "flat" basis as opposed to a "reducible" basis. 44A "flat" interest rate is a rate applied to the initial principal sum over the whole term of the loan. If interest is charged on a "flat" rate, every payment of interest is calculated by reference to the initial principal sum without regard to the reduction in principal from time to time by virtue of repayments made throughout the term of the loan. 45A "reducible" interest rate is a rate applied to the reducing balance of the principal sum owing at each repayment date throughout the term of the loan. If interest is charged on a reducible rate, the interest paid in each instalment is assessed by reference to the principal outstanding from time to time, having regard to the total of any previous payments effecting a reduction to the principal. Interest charged by reference to this approach is sometimes described as interest charged on a "diminishing basis". 46At least for the purpose of the lease transactions between the plaintiff and the defendant, a reducible rate would be more favourable to the plaintiff (as lessee or borrower) while a flat rate would be more profitable to the defendant (as lessor or lender).

Construction of the leases 47As I have indicated above, the plaintiff first contends that, without needing to consider the question of rectification, the leases provide, as a matter of construction, for interest to be charged on a reducible basis. In particular, the plaintiff contends that, on a proper construction, the words "Diminishing Value" should "trump" the monthly payment figures, which were calculated on a flat interest basis. On the other hand, the defendant contends, correctly in my view, that, properly construed, the leases charge interest on a flat basis. The first question is whether it is possible in the circumstances of this case to apply the principles of construction to correct the errors in the respective leases. 48As part of the process of construction, as distinct from the remedy of rectification, the court has power to correct obvious mistakes in the written expression of the intention of the parties (see the cases referred to in K Lewison and D Hughes, The Interpretation of Contracts in Australia (2012) Thomson Reuters at [9.01]). The ability of a court in appropriate circumstances to correct an error as a matter of construction rather than by the equitable remedy of rectification was alluded to by Lord Millet in Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715 at [192]. His Lordship referred, by way of example, to the ability of courts in equity to correct errors in wills, at a time when there was no power to rectify a will. 49The case of Fitzgerald v Masters (1956) 95 CLR 420 provides an example of a court's ability to correct errors or resolve inconsistencies by a process of construction rather than by way of rectification. In J W Carter, The Construction of Commercial Contracts (2013) Hart Publishing (at [9.44]), the author refers to a number of commonly encountered mistakes in contractual documents and observes (citing mainly English cases): However, many such 'mistakes' are corrected in construction. The modern approach to construction therefore makes rectification less important than in the past. This 'close relationship' between construction and rectification also makes it difficult to maintain the conventional view that rectification is 'distinct from an exercise in construction'... But as a matter of principle there is a difference between mistakes which can be 'corrected' by construction and mistakes for which a formal order is required. [citations omitted] 50Although there is clearly a conceptual similarity, and perhaps an overlap, between correction by construction and the doctrine of rectification, there is a difference in their respective scopes of application. As also alluded to by Professor Carter (at [9.44]), a common view is that the dividing line between cases where correction by construction is available and where only correction by rectification is available, is to be drawn on the basis of whether the party seeking the correction is seeking to rely on prior negotiations between the parties, the actual or subjective intentions of the parties or parol evidence (Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at [258]-[272] per Campbell JA) or on whether the "error" calling for correction is so obvious simply from the face of the document (see for example the reasoning and the cases and text cited in Saxby Soft Drinks Pty Ltd v George Saxby Beverages Pty Ltd (2009) 14 BPR 27,213 at [10]-[11] per Brereton J). That would appear to be consistent with Mason J's comments in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 (at 352): The object of the parole evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification. 51The difference between the scope of operation of correction by construction and correction by rectification is perhaps more important in Australian than English contract law, given the narrower Australian view as to the permissibility of extrinsic material for the purposes of construction (Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [52] per Bathurst CJ with whom Macfarlan and Meagher JJA agreed; Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604; cf Charterbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896). 52For the reasons I express below, I do not think that the leases, when properly construed in their unrectified state, provide for interest to be charged on a reducible basis. The issue of construction in the present case arises not as a result of ambiguity in the language of the leases, but because of an apparent inconsistency in their terms. The principles relevant to construing a contract containing inconsistent provisions have been stated in Fitzgerald v Masters (1956) 95 CLR 420. In that case, the High Court had before it a contract for the sale of land which purported to incorporate a set of standard terms insofar as they were "inconsistent" with the contract. The High Court held that the word "inconsistent" should be read as "consistent", and commented more generally: Words may generally be supplied, omitted or corrected in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency [per Dixon CJ and Fullagar J at 426-427]. ... It is trite law that an instrument must be construed as a whole. Indeed it is the only method by which inconsistencies of expression may be reconciled and it is in this natural and common sense approach to problems of construction that justification is to be found for the rejection of repugnant words, the transposition of words and the supplying of omitted words (cf Norton on Deeds, 2nd. ed (1928), p 91). Many illustrations may be given of the circumstances in which these processes have been followed but to do so would add nothing to the rule that the intention of the parties is to be ascertained from the instrument as a whole and that this intention when ascertained will govern its construction [per McTiernan, Webb and Taylor JJ at 437]. 53As McPherson JA said in McGowan v Commissioner of Stamp Duties [2002] 2 Qd R 499 at [22]: [22] When two provisions of the same deed or contract are irreconcilably inconsistent and cannot stand together, it becomes the duty of a court in interpreting the contract to resolve the antinomy if necessary by rejecting the provision that is repugnant to the substance of the whole. 54In GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, Finn J said (at [306]): [306] There is a large body of case law dealing with how a contract should be construed when it contains inconsistent provisions, having regard to the nature and cause of the inconsistency: see generally Cheshire and Fifoot, Law of Contract, (8th Aust ed), p 213; Chitty on Contracts, Vol 1, para 12-076 (28th ed); Lewison, The Interpretation of Contracts, para 8-08ff (2nd ed); Farnsworth, Contracts, s7.11 (3rd ed). It is unnecessary here to outline in detail the various "rules" of construction that have evolved to resolve inconsistencies. These rules reflect the types and causes of inconsistencies: if specially tailored terms contradict standard terms, the specially tailored terms will prevail over the standard terms: cf Re Theodorou [1993] 1 Qd R 588; "[i]f a later clause cannot be reconciled with an earlier one creating an obligation, then if it altogether destroys the obligation it must be treated as void": Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140 at 151; if the terms of a document incorporated into an agreement conflict with expressly agreed terms in that agreement, the expressly agreed terms prevail: Modern Building Wales Ltd v Lemmer and Trinidad Co Ltd [1975] 1 WLR 1281 at 1289; etc. The common thread in the cases is that effect is given to that part of an agreement "which is calculated to carry into effect the real intention of the parties as gathered from the instrument as a whole, and that part which would defeat it must be rejected": Chitty on Contracts, para 12-076. 55As it is not disputed that the lease documents in the present case were drafted using a previous lease document as a template, the comments of Dixon J in Automatic Fire and General Insurance Co of Australia Ltd v Davey (1936) 54 CLR 534 (at 542) are of particular relevance: The common use of printed forms gives a new and more frequent application to the rule of interpretation which authorises Courts to disregard particular expressions and even provisions and to understand them in a sense varying from that which they exactly express. 56For at least two reasons, I think that the leases, on a proper construction, and in their unrectified state, provide for interest to be charged on a flat basis, in accordance with the monthly payment figures. 57As I have indicated in the chronology of the factual background, the words "Diminishing Value" appear in typescript in each standard form of the lease. The figures specifying the precise monthly payments, however, were handwritten in the first four leases, and obviously required the writer of those figures to direct particular attention to what he or she was writing. There is a body of case law setting out principles of construction where a contract contains an inconsistency between printed clauses and handwritten clauses. In Homburg Houtimport BV v Agrosin Private Ltd (The Starsin), Lord Bingham said (at [11]): It is common sense that greater weight should attach to terms which the particular contracting parties have chosen to include in the contract than to pre-printed terms probably devised to cover very many situations to which the particular contracting parties have never addressed their minds. 58That principle was followed in Parlux SpA v M & U Imports Pty Ltd (2008) 21 VR 170 (at [46] per Cavanough AJA with whom Buchanan and Redlich JJA agreed) and Wentworth Partners Estate Agents Pty Ltd Trading as Re Max Gold v Gordony [2007] NSWSC 1135 (at [53]-[54] per Young CJ in Eq). A similar principle was articulated by Higgins J in Hume Steel v Attorney-General (1927) 39 CLR 455, where his Honour said (at 465): [W]here part of the instrument is printed and part written, greater effect is to be given to the written words. 59Although the monthly payment figures in the fifth to eighth leases were inserted in typescript, it is obvious, from the first four leases, that the words "Diminishing Value" were present in the standard form template for all the leases, while the monthly payment figures were later and deliberately inserted after receiving close attention. The factual features of this case make it particularly amenable to the principles articulated above. The parties in this case are relatively unsophisticated, and have adopted for convenience a template document, which has been somewhat tailored to their particular circumstances, by reference to the advice of a non-lawyer and non-independent advisor. Having regard to these principles, I am satisfied that the specifically inserted monthly payment figures, to which close attention was paid on each occasion on which they were inserted, set out the payment obligations of the plaintiff. 60Secondly, in support of this conclusion, there is real doubt as to whether the words "Diminishing Value" were even intended to describe a competing basis on which interest would be charged. I accept Mr Doberer's uncontradicted evidence that the words "Diminishing Value" were remnants of the CBFC lease (which was used as a template), that those words related to tax depreciation and not the basis on which interest was to be charged, and that those words were left undeleted in the lease documents by error. If, contrary to this, the plaintiff was correct (i.e. those words were inserted to indicate the basis on which interest was to be charged) one would at least expect them to read "diminishing basis", or "diminishing rate", but not "diminishing value". 61It is therefore necessary to consider the plaintiff's arguments in relation to rectification.

Plaintiff's claim for rectification of the leases 62As noted above, the plaintiff seeks rectification of each lease in four respects, so that, for each lease: (1)the interest rate specified in each lease should be charged on a reducible basis and not on a flat basis (on the basis of both rectification for common mistake or alternatively rectification for unilateral mistake); (2)ownership of the equipment the subject of the lease be transferred to the plaintiff at the conclusion of the term of each lease; (3)GST only be charged in one of two particular ways, and not in both ways; and (4)no bank fees are payable by the plaintiff to the defendant. 63Before considering each of the respective claims under separate sub-headings, I will set out briefly some of the generally applicable statements of principle relating to rectification for common mistake. 64The prevention of unconscionable (or unconscientious (see Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at [20]-[22] per Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ)) insistence on the terms of a written contract has long been recognised as the rationale for the doctrine of rectification (see, for example, Henkle v Royal Exchange Assurance Co (1749) 1 Ves Sen 317 and Story, Commentaries on Equity Jurisprudence, 1st ed (1884) Stevens and Haynes at Chapter 5). As Campbell JA explained in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 (at [444]): 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 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." 65His Honour made similar observations in his judgment (with whom Mason P and Tobias AJA agreed) in the earlier case of Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 (at [311] and [313]). 66The key principle, basically stated, is that a party seeking rectification of a contract will need to advance "convincing proof" to show that at the time of execution of the contract the parties held a "common intention" which was inconsistent with what is provided for in the written contract (Pukallus v Cameron (1982) 180 CLR 447 at 452 per Wilson J with whom Gibbs CJ agreed), and to show what their common intention was (Slee v Warke (1949) 86 CLR 271 at 281 per Rich, Dixon and Williams JJ). However, the requirement for "convincing proof" does not alter the civil standard of proof on the balance of probabilities. As Brightman LJ observed in Thomas Bates & Son Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505 at 521: The standard of proof required in an action of rectification to establish the common intention of the parties is, in my view, the civil standard of balance of probability. But as the alleged common intention ex hypothesi contradicts the written instrument, convincing proof is required in order to counteract the cogent evidence of the parties' intention displayed by the instrument itself. It is not, I think, the standard of proof which is high, so differing from the normal civil standard, but the evidential requirement needed to counteract the inherent probability that the written instrument truly represents the parties' intention because it is a document signed by the parties. 67In this context, the relevant type of "intention" is the subjective or actual intention of the parties (Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 346 per Mason J). 68For the purposes of this case, it is unnecessary to enter into the debate about whether a "common intention" requires an "outward expression" by the parties. The question appears to have been left open by the High Court in Pukallus v Cameron (at 452), where Wilson J, with whom Gibbs CJ agreed, considered that "it may not be necessary to show that the accord found outward expression". However, in Ryledar Pty Ltd v Euphoric Pty Ltd (at [273] and following), Campbell JA collected the authorities and concluded that there is such a requirement, though it could be satisfied by a number of means, including direct or indirect statements by the parties, a process of conscious and deliberate inference, or in particular contexts, the existence of particular practices and conventions. 69I will identify further relevant principles in greater detail when necessary to do so during the course of discussion.

Rectification and the basis on which interest is charged 70In her affidavit evidence, Ms Mayo alleged that she first raised the proposal to personally finance the acquisition of equipment with Mr Doberer. However, in her oral evidence, she said she recalled speaking first with Mr Doberer about the proposal. The precise sequence is immaterial. From her affidavit evidence, it would appear that the appropriate interest rate for the leases was first raised by Mr Doberer, who allegedly proposed "a 5% margin over [Ms Mayo's] borrowing cost, but on a flat interest rate basis". Ms Mayo alleges she rejected this proposal and said, "I think that a 2% margin on the flat rate basis will do". She alleges that, in a subsequent conversation, Mr Doberer advised her that he had spoken with Mr Leonard, and that Mr Leonard was happy to go ahead with the leases on that basis (i.e. a 2% margin). Ms Mayo says she then had a conversation with Mr Leonard in which she mentioned that she understood from Mr Doberer that Mr Leonard was happy with "2% above the rate on my loan", and that Mr Leonard agreed. The language used in her affidavit does not, however, indicate that she, or Mr Doberer in her presence, ever mentioned to Mr Leonard that this interest would be charged on flat basis, or that it would amount to an effective or reducible rate of 13% or any other amount above the agreed 9%. 71During cross-examination, Ms Mayo alleged several times that she had discussions with Mr Doberer to the effect that the rate of interest would be calculated on a flat basis (T206.20-T206.36, T245.41-T245.44, T250.34-T250.38 and T289.30-T289.40). 72In Mr Leonard's affidavit evidence, he alleges an interest rate of 9% was mentioned during his first discussion with Ms Mayo, and that Ms Mayo said words to the effect, "I will charge you 9% interest. My home loan rate is 7%, so I will make 2%". In oral evidence he said he was unable to specifically recall whether this interest rate discussion featured in his first or second conversation with Ms Mayo. 73Mr Doberer gave affidavit evidence which was generally consistent with Ms Mayo's evidence, namely that he had discussions with Ms Mayo to the effect that he proposed that interest would be calculated on a flat basis, and therefore the "effective reducible rate is double less a bit". Mr Doberer gave oral evidence that he never used the term "reducible interest" (T308.48-308.50) and that he would have used the words "flat rate" quite often (T309.1-T309.9), though he had no specific recollection to that effect (T309.11-T309.13). In both his affidavit and oral evidence (T319.5-319.9), Mr Doberer alleged that during discussions with Mr Leonard, he advised Mr Leonard that the interest rate would be charged on a flat basis, and therefore the "effective reducible rate is double less a bit". 74Mr Leonard put on a brief affidavit denying that he had a conversation with Mr Doberer in which Mr Doberer advised him that interest would be charged on a flat basis. However, in cross-examination, Mr Leonard said, "I can't recall that conversation. I'm not saying it didn't happen, but I can't recall it. I don't think it happened but I can't be 100 percent sure" (T78.11-T78.12). 75There was some debate between the parties, and evidence was led on the issue, as to the relation of a 9% flat rate to market rates at the time. The defendant correctly submitted that this is not relevant to the case before me. 76The inquiry, ultimately, is whether Ms Mayo and Mr Leonard each had a common actual intention to transact on the basis of a reducible or flat interest rate. Fundamental to my determination of this inquiry is the fact, which emerged clearly in cross-examination, that Ms Mayo had no idea, at the time of the relevant lease transactions, about the difference between charging interest on a flat and reducible basis. Ms Mayo's evidence was confused, as sometimes it would appear she understood the distinction, only to later reveal her lack of understanding. In final submissions, the parties agreed that it would be accurate to say that she demonstrated a genuine naivety in relation to financial matters and had a confused and mistaken understanding in relation to the method of interest calculation. When asked directly, Ms Mayo responded as follows (T245.23-T245.25 and T289.22-T289.31): HH: Can I just ask you this, in November/December of 2005 did you know the difference between a flat and a reducible rate? Ms Mayo: No. ... Mr Allen: Is it the case that in November to December 2005 that you knew the difference between flat rate interest and reducible interest? Ms Mayo: No, I did not. Mr Allen: When did you first come to learn the difference? Ms Mayo: Some time, some time later. Mr Allen: It was in 2009 that you came to learn the difference between flat interest and reducible interest? Ms Mayo: Could well be but I'm not quite sure. 77Given the unequivocal evidence that at the time Ms Mayo entered into the lease transactions she had no understanding as to the difference between charging interest on a flat and reducible basis, the labels "flat" and "reducible" are to some extent deprived of their meaning insofar as determining Ms Mayo's actual intention is concerned. For example, even if one accepts, consistent with the evidence given by both Mr Doberer and Ms Mayo, that Mr Doberer advised Ms Mayo that she needed to charge interest on a "flat" basis and that Ms Mayo agreed, that says nothing about Ms Mayo's actual intention, because her understanding of that advice could actually have been synonymous to charging interest on a reducible basis. In fact, Ms Mayo understood the term "flat" not to refer to a method by which interest is calculated, but simply to refer to an interest rate that remained constant throughout the term of the lease (T245.29-T245.32): Mr Allen: So when somebody said to you in 2005 "flat rate", if they did say that to you, you would not have necessarily understood what they meant by it? Ms Mayo: No. And actually on my home loan it said "fixed rate" and that's what I assumed was a flat rate. 78The evidence demonstrates not only that Ms Mayo was devoid of understanding as to the critical distinction between the terms "flat" and "reducible", but also that she held an actual or a subjective intention to charge the company interest in a manner that replicated the basis on which interest was charged on her home loan, which, in fact, was reducible. Her subjective understanding of the basis on which interest of "9%" would be charged in the leases was always by reference to the basis on which she was paying interest of "7%" on her home loan. This was confirmed and re-confirmed several times during cross-examination (T200.1-T200.20, T245.3-T245.8, TT261.12-T261.22, and T264.24-T264.26): Mr Allen: Do you agree that in November of 2005 you had a conversation with Mr Leonard in which you said, "I will charge 2 percent above the rate on my home loan"? Ms Mayo: Correct. Mr Allen: And when you said that, your intention was to charge 2 percent above the rate you were paying on your home loan? Ms Mayo: I had discussions with my accountant beforehand. He suggested that I charge Bill 5 percent. I said I didn't want that. I only needed 2 percent to help him get out of his financial difficulties. Mr Allen: Could you answer this question. When you said to Mr Leonard, "I will charge 2 percent above the rate of my home loan", your intention at the time of saying that was you would charge 2 percent above the rate on your home loan? Ms Mayo: Correct. Mr Allen: You would agree that the rate on your home loan at the time was 7 percent? Ms Mayo: Correct ... Mr Allen: And that 9 percent was 2 percent above the rate being paid on your home loan? Ms Mayo: That is correct. Mr Allen: And that was to give you a profit margin of 2 percent? Ms Mayo: That is correct. ... Mr Allen: But you do agree that you said "I will charge you 9% interest"? Ms Mayo: Yes. Mr Allen: "My home loan rate is 7%"? Ms Mayo: Yes. Mr Allen: And then you said, "So I will make 2%"? Ms Mayo: Yes. ... Mr Allen: And your intention at that point in time was to charge only 2% above what you were paying on your mortgage? Ms Mayo: That is correct. 79It is important to repeat at this point that Ms Mayo understood the term "flat rate" to refer to the basis on which interest on her home loan was charged. 80It is also important to understand the context in which interest rate discussions took place. In giving evidence, Ms Mayo indicated she understood that the company was not in a healthy financial position (T257.44-T257.46 and T202.1-T202.8). She was a long-term employee of the company. She had known Mr Leonard for some time and described him as "a close personal friend". In her affidavit evidence, she indicated that she was upset about Mr Leonard's inability to secure finance for the company, and "was concerned for the future of [Mr Leonard], the other employees and myself". In this context, the strength of her friendship with Mr Leonard, her expressly stated non-profit intention in offering to provide finance, and her sole concern to simply cover her borrowing costs, was brought out clearly and without any hesitation during cross-examination. For example (T203.4-T203.32): Mr Allen: Your intention as at 2 December 2005 was mainly to help out W & K? Ms Mayo: That is correct. Mr Allen: You were motivated by your friendship with Mr Leonard? Ms Mayo: Yes. Mr Allen: Can you describe your relationship with Mr Leonard as at 2 December 2005? Ms Mayo: Purely platonic. Mr Allen: What was the strength of your platonic relationship? Ms Mayo: I regarded him as a good friend. Mr Allen: And did he call you any affectionate names? Ms Mayo: He used to call me "mum" when he wanted money. Mr Allen: And you would agree, well, he called you "mum" on more than the occasions when you say he wanted money? Ms Mayo Yes, he did. It was an affectionate term. Mr Allen: And you wanted to see W & K's business expand? Ms Mayo: Yes, I did. Because I wanted to keep my job as well as the boys' jobs. Mr Allen: Your main motivation in giving leases to W & K was not profit? Ms Mayo: No. Mr Allen: Your intention as at 2 December 2005 was to make a 2 percent margin above what you were paying back to the bank? Ms Mayo: Correct. 81Ms Mayo's subjective intention to charge interest on a reducible basis was further confirmed in the following exchange, where Ms Mayo's attention was directed to the heart of the distinction between the concepts of "flat" and "reducible", without the use of any technical language (T.290.1-T290.10): Mr Allen: You would agree that it was not your intention in November/December 2005 to have W & K pay interest on money that it had in fact repaid you? Ms Mayo: It wasn't my intention. I'm not an accountant. I was only doing as I thought that I was advised to by taking X amount of dollars each month for interest whether he paid money or not. Mr Allen: Is it the case that you said to Mr Doberer "I want to charge 2 per cent above my mortgage rate"? Ms Mayo: (Witness nodded). Mr Allen: And you entrusted Mr Doberer to calculate the interest at 2 per cent above your mortgage rate? Ms Mayo: And in actual fact - HH: No, just answer that question, please. Ms Mayo: Sorry, could you repeat that, please? Mr Allen: It was your understanding that Mr Doberer was going to calculate interest at 2 per cent above your mortgage rate? Ms Mayo: That is correct, yes. 82To summarise the evidence, I accept that Mr Doberer and Ms Mayo probably had a conversation in which Mr Doberer advised Ms Mayo to charge an interest rate on a flat basis, and that Ms Mayo even agreed to this (though selecting a lower interest rate than that advised by Mr Doberer). I also accept, consistent with the evidence of Mr Doberer and Ms Mayo, that Mr Doberer probably mentioned to Ms Mayo that interest charged at 9% on a flat basis was equivalent to approximately 13% on a reducible basis. 83However, that does not assist in identifying Ms Mayo's actual intention in respect of the basis on which to charge interest, because she not only did not understand what was conveyed by a "flat" and "reducible" rate of interest, but she actually understood a "flat" rate to mean a rate of interest that simply does not fluctuate, like her home loan. Her actual intention was to not make a profit, but just to cover her borrowing costs, with only a 2% margin above what she was actually paying to her bank on her home loan. Further, and critically, she did not intend for the company to be paying interest on amounts already repaid. She did not understand what was meant by a "reducible" rate of interest, and I am satisfied that she mistakenly considered it to be a rate of interest charged on a more favourable basis as compared to her home loan. For these reasons, the rough estimation of "13%", or "double less a bit", which Mr Doberer mentioned to her, was actually meaningless as far as her understanding was concerned. 84I am satisfied there is "convincing proof" both that Ms Mayo had no intention to charge interest on a flat basis (properly understood), and that she possessed an intention to charge interest on a basis that replicated the basis on which interest was charged on her home loan, namely, a reducible basis. 85Mr Stowe, counsel for the defendant, submitted that even if the court was to find that Ms Mayo possessed an intention to charge interest on a reducible basis (properly understood), the court should not order rectification for two reasons. 86I turn to the first reason. It was submitted that there is evidence indicating that Ms Mayo, in her state of confusion, concurrently possessed intentions which conflicted with her intention to charge interest on a reducible basis, and that in those circumstances (i.e. where she concurrently held conflicting intentions only some of which are in disconformity with the leases), the court must seek to identify her "governing" or "predominant" contractual intention. Mr Stowe argued that the evidence demonstrated that in addition to Ms Mayo's intention to charge interest on a reducible basis, she concurrently held conflicting intentions to charge interest at "9% flat", and at a rate which was "equivalent to 13% reducible", and at a rate that would achieve whatever monthly payment figures were calculated by Mr Doberer (on whose advice she relied). Mr Stowe also submitted that Ms Mayo's "predominant" or "governing" contractual intention was to contract on terms in accordance with Mr Doberer's advice, whatever that might entail, even if it was contrary to her conflicting intention to charge interest on a reducible basis. 87Mr Stowe submitted that the facts of this case place it in what he described as a category of "difficult cases" in which the parties are aware of the precise terms of the relevant part of their agreement, but misapprehend their effect. He further submitted (citing Spry, The Principles of Equitable Remedies, 8th ed (2010) Lawbook Co at 611-612) that in these circumstances, the court should distinguish between two positions. The first position occurs where the concurrent intention (i.e. the intention the document is desired to effectuate) remains the dominant and governing intention at the time of execution. In this event, it should not matter that the precise terms of the document have been seen by the parties, and rectification, where otherwise appropriate, should be ordered. The second position arises where the parties, whatever their previous intention may have been, have ceased to retain that intention as their governing intention and have formed instead an intention to be bound by the precise terms of the document in question, regardless of discrepancies between its provisions and other intentions they possess. In this event, it is submitted, rectification would not be appropriate. These propositions were cited with apparent approval by Tobias JA (with whom Mason P and Campbell JA relevantly agreed) in Ryledar Pty Ltd v Euphoric Pty Ltd (at [130]) and by Sheller JA in Commissioner of Stamp Duties v Carlenka Pty Ltd (1995) 41 NSWLR 329 (at 341-344). 88The defendant submitted that the result in Pukallus v Cameron is explicable on these principles. In that case, there was a transaction for the sale of land described in the contract as including "Subdivision 1 of Portion 1154". Both parties believed that a particular area containing a bore and cultivation lay within the conveyed lot, but in fact it was within the land still retained by the vendor. The purchaser sought rectification of the contract to include the area in question. The purchaser was successful in the Supreme Court of Queensland, unsuccessful on the vendor's appeal to the Full Court, and unsuccessful on its own appeal to the High Court. In refusing to grant an order for rectification, Wilson J (with whom Gibbs CJ agreed) said (at 453): From beginning to end the sale was of Subdivision 1 of Portion 1154... There is no evidence to support a finding of an intention to contract for the sale of the bore and cultivated area. The intention was to effect a transfer of Subdivision 1 of Portion 1154, a parcel of land which was thought erroneously, to include the bore and cultivated area. If the mistake had been discovered before the conveyance was effected, the appellants could, no doubt, have avoided the contract. 89Another case, perhaps in the same or a similar category, is Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450. In that case, the parties made an oral agreement for the sale of "horsebeans", and the subsequent written contract used the same word. The parties mistakenly believed that "horsebeans" were "feveroles". This was a fundamental mistake, shared by both parties, as to the nature of the subject matter of the contract, yet the court declined to rectify the contract by making it refer to "horsebeans of the feverole type". Denning LJ said (at 462): The parties no doubt intended that the goods should satisfy the inquiry of the Egyptian buyers, namely, "horsebeans described in Egypt as feveroles." They assumed that they would do so, but they made no contract to that effect. Their agreement, as outwardly expressed, both orally and in writing, was for "horsebeans." That is all that the defendants ever committed themselves to supply, and all they should be bound to. There was, no doubt, an erroneous assumption underlying the contract - an assumption for which it might have been set aside on the ground of misrepresentation or mistake - but that is very different from an erroneous expression of the contract, such as to give rise to rectification. 90Different formulations of the principle or principles emerging from these two cases have been offered. Professor Carter says (J W Carter, Contract Law in Australia, 6th ed (2013) LexisNexis Butterworths at [21.06]) that the cases demonstrate that "the common intention which must be proved is usually expressed in terms requiring that the instrument take a certain form, as distinct from a common understanding that it would have a certain effect." He later adds (also at [21.06]) "[a]lthough these cases ... show that 'common intention as to what an instrument shall say' is not to be equated with 'common belief or understanding as to what effect an instrument shall produce', the more recent cases indicate that rectification may sometimes be ordered where the relevant mistake is as to the legal effect of the agreed terms, rather than their expression", and he cites relevant authorities. In R Meagher, D Heydon and M Leeming, Equity: Doctrines and Remedies, 4th ed (2002) LexisNexis Butterworths (at [26.090]), the authors offer the explanation that "rectification will only be decreed in respect of mistaken terms and conditions of the contract. Mistake related to, but dehors [i.e. outside of or not within the scope of], the contract is irrelevant". In N Seddon and M Ellinghaus, Cheshire and Fifoot's Law of Contract, 9th Australian edition (2008) LexisNexis Butterworths, the authors explain (at 663) that "[rectification] does not, at least according to traditional doctrine, extend to a case where the parties are mistaken about the meaning or effect of words deliberately chosen nor to a case where the parties would have used a different form of words had they known of the true facts. The latter case would be dealt with on the basis of the broader principles of mistake rather than rectification." Others have sought to explain the decisions by reference to concepts of "remoteness". 91Some have criticised the decisions in Pukallus v Cameron and Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd as unduly restricting the doctrine of rectification, whilst others have defended those decisions on the basis that the contractual errors complained of in those decisions should have been the subject of an action in mistake or some broader principle, but not rectification. 92The learned authors indicate in their respective texts that the cases decided in lower courts subsequent to the decision in Pukallus v Cameron have gradually broadened the "traditional" doctrine so that "rectification may sometimes be ordered where the relevant mistake is as to the legal effect of the agreed terms, rather than their expression". In Commissioner of Stamp Duties v Carlenka Pty Ltd, Mahoney AP noted (at 332), "Mr Mason QC, the Solicitor-General, in his argument for the Commissioner, pointed to the difficulty in reconciling the effect of the decided cases." 93In my view, I do not think it is accurate to say that the principle emerging from Pukallus v Cameron is that rectification is not available where the relevant mistake is as to the effect of agreed terms rather than the form or expression of words. If that proposition was correct, the doctrine of rectification would almost be reduced to operate to correct purely clerical errors. It is true that the parties in Pukallus v Cameron had a common intention to include a bore and cultivation area within the conveyance. However, the unavailability of rectification in the case of Pukallus v Cameron was based on an absence of evidence of sufficient specificity of the parties' precise common intention, and the court's consequent inability to formulate a precise term as to the location of the new boundary so as to include within the contract the portion of land which the parties intended to convey. 94Gibbs CJ said (at 448): ... [the parties] had no common intention as to where the boundary line of the land sold should go to ensure that the bore and cultivation were included ... In these circumstances, to order that the contract be rectified by fixing a boundary line that included part of subdivision 2 was both to depart from so much of the common intention of the parties as had been correctly expressed in the written contract and to formulate a term (as to the situation of the boundary) which neither party had intended to include in the contract... 95Wilson J (with whom Gibbs CJ agreed) said (in selected passages, citations omitted): [The trial judge] was mindful of the obligation resting upon the plaintiffs to show precisely the form to which the contract should conform. He noted that during the trial the plaintiffs had amended the statement of claim to plead in the alternative a representation by Mr. Cameron which differed from the particulars supplied earlier, a circumstance which indicated some uncertainty about the precise representation. The evidence of the male appellant reflected this uncertainty. Nevertheless, his Honour stated: The parties had not determined exactly how far south of the cultivation the boundary would go. But it was clearly understood by them that it would at least skirt the southernmost part of the 27 acres of cultivation. This is a sufficient identification of the land to be included. ... The case raises no issue as to the principles which govern the rectification of a contract. Those principles are not in dispute... [The] plaintiff [must] 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. ... [E]ven if a new boundary was in contemplation, the appellants face the difficulty of proving the precise term which it is said was agreed between the parties and which through mutual mistake was not incorporated in the written contract. It is not enough merely to prove that the bore and twenty-seven acres of cultivated land were intended to be included in the land the subject of the sale. Although the learned trial judge made a finding in those terms, he recognized that the evidence required the fixation of a new boundary line parallel to the present southern boundary to subdivision 1. The evidence led for the appellants failed to establish such a line with any clarity. ... [The trial judge] acknowledged that the parties had not determined how far south of the cultivation the boundary would go, but ruled that sufficient identification of the land to be included was to be found in their "clear understanding" that it would at least skirt the southernmost part of the twenty-seven acres of cultivation. In my respectful opinion, his Honour's conclusion is a rationalization of the evidence that might be supportable only if the established principles concerning rectification did not require convincing proof of the precise variation to the written agreement. 96Brennan J said (in selected passages, citations omitted): The finding made by [the trial judge] as to the intention of the parties appears to be amply supported by the evidence, but it is not reflected precisely in the order for rectification which his Honour made. The intention which he found was that a parcel of land, undefined except that it included the bore and the cultivation, was to be included in the sale. The order, however, described a parcel to the south of subdivision 1 and specified its boundaries. The order went beyond what his Honour found the common intention of the parties to be, and therefore the terms of his order cannot be supported. ... Where parties enter into a written contract for the sale of land and describe the parcel of the land sold by its survey description, the hypothesis is that the boundaries of the parcel are fixed in accordance with that description and not by reference to boundary fences, survey pegs or other topographical features. The hypothesis may be rebutted by proof that the parties agreed upon the parcel of land to be sold by reference to such fences, pegs or other precise topographical features... ... In the present case, the parties had not identified, by reference to fences or other topographical features, the precise boundaries of the parcel the subject of the sale before they entered into the written contract. ... There was no evidence tending to show that Mr. Pukallus and Mr. Cameron had agreed on a southern boundary corresponding with that fixed by the order of the learned trial judge. 97The intention that the land include a bore and a particular cultivation area (i.e. merely "features" of the land) was not sufficiently specific to enable an order to be crafted to reform the contract. Gibbs CJ, Wilson and Brennan JJ were at pains to emphasise that the barrier to rectification in Pukallus v Cameron was the absence of sufficient evidence of the parties' precise intention to enable the court to formulate with sufficient precision a variation to the contract that would include the bore and cultivation area within the conveyance. In other words, there were a multitude of possible permutations to an order for rectification, all of which could have had the desired effect of including the bore and cultivation area within the conveyance, but there was no evidence as to which of those orders was intended by the parties at the time of entry into the contract. 98In light of this, perhaps the proposition that subsequently decided cases have broadened the availability of rectification by enabling it to be ordered where the parties are mistaken about the effect of deliberately chosen words, is an unwarranted characterisation of the true position. As Wilson J observed, Pukallus v Cameron did not raise any issue as to the principles which govern the rectification of a contract. The case illustrates the necessity of evidence of sufficient particularity, of the parties' common intention. There needs to be evidence not only of the effect which the parties intended to achieve, but also of the precise method by which the parties intend that effect to be achieved, in order to enable the court to have an evidentiary basis for formulating the terms of the order for rectification. 99The facts of the case before me are distinguishable from those in Pukallus v Cameron. In Pukallus v Cameron the redefinition of the southern boundary (to give effect to the parties' intention to include the bore and cultivation in the conveyance) could have been achieved by a number of different means and there was insufficient evidence to enable the court to determine which of those means the parties might have intended. In the present case, the parties possessed an intention, as I have found, that interest be charged on a reducible basis, and unlike Pukallus v Cameron, the method by which that intended effect is to be achieved is not controversial, nor is there any uncertainty about how the parties' intention is to be achieved, as it simply involves resort to the single alternative mathematical calculation, namely a calculation of interest on a reducible basis. 100However, a further issue is whether Ms Mayo possessed a conflicting concurrent intention to contract simply on the terms that Mr Doberer drafted, whatever those terms might entail. Mr Stowe's submission, that in these circumstances the overriding principle is that one must identify the "governing intention", is principally based on Hodgson J's analysis of cases of this type, in Bush v National Australia Bank (1992) 35 NSWLR 390. His Honour stated (at 407): In such cases, it will often be the case that each party will have conflicting intentions as to the document. It may well be the case that each party intends to give effect to the document as it is worded, but also intends to enter into a transaction with a particular legal effect, which is not the true legal effect of the document as worded... [A] decision may have to be made as to which intention should prevail... So one needs to be able to say that, although in a sense the parties intended to be bound by a document which included certain words, nevertheless their intention to achieve a legal effect which was not the true legal effect of those words was somehow predominant over that other intention, and clearly predominant. [My emphasis] 101Mr Allen, counsel for the plaintiff, in effect responded with the submission that the relevant inquiry is what the parties' intention was in relation to the terms of the bargain, and therefore "the argument that Ms Mayo's intention was simply to execute the leases produced by Mr Doberer does not grasp the point". I do not think this is correct, as a matter of principle. There is a line of authority considering situations where a claim is made for rectification where the relevant party or parties to the instrument simply intended that it have the effect intended by a third party adviser. Given Mr Doberer's position and involvement in the transactions, the principles in those cases are, at least to some extent, relevant to the case before me. For example, in Colquhoun v Dronpane Pty Ltd and Ors [2011] NSWSC 1500, White J considered such a situation. His Honour said (at [14]-[16]): [14] For the trust deed to be rectified there must be clear and convincing evidence that at the time the trust deed was executed the trustees and the settlor had an actual intention as to the effect which the deed was intended to create which was different from the effect which the instrument did have in a clearly identified way (Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 345). [15] Ms Ramsden was chosen as settlor because Peter Colquhoun advised the plaintiff to find a friend or a remote family member who was not intended to become a beneficiary of the proposed family trust to act as its settlor. The plaintiff's brother John arranged for his mother-in-law to act as the settlor. It can be inferred that she either had no intention as to what the trust deed should provide, or had no intention independent of that of the plaintiff and Peter Colquhoun. In other words, she intended that it should have whatever effect they intended it to have (Raftland Pty Ltd v FCT [2008] HCA 21; (2008) 238 CLR 516 at [44]; Public Trustee v Smith [2008] NSWSC 397; (2008) 1 ASTLR 488 at [73]). [16] Mrs Colquhoun also had no intention independently of Peter Colquhoun. 102I appreciate the force of Mr Stowe's submission about the existence of conflicting intentions on the part of Ms Mayo. It is plainly true that Ms Mayo took advice from, and was reliant on, Mr Doberer in a number of respects in the preparation of the terms of the leases. In one sense, she did therefore possess an intention to enter into the leases on the terms invented by Mr Doberer. The evidence demonstrates that sometimes her deferral to Mr Doberer was without understanding (see for example, T289.33-T290.6). 103However, I am not persuaded that complete deference to Mr Doberer was relevantly her governing intention. When the time came to set the precise monthly payments of the company under the leases, Ms Mayo had no hesitation disagreeing with Mr Doberer by insisting, contrary to his advice, on a lower interest rate. Nor did she hesitate to provide finance in respect of the fourth lease, despite Mr Doberer's advice to the contrary. If Ms Mayo's predominant intention, as submitted on her behalf, was simply to follow Mr Doberer's instructions, whatever they may have been, one would expect, for example, that when answering questions in cross-examination directed towards identifying her subjective intention with respect to interest, she would have said that she did not know or did not care about interest, but simply relied on Mr Doberer. That, however, was not her response. She continually insisted that her intention was to charge interest at a 2% margin above her home loan, to charge interest on a basis that replicated her home loan, to cover her borrowing costs, to not make a profit, and to not charge interest on amounts repaid by Mr Leonard. 104For these reasons, I am sufficiently satisfied that, despite her preparedness to leave certain aspects of the terms of the transaction to the discretion of Mr Doberer, Ms Mayo's governing intention on the terms of interest, was to contract on the basis of a reducible rate of interest. 105Turning then to the second reason, the defendant submitted that even if the court was to find that Ms Mayo's governing intention was to contract on a reducible interest basis, the claim for rectification would still fail because of an alleged absence of "convincing proof" that the intention (and if need be, the governing intention) of Mr Leonard was to contract on a reducible basis. The principal evidentiary basis for this submission is Mr Doberer's allegation that he advised Mr Leonard in the month before the first and second leases were executed, that "the interest rate is 9% flat" and that "the effective reducible rate is double less a bit". It is also argued that, given Mr Leonard's unusually high level of numerical literacy and arithmetic ability, it would have been apparent to him, from the face of the lease schedules, that the monthly payments for an item of equipment at a given price must have been calculated on a flat interest basis. 106Mr Leonard's evidence was that he intended to contract on a reducible interest basis (see for example T12.1-T12.9 and T89.38-T89.42). He also gave affidavit and oral evidence, contrary to Mr Doberer's evidence, that no one advised him that the defendant would be charging interest on a flat basis (for example T11.47-T11.49). In the affidavit of Ms Mayo, there is no allegation that at the time Mr Leonard executed any of the leases he was advised that interest was calculated on a flat basis. She simply alleges that it was Mr Doberer's practice to simply state "the interest rate is [X]%", without specifying the basis on which such interest was to be calculated. Further, despite the many meetings and discussions involving Mr Leonard, Ms Mayo and Mr Doberer, there is no reference in Ms Mayo's affidavit to any occasion when Mr Doberer said to Mr Leonard, in her presence, that interest would be charged on a flat basis. In fact, when advising Mr Leonard of the interest rate, she did so by reference to a particular margin on her home loan. I am satisfied, on the basis of what in my view is compelling evidence, that Mr Leonard intended to contract on a reducible rate of interest. Insofar as it is necessary to do so, I should indicate that I prefer Mr Leonard's evidence on this issue over that of Mr Doberer and, for that matter, Ms Mayo. 107The defendant submitted that even if Mr Leonard held an intention to contract on a reducible rate basis, he held a conflicting intention to contract on the basis of the instalment figures as specified in the leases, and that the latter intention was his "governing intention". However, I have no doubt, on the evidence identified above, that Mr Leonard's governing intention was to contract on a reducible basis. 108As I have already said, the evidence, in my view, clearly indicates that the understanding which the parties developed about the terms of the first two leases carried through to subsequent lease transactions. The case was conducted on the basis that a course of dealing was established to that effect. 109Accordingly, I would be prepared to order rectification of each lease so that interest is charged on a reducible basis and not on a flat basis.

Rectification and GST 110Each of the monthly payments calculated under the leases included a GST component. Mr Douglas gave evidence that GST could be charged by either calculating the monthly payments by reference to gross purchase price (i.e. by reference to the purchase price inclusive of GST) for the equipment, or alternatively by reference to the net purchase price of the equipment and then charging GST on each monthly payment. If the gross purchase price was used to calculate the monthly payments, and GST was further charged on the monthly repayments so calculated, that would amount to charging GST twice. Mr Doberer conceded that his calculation of the total monthly payments figures mistakenly charged twice for GST (T322.27-T322.30). That concession is consistent with Mr Douglas' evidence in relation to the appropriate treatment of GST in transactions of this nature. Ms Mayo candidly accepted during cross-examination that, in respect of all the leases, it was not her intention to overcharge the plaintiff for GST (T279.5-T279.10). 111On the basis of this evidence, the plaintiff contends it is entitled to an order for rectification so that GST is charged only once. The defendant opposes this on the basis that, although Ms Mayo was aware that GST was being charged, and although she had no intention to charge it twice, she had no positive or actual subjective intention as to how GST was to be treated beyond the intention that it be charged in accordance with Mr Doberer's calculations. 112The defendant relies on the decision in Slee v Warke, where Rich, Dixon and Williams JJ said (at 281): But we cite the words of Simonds J: "let it be clear that it is not sufficient to show that the written instrument does not represent their common intention unless positively also one can show what their common intention was" 113The defendant also relies on the same principle, as emphasised in Ryledar Pty Ltd v Euphoric Pty Ltd (at [281]) and again in Franklins Pty Ltd v Metcash Trading Ltd, where Campbell JA (the others agreeing) said (at [445] in Franklins Pty Ltd v Metcash Trading Ltd): If the matter that has come to be the subject of debate is a matter that was not addressed during the negotiations, and/or was not otherwise shared by the parties ... so that there was no subjective common intention concerning it, then there is no room for rectification. 114It is plain from the evidence that the parties left the calculation of GST to Mr Doberer, on the assumption that he would appropriately account for it. During cross-examination, Ms Mayo's answers suggested she deferred to Mr Doberer's calculations without any independent intention of the treatment of GST, apart from her intention that it be calculated correctly (T189.4-T189.12 and T278.45-T278.49): Mr Allen: The first topic I am going to ask you about is the issue of GST in the Mayo Spirit lease transactions. At the time you executed each of the Mayo Spirit lease transactions did you have an understanding about how GST was to be treated in relation to the transaction? Ms Mayo: No. Mr Allen: Did you have any actual intention as to how GST should be treated in each of those transactions? Ms Mayo: No. ... Mr Allen: You do not have any recollection about how GST was being calculated on that day? Ms Mayo: No I left that up to David [i.e. Mr Doberer]. I had no experience in that. Mr Allen: You agree it was your intention at 2 December 2005 to only charge GST once on the lease transaction? Ms Mayo: As I said I left that up to David [i.e. Mr Doberer]. 115Indeed, I think it is likely that even if Ms Mayo and Mr Leonard had closely examined and re-examined the terms of the leases, including the GST calculations, they would not have objected, nor would they be in a position to do so, simply because they had no knowledge about the appropriate treatment of GST, and would therefore have deferred to Mr Doberer's incorrect calculation. 116The defendant further relied on a number of authorities cited in Tantau v Macfarlane [2010] NSWSC 224 which, though decided in a different context, are said to be relevant to the present point. In that case, Ward J was considering an application under s 29A of the Probate Administration Act 1898 and noted that the court applies to such cases the same principles that are applied in contract cases. Relevantly, her Honour said (at [55]-[57], with my interpolations in square brackets): [55] In Re Dippert, Young J, as his Honour then was, explained the problems which s 29A had been enacted to redress and said (at [17]-[18]): The section has been construed so as to apply the basic principles of rectification worked out in contract cases. Accordingly, what one must look for is an error which has occurred in the transcription of the will or where one can see what the intention of the testator was but the words used have not fulfilled that intention. What one cannot do is to look at unforeseen circumstances [i.e. what would have happened if Mr Leonard and Ms Mayo considered the GST calculation more closely] and speculate what the testator might have done in those circumstances and then supply words to meet those circumstances. Thus where there is no evidence to show what the testator's intention was in the event of certain things happening, the Court cannot rectify the will under s 29A. [56] At [34] Young J went on to say: None of these cases [Wesley v Wesley (1998) 71 SASR 1; Trimmer v Lax (Hodgson J - 9 May 1997 unreported); Green v Green (24 June 1998, Young J unreported] give any support to the proposition that one can rectify the will other than in cases where there is clear proof of the testator's actual intention and that even if the evidence tends towards indicating what the testator would have intended had he or she considered the matter [i.e. what would have happened if Mr Leonard and Ms Mayo considered the GST calculation more closely], that is not enough. [57] The principles governing an application under s 29A of the Probate and Administration Act 1898 (NSW) were outlined by Campbell J in Rawack v Spicer (at [26]). There, his Honour said: Before the power of rectification can be exercised, the court must be satisfied both that the will was so expressed that it fails to carry out the testator's intentions, and also what it was that the testator intended concerning the part of the will which is to be rectified. Even if the court is satisfied that a testator would not have wanted his property to go in the way that, in the events which have happened, a particular clause results in the property going, the court can rectify the will only if it is satisfied about what the testator actually intended to happen to his property in that particular event: Brian William Mortensen v New South Wales (New South Wales Court of Appeal, 12 December 1991 unreported); Re Estate of Max Frederick Dippert [2001] NSWSC 167 (Young J, 20 March 2001, unreported). "It is not enough for the Court to have the opinion that, if the deceased had considered the possibility, she probably would have provided in favour of [a named beneficiary]. What is required is an actual intention, which has miscarried": Trimmer v Lax (Hodgson J, 9 May 1997, unreported at 12). 117However, this case is distinguishable from those cited above, as it does not involve the court speculating about what Ms Mayo "probably would have" done, nor does the evidence merely "[tend] towards indicating" what she would have done. Contrary to the defendant's submission, I do not think this is a case where Ms Mayo and Mr Leonard possessed no intention whatsoever in respect of GST. They intended to rely on Mr Doberer's calculation, but they also clearly did not intend for GST to be overcharged, and critically, they possessed a positive intention that GST be treated correctly in the terms of the leases. There is no doubt that if Ms Mayo had known that GST was improperly being charged twice, she would have agreed to correct the calculation. She gave evidence to that effect (T204.34-T204.38). The evidence is unequivocally to the effect that Ms Mayo intended for GST to be appropriately treated. In my view, the evidence also clearly demonstrates that this was Ms Mayo's governing intention. Mr Leonard gave affidavit evidence, which I accept, that this was likewise his intention, namely that GST be charged only once. The terms of the lease did not achieve that intended effect. 118I think this issue boils down to the same problem already addressed, namely, whether rectification is available in a situation where the parties intended the leases to achieve a particular effect (i.e. for GST to be charged correctly) but the written terms of the leases (by double charging for GST) fail to achieve that intended effect. The only difference, perhaps, between this and the previous issue is that, unlike the previous issue relating to the basis on which interest is to be charged (where the parties were mistaken as to a factual matter), the GST issue arguably involves a mistake as to a matter of law (namely the proper treatment of GST). The Full Court of the Supreme Court of Queensland in Winks v W H Heck & Sons Pty Ltd [1986] 1 Qd R 226 has held that rectification will be ordered where the parties' mistake was as to the effect of a document, even if the mistake was one of law (see also New South Wales Medical Defence Union v Transport Industries Insurance Co (1986) 6 NSWLR 740). 119Again, the facts of this case are distinguishable from those in Pukallas v Cameron, as the method by which the leases should be reformed to achieve the parties' common intended effect (i.e. of treating GST correctly) is not the subject of any uncertainty.

Rectification and bank fees 120In each lease, each monthly payment included a charge of $10 on account of "Bank Fees". Consistent with Ms Mayo's intention to assist the company and not make a profit from these transactions, she gave the following evidence in cross-examination (T204.19-T204.32): Mr Allen: It wasn't your intention as at 2 December 2005 to pay [sic] a $10 bank fee, was it? Ms Mayo: Not my intention, no. Mr Doberer did those calculations. Mr Allen: You would agree that when W & K made payments to you, it wasn't costing you $10 to effect that transaction, you would agree with that? Ms Mayo: Yes. Mr Allen: You would agree that the $10 was really pure profit to you? Ms Mayo: Yes. Mr Allen: And it wasn't your intention as at 2 December 2005 to make a profit of $10 on each transaction, was it? Ms Mayo: It wasn't my intention, no. 121The contention between the parties about whether rectification should be ordered to remove the bank fee charges raises the same points of law previously addressed. Ms Mayo intended to enter into the lease arrangements on the terms drafted by Mr Doberer, but also intended not to charge bank fees. Her intention for the leases to achieve a particular effect (namely to only cover her costs and not make a profit of $10 on account of alleged fees) was not embodied in the written terms of the leases (due to a mistaken belief, on advice from Mr Doberer, that such a term was necessary to cover her costs). 122The answers given by Ms Mayo indicate unequivocally that her governing intention at the time of execution of the leases was not to incorrectly charge for bank fees. I am satisfied that had it been brought to the parties' attention that the transactions did not cost Ms Mayo a monthly charge of $10, they would have omitted the bank fees from the terms of the leases.

Rectification and ownership of the equipment 123As they presently stand, the leases do not provide for the ownership of the equipment to be transferred to the plaintiff at the expiry of their respective terms. The plaintiff seeks an order for rectification so that the leases provide for such a transfer of ownership. The defendant does not object to an order for rectification, but insists that any new provision for the transfer of ownership should be subject to the proviso that the plaintiff's entitlement to receive the transfer be subject to its compliance with its payment obligations under the leases. 124The affidavit and oral evidence of Ms Mayo, Mr Doberer and Mr Leonard is to the effect that Mr Leonard was advised by both Ms Mayo and Mr Doberer that the plaintiff would own the equipment at the end of the respective leases. The only dispute is whether the common intention was that title would pass at the end of the leases, unconditionally, or that title would pass only if all payments were made on time. The plaintiff contends that the first formulation accords with the facts, as the parties did not act with the sophistication of the latter. The defendant alleges that the evidence supports a finding of a common intention consistent with the latter formulation. In my view, the evidence strongly indicates that the true position as to the parties' common intention is somewhere in between these two options. 125Mr Doberer's affidavit evidence was to the effect that, prior to the execution of the leases, he had explained to Mr Leonard that if the company made all the payments it would own the equipment at the end. There is no reference in Mr Doberer's affidavit to any explanation by Mr Doberer that unless such payments were made on time he may not own the equipment at the end of the respective leases. The evidence of Ms Mayo and Mr Leonard, however, is not entirely internally consistent. 126In her first affidavit, dated 12 February 2012, Ms Mayo indicated that it was her understanding that "[the company] will own the equipment at the end" of the respective leases. In her brief further affidavit dated 26 July 2012, however, she qualified that statement by adding "[a]t the time of entering into each of the lease agreements, my intention was that the [company] would own the equipment at the end of the lease if the [company] made all payments required ... on time". The distinction is critical, but obviously confused in her affidavit evidence. Ms Mayo's oral evidence was similarly confused. For example, during cross-examination, Ms Mayo took care to initially assert that the company could only elect to receive a transfer of ownership if it made all the payments required by the leases on time (T201.45-T202.7): Mr Allen: You agree with this, that in November of 2005 you said to Mr Leonard words to the effect, "You will own the equipment at the end of the leases"? Ms Mayo: Yes. Mr Allen: When you said that your intention was that W & K would own the equipment at the end of the leases? Ms Mayo: Yes, and may I clarify that? Mr Allen: No. HH: I will allow her to do so. Go on please. Ms Mayo: Only if he paid the invoices on time. 127However, further questioning revealed that it could not possibly have been her actual subjective intention, at the time of entry into the first and second leases, that transfer of ownership of the equipment to the company would be conditional on lease payments being made on time. Ms Mayo effectively conceded that someone had later pointed this out to her (T202.11-T202.23): Mr Allen: When you had the conversation with Mr Leonard to the effect, "You will own the equipment at the end of the leases", you did not also say words to the effect, "Only if you pay the leases on time"; did you? Ms Mayo: He knew it was the same as CBFC and that was this their contract as well. Mr Allen: At 2 December 2005 you did not know that the CBFC leases contained such a clause, did you? Ms Mayo: No. Mr Allen: What has happened is that somebody has pointed out to you that in the evidence there is a hire purchase agreement which contains a clause similar to the effect that property will only pass if lease payments are made on time? Ms Mayo: Yes. 128That concession is consistent with subsequently given oral evidence, in which Ms Mayo never indicated that transfer of ownership would be conditional on payments being made on time. For example (T202.43-T202.49 and T213.32-T213.46): Mr Allen: And you would agree that the words, "The lessee does not have any right, obligation or option to purchase the goods under the proposed lease" do not match your intention as at 2 December 2005? Ms Mayo: Sorry, what does it actually say again? Sorry. Mr Allen: As at 2 December 2005 the words that I am about to read out to you? Mr Mayo: Yes. Mr Allen: Don't reflect your intention? Ms Mayo: Right. Mr Allen: And the words are, which are at clause 4(b), "The lessee does not have any right, obligation or option to purchase the goods under the proposed lease"? Ms Mayo: Only because at the end of the lease he would own it anyway. 129Ms Mayo's evidence is therefore consistent with an actual or subjective intention on her part, held at the time of execution of at least the first and second leases, that the company would own the equipment at the end of the respective leases. It is obvious, that the transfer of ownership would be conditional on payments actually being made by the company. However, it also emerges from Ms Mayo's evidence that she did not understand that it was a further condition that such payments needed to be made on time. 130Mr Leonard's evidence was similarly contradictory. For example, he initially stated in his affidavit of 28 May 2010 that Ms Mayo said to him "the leases operate so that [the company] will own the equipment at the end of the lease", and that on a separate occasion she likewise said "[the company] will own the equipment at the end of the lease". Similarly, in his affidavit of 12 September 2011 Mr Leonard alleged Ms Mayo said to him "you have to pay nothing at the end, the equipment will be yours". However, somewhat inconsistently, Mr Leonard also said in his affidavit of 12 September 2011 that, at the time of writing his affidavit: Mr solicitor ... has referred me to clause 5 of annexures "B" and "C" [Note: that clause was contained in the CBFC Ltd leases, but it was not included in the lease documents for the transaction between Ms Mayo and the company]. He has explained to me the clause means that if I paid all of the rent on time I could elect to purchase the equipment and if this was at the end of the rental period this would not cost me any more money ... This was my understanding of such agreements from 2002 to 2010. 131However, in the same affidavit, he later expressed his understanding by reference to an unqualified statement that "[the company] will own the equipment at the end of the lease". In his affidavit of 13 February 2013, Mr Leonard said his understanding was that "you make monthly repayments and you get to keep the equipment at the end, though sometimes there may be a residual payment". In oral evidence, Mr Leonard expressed his understanding as follows (T12.30-T12.35): Mr Stowe: And did you have an understanding of the CBFC leases, how they dealt with ownership of the equipment at the end of the lease? Mr Leonard: Yeah. Well, I have always had leases where I pay it out when I obtain the machinery at the end of it. I have never had residuals on leases. It is always, yeah, pay it out in full, obtain the machine at the end. That's the whole idea, otherwise. 132Having regard to the evidence, I am satisfied that the respective leases should be rectified to provide to the company a right to elect to receive a transfer of ownership of the equipment, subject to the proviso that the lease payments were made. The parties clearly did not contemplate any distinction between "making the lease payments" on one hand and "making the lease payments on time" on the other. In my view, overwhelming weight of the evidence, especially having regard to the context in which the transactions took place, is to the effect that ownership would be transferred to the company provided it made the lease payments. 133To be clear, I do not consider there to be a sufficient evidentiary basis for the proviso to be wide enough to render the transfer of ownership conditional on the company's observation of all its obligations under the leases, nor do I consider the parties to have intended that ownership would pass only if Mr Leonard made all lease payments on time.

Plaintiff's claim under general law and statutory unconscionability and the Contracts Review Act 134The factual considerations relevant to determining the plaintiff and Mr Leonard's respective claims for relief under the general law doctrine of unconscionability, s 51AC(2) of the Trade Practices Act 1974 (Cth) and the Contracts Review Act 1980 are similar, and I therefore propose to deal with these claims under the present heading. 135In the recent decision of Aboody v Ryan [2012] NSWCA 395 the Court of Appeal (Bathurst CJ, Allsop P and Campbell JA), considered in some detail the governing general principles in respect of relief against unconscionable dealings. Allsop P (with whom Bathurst CJ and Campbell JA agreed) said (at [62]) that these principles were to be found in the well known cases of Blomley v Ryan (1956) 99 CLR 362, Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, Louth v Diprose (1992) 175 CLR 621 and Bridgewater v Leahy (1998) 194 CLR 457. 136The then President endorsed the expression of principle in these High Court cases and cautioned against introducing rigidity by focusing on subsequent single instances of the application of the principle. His Honour said (at [63]): [63] ... there is an underlying general principle, the applications or exemplifications of which are impossible to describe fully. Thus, one should always be careful not to dwell over-technically or textually on individual expressions of general principle of normative values rooted in the remedying of injustice. It is general principle, not a precisely expressed rule, that operates. The principle is wide, and the danger in further textual definition (as opposed to exemplification or illumination) is that inaccuracy or undue restriction may be brought about... Equity's norms and values can be expressed as by Mason J in Amadio at 461-462, or by Deane J in Amadio at 474-475, or by Dawson J in Amadio at 489... 137In Blomley v Ryan, Kitto J said (at 415 and 428-429): It applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands. ... The essence of the ground we have to consider is unconscientiousness on the part of the party seeking to enforce the contract; and unconscientiousness is not made out in this case unless it appears, first, that at the time of entering into the contract the defendant was in such a debilitated condition that there was not what Sir John Stuart called "... a reasonable degree of equality between the contracting parties"; Longmate v Ledger ... and secondly, that the defendant's condition was sufficiently evident to those who were acting for the plaintiff at the time to make it prima facie unfair for them to take his assent to the sale. ... The fact that the defendant's condition was the result of his own self-indulgence could make no difference, for, as is shown by Cooke v Clayworth ... the principle applied is not one which extends sympathetic benevolence to a victim of undeserved misfortune; it is one which denies to those who act unconscientiously the fruits of their wrongdoing. 138Fullagar J said (at 405): The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-a-vis the other. 139In Commercial Bank of Australia Ltd v Amadio, Mason J said (at 461 and 462): ... relief on the ground of "unconscionable conduct" is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage... ... ...the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position. ... Relief on the ground of unconscionable conduct will be granted when unconscientious advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will be granted when such advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interest. It goes almost without saying that it is impossible to describe definitively all the situations in which relief will be granted on the ground of unconscionable conduct. ... ...the situations mentioned [by Fullagar and Kitto JJ in Blomley v Ryan] are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition or circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word "disadvantage" by the adjective "special" in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party. 140Deane J said (at 474 and 475): Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so. The adverse circumstances which may constitute a special disability for the purposes of the principles relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible to being comprehensively catalogued... [T]he common characteristic of such adverse circumstances "seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other". 141In Louth v Diprose, Deane J said (at 637): ... the jurisdiction of courts of equity to relieve against unconscionable dealing extends generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party to the transaction with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that special disability was sufficiently evident to the other party to make it prima facie unfair or "unconscionable" that that other party procure, accept or retain the benefit of, the disadvantaged party's assent to the impugned transaction in the circumstances in which he or she procured or accepted it. 142Brennan J made similar comments and discussed the relationship between equity's jurisdiction to set aside transactions affected by undue influence and transactions affected by unconscionable conduct (at 626-627). 143The High Court recently considered the principles relating to unconscionable conduct in Kakavas v Crown Melbourne Ltd (2013) 298 ALR 35. In a unanimous judgment, the High Court made a number of observations of particular relevance to the facts of the present case (selected passages from [18]-[20], [22], [118], [124] and [161], citations omitted): [18] ... the task of the courts is to determine whether the whole course of dealing between the parties has been such that, as between the parties, responsibility for the plaintiff's loss should be ascribed to unconscientious conduct on the part of the defendant. In Louth, Deane J explained the basis on which the conscience of equity is engaged to apply the Amadio principle: The intervention of equity is not merely to relieve the plaintiff from the consequences of his own foolishness. It is to prevent his victimization. [19] In proceeding to consider whether equitable intervention is warranted ... , a number of points may be made at the outset. First, the principle which the appellant invokes is not engaged by the circumstance that a plaintiff's transaction with a defendant has resulted in loss to the plaintiff, even loss amounting to hardship... [20] Secondly, equitable intervention does not relieve a plaintiff from the consequences of improvident transactions conducted in the ordinary and undistinguished course of a lawful business... The plaintiff must be able to point to conduct on the part of the defendant, beyond the ordinary conduct of the business, which makes it just to require the defendant to restore the plaintiff to his or her previous position. ... [22] It is telling that the parties referred to no decided case in which the doctrine articulated by Mason J in Amadio has been successfully invoked by a plaintiff complaining of the net loss suffered on account of multiple transactions conducted over many months with a putative "predator". This circumstance does not mean that the Amadio principle cannot apply to multiple transactions, but it does highlight the practical difficulty which confronts the appellant in his claim that the transactions in which he engaged are fairly described as a case of victimisation. ... [118] Essential to the principle stated by both Mason J and Deane J in Amadio is that there should be an unconscientious taking advantage by one party of some disabling condition or circumstance that seriously affects the ability of the other party to make a rational judgment as to his or her own best interests. It may well be that an unconscientious taking of advantage will not always be manifest in a demonstrated inequality of bargaining power or in a demonstrated inadequacy in the consideration moving from the stronger party to the weaker; but the abiding rationale of the principle is to ensure that it is fair, just and reasonable for the stronger party to retain the benefit of the impugned transaction. ... [124] It does not accord with that approach to consider the appellant's "special disadvantage" separately, in isolation from the other circumstances of the impugned transactions which bear upon the principle invoked by the appellant. The issue as to special disadvantage must be considered as part of the broader question, which is whether the impugned transactions were procured by [the defendant] taking advantage of an inability on the [plaintiff's] part to make worthwhile decisions in his own interests, which inability was sufficiently evident to [the defendant] to render their conduct exploitative. ... [161] Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind. Heedlessness of, or indifference to, the best interests of the other party is not sufficient for this purpose. The principle is not engaged by mere inadvertence, or even indifference, to the circumstances of the other party to an arm's length commercial transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation with which the principle is concerned. 144The defendant submitted that the plaintiff's case for relief under the general law of unconscionable conduct must fail because Mr Leonard was not under any relevant "special disadvantage", and also because Ms Mayo was not unconscientiously taking advantage of Mr Leonard's alleged special disadvantage. 145As I have already indicated, Mr Leonard asserted both in his affidavit and in oral evidence, that he has, and at all relevant times had, difficulty reading. In oral evidence he persistently asserted that he has dyslexia and that this was apparent to and known by Ms Mayo and Mr Doberer. Although I am unable, in the absence of cogent medical or other relevant expert evidence before the court supporting Mr Leonard's assertion, to find that Mr Leonard has dyslexia, that does not prevent me from making a factual finding that Mr Leonard had reading difficulties (see discussion in Virginia Nemeth (by her tutor) v Australian Litigation Funders Pty Ltd and Ors [2013] NSWSC 529 at [106]-[110]). 146It was abundantly apparent during Mr Leonard's cross-examination that, though he had some capacity to read, he was slow and appeared genuinely to have significant difficulty doing so. Mr Leonard candidly acknowledged that although he had "extreme difficulty in reading and writing", he some capacity in reading (T29.35-T29.40). For example, when Mr Leonard was taken to one of the personal guarantee documents he had executed for one of the leases and was asked to read it, he was able to read the word "guarantee" on the top of the page. Although he was also able to read the text from the body of the guarantee, he did so with much concentration, at such a slow pace, and with such difficulty, that by the time he was finished reading, he alleged he could not recall its meaning or effect. 147However, Mr Leonard was not unintelligent. He demonstrated, and conceded, that he had an unusually high level of numerical literacy and arithmetic ability. When reading, he has the ability to recognise words which he does not understand and therefore knows when he needs assistance. Indeed, he gave evidence that it was his usual practice, in the course of the company's business, to have Ms Mayo or someone else read documents to him. His ability to understand documents read out to him was effectively uncompromised. 148But regardless of whether or not Mr Leonard possessed a relevant "special disability", I am certainly not satisfied that in entering into the third debenture deed Ms Mayo unconscientiously took advantage of any disability of Mr Leonard. There was no victimisation, nor was there any conduct on the part of Ms Mayo which makes it just to require her to forgo her rights under the debenture deed, nor was there any unfair exploitation of the weakness of Mr Leonard, nor did Ms Mayo have a predatory state of mind. To the contrary, Mr Leonard gave evidence that he was familiar with debenture deeds from his prior experience with lenders, and that Mr Doberer made statements "about a debenture" at the time the first two leases were executed. Mr Doberer gave evidence that he explained the effect of the debenture deed. Ms Mayo also gave evidence that there was reference to a debenture deed, at least at the time the first and second leases were executed. 149The evidence certainly indicates that, if he wished to do so, Mr Leonard was able, in accordance with his usual practice, to ask Ms Mayo or Mr Doberer for help to understand the documents he was signing. Indeed, he was the managing director of the company, while Ms Mayo was his administrative assistant. Mr Leonard also understood that Mr Doberer was not just acting for Ms Mayo, but was also acting for the company and for himself (i.e. for Mr Leonard). There is no allegation by Mr Leonard that he asked for or even desired an explanation but received none, nor is there any allegation that the circumstances otherwise frustrated his ability or capacity to seek further explanation, nor is there any allegation that any explanation provided was false or misleading. The terms of the third debenture are not harsh as a matter of substance, and indeed, the plaintiff embraces the proposition that Ms Mayo's motivation in providing finance was to assist the company, not to make a profit. 150I am not satisfied that the circumstances of this case warrant the intervention of the general law doctrine of unconscionable conduct. The debenture deed should therefore have effect in accordance with its terms. 151I turn then to the defendant's claim for relief under the Trade Practices Act 1974 (Cth) and Mr Leonard's claim for relief under the Contracts Review Act 1980. In Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, Allsop P (as his Honour then was) considered the meaning of "unconscionable" as used in consumer protection legislation, including the Trade Practices Act 1974 (Cth) and the Contracts Review Act 1980, and commented (at [291] and [293]): [291] Aspects of the content of the word "unconscionable" include the following: the conduct must demonstrate a high level of moral obloquy on the part of the person said to have acted unconscionably: Attorney General (NSW) v World Best Holdings Ltd [2005] NSWCA 261; 63 NSWLR 557 at 583 [121]; the conduct must be irreconcilable with what is right or reasonable: Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; 148 FCR 132 at 140 [30]; Australian Competition and Consumer Commission v Samton Holdings Pty Ltd [2002] FCA 62; 117 FCR 301 at 316-317 [44]; Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262; factors similar to those that are relevant to the CRA are relevant: Spina v Permanent Custodians Ltd [2009] NSWCA 206 at [124]; the concept of unconscionable in this context is wider than the general law and the provisions are intended to build on and not be constrained by cases at general law and equity: National Exchange at 140 [30]; the statutory provisions focus on the conduct of the person said to have acted unconscionably: National Exchange at 143 [44]. It is neither possible nor desirable to provide a comprehensive definition. The range of conduct is wide and can include bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct. A finding requires an examination of all the circumstances. ... [293] ... Spigelman CJ in World Best Holdings at 583 [121] referred to a "high level" of moral obloquy. Whether that is too stringent and whether "significant" or "real" may be preferable need not be decided. What is required is some degree of moral tainting in the transaction of a kind that permits the opprobrium of unconscionability to characterise the conduct of the party. 152The Trade Practices Act 1974 (Cth) s 51AC(2) provided: 51AC Unconscionable conduct in business transactions (2) [Unconscionable supply of goods or services to corporation] A person must not, in trade or commerce, in connection with: (a)the supply or possible supply of goods or services to a corporation (other than a listed public company); or (b)the acquisition or possible acquisition of goods or services from a corporation (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. 153Subsection 51AC(3) provided a non-exhaustive list of factors to be taken into account when determining whether conduct is unconscionable for the purpose of that provision. Having considered the authorities on this provision, the plaintiff's case, in my view, falls well short of establishing that Ms Mayo acted unconscionably. When used in s 51AC, the term requires that the actions of the alleged contravenor show no regard for conscience, and be irreconcilable with what is right or reasonable, importing a pejorative moral judgment (Hurley v McDonalds Australia Ltd (2000) ATPR 41-741 at [22] per Heerey, Drummond and Emmett JJ; ACCC v 4WD Systems Pty Ltd (2003) 200 ALR 491 at [183]-[185] per Selway J; ACCC v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 at [30] per Sundberg J; ACCC v Allphones Retail Pty Ltd (No 2) (2009) 253 ALR 324 per Foster J). The authorities indicate that normally, some moral fault or moral responsibility would be involved, rather than mere negligence. There would ordinarily need to be an intentional act or at least a reckless act. 154I am unable to find, nor has the defendant pointed to, any conduct which, in my view, involves moral obloquy on the part of Ms Mayo. Accordingly, there is no basis for alleviating the plaintiff from its obligations under the debenture deed dated 13 May 2008. 155Similar factual considerations are relevant to determining whether the personal guarantees provided by Mr Leonard are, for the purposes of the Contracts Review Act 1980, "unjust" within the meaning of s 7. The general policy of the law that people should honour their contracts has been stated in a number of authorities (Baltic Shipping Co v Dillon (1991) 22 NSWLR 1 at 9 per Gleeson CJ). In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, the High Court emphasised the significance of affixing one's signature to a document. The normative evaluation involved in determining whether or not a contract is one which calls for relief under the Contracts Review Act was discussed by Allsop P (as his Honour then was) in Provident Capital Ltd v Papa [2013] NSWCA 36 (at [7]): The broad evaluation of unjustness under the Contracts Review Act 1980 (NSW) ss 4, 7 and 9 involves the normative evaluation of the totality of relevant circumstances. Inevitably minds may differ as to conclusions about such questions. Also, it is often not fruitful to compare other cases with the particular circumstances at hand, lest one be deflected from an appropriate overall assessment by focus on particular aspects relevant to any such comparison. Central to the normative evaluation is the recognition that there is a need for the protection of some people in some circumstances, who are not able fully to protect their own interests against factors that may cause injustice. That vulnerability may come from one or more of many circumstances, such as lack of education or of intelligence, from gullibility, from the predation of fraud and greed, and also sometimes from loyalty and love. The characterisation of a contract as unjust and the sheeting home to the other contracting party of the consequences of its unjustness may be a difficult evaluative exercise. At its heart, however, is the recognition of the inadequacy of one party to protect her or his interests in the circumstances. Here, there was no predation. There was no behaviour in which [the lender] sought to take advantage of [the borrower]. 156I do not think the guarantees are unjust by reason of either substantive injustice or procedural injustice (West v AGC (Advances) Ltd and Others (1986) 5 NSWLR 610 at 620 per McHugh JA). Mr Leonard conceded that Mr Doberer brought to Mr Leonard's attention the personal guarantees at the time of execution of the first two leases (T86.46-T87.3), and Mr Leonard gave evidence that he understood the effect of providing a personal guarantee (T65.42-T66.5), and that he understood that it was a likely condition of obtaining finance that he would be required to provide a personal guarantee (T65.19-T65.22), and that he understood the first guarantee which he signed to cover not just the company's liabilities under the first lease, but under all leases (T129.6-T129.23). Together with the other circumstances I have outlined in relation to the unconscionability claim (including the availability of assistance if Mr Leonard wished to obtain any, his position as managing director, Ms Mayo's desire to assist him and the absence of any conduct involving moral obloquy on Ms Mayo's part), I do not think Mr Leonard should be relived under the Contracts Review Act from his obligations under any of the personal guarantees. 157I also note that there was some reference in the plaintiff's submissions to a claim for relief from its obligations under the debenture on the basis that the defendant engaged in conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth). The argument was not pressed during final submissions, nor was I directed to any evidence in support of the claim, but I note for completeness that in any event, I do not think there is evidence to support a claim for misleading and deceptive conduct.

The defendant's cross-claim 158The defendant submitted that, in the event that I found in her favour on the issue of rectification, it would be necessary to consider whether, in the circumstances of this case, the plaintiff, by insisting on performing the leases on the basis of an allegedly genuine mistake in its interpretation of its rights and obligations, had repudiated the leases. The basis of the defendant's allegation of repudiation is the plaintiff's alleged failure to make repayments in accordance with the terms of the unrectified state of the leases and the plaintiff's alleged failure to return the equipment the subject of the leases to the defendant following the expiry of the respective leases. Since I have found in the plaintiff's favour on all aspects of the rectification claim, the defendant's allegation that the plaintiff repudiated the leases is without foundation. However, I simply note in passing, that even if this was not a case for rectification, there might have been some difficulty in asserting that the plaintiff's conduct was repudiatory, as the plaintiff conducted itself pursuant to a misunderstanding of a proper construction of the leases, not because of a renunciation of its obligations as such. 159As I understand, the parties agree that the damages aspects of the defendant's cross-claim involve an accounting exercise which is heavily dependent on my findings as to rectification, variation and repudiation. The parties have agreed to attempt to reach a consent position in relation to the calculations of the amounts owed under each lease. In the event that the parties cannot reach a consent position as to the quantification of damages, the points of dispute will be determined by the court or by a referee, as appropriate. 160Therefore the only presently outstanding issue is whether the defendant correctly alleges that the first to seventh leases were varied in or around April or May 2008 to provide for an increased rate of interest. 161I have already outlined (at [34]-[35] above) the evidence in relation to the alleged variations to the relevant leases. In final submissions, the plaintiff opposed the variations allegation purely on the basis that no consideration supported the alleged variations, but not on any contrary factual basis to that alleged by the defendant. The defendant responded by submitting that the relevant consideration was the benefit of maintaining the goodwill of Ms Mayo to maximise the prospects of that relationship continuing and obtaining further leases. 162Ms Mayo gives affidavit evidence to that effect and consistent oral evidence. Mr Doberer's evidence is to the effect that, while he has no specific recollection of participating in discussions between Mr Leonard and Ms Mayo about the alleged variations, he recalls becoming increasingly concerned about Ms Mayo's position and sitting down in the plaintiff's office with Ms Mayo to calculate the adjusted repayments and to prepare a spreadsheet accordingly. Mr Doberer also gave evidence that it was his usual practice to discuss variations of this type with clients, as it affects overall financial performance. Mr Leonard denied any dealings in, or awareness of, the alleged variations. 163On the balance of probabilities, I am satisfied that the variations were probably discussed and agreed upon. On numerous factual matters, Mr Leonard persistently denied propositions put to him by the defendant, but later accepted the truth of those propositions when pressed in cross-examination. For example, Mr Leonard initially denied that Mr Doberer advised him that he was executing a personal guarantee, that Mr Doberer advised him he was executing a debenture, and that Mr Doberer advised him of the key terms of the leases. However, in cross-examination, Mr Leonard later made concessions in favour of the defendant in relation to each of these factual matters. Further, there is apparently contemporaneous material annexed to Ms Mayo's affidavit recording adjusted figures to effect the alleged variations to the relevant leases. I accept the inherent unlikelihood that Mr Doberer would, contrary to his usual practice, and certainly in gross breach of his professional duties, have unilaterally altered the company's financial contractual obligations. 164The issue which remains, and which is pressed by the plaintiff, is whether there was no consideration in support of the variations. The principle in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 (namely, that the rule that a promise to perform an existing legal duty will not constitute good consideration will not apply if the promisor receives "factual benefits" from the performance of the duty, or the promisor avoids a "disbenefit" which might have resulted from the other party's failure to perform) was accepted and applied in New South Wales by Santow J in Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 and in Tinyow v Lee and Another [2006] NSWCA 80 (at [61] per Santow JA). 165In Musumeci v Winadell Pty Ltd, the plaintiff was the lessee of shop premises in a shopping centre who negotiated for a rent reduction. This was prompted by the lessor's decision to let premises to a competing retailer which was in a position to cause the plaintiff financial ruin. The crucial issue was whether the plaintiff had furnished consideration for a promise by the defendant to take a reduced rent. It was held that when a lessee of premises in a shopping centre claims to be unable to remain viable and continue paying the full rent by reason of the introduction of a much larger, competing tenant, the practical benefit to the lessor of retaining the lessee as a viable tenant and keeping the centre occupied with both competitors, might serve as consideration for the lessor's promise to reduce the rent. 166In the present case, I consider Mr Leonard to have obtained a relevant "factual benefit" or to have avoided a "disbenefit" by agreeing to the variations. Ms Mayo advised Mr Doberer that "[she] will not be in a position to continue financing [Mr Leonard]" unless the variations are implemented. Mr Doberer advised Mr Leonard of the proposed variations, and explained that "[Ms Mayo] is going backwards" and "[it is] not fair to her". The circumstances of the case strongly indicate that the plaintiff received a factual benefit by agreeing to the variations. The evidence strongly indicates that plaintiff had no alternative means of obtaining finance to acquire equipment to operate its business. Ms Mayo offered a commercially convenient option of an "in house banker" with which Mr Leonard became very comfortable, as Ms Mayo did not require credit risk assessments from the company or from Mr Leonard, and the rate of interest and the basis on which interest was charged (as rectified) was highly attractive. 167It is true that "natural love and affection imports no [consideration]" (Director of Public Prosecutions (Vic) v Le (2007) 232 CLR 562 at [43] per Gleeson CJ), but I am satisfied, for the reasons I have outlined above, that Mr Leonard's agreement to the variations was not merely from "love and affection", but he received the benefit of Ms Mayo's continued financial support and an enhanced prospect of having Ms Mayo finance future acquisitions for the company at a very favourable rate. Whilst I am therefore inclined to accept that there was a variation to rate at which interest is charged in the relevant leases, there is no doubt in my mind that the common intention for interest to be charged on a reducible basis continued.

Conclusion 168I invite the parties to prepare and send to my Associate short minutes reflecting these reasons, and to arrange with my Associate a suitable time to list the matter to address the issue of costs and, if necessary, the balance of the defendant's cross-claim in the event that no consensual position is reached.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 August 2013

Trade Practices Act 1974(Cth)s 51AC(2)

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Cases Cited (48)