Clarke v Cheyne[2015] QDC 336

DISTRICT COURT OF QUEENSLAND

1. [1]
   On 11 June 2014 the plaintiffs commenced a proceeding in this Court seeking various relief against the defendants, including rectification of a contract in writing between the plaintiffs and the first defendant dated 15 January 2013, recovery of money paid by the plaintiffs to the first defendant, and, or in the alternative, damages for breaches of the Trade Practices Act 1974 (Cth) or the Fair Trading Act 1989. A notice of intention to defend and defence were filed on 27 July 2014, but that defence was struck out by a consent order dated 4 December 2014, and an amended defence was filed on 28 January 2015, after the time limited by the consent order.

2. [2]
   On 13 November 2015 a second amended defence and counter-claim of the defendants’ was filed, and soon after that the defendants filed an application seeking to have various paragraphs of the statement of claim struck out. On the hearing of the application, the defendants were given leave to file an amended application, seeking to have struck out some additional paragraphs of the statement of claim, in particular paragraphs seeking compensation under a particular provision of the Property Agents and Motor Dealers Act 2000. On the hearing counsel for the plaintiffs conceded that that claim could not be maintained and the paragraphs in relation to it should be struck out. That left three matters in contention.

Rectification

3. [3]
   The defendants sought to strike out the claim for relief by way of rectification, and those paragraphs of the statement of claim apparently pleaded in support of it, on the basis that they did not contain an allegation that there was a common intention between the parties as to the transaction, the subject of the contract, which was not reflected in the written contract. The argument advanced was that, in the absence of a plea of the existence of such a common intention, relief by way of rectification was not available. The statement of claim as it stands does not allege such a common intention, but counsel for the plaintiffs submitted that the need for a common intention was not universal, and there were established categories of exception to that requirement, relying in argument on statements in paragraph 2614 of the second edition of Meagher, Gummow and Lehane “Equity Doctrines and Remedies”. Reference was also made to the notes on the law in “Court Forms, Precedents and Pleadings – Queensland”, Equitable remedies and defences – Rectification, at [28,080], that rectification is available in the case of unilateral mistake where one party executed the document knowing at the time of execution that the other party had executed it or would do so under a mistake as to its provisions.

4. [4]
   Counsel for the defendants submitted, on the other hand, that recent Australian authority, at least at intermediate appellate court level, established that rectification was available only in circumstances where a written contract did not accurately reflect a prior common intention of the parties. Reference was made to a passage of the judgment of Campbell JA in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] 69 NSWLR 603 at 655, para [259]:

“It is now clearly established that what is necessary for rectification of a document is a common intention of the parties that continues to the time of execution of the document in question, but that an antecedent concluded contract is not needed.”

5. [5]
   High Court authority was cited. The first case cited was Slee v Warke (1949) 86 CLR 271 at 280. In that case the point that was discussed was whether rectification was available for mutual mistake in circumstances where there had been no actual concluded contract antecedent to the instrument sought to be rectified. That limitation was discussed and rejected by the High Court but strictly speaking in dicta, since it held that there was no common intention of the parties, but one party at least had an intention consistent with the contract in writing.

6. [6]
   The second case was Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336, where there was some discussion of the requirement for rectification in the judgment of Mason J, with whom Menzies J agreed. His Honour said at p 350:

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

7. [7]
   His Honour discussed various matters directed to mutual mistake and then said at p351:

“An alternative argument was advanced by the appellant based on a series of authorities which are said to decide that if one party to a transaction knows that the instrument contains a mistake in his favour but does nothing to correct it, he will be precluded from asserting that the mistake is unilateral and not common… In my opinion this principle has no application to this case as there was no relevant mistake on the part of the appellant as to the contents of the written contract.”

This did not amount to a clear endorsement of the existence of the right to rectification for unilateral mistake in certain circumstances, but his Honour’s approach was consistent with the recognition of such a right.

8. [8]
   The third High Court case cited was Pukallus v Cameron (1982) 180 CLR 447, one where the High Court refused to reinstate a judgment for rectification ordered by a trial judge on the ground of mutual mistake, set aside on appeal: p 450. The matter was therefore analysed by reference to the law applicable in relation to rectification for mutual mistake, and the remarks of Mason J in Maralinga Pty Ltd (supra) at p 350 were cited.

9. [9]
   Rectification for unilateral mistake was considered by the Full Court in Johnston v Arnaboldi [1990] 2 Qd R 138. Connolly J with whom the other members of the Court agreed said at p 144:

“For one party to a contract to permit the other to execute it, knowing that he is mistaken about a particular term, the mistake being to the advantage of the former, has been characterised as dishonest and will entitle the mistaken party to rectification.”

That passage was cited by Martin J in J M Kelly (Project Builders) Pty Ltd v Toga Development No. 31 Pty Ltd (No. 5) [2010] QSC 389 at [21]. His Honour also referred to Ryledar Pty Ltd (supra), and at [22] to a passage from the judgment of Buckley LJ in Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505 at 516, which I need not quote but which makes no reference to the need for a common intention of the parties. In addition, his Honour stated at [20]:

“Rectification on the basis of unilateral mistake is available where there are additional factors that render unconscionable reliance on the document by the party who has intended that it should have effect according to its terms.”^[1]

10. [10]
    Counsel for the defendants also referred to the decision of the Court of Appeal in Victoria in Leibler v Air New Zealand Ltd (No. 2) [1999] 1 VR 1. In that case Kenny JA, with whom the other members of the Court agreed, said at paragraph [36]:

“The principles which govern an application for rectification of a contract on the ground of unilateral mistake can be briefly stated. If (1) one party, A, makes an agreement under a misapprehension that the agreement contains a particular provision which the agreement does not in fact contain; and (2) the other party, B, knows of the omission and that it is due to a mistake on A’s part; and (3) lets A remain under the misapprehension and concludes the agreement on the mistaken basis in circumstances where equity would require B to take some step or steps, depending on those circumstances, to bring the mistake to A’s attention; then (4) B will be precluded from relying upon A’s execution of the agreement to resist A’s claim for rectification to give effect to A’s intention.” (authorities cited).

This passage was cited with apparent approval by Muir J, as he then was, in Eroc Pty Ltd v Amalg Resources NL [2003] QSC 74 at [39].

11. [11]
    Counsel for the defendants submitted that even in a case of unilateral mistake rectification would only be granted if there was prior to the mistake a consensus between the subjective intentions of the parties as to what the document should contain. He relied on another passage in the judgment of Kenny JA, at [70] where her Honour said:

“If, in the case of unilateral mistake, a plaintiff establishes, by convincing proof, that the executed document does not conform with the intention shared by the parties prior to the mistake coming to the attention of the non-mistaken party, and that intention is sufficiently precise and specific to be the subject of an order for rectification, then rectification may, in appropriate circumstances, be granted.”

12. [12]
    Her Honour for this cited to the decision of Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 343-344. That case involved an application for rectification of a deed poll, executed by a trustee to a discretionary trust to amend the terms of the trust, undertaken to achieve what was described by Sheller JA, with whom the other members of the Court agreed, as “a perfectly legitimate taxation advantage”, but (by mistake, it was said) did so in a way which exposed the trustee to stamp duty. Rectification was granted at first instance and an appeal by the Commissioner of Stamp Duties was dismissed. The transaction involved unilateral mistake but only in the sense that there was only one party to the transaction, and the real issue in dispute in the Court of Appeal was as to the nature of the mistake which had occurred and whether it was the sort of mistake which justified rectification, relying on cases of mutual mistake.^[2]  Plainly since there was only one party it could not be authority for the proposition that rectification for unilateral mistake would not be granted unless there had been, prior to the mistake, a common intention of two parties as to the terms of the agreement between them.

13. [13]
    The current edition of Meagher, Gummow and Lehane “Equity Doctrines and Remedies”, the fifth edition 2015, identified three exceptions to what was said to be a general rule that rectification is not permitted if the mistake is unilateral as distinct from common or mutual: where the party who is not mistaken is guilty of fraud, whether actual, constructive or equitable: [27-130]. Second, where the other party knew of the mistake, or must have known or strongly suspected that there was a mistake: [27-135]. This was formulated by reference to a mistake as to a particular term being included in a contract when in fact it was not, as in Leibler (supra).^[3]  The third category was said to be “a curious ganglion of vendor and purchaser cases which seem to decide that in the case of a unilateral mistake a Court of Equity has the right to give the defendant the option of accepting rectification of the instrument against the defendant or else submitting to having the contract rescinded, irrespective of the defendants state of mind”: [27-140]. In none of these cases was it said to be essential to show that at one time there was a shared intention on the part of both parties.

14. [14]
    The current edition of Spry “Equitable Remedies”, the ninth edition 2014, deals, with unilateral mistake at pp 636-8. The learned author there referred in more general terms to the proposition that, in order for a court to intervene by way of rectification, there must be additional circumstances that render unconscionable reliance on the document by the party who has intended that it should have effect according to its terms. The case of knowingly taking advantage of a mistake on the part of the other party is regarded as simply a classic case of this, but it is suggested that misleading or unfair conduct or circumstances involving a breach of fiduciary duties may also render reliance on the terms of the document unconscionable, and in that way lead to rectification.

15. [15]
    In Eroc (supra) Muir J also referred to authority for the proposition that it must be unconscionable or inequitable for the mistaken party to be held to the unrectified terms for equitable relief to be available: [46] and [49]. In the event his Honour held that there was no unconscionable conduct on the part of the plaintiff, and the defence of rectification failed. That conclusion was, however, reached after a trial in which, among other things, his Honour formed a favourable view of the credibility of the party negotiating for the plaintiff. His Honour also found that both parties were, to the knowledge of the other, financially sophisticated and obtaining legal advice: [60].

16. [16]
    In these circumstances I reject the defendants’ submission that rectification on the ground of unilateral mistake will not be available without proof that there was at one time a consensus as to what the document should contain prior to the mistake, and that the party other than the party that was mistaken had knowledge that the first party believed the term to be included. I do not doubt that rectification for unilateral mistake would be available in such circumstances, but I do not accept that it will be available only in such circumstances. In my opinion, for the purposes for an application under r171^[4], the matter should not be stated with any greater level of restriction than that adopted in Spry, and by Muir J and Martin J in the two Queensland decisions, that what is required is unilateral mistake coupled with circumstances which render it unconscionable for the other party who was not mistaken to rely on the actual terms of the contract executed. Both of those matters are pleaded in the current pleading,^[5] and in those circumstance I consider that it is not appropriate to strike out the claim for rectification. The claim for that relief on that basis is not so clearly unarguable as to justify its being struck out from the pleading.

Basis for restitution

17. [17]
    The second matter argued was based on the proposition that the pleading did not allege the facts, matter and circumstances giving rise to the right to repayment of money paid pursuant to the option agreement upon termination of the contract, which was alleged to exist in paragraphs 22(c) and 22(d). This proposition may be disposed of shortly. The opening words of paragraph 22 are “In the premises”. That means, in effect, on the basis of the facts alleged in paragraphs 1 to 21. Counsel for the defendant conceded that, if the pleading had said the latter expressly, he could not argue that the pleading did not identify the facts, matters and circumstances relied on. That I think in substance is what it does, the pleading in my opinion is sufficiently clear, and there is no basis for striking out these paragraphs.

Misleading and deceptive conduct

18. [18]
    The third part of the defendants’ attack was directed at the allegations of misleading and deceptive conduct, in particular the allegation in paragraph 25 that the representations alleged in paragraphs 7 and 8 were misleading or deceptive or likely to mislead or deceive for the purposes of the Acts, or were false and/or misleading concerning the price payable for the land. The pleading does not allege the basis upon which the representations were said to be misleading or deceptive or false, or likely to mislead or deceive. It is well established that it is necessary for such a case to plead what is alleged to be misleading and deceptive about the representations: Barr Rock Pty Ltd v Blast Ice Creams Pty Ltd [2011] QCA 252 at [35].

19. [19]
    In that case it emerged in the course of argument in the Court of Appeal that the respondent’s case, as to the representations relied on, was really different from that pleaded in the statement of claim, and no doubt for that reason the paragraphs containing the representations, as well as the paragraphs which failed properly to allege the basis upon which they were misleading or deceptive, were stuck out: [36] Nevertheless, the respondents were given liberty to re-plead by the Court of Appeal. In the present case, it seems to be clear that paragraph 25 in its current form is inadequate, but if a proper basis is pleaded to show that the representations alleged in paragraphs 7 and 8 were misleading, deceptive, false or likely to mislead or deceive, the pleading would not be otherwise defective as a claim for misleading or deceptive conduct. The appropriate course therefore is to strike out paragraph 25 but with liberty to re-plead.

Conclusion

20. [20]
    Overall therefore only paragraph 25 of the contentious paragraphs should be struck out; it was not contentious that paragraphs 29-32 should be struck out. There was some discussion of the appropriate consequential orders given that there was to be some repleading on the part of the plaintiffs. The original draft order suggested repleading by 23 December, but it is too late for that now. It is better if the plaintiffs have enough time to get it right, allowing for the intervention of the usual holiday period. I will allow until 5 February for the amended statement of claim to be filed and served. The defendants also need an extension of time for filing their counterclaim to 13 November 2015, when it was in fact filed. That was not contentious, and I allow it.

21. [21]
    These will be incorporated in the order made when these reasons are delivered, at which time I will also hear submissions on the question of costs; but it seems to me that the second affidavit of Mr O'Shea, filed by leave at the hearing, did no more than exhibit documents already before the Court. Not only was that unnecessary, but it was in breach of r 435(12). If so, the defendants should pay the costs of that affidavit.