Fobeza Pty Ltd v James Adam Pty Ltd

[2020] NSWSC 597

Supreme Court

New South Wales

Medium Neutral Citation:	Fobeza Pty Ltd v James Adam Pty Ltd [2020] NSWSC 597
Hearing dates:	11 May 2020
Date of orders:	20 May 2020
Decision date:	20 May 2020
Jurisdiction:	Equity
Before:	Darke J
Decision:	Declarations made that plaintiff validly rescinded contract for sale and is entitled to a refund of the deposit.
Catchwords:	CONTRACTS — construction — contract for the sale of proposed lot in plan of subdivision — area of lot affected by area of another proposed lot — sketch plan annexed to contract showed area of other lot as 2001m² — correct figure was 2205m² — purchaser given right to rescind if area of other lot shown as 2100m² or more on registered plan — plan of subdivision as registered showed area of other lot to be 2205m² — purchaser rescinded — vendor claimed that sketch plan should be read as if it showed the correct area (2205m²) — vendor claimed that objective intention of parties was to confer a right of rescission if area shown on registered plan exceeded area shown on sketch plan by 5% — whether mistake in contract can be corrected as a matter of construction — whether literal meaning of language of contract created an absurdity — whether objective intention self-evident — held that a reasonable person in the position of the parties would not appreciate the existence of the error — held no absurdity where area recorded on sketch plan not obviously wrong — held that suggested objective intention not self-evident — held that purchaser validly rescinded the contract
Cases Cited:	Bank of Queensland v Chartis Australia Insurance Ltd [2013] QCA 183 Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 Fitzgerald v Masters (1956) 95 CLR 420 Mainteck Services Pty Ltd v Stein Huertey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 National Australia Bank Ltd v Clowes [2013] NSWCA 179 Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11
Category:	Principal judgment
Parties:	Fobeza Pty Ltd (Plaintiff/First Cross-Defendant) James Adam Pty Ltd (Defendant/Cross-Claimant) William Kevin Young (Second Cross-Defendant)
Representation:	Counsel: Mr D C Price (Plaintiff/First Cross-Defendant) Mr M A Ashhurst SC with Mr G Farland (Defendant/Cross-Claimant)   Solicitors: Don McDougall Law (Plaintiff/First Cross-Defendant) Henry Frydman (Defendant/Cross-Claimant)
File Number(s):	2019/351438
Publication restriction:	None

Judgment

Introduction

1. This case concerns a contract for the sale of certain parcels of land at Woodstock near Cowra. The contract was entered into on 17 May 2019 between the plaintiff as purchaser and the defendant as vendor.

2. The contract is in the form of the standard Law Society/Real Estate Institute form (2018 edition), as amended and supplemented by a number of Additional Clauses. The contract provided for a purchase price of $2,250,000, with a deposit of $112,500.

3. One of the parcels of land the subject of the sale is described, on the front page of the contract and in Additional Clause 39.2, as proposed Lot 102 in a subdivision of Lot 1 in Deposited Plan 841539. The remaining portion of the subdivided land (which was not the subject of the sale) is described, in Additional Clause 39.2, as proposed Lot 101.

4. The plan of subdivision of Lot 1 in Deposited Plan 841539 was registered on 22 October 2019 as Deposited Plan 1257896. The defendant notified the plaintiff of the registration of the plan on 24 October 2019.

5. Later on 24 October 2019, the plaintiff purported to rescind the contract. The rescission was stated to be based upon the provisions of Additional Clause 41.3. In short, the plaintiff claimed that it was entitled to rescind because:

1. the area of Lot 101 in the registered plan of subdivision was shown on the plan as exceeding 2100m2; and/or

2. the location of an easement in the registered plan of subdivision was substantially different to that shown on a sketch plan that was attached to the contract.

6. The validity of the purported rescission is the central issue in the proceedings. The plaintiff asserts that it validly rescinded the contract and that it is entitled to have the deposit refunded, together with interest. The defendant contends that the plaintiff had no right to rescind under Additional Clause 41.3 and that the contract remains on foot. The defendant, by means of its Cross-Claim, (which joins a guarantor of the plaintiff’s obligations), seeks orders for specific performance of the contract. The determination of the central issue in the proceedings depends upon the resolution of a number of questions of construction of the contract for sale.

Summary of salient evidence

7. About 16 April 2019 the plaintiff engaged Mr Donald McDougall to act as its solicitor in relation to the purchase of the parcels of land at Woodstock. At about that time, Mr McDougall had a conversation with a representative of the defendant’s selling agent in which the representative said words to the effect that at the front entrance to the property “2000 square metres is to be carved out and donated to Council”.

8. The defendant engaged Mr Henry Frydman to act as its solicitor in the transaction. On 30 April 2019 Mr Frydman sent a draft contract for sale to Mr McDougall for his consideration. On the front page of the draft, one of the subject parcels of land was described as:

Part of “Padua” 1380 Reg Hailstone Way Woodstock, part Lot 1 in Deposited Plan 841539, folio 1/841539.

9. The draft contract included an Additional Clause 39 in the following terms:

39.0   Subdivision of Lot 1 in Deposited Plan 841539

39.1   The Vendor discloses that it has agreed to transfer 2001 square metres Of [sic] the subject lot to the Rural Fire Services for use as its depot for the area.

39.2   Annexed herewith is a sketch plan of the proposed subdivision and which is described as lot 101 in the sketch plan. The vendor discloses and the purchaser agrees and acknowledges that Lot 101 is excluded from the sale.

39.3   Completion of the contract is conditional upon the registration of the subdivision. In the event the subdivision is not effected on or before the date of completion either party will be at liberty to rescind the contract whereupon Section 19 hereof shall apply.

10. The sketch plan annexed to the draft contract was headed:

Plan of Subdivision

Lot 1, DP 841539

Reg Hailstone Way, Woodstock

The plan depicts the boundaries of an irregularly shaped portion of the land, marked “101”, as having an area of 2001m2. Various details are included in relation to that portion, including references to actual or proposed improvements such as a shed, a water tank and a hard stand parking area. The plan also depicts a portion of the land, marked “102”, as having an area of 101.525ha.

11. On 8 May 2019 Mr McDougall’s secretary sent an email to Mr Frydman. The email was apparently accompanied by a number of attachments, including an amended and marked-up version of “Contract cover pages 1 to 3”, and an amended and marked-up version of the Additional Clauses. The former is not in evidence. The latter embodies numerous suggested amendments including:

1. the inclusion of a new Additional Clause 34.4;

2. amendments to Additional Clauses 39.1, 39.2 and 39.3; and

3. the inclusion of new Additional Clauses 41.1, 41.2, 41.3 and 41.4.

12. On 10 May 2019 Mr Frydman replied by email. Mr Frydman stated in his email that the defendant consented to the amendments to pages 1 and 3, as well as to various of the other suggested amendments, including those in respect of Additional Clauses 34.4, 39.2, 39.3, 41.1 and 41.3. Mr Frydman stated that the suggested amendments to Additional Clause 39.1 were consented to subject to the addition of a reference to Cowra Council. Mr Frydman further stated that parts but not all of the suggested Additional Clauses 41.2 and 41.4 were acceptable to the defendant.

13. Later on 10 May 2019, Mr Frydman sent another email to Mr McDougall. This email attached what appears to be a more complete copy of the sketch plan that was annexed to the draft contract. Mr Frydman advised that “the existing power pole shown on the diagram will be moved closer to the subdivided land to allow for connection of electricity to RFS depot”.

14. On 14 May 2019 Mr Frydman sent another email to Mr McDougall. This email forwarded an email of 14 May 2019 from Core Rural Consulting about electricity transmission lines and associated easements, and attached a revised sketch plan which now included details of certain electricity infrastructure, and made reference to an “Easemanet [sic] 20m wide”. This revised sketch plan appears to be the same as the sketch plan that ultimately came to be annexed to the contract for sale.

15. As noted earlier, the contract was entered into on 17 May 2019. The date for completion was specified on the front page of the contract as:

1 November 2019 (subject to clause 41) (clause 15).

16. Particular note should be made of the following Additional Clauses in the contract:

34.4   Unless waived by the Purchaser, completion is subject to and conditional on the registration by LRS NSW of the plan of subdivision in the terms set out in clause 39, and as provided in clause 41.2.

…

39.0   Subdivision of Lot 1 in Deposited Plan 841539

39.1   The Vendor discloses that it has agreed to transfer 2001 square metres of the subject lot, being Lot 1 in DP 841539, to the Cowra Council and Rural Fire Services for use as its depot for the area.

39.2   Annexed herewith is an email dated 14 May 2019 from Core Rural Consulting to the Vendor’s Solicitor, including a sketch plan of the proposed subdivision of the subject lot and in which is described proposed Lots 101 and 102, and showing the location and width of a proposed easement for electricity mains. The vendor discloses and the purchaser agrees and acknowledges that proposed Lot 101 is excluded from the sale, and that proposed Lot 102 is included in the sale.

39.3   Completion of the contract is conditional upon the registration of the plan of subdivision in accordance with the sketch plan, including creation, location and width of the proposed easement. In the event the subdivision is not effected on or before the date for completion clause 41 hereof shall apply.

(I interpose that the email referred to in Additional Clause 39.2 is the email that was forwarded by Mr Frydman to Mr McDougall on 14 May 2019.)

…

41.2   Subdivision

a)   Completion of this contract is subject to and conditional on the registration by LRS NSW of the plan of subdivision in the terms set out in clause 39, and as provided in this clause.

b)   The Vendor must promptly use all reasonable endeavours, at its cost, and without contribution from the Purchaser, to procure the lodgement and registration of the plan of subdivision on or before the date for completion.

c)   The Vendor must promptly provide to the Purchaser a copy of the plan as lodged with LRS NSW, and at its cost, and without contribution from the Purchaser, promptly satisfy any requisition on timely basis to allow registration of the plan of subdivision, and the creation and issue of separate title deeds for proposed lots 101 and 102 by the date for completion.

d)   The Vendor must notify the Purchaser within 2 business days after the plan of subdivision is registered, and must provide to the Purchaser registration details of the plan, and details of the folio identifier for the proposed lot 102.

e)   If the plan of subdivision is not registered by 1 November 2019, then the Purchaser may, within 2 business days after that date, either:

by notice to the Vendor, rescind this Contract, and clause 19 applies; or

by notice to the Vendor, extend the date for completion to a date on or before 31 January 2020.

…

41.3   Purchaser’s right of rescission

The Purchaser may rescind this contract if the area of lot 102 in the plan of subdivision as registered is shown on the plan as being 2,100 sq. m or more, or if the location or the width of the easement are substantially different to that shown on the sketch plan set out in clause 39.

A right of rescission under clause 41.3(a) may only be exercised within 5 business days after notice is given under clause 42.2(d).

If the Purchaser does not serve a notice in accordance with clause 41.3(b), the Purchaser must proceed to completion within 15 business days after notice is given under clause 41.2(d).

(I note in passing that it is common ground that the reference in Additional Clause 41.3(a) to “lot 102” is an obvious error, and that the clause should be read as if the reference was to “lot 101”. Further, the reference in Additional Clause 41.3(b) to “clause 42.2(d)” is another error. The contract does not have a clause (or Additional Clause) 42.2(d). It seems clear, as submitted by the plaintiff, that the reference should have been to clause (or Additional Clause) 41.2(d).)

41.4   Completion

The date for completion is the date which is the latest of:

1 November 2019; and

15 business days after the day on which the Purchaser serves a notice on the Vendor under clause 41.1(d)ii; and

If notice has been given under clause 41.2(e)ii, 31 January 2020.

17. As noted earlier, the sketch plan that was annexed to the contract appears to be in the same form as the revised sketch plan that was attached to Mr Frydman’s email to Mr McDougall of 14 May 2019. It is headed:

Plan of Subdivision

Lot 1, DP 841539

Reg Hailstone Way, Woodstock

18. The plan depicts the boundaries of an irregularly shaped portion of the land, marked “101”. The portion is marked as having an area of 2001m2. Various details are included in relation to that portion, including references to actual or proposed improvements such as a shed, a water tank and a hard stand parking area. There are also various numerals which appear to be angles and dimensions of the boundaries. In addition, the plan depicts a portion of the land, marked “102”, as having an area of 101.525ha.

19. The sketch plan further included the details concerning electricity infrastructure, as mentioned earlier, and made reference to an “Easemanet [sic] 20m wide”. Seemingly in that regard, the sketch plan includes two wavy parallel lines located on either side of a broken line which itself seems to be the depiction of the route of a powerline.

20. Towards the lower left hand side of the sketch plan there is a box containing the following notes:

THIS PLAN IS NOT CHECKED OR REGISTERED BY THE LAND TITLES OFFICE

ALTERATIONS MAY BE REQUIRED PRIOR TO ITS ACCEPTANCE AND REGISTRATION

ALL DIMENSIONS AND AREAS STATED ON THIS PLAN ARE PRELIMINARY ONLY AND ARE SUBJECT TO CONFIRMATION AND FURTHER SURVEY

THE POSITION AND NATURE OF EASEMENTS TO BE CREATED ARE SUBJECT TO FURTHER SURVEY. ADDITIONAL EASEMENTS MAY BE REQUIRED

21. The sketch plan is dated 7 November 2018. It was apparently prepared by a registered surveyor, WJ Chapman.

22. The subdivision of Lot 1 in Deposited Plan 841539 was effected on 22 October 2019 when Deposited Plan 1257896 was registered. That Deposited Plan shows Lot 1 in the Deposited Plan as having an area of 101.5ha “BY DEDN (EX ROAD)”. Another portion of the subdivided land is shown as having an area of 2205m2. This portion is marked as “ROAD WIDENING”, not as “Lot 101”, or “101”. Nevertheless, a comparison of the registered plan and the sketch plan annexed to the contract suggests that the portion is essentially the same as the portion marked “101” on the sketch plan. This emerges from the shapes of the portions, their relationship with the nearby road (Reg Hailstone Way), and the stated dimensions of the boundaries. The only apparent difference of substance is in the stated areas, in that “101” is stated on the sketch plan to have an area of 2001m2 whereas “ROAD WIDENING” is stated on the registered plan to have an area of 2205m2. The Deposited Plan also shows the boundaries of a proposed easement for overhead powerlines “20 wide and variable”.

23. The reference to road widening is referred to in Mr Frydman’s email to Mr McDougall on 24 October 2019, which included the following:

I attach Deposited Plan 1257896 which is the subdivision of Deposited Plan 84539 [sic] thereby creating the land for the RFS substation.

The substation was created through a road widening rather than creating a separate lot.

Mr Samios, a director of the defendant, gave evidence to the effect that “the area to be excised for the fire station” was ultimately incorporated as a road widening in a plan of subdivision prepared by Mr William Chapman that became Deposited Plan 1257896.

24. Mr Chapman explained that he prepared a plan of subdivision of Lot 1 in Deposited Plan 841539 “that provided for the dedication of the Fire Station Site as road widening instead of the creation of a separate Lot”. Mr Chapman set out in his affidavit a calculation of the area of that site as 2205m2. Mr Chapman also explained that the notation “BY DEDN” on the registered plan in relation to Lot 1 reflects the fact that he did not measure the actual area or dimensions of the lot, but rather calculated the area “by deduction of the area shown on the previous registered plan”. I take that as a reference to Deposited Plan 841539. That plan showed an area for Lot 1 in Deposited Plan 841539 of 101.725ha. Subtracting the area of 2205m2 would yield a figure of 101.5045ha. It seems that Mr Chapman may have rounded that figure down to 101.5ha, the area shown on the registered plan for Lot 1 in Deposited Plan 1257896.

25. Mr Chapman further deposed that he prepared three sketch plans of what he described as “the Fire Station Site” in 2018. These plans were prepared on 26 September 2018, 9 November 2018 and 14 November 2018. The first two plans show the site (marked “101”) as having an area of 2001m2. The third plan shows the site (marked “101”) as having an area of 2205.7m2. The second and third plans appear to depict the site as having the same boundaries, yet they show different areas. Mr Chapman deposed that the third plan “showed the correct area of 2205m2”. Whilst Mr Chapman does not expressly say so, it may be inferred that the area shown on the second plan (2001m2) was incorrect.

26. That second plan appears to have been copied (slightly cut off at the foot) and used as the sketch plan that was annexed to the draft contract. The revised version of that sketch plan (attached to Mr Frydman’s email of 14 May 2019) was later used as the sketch plan annexed to the contract as made.

27. The plaintiff’s purported rescission of the contract on 24 October 2019 was effected by way of email from Mr McDougall to Mr Frydman. The email is quite lengthy. It is only necessary to set out the following part of it:

I acknowledge receipt of your email today, notifying me of the registration of the plan which excludes from the title to the property (previously known as Folio Identifier 1/841539) the small parcel land for the RFS facility.

As you note, although the actual process, by way of road widening, differs from the process of subdivision contemplated by the contract, the result is the same for the purposes of the contract.

The process contemplated by the contract had identified the small parcel of land to be excluded for the RFS facility as proposed Lot 101, and the much larger residue of the land, included in the sale, as proposed Lot 102. That identification was referred to in clause 39, and was referred to in the plan attached to the contract, and headed : ‘Plan of Subdivision’. That plan noted the area of land of proposed Lot 101 as 2001m2. That plan also indicated the location of the proposed easement.

…

My client notes that the overall area of the land excluded for the RFS facility, as shown in the plan as now registered, as 2205m2.

My client also notes that the location of the easement, as shown in the plan as now registered, is substantially different to the location shown on the plan attached to the contract. The plan as registered shows the location of the easement in a more eastern location, extending over the eastern boundary of the RFS facility, across my client’s land, commencing immediately adjacent to the roadway, and then extending over my client’s land and covering the generally triangular area from the roadway to the southern boundary of the RFS facility. By contrast, the plan attached to the contract showed the location of the easement as extending only from the southern boundary of the proposed lot 101 (the RFS facility) in a generally southerly direction.

Pursuant to clause 41.3(a) of the contract my client may rescind the contract if the area of the small parcel of land excluded is 2100m2 or more. Clause 41.3(a) referred incorrectly as ‘lot 102’, due to a drafting error, but was clearly intended to refer to lot 101.

Also, and separately, pursuant to clause 41.3(a) my client may rescind the contract if the location of the easement is substantially different to that shown on the sketchplan.

My client therefore has the right to rescind this contract for these 2, separate, reasons: namely the area of land excluded for the RFS facility is more than 2100m2, and the location of the easement is substantially different to the location shown in the contract. These reasons are not interdependent.

...

28. On 28 October 2019, Mr Frydman sent an email to Mr McDougall in which the validity of the purported rescission was disputed. The email included the following:

I am instructed to advise that vendor considers that the purported clause 41.2 notice is invalid because:-

On its proper construction (or alternatively, in accordance with the obvious intention of both parties) the area of 2,100.00 square metres stated in clause 41.3 should be read consistently with the principles described in Fitzgerald v Masters (1956) 95 CLR 420 at 426-7) as the proper calculation of the area of the proposed lot 101 as described in the dimensions provided in the sketch annexed to the contract (being 2205 square metres) and

The location of the easement in the registered plan of subdivision is not substantially different to that shown in the sketch plan annexed to the contract given the area of the land the subject of the contract for sale compared with the very small area of land involved in the easement and the inconsequential location of the easement.

29. Further correspondence passed between the respective solicitors, but it is not necessary to refer to it save to note that the parties essentially maintained their positions.

30. On 5 November 2019 Mr Frydman served a Notice to Complete which called upon the plaintiff to complete the contract by 27 November 2019. The plaintiff asserts that the Notice to Complete was itself invalid or ineffective. However, as submitted by the defendant, nothing seems to turn on that.

Submissions

31. The plaintiff submitted that it had a right to rescind the contract under Additional Clause 41.3(a) on either or both of two grounds. First, it was submitted that the area of lot 101 in the plan of subdivision as registered was shown as having an area greater than 2100m2. Second, it was submitted that the location of the easement was substantially different to that shown on the sketch plan annexed to the contract.

32. In relation to the first ground, the plaintiff submitted that the terms of the contract showed that the parties contemplated that the area of proposed lot 101 (which was not included in the sale) might change from that shown in the sketch plan, and expressly provided in Additional Clause 41.3 for a right of rescission if a ceiling of 2100m2 was exceeded. It was put that insofar as Additional Clause 39.3 made completion of the contract conditional upon registration of a plan of subdivision in accordance with the sketch plan, the provision had to be read as subject to Additional Clause 41.3. The plaintiff submitted that even if the area of proposed lot 101 shown on the sketch plan was wrong, there was no obvious mistake or absurdity such as might permit the 2100m2 ceiling to be corrected as a matter of construction. It was submitted that the language of the contract had to be construed by reference to how ordinary reasonable persons would understand it.

33. In relation to the second ground, the plaintiff submitted that the sketch plan showed an easement that affected proposed lot 102 only in an area to the south of proposed lot 101 (the area to be transferred to the Council), whereas the registered plan showed an easement that also affects part of lot 102 to the east of the area to be transferred to the Council. The plaintiff submitted that this location was substantially different to that shown on the sketch plan.

34. The defendant submitted that, without resort to the equitable principles of rectification, and in accordance with the principles considered in Fitzgerald v Masters (1956) 95 CLR 420 at 426-7 and more recently applied in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11, the sketch plan should be read as if it stated the correct area for lot 101, namely, 2205m2. It was put that once that was accepted, it was immediately apparent that the parties had made an error in Additional Clause 41.3 by giving a right of rescission if an area of 2100m2 was exceeded. The defendant contended that it was clear from the terms of the contract as a whole, and particularly Additional Clause 39.3 (and also Additional Clause 34.4), that the parties intended the contract to be conditional upon registration of a plan of subdivision that accorded with the sketch plan; that is, a subdivision involving the dimensions and angles shown on that plan. It was submitted that if such a subdivision was registered, it would be absurd for the plaintiff to have a right of rescission. Accordingly, the literal meaning of the words in Additional Clause 41.3 cannot have been intended.

35. The defendant went on to submit that if the sketch plan was read as if it stated the area for lot 101 as 2205m2 instead of 2100m2, by parity of relative difference (2205m2 being about 5% greater than 2001m2), Additional Clause 41.3 should be read as if it referred to 2310m2 instead of 2100m2. On that basis, no right of rescission arose based on the area shown on the registered plan.

36. The defendant further submitted that the plaintiff had failed to show that it had a right to rescind based on the location of the easement. The defendant submitted that the boundaries of the 20m wide easement were not shown on the sketch plan. Related to that submission was the contention that the plaintiff had not adduced any evidence to explain what the wavy parallel lines on the sketch plan signified. The defendant submitted that all the registered plan did differently was to show the boundaries of the 20m wide easement.

37. The defendant submitted that if the contract had not been validly rescinded by the plaintiff, it remained on foot, and should be ordered to be specifically performed. In this regard, reference was made to the evidence of Mr Samios, which was not challenged, that the defendant was ready, willing and able to complete the contract. The defendant submitted that it would in those circumstances claim interest pursuant to Additional Clause 35 from the completion date under the contract (said to be 1 November 2019) to the actual date of completion.

Relevant principles

38. A written commercial contract such as this is to be construed in accordance with the principles that have been stated in recent times by the High Court in cases such as Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35], Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[52] and Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]. In brief, those principles require the meaning of the terms of the contract to be determined objectively, by what reasonable business persons, placed in the position of the parties, would have understood the terms to mean. That determination requires consideration of the language used by the parties, the surrounding circumstances known to them, and the commercial purpose or objects to be secured by the contract.

39. The consideration of the language of a written contract may reveal that an error must have occurred or, put another way, that something has clearly gone wrong with the language. In these circumstances, it may be open to the Court to correct the mistake as a matter of construction. Where that occurs, it is an application of common law principles, distinct from those that operate in relation to the equitable remedy of rectification (see Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [116]; Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liquidation) (supra) at [5]).

40. In order for a mistake to be corrected as a matter of construction it is necessary that two conditions be satisfied. These are, first, that the literal meaning of the contractual words is an absurdity, and secondly, that it is self-evident what the objective intention is to be taken to have been (see National Australia Bank Ltd v Clowes [2013] NSWCA 179 at [34]; Mainteck Services Pty Ltd v Stein Heurtey SA (supra) at [117]; Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liquidation) (supra) at [8]-[9]). The Court must be satisfied of those matters to a high level of conviction (see Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liquidation) (supra) at [10]).

41. Where those conditions are met, ordinary processes of contractual construction operate so that an absurd literal meaning is displaced by a meaningful legal meaning (see National Australia Bank Ltd v Clowes (supra) at [34]).

42. The reading of “lot 102” as “lot 101” in Additional Clause 43.1(a), which both parties accepted was appropriate, is an example of the operation of the principles of correction of mistakes as a matter of construction.

Determination

43. The relevant land the subject of the sale is described as Lot 102 in a proposed plan of subdivision “as referred to in clause 39”. By Additional Clause 34.4 completion of the sale was made conditional upon registration of the plan of subdivision “in the terms set out in clause 39, and as provided in clause 41.2”. This condition also finds expression in Additional Clause 41.2(a). Further, Additional Clause 39.3 provides that completion of the contract is conditional upon the registration of the plan of subdivision “in accordance with the sketch plan”. That is a reference to the sketch plan referred to in Additional Clause 39.2. There, the sketch plan is stated to be annexed to the contract and said to be “a sketch plan of the proposed subdivision of the subject lot and in which is described proposed Lots 101 and 102, and showing the location and width of a proposed easement for electricity mains”.

44. The sketch plan annexed to the contract centres upon proposed lot 101. It contains various details in relation to it, including boundaries, dimensions, angles, depictions of actual or proposed improvements, and a statement of its area (2001m2). That area accords with the area stated in Additional Clause 39.1, where the defendant disclosed that it had agreed to transfer that amount of Lot 1 in Deposited Plan 841539 to the Cowra Council. The sketch plan also contains a statement of the area of proposed lot 102. The sketch plan contains a notation “Easemanet [sic] 20m wide” and the wavy parallel lines, referred to earlier, are drawn nearby on either side of a broken line which itself seems to depict the route of a powerline. The notes near the foot of the sketch plan indicate that alterations may be required prior to registration and that all dimensions and areas stated on the plan are “preliminary only” and subject to further survey. It is also noted that the positions of easements are subject to further survey. It is apparent that the sketch plan was prepared by a registered surveyor.

45. The sketch plan is a revised version of Mr Chapman’s second sketch plan. Based on his evidence, including the calculation he set out in his affidavit, I accept that the area in respect of proposed lot 101 should have been stated on that plan as 2205m2 not 2001m2. The sketch plan can thus be regarded as incorrect in that regard.

46. However, a reasonable person in the position of the parties to this contract would not have appreciated the existence of the error. The error might have been discoverable through the performance of calculations of the type performed by Mr Chapman, but that is not something that reasonable persons in the position of the parties would be expected to be able to do.

47. In these circumstances, and having regard to the notes on the plan, a reasonable reader of the sketch plan would regard it as showing the approximate location, shape and size of the proposed lot 101. So viewed, the provisions of Additional Clauses 34.4, 39.3 and 41.2(a) should not be read as imposing, as a condition to be satisfied before completion, a requirement for registration of a plan of subdivision precisely in accordance with the sketch plan (including its dimensions and angles).

48. That the parties contemplated that at least in some respects deviation from the sketch plan might occur, yet completion be required, is made clear by the terms of Additional Clause 41.3(a). Read in its context, including Additional Clause 39.1 (which refers to an agreement to transfer 2001m2 to the Council) and the sketch plan (which describes proposed lot 101 as having an area of 2001m2), Additional Clause 41.3(a) operates so that the plaintiff would have to accept an area of lot 101 of up to 2100m2, but could rescind if the area was 2100m2 or any greater. Similarly, changes in the location of the width of the easement would have to be accepted provided that they were not substantial.

49. I do not accept that the sketch plan, evidently drawn by a registered surveyor, should be read as if it stated that proposed lot 101 had an area of 2205m2. The figure of 2001m2 is not an obvious error. Accepting that 2205m2 ought to have been included on the plan instead of the erroneous 2001m2, the error is not one that would have been appreciated by a reasonable person in the position of the parties. The sketch plan conveys to such a person that proposed lot 101, as described on the plan, had an area of 2001m2. There was thus no apparent error in Additional Clause 41.3(a) providing for a right of rescission if lot 101 as registered had an area of 2100m2 or more.

50. I do not think that this is a case where the literal meaning of the language of the contract is an absurdity. I appreciate that in this context the principle extends to cases where absurd consequences follow from the application of the literal meaning (see Bank of Queensland v Chartis Australia Insurance Ltd [2013] QCA 183 at [36]). However, in my view, it is not absurd to read the sketch plan as stating that the area of proposed lot 101 was 2001m2. That figure is not obviously wrong. Moreover, it is consistent with Additional Clause 39.1, and it is not inconsistent with the figure contained in Additional Clause 43.1(a). Further, the existence of a right of rescission if the area of lot 101 on the plan as registered is 2100m2 or more is not absurd in circumstances where completion is not made conditional upon registration of a plan of subdivision precisely in accordance with the dimensions and angles shown on the sketch plan. I am unable to accept the defendant’s submission to the contrary. It was put that there was a requirement for registration of a plan of subdivision “in accordance with the dimensions and angles in the sketch plan, not an area”, but it seems to me that even if an area can be seen as a function of the dimensions and angles, the area is as much a part of the description of proposed lot 101 conveyed by the sketch plan as the dimensions and angles are. Moreover, the area of lot 101 was specifically identified as a foundation for the right of rescission provided by Additional Clause 41.3(a). The area of the lot thus assumed a particular contractual importance. In these circumstances I do not accept that the literal meaning of the words in Additional Clause 41.3 cannot have been intended. It should not be overlooked that Additional Clause 41.3 was in the form put forward by Mr McDougall on 8 May 2019 and accepted by Mr Frydman on 10 May 2019. At all times the sketch plan showed the portion “101” as having an area of 2001m2.

51. In any case, I do not think that it is self-evident what the objective intention is to be taken to have been. The defendant suggested that if the sketch plan is read as if the area for proposed lot 101 was 2205m2, Additional Clause 43.1(a) should be read as referring to 2310m2 rather than 2100m2. Even if the former is correct, the latter does not necessarily follow. The contention seems to assume, based on the difference between 2001m2 and 2100m2, an intention to maintain the same relative difference if the area stated on the sketch plan is changed. That is only one possibility. It is far from self-evident.

52. It follows from the above that I am not satisfied, to the high level required, that this is a situation where a mistake in the language of a contract can be corrected as a matter of construction.

53. That being so, it is my opinion that the language of the relevant provisions of the contract should be construed in the manner set out above (at [46]-[49]). In short, Additional Clause 43.1(a) should be read as providing the plaintiff with a right of rescission if the area of lot 101 in the plan of subdivision as registered is shown on the plan as 2100m2 or more.

54. As it turned out, the registered plan of subdivision did not contain a lot 101 as proposed. Instead of a subdivision that would create two lots (101 and 102), the subdivision created only one lot (Lot 1 in Deposited Plan 1257896), with a separate area of 2205m2 dedicated to road widening. The new Lot 1 was presumably intended to be the equivalent of proposed lot 102 (which was to be included in the sale) and the area of 2205m2 was presumably intended to be the equivalent of proposed lot 101 (which was not to be included in the sale).

55. The plaintiff did not complain that by proceeding in this manner the defendant was in breach of its obligation to use all reasonable endeavours to procure registration of the plan of subdivision (see Additional Clause 41.2 which contemplated the creation of two lots). This is consistent with the position taken by Mr McDougall on 24 October 2019 when he stated that whilst the process of road widening differed from the process of subdivision contemplated by the contract, the result is the same for the purposes of the contract. Neither did the defendant suggest that the area of 2205m2 shown on the registered plan could not be treated, for the purposes of Additional Clause 41.3(a), as “the area of lot [101] in the plan of subdivision as registered”. It would of course be difficult for the defendant to make that suggestion, as to do so would be to rely upon a situation brought about by its own failure to adhere to the provisions of the contract. In any event, having regard to the way in which the parties conducted the case, it is not necessary to say anything more about these matters.

56. Proceeding on the basis that, for the purposes of Additional Clause 41.3(a), the area of lot 101 in the plan of subdivision as registered was shown on the plan as 2205m2, the plaintiff had a right to rescind the contract pursuant to that provision.

57. The plaintiff duly exercised that right by the notice given on 24 October 2019. That exercise occurred within the time specified in Additional Clause 41.3(b). The reference in that provision to clause 42.2(d) is another obvious error, and in my opinion it is clear from the terms of the contract itself that the notice intended to be referred to in Additional Clause 41.3(b) was a notice given under clause 41.2(d).

58. It follows that the plaintiff validly rescinded the contract on 24 October 2019. By clause 19.2 of the contract the plaintiff is entitled to have the deposit refunded to it. If clause 2.9 applies, the plaintiff would also be entitled to half of the net interest earned on the deposit.

59. The above conclusion renders it unnecessary to deal with the plaintiff’s alternative argument that it had a right to rescind under Additional Clause 41.3(a) because the location of the easement as registered was substantially different to that shown on the sketch plan. Nevertheless, I will briefly state my reasons for concluding that the plaintiff has not made out this argument.

43. Unlike the position in relation to the area of proposed lot 101, it is readily apparent (and in my view would be to a reasonable person in the position of the parties) that the wavy parallel lines do not depict an area which has a width of 20m. This is plain from a comparison of the distance between the parallel lines and the distance along the southern boundary, which was apparently measured or estimated to be 38.465m. In these circumstances, I do not think that a reasonable reader of the sketch plan would regard the wavy parallel lines as the boundaries of the proposed easement. Rather, those lines would be taken to show no more than that the 20m wide easement would straddle the powerline depicted by the broken line. So understood, I do not think that the location of the easement as registered should be regarded as substantially different to that shown on the sketch plan.

Conclusion

61. A declaration will be made to the effect that the contract for sale entered into on 17 May 2019 was validly rescinded by the plaintiff on 24 October 2019. A further declaration will be made to the effect that the plaintiff is entitled to have the deposit of $112,500 refunded to it. Those declarations ought to be sufficient to facilitate the refund of the deposit, which is presumably held by the defendant’s agent as stakeholder. The defendant’s agent is not a party to the proceedings. In case any issues arise in relation to the deposit, or the payment of any interest, the parties will be given liberty to apply.

62. The defendant’s Cross-Claim will be dismissed. There seems to be no reason why costs should not follow the event. Accordingly, the Court will also order that the defendant/cross-claimant pay the plaintiff/cross-defendant’s costs of the proceedings.

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Decision last updated: 20 May 2020