Harris v Smith - [2008] NSWSC 545

No judgment structure available for this case.

CITATION: Harris v Smith & ors [2008] NSWSC 545

HEARING DATE(S): 8-9 April 2008

JUDGMENT DATE :
6 June 2008

JURISDICTION: Equity Division
Expedition List

JUDGMENT OF: Brereton J

DECISION: The contract and the transfer failed to express the true intention of the parties. The contract can be rectified. Defendant is bound by a personal equity to reconvey the western portion to Plaintiffs, subject to subdivision approval. The reference to acreage in the Schedule of Lands was a contractual warranty. Mr Smith is entitled to damages of $40,000, and interest of $7,000, for that breach. Defendant ordered to retransfer portion to plaintiffs, subject to subdivision approval. Judgment for defendant on cross-claim for $47,000 (including interest).

CATCHWORDS: CONTRACT – RECTIFICATION – COMMON MISTAKE – where contract for sale of land and transfer provided for transfer of whole of a registered lot where it was the intention of the parties to transfer only part of the lot – distinction between rectification for common and unilateral mistake – whether unconscionable conduct an element of common mistake – where transfer repeating mistaken description of land had been registered – whether retransfer to vendors of area mistakenly transferred available – discretionary considerations – whether relief should be withheld due to delay by vendors – whether Schedule of Lands attached to contract should be rectified – EQUITABLE DAMAGES – whether equitable damages appropriate in lieu of retransfer of land. - CONTRACT – RECTIFICATION – DEFENCES – where retransfer of mistakenly transferred land to vendors is appropriate remedy after order for rectification – whether restitutio in integrum relevant to suit for rectification – whether rectification and retransfer possible where a bona fide third party has taken an interest in the land – whether rectification and retransfer possible where contract no longer capable of performance – whether rectification and retransfer is inutile. - CONTRACT – RECTIFICATION – IMPLIED TERMS – relationship between implication of terms and rectification – where rectification of the contract would require provision for subdivision of the subject land – whether terms providing for subdivision of land can be implied into the contract for sale – whether rectification impossible due to uncertainty of terms in respect of subdivision – whether implication of terms requires same standard of certainty of content as suit for rectification. - CONTRACT – WARRANTIES – breach of warranty – whether Schedule of Lands attached to but not referred to in contract amounted to a warranty by vendor of total area land to be transferred – whether regard can be had to evidence extrinsic to contract to determine if Schedule is a warranty – DAMAGES – interest. - PROPERTY – Land under Torrens Title – (NSW) Real Property Act 1901, s 43A – indefeasibility of title – protection of purchaser from notice of unilateral mistake between settlement and registration – “personal equity” – in personam equitable claims against parties with registered interest – whether claim for rectification is a recognised equitable cause of action enforceable against a party with a registered interest – whether registered party’s protection against notice of mistake available where parties under common mistake – whether notice possible under common mistake – whether Real Property Act, s 43A relevant to suit for rectification under common mistake – whether unconscionable conduct by party with registered interest necessary to all in personam claims.

LEGISLATION CITED: (NSW) Real Property Act 1900, ss 42, 43A
(NSW) Conveyancing Act 1919, s 23F

CATEGORY: Principal judgment

CASES CITED: A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555
Avim Pty Ltd v Guilianotti (1989) 16 NSWLR 666
Bahr v Nicolay (No 2) (1988) 164 CLR 604
Barry v Heider (1914) 19 CLR 197
Batey v Gifford (1997) 42 NSWLR 710
Beaton v McDivitt (1987) 13 NSWLR 162
Bentsen v Taylor, Sons & Co (No 2) [1893] 2 QB 274
Breskvar v Wall (1971) 126 CLR 376
Brown v Heffer (1967) 116 CLR 344
Coolibah Pastoral Co v Commonwealth (1967) 11 FLR 173
Duncan v Mell (1914) 14 SR (NSW) 333
Easyfind (NSW) Pty Ltd v Paterson (1987) 11 NSWLR 98
Frazer v Walker [1967] 1 AC 569
Garofano v Reliance Finance Corporation Pty Ltd (1992) NSWConvR 55-640
Garrard v Frankel (1862) 30 Beav 445, 54 ER 961
Grgic v Australian & New Zealand Banking Group Ltd (1994) 33 NSWLR 202
International Advisor Systems Pty Ltd v XYYX Pty Ltd [2008] NSWSC 2
Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133
McGeever v Kritsotakis (NSWSC Hodgson J, 18 March 1992, unreported)
Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32
Metlife Insurance Ltd v Visy Board Pty Ltd [2007] NSWSC 1481
Minister for Education & Training v Canham [2004] NSWSC 274
O'Dwyer v Butts (1952) 52 SR (NSW) 256
Oh Hiam v Tham Kong (1980) 2 BPR 9451
Public Trustee for New South Wales v Gavel (1927) 40 CLR 169
Pukallus v Cameron (1982) 180 CLR 447
Riverlate Properties Ltd v Paul [1975] Ch 133
Smith v Jones [1954] 1 WLR 1089
Stephens v Selsey Renovations Pty Ltd [1974] 1 NSWLR 273
Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722
Sumy Pty Ltd v Southcorp Wines Pty Ltd [2004] NSWSC 1000
Taylor v Johnson (1983) 151 CLR 422
Tefbao Pty Ltd v Stannic Securities Pty Ltd (1990) 5 BPR 11,189
Thames Guaranty Ltd v Campbell [1985] QB 210
Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326
Tutt v Doyle (1997) 42 NSWLR 10
Vassos v State Bank of South Australia [1993] 2 VR 316
White v Tomasel [2004] 2 QdR 438

TEXTS CITED: Meagher, Heydon & Leeming; Meagher, Gummow & Lehane’s, Equity: Doctrines & Remedies, (4th ed, 2002)

PARTIES: Robert Lloyd Harris (first plaintiff)
Dorothy Christina Harris (second plaintiff)
David Anthony Smith (first defendant)
Westpac Banking Corporation (second defendant)
Robert George Stone & ors t/as Commins Hendriks (third defendant)
Commins Hendriks Pty Ltd (fourth defendant)

FILE NUMBER(S): SC 3683/07

COUNSEL: Mr S B Loughnan (plaintiffs)
Mr A J Grant (first defendant)
Mr P S Braham (third & fourth defendants)

SOLICITORS: Hennessey & Co (plaintiffs)
Thurlow Fisher Lawyers (first defendant)
Gadens Lawyers (second defendant)
DLA Phillips Fox (third & fourth defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EXPEDITION LIST

BRERETON J

Friday, 6 June 2008

3683/07 Robert Lloyd Harris & 1 or v David Anthony Smith & 3 ors

JUDGMENT

1 HIS HONOUR: At issue in these proceedings is whether the defendant purchaser (Mr Smith) should be ordered to reconvey to the plaintiff vendors (Mr and Mrs Harris) part (called the “western portion”, amounting to 27 hectares) of the land the subject of a contract for sale and subsequent transfer between, by reason of the contract and transfer mistakenly including a portion not intended to be sold, and if so, whether Mr and Mrs Harris are liable for damages for breach of a warranty that the land sold comprised 278 hectares when, if the contract is rectified as sought, it will comprise only 251 hectares. The issues are:

· Did the contract, by mistake, fail to express the true agreement between Mr and Mrs Harris and Mr Smith? I conclude that it did, neither party intending that the western portion be sold.

· If so, should the contract be rectified in order to give effect to the true intention of the parties? I conclude that rectification is available; that the transfer having being registered, the appropriate remedy is a partial reconveyance, subject to subdivision approval; and that there is no sufficient reason to decline relief on discretionary grounds.

· Did Mr and Mrs Harris represent or warrant that the land to be conveyed had an area of 278 hectares? I conclude that the reference to 278 hectares in the contract was a contractual warranty.

· If so, was any such representation or warranty falsified? I conclude that as only 251 hectares will be conveyed, there was a breach of warranty.

Background

2 The plaintiffs Robert Lloyd Harris and his mother Dorothy Christina Harris were the registered proprietors of a rural property at Mirrool in southern New South Wales, known as Wahroonga Hill, and formerly comprising two adjacent lots being Lot 2 DP843823 and Lot 33 DP750818, being the land comprised in Certificate of Title Auto Consol 5014/17. Lot 2/843823 was the easternmost lot. Through it the Newell Highway ran in a north/south direction, so that 238.4 hectares lay to the east of the highway, and 42.535 hectares lay to the west of the highway. On the land east of the highway stood a house; it was known as the house block. The Newell Highway running east from Narrandera formed the southern boundary of lot 33/750818 and of the western portion of lot 2/843823, until it made a right-angle turn north through lot 2/843823 towards West Wyalong. From the point of the turn, Burley Griffin Way continued in an easterly direction towards Temora to form the southern boundary of the eastern (house block) portion of lot 2/843823.

3 In 2004, the Roads and Traffic Authority proposed to realign the intersection of Burley Griffin Way and Newell Highway, as ultimately reflected in DP1080963, a copy of which is annexed to these reasons. Former lot 2/843823 became lot 1/1080963, and former lot 33/750818 became lot 2/1080963. Small strips (lots 7 and 8) were excised from lots 2 and 1 respectively, to form the new alignment of the Newell Highway, and a new lot 6 was created where the former alignment of the highway was no longer required for road purposes. Small triangular lots 3 and 4 were excised from lots 2 and 1 respectively to the south of the realigned highway. Following this, the house block - east of the realigned Newell Highway and north of Burley Griffin Way - comprised the original house lot (238.4 hectares), new lot 6 (3.435 hectares) and a teardrop shaped piece of land between the old and new alignments of the highway (9.888 hectares), a total of 251.723 hectares. The remainder of lot 1, west of the realigned highway, comprised 26.84 hectares. The residue of previous lot 2/843823 comprised the small triangular lot 4 (0.808 hectares) and the new highway, lot 8 (4.999 hectares). DP1080963, which gave effect to these rearrangements, was registered on 6 June 2005. The corresponding folio of the register for new lot 1 was created, and converted to Auto Consol 5014/17, on 21 September 2005.

4 Meanwhile, between December 2004 and April 2005, Mr Smith told Mr Harris that he was interested in purchasing the house block. By about the end of April 2005, Mr Harris had indicated that he would sell Mr Smith the house block, after the realignment, for $350,000. Mr Harris says that Mr Smith had made an offer to that effect, which he had accepted orally; Mr Smith, however, says that Mr Harris had indicated a preparedness to sell at that price but was unable to say at that stage how many acres would be involved, and that while Mr Smith was interested he had not yet decided definitely to proceed - as he did not yet know the area he would acquire. However, Mr Smith took up occupation of the house block. There is controversy as to the circumstances in which this occurred, but sooner or later he agreed to pay $20 per acre, based on 600 acres; Mr Harris says that this was an estimate of the size of the house block – excluding the teardrop shaped parcel, which the RTA was occupying with its equipment.

5 On 6 July 2005, Mr Harris instructed his solicitor Ms Tamera Holzheimer of Commins Hendriks with a “proposal for sale of portion of ‘Wahroonga Hill’”, specifying the portion in question as “the portion east of the proposed highway alignment, including the soon to be closed portion of the current highway”. The sale price was said to be $350,000, and “This is an inclusive amount, not a hectare based amount”. It was also stipulated that the purchasers were “to pay ‘rental’ equivalent to $20/ac/yr until settlement or signing (whichever)”. Reference was made to a number of “perceived problems”, including that the purchasers had moved into the house and done small amounts of painting, and had sown approximately 600 acres of crop; Mr Harris said that he intended to speak with Mr Smith prior to the weekend “to try and resolve some of these issues”, but sought advice on the status of the crop and house alterations “if the deal falls through”.

6 Completion of the transaction between Mr and Mrs Harris and the RTA took place on 19 August 2005. On 22 September 2005, Ms Holzheimer forwarded to Mr Smith’s solicitor Pat O’Kane a draft contract for sale, including special conditions, and a “Schedule of Lands” which contained the following:

Hectares	Acres
1	Lot 1 of Deposited Plan 1080963 being part of the lands contained in Auto Consol 5014-17 located in the Shire of Coolamon, Parish of Ariah, County of Bourke having a total area of	275.1 ha	679.786 ac
and
2	Lot 6 of Deposited Plan 1080963 being the Lands contained in Folio Identifier 6/108093 Located in the Shire of Coolamon, Parish of Ariah, county of Bourke having an area of	3.435 ha	8.488 ac
Total Area	278.535 ha	688.274 ac

7 Lot 1/1080963, so described, included that part of former Lot 2 that lay to the west of the re-aligned Highway (“the western portion”). Ms Holzheimer also wrote to Mr and Mrs Harris, enclosing copies of the updated front page of the draft contract, the schedule of lands and the special conditions, confirming that the draft contract had been forwarded to the purchaser’s solicitor for consideration and comment, and:

In the event that they are satisfied with the contract, we will forward the original contract to you for execution by you.

8 Mr Harris then visited Mr Smith at the Mirrool hotel, where they discussed, amongst other things, the schedule of lands. Mr Smith claims to have said words to the effect “So this is what I’m getting, 688 acres is it?”, and that Mr Harris responded, “Yes”. Mr Harris denies that there was any reference to the specific acreage, but accepts that there was a discussion about the schedule of lands. I am satisfied that, at least, Mr Harris conveyed to Mr Smith that the schedule set out what Mr Smith would acquire, although the conversation might not have mentioned the specific acreage.

9 On 29 September, Ms Holzheimer sent Mr Harris the final version of the contract for execution. Mr and Mrs Harris signed it and returned it to Ms Holzheimer on 20 October 2005. Contracts were ultimately exchanged on 6 December 2000. The contract described the land sold as follows:

‘Wahroonga Hill’ ARDLETHAN 2665

Part Auto Consol 5014-17 being lot 1 of DP 1080963 and the whole of the land in Certification of Title Folio Identifier 6/1080963

10 That description, therefore, included the western portion, which was part of Lot 1/1080963. The schedule of lands was annexed to the contract, but not referred to anywhere in its terms. A copy of the deposited plan was also annexed to the contract.

11 Mr Smith did not have finance approved at the time of exchange of contracts. Settlement was delayed while he raised finance. Eventually, completion took place on 31 August 2006. The transfer handed over on settlement apparently described the lands transferred as “1/1080963 and 6/1080963”, but was amended prior to registration, to reflect the current state of the title, as follows:

PART AUTO-CONSOL 5014-17 being Lot 1 DP 1080963 and 6/1080963

12 Again, that description included the western portion, which was part of Lot 1/1080963.

13 On 9 September 2006, Mr Smith informed Mr Harris that it appeared that the western portion had been transferred to him as well as the house block. Mr Harris informed Ms Holzheimer of this on 14 September, and she contacted Mr O’Kane of GP Evans & Englert, who asked that she put something in writing “to put to our mortgagee”. Having obtained instructions, Mr O’Kane reverted to Ms Holzheimer:

I have spoken with my client, it seems we all missed it, you missed it, I missed it, and both the purchaser and vendor missed it …

14 On 20 September, Ms Holzheimer wrote to Mr O’Kane, confirming that conversation and that the intention of the parties was that only the house block be acquired by Mr Smith. She also requested a surveyor to prepare a new plan of subdivision. On 21 September, Mr O’Kane forwarded by facsimile to South Eastern Secured Investments Limited (“SESI”), the incoming mortgagee (which was then still unregistered), Ms Holzheimer’s letter of 20 September. SESI proceeded to register the transfer and its mortgage on 17 October 2006.

15 During November 2006, Ms Holzheimer telephoned Mr O’Kane and informed him that because the settlement statement had been based upon the whole of the lands, Mr Smith had overpaid the rates adjustment. They agreed to adjust the rates in Mr Smith’s favour. On 4 December, Ms Holzheimer forwarded to Mr O’Kane an adjusted settlement sheet giving effect to that agreement, although it does not appear that this was ever implemented. On 7 December, she submitted a draft deed providing for the retransfer of the western portion to Mr and Mrs Harris. Mr O’Kane on 12 December 2006 telephoned Ms Holzheimer and informed her:

My client is happy with the deed except he does not want to tie himself in to refinancing within twelve months …

16 On the same day he forwarded a facsimile in the following terms:

Dear Tammy

Amendments to draft deed as per our telephone conversation. David will be in tomorrow to sign if we can agree on the amendments.

17 Relevantly, the draft deed contained recitals that the “parties intended that all lands (located to the east of the Newell Highway) … would pass to the Purchaser” (recital IV), and that “the lands to the west of the highway … which was unintentionally transferred to the Purchaser” (recital V), and provided that Mr Smith agreed to transfer to Mr and Mrs Harris all his right title and interest in that part of lot 1 to the west of the Newell Highway having an area of 26.84 hectares, that Mr Smith would sign a transfer of those lands, an acknowledgement that he held the western portion on the basis that Mr and Mrs Harris were beneficially entitled to it, and an agreement that Mr and Mrs Harris would be entitled to occupy the western portion.

18 Also on 6 December, Mr Harris lodged Caveat AC789756 in respect of lot 1, claiming an interest as unregistered third mortgagee (to secure vendor finance which Mr and Mrs Harris had provided).

19 On 13 January 2007, Ms Holzheimer wrote to Mr O’Kane in respect of what was apparently the only outstanding issue in relation to the proposed deed, namely the timing for the retransfer of the western portion. On 9 March, Ms Holzheimer informed Mr O’Kane that Mr and Mrs Harris would not allow Mr Smith to refinance unless the proposed incoming mortgagee was on notice of their interest in the western portion. Mr O’Kane responded on or about 14 March that Westpac would not be interested if they knew that the western portion did not belong to Mr Smith. The initially promising negotiations deteriorated. Mr Smith instructed new solicitors, Thurlow Fisher, who on 22 March 2007 wrote:

To assert … that it was not intended to transfer the whole of lot 1 is quite preposterous.

20 Further correspondence ensued. Meanwhile Mr Smith sought to refinance through Westpac, and on 18 May 2007 executed a mortgage in favour of Westpac, securing advances of $348,000. On 31 May 2007, Ms Holzheimer wrote to “Ravi” at Westpac, in the following terms:

We refer to telephone discussion with Ravi of today and now enclose copies of the following for your reference:

We confirm that the above documents will be provided at the settlement scheduled for 2pm tomorrow at Commins Hendriks Wagga Wagga on receipt of the following cheque:

1. Cheque made payable to Commins Hendriks Solicitors: $29,639.73.

We write to confirm that the caveator consents to the registration of mortgage by Westpac Bank on the basis that the equitable interest in the land as claimed by our client is not postponed to the later mortgage of Westpac Bank.

The registration of the mortgage (to which we consent) is on the basis that Westpac acknowledge dispute between your mortgagor and our client. …

21 On the same day, Ms Holzheimer caused to be lodged a caveat in respect of lot 1, claiming a beneficial interest in the western portion “due to conveyancing error”. The refinance through Westpac was completed on 1 June 2007, when SESI and Mr and Mrs Harris were paid out in respect of their secured debts. Westpac subsequently endeavoured to have its mortgage registered, but this was prevented by the Harris’s caveat. On 9 July 2007, Thurlow Fisher served a lapsing notice in respect of the caveat. These proceedings were commenced on 19 July 2007, following which the caveat has been extended from time to time and until further order.

22 On 4 October 2007, Westpac itself lodged a caveat, AD250350.

23 Originally, Mr and Mrs Harris claimed as against Mr Smith an order that he reconvey the whole of lot 1 to them; alternatively, rectification of the contract (to the effect that it refer only to that portion of lot 1 located east of the Newell Highway); alternatively, a declaration that Mr Smith held the western portion on trust for them; alternatively, an order that upon the contract being so rectified and upon the Coolamon Shire Council registering a subdivision excising the western portion from the remainder of lot 1, he re-transfer the western portion to Mr and Mrs Harris; and consequential relief. Subsequently, Mr and Mrs Harris amended their claim to add Westpac as second defendant, against whom they sought a declaration that their interest had priority over any unregistered mortgage granted to Westpac by Mr Smith; and the partners of the law firm Commins Hendriks as third and fourth defendants, against whom they claimed damages for professional negligence.

24 Westpac filed a submitting appearance. The proceedings between Mr and Mrs Harris and Commins Hendriks have been settled; the terms of that settlement have not been disclosed to the court but it has been indicated that the court will be asked to dispose of that claim after judgment on the claim against Mr Smith.

25 Mr Smith has filed a cross claim against Mr and Mrs Harris, for damages for misrepresentation and/or breach of warranty, alleging that it was represented and/or warranted to him that the area of land to be conveyed was 278.535 hectares – whereas (if Mr and Mrs Harris succeed on their claim) he will have received only 251.72 hectares.

Did the contract by mistake fail to express the true agreement between Mr and Mrs Harris and Mr Smith?

26 For present purposes, the essential requirements of a claim for rectification for common mistake may be stated as follows [Pukallus v Cameron (1982) 180 CLR 447, 452; International Advisor Systems Pty Ltd v XYYX Pty Ltd [2008] NSWSC 2, [21]]:

· There must be an intention common to both parties at the time of the contract to include in their bargain a term which by mutual mistake is omitted from it (or to omit something which is by mutual mistake included in it), but there need not be a concluded antecedent contract;

· A plaintiff must advance convincing proof that the written contract does not embody the final intention of the parties; and

27 Rectification is also available in a case of unilateral mistake, but in such a case at least knowledge on the part of the defendant of the plaintiff’s mistake, coupled with silence amounting to sharp practice, is required [A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555; Taylor v Johnson (1983) 151 CLR 422, 431; Riverlate Properties Ltd v Paul [1975] Ch 133, 140; Easyfind (NSW) Pty Ltd v Paterson (1987) 11 NSWLR 98; International Advisor Systems v XYYX [22]-[24]].

28 In the present case, Mr Harris says (in his affidavit sworn 31 March 2008, paragraph 2) that in his initial discussions with Mr Smith he showed him an aerial photomap dated 22 October 2004 which depicted the proposed highway deviation and indicated on it the house block and that that was what would be transferred if the matter proceeded. The instructions given by Mr Harris to Ms Holzheimer clearly establish that it was his intention that only the land east of the realigned Newell Highway be conveyed.

29 Mr Smith (in his affidavit sworn 31 August 2007, paragraph 20) says (emphasis added):

when I had thought that it was only the land on the eastern side that was to be transferred to me

30 In his defence (filed 31 August 2007), Mr Smith admits that both parties to the contract were of the mistaken belief that the land to be conveyed to him was that part of the property that remained to the east of the Newell Highway once the realignment was completed.

31 I am amply satisfied that, whereas the land the subject of the sale was described in the contract as “Part Auto Consol 5014-17 being lot 1 of DP 1080963 and the whole of the land in Certification of Title Folio Identifier 6/1080963”, both parties intended that the subject matter of the sale be “Part Auto Consol 5014-17 being so much of lot 1 of DP 1080963 as is located east of the Newell Highway and north of Burley Griffin Way, and the whole of the land in Certificate of Title Folio Identifier 6/1080963”.

32 This conclusion is fortified by the statement, attributed by Ms Holzheimer to Mr O’Kane and never disputed, following discovery of what had happened, to the effect “I have spoken with my client, it seems we all missed it, you missed it, I missed it and both the purchaser and vendor missed it …”.

33 Accordingly, I am satisfied that the contract by mistake failed to express the true agreement between Mr and Mrs Harris and Mr Smith, insofar as it included the western portion, when they intended that it be excluded.

Should the contract be rectified in order to give effect to the true intention of the parties?

34 For Mr Smith, Mr A J Grant of counsel submits that rectification is not available, for the following reasons:

· A transfer of part of lot 1 would have required subdivision, and the court is unable to determine with the necessary degree of certainty upon what terms the parties would have agreed had they turned their minds to subdivision.

· Restitutio in integrum is impossible.

· Rectification would occasion prejudice to Westpac, a bona fide third party.

· The contract is no longer capable of performance, so that there is no utility in rectification.

· (NSW) Real Property Act 1900 , s 43A, precludes rectification.

· Rectification is not available because unconscionability is not established against Mr Smith.

35 The first of those submissions apparently derives support from the judgment of Hodgson J (as his Honour then was) in McGeever v Kritsotakis (NSWSC Hodgson J, 18 March 1992, unreported). In that case, it was established that a contract for sale of lots 74 and 75 in a plan was not intended by either vendor or purchaser to include the whole of lot 75 but only about one half of it, comprising building 563 Botany Road. His Honour said:

However, I think there is force in Mr Birch's submission that a contract for the building 563 Botany Road alone would have necessitated subdivision, and in the absence of express terms about subdivision, would have been subject to an implied term making the contract conditional on subdivision. Accordingly, had the mistake not occurred, I think there is no doubt that both solicitors would have sought instructions from their clients; and probably, if the contract had gone ahead, there would have been express terms relating to subdivision. One would expect that, in order to clarify the position of the parties, the solicitors would have wanted to have the proposed subdivision clearly identified, some time limit set for the subdivision application and for the obtaining of consent to the subdivision, and some terms as to what conditions of consent would be acceptable and what conditions would not be acceptable. Of course, it could also be that once that matter had been raised, there have been further negotiations as to the price.

Pukallus

In my view, if the additional term or terms which the intended terms necessarily involve is an insubstantial matter, or if the Court can infer with the requisite certainty just what the parties would have agreed on this matter, rectification is still available. On the other hand, if the additional term or terms is not an insubstantial matter, and if the Court cannot infer with the requisite certainty what the parties would have agreed on it, then I do not think rectification is available.

Here, it is submitted for the plaintiffs that there is no evidence from the defendants either as to the significance of the term or as to what their attitude would have been if the problem had been realised. On the other hand, there is no evidence from the plaintiffs' side that the matter is insubstantial, nor is there any evidence whatsoever from the plaintiffs' solicitors, either explaining the exact origin of the mistake, or otherwise throwing any light on what the position would have been if the mistake had been realised. It has often been said that the plaintiff bears a very substantial onus in rectification cases to show what the true intention of the parties was. In my opinion, as the evidence stands, the plaintiffs have not discharged that onus. The matter of the contract being conditional on a subdivision approval seems to me to be not an insubstantial matter; and I do not think I can infer, with the requisite certainty, what the parties would have agreed about it had the mistake been realised.

36 It appears to me that his Honour was speaking of inference as a fact-finding exercise, as part of the search for the true intent of the parties. Where terms cannot be implied to fill the gaps left by express agreement, I agree that impossibility to infer to the requisite degree of satisfaction what the parties would (as a matter of fact) have agreed would be a bar to rectification, because the result would be a contract that was void for uncertainty [cf Pukallus]. But there are many contracts not involving any mistake in which the parties have simply not addressed some matter, in which case the law typically provides terms to fill the lacuna by implication, not by inference. The matter can be tested in the present case by asking whether a contract that described the subject matter in the way in which the parties intended that it be described would have been void for uncertainty because it did not make provision in respect of subdivision. In my opinion it would not; terms would be implied first, that the contract was subject to subdivision approval; secondly, that the vendor would do all things necessary on its part to procure that approval; and thirdly (there being no express time provision) that if approval were not obtained within a reasonable time, the purchaser would be entitled to rescind [cf the approach adopted where a contract for sale of Crown Land is silent on the obtaining of ministerial consent: O'Dwyerv Butts (1952) 52 SR (NSW) 256; Duncan v Mell (1914) 14 SR (NSW) 333; Public Trustee for New South Wales v Gavel (1927) 40 CLR 169; Brown v Heffer (1967) 116 CLR 344, 350]. Similarly, in Beaton v McDivitt (1987) 13 NSWLR 162, Young J (as his Honour the Chief Judge then was) rejected an argument that a contract for sale of a portion of land was illegal, holding that a term that it was subject to subdivision approval was to be implied.

37 If, in a case in which the contract described the subject matter in the way in which the parties intended it to be described in the present case, the law would have provided such terms by implication, why should the necessity to imply them be an obstacle to rectification? Rectification is after all concerned fundamentally with the form of an instrument, not its meaning or operation. If the parties intend an instrument to take a particular form, which by mistake it does not, it is rectified to take that form. The consequences which then flow from the rectified contract – its meaning and its enforceability for example – are then resolved by the processes of construction and implication, as I endeavoured to explain in Metlife Insurance Ltd v Visy Board Pty Ltd [2007] NSWSC 1481 (at [20]-[22]), as follows:

[20] As to the requirement for proof of the omitted ingredient in clear and precise terms, in Bush v National Australia Bank (1992) 35 NSWLR 390 Hodgson J (as his Honour then was) said (at 407):

Pukallus v Cameron

GPI Leisure Corporation v Herdsman Investments Pty Limited (No 4)

[21] It is instructive that in this passage Hodgson J was concerned with the detail of the precise variation to be made to the wording of the instrument. In Pukallus v Cameron , which his Honour cited, three cases were mentioned as supporting the requirement for proof in precise terms of the omitted ingredient, including Australian Gypsum Ltd v Hume Steel Ltd (1930) 45 CLR 54, and Maralinga Pty Ltd v Major Enterprises (1973) 128 CLR 336 at 349. Both those cases in turn referred to the speech of Lord Chelmsford in Fowler v Fowler (1859) 45 ER 97, in which his Lordship said the claimant for rectification must establish clearly "that the alleged intention to which he desires [the instrument] to be made conformable continued concurrently in the minds of all parties down to the time of its execution, and also must be able to show exactly and precisely the form to which the deed ought to be brought”.

38 Subsequently in that case (at [36]-[38]), it was necessary to construe the term inserted by rectification.

39 I accept that it is not open to rectify a contract to include express terms as to subdivision, which the parties never contemplated. The question is what consequences flow if the contract is rectified simply to substitute the intended description of the land sold. In my view, the correct approach is that having put the contract into the form which the parties intended it to take, the position becomes the same as if the court were considering a contract which provided for the sale of part of a lot but failed to make express provision for subdivision. In such circumstances, the court would imply the terms to which I have referred.

40 Where the law provides such terms by implication, it is not necessary that the court be satisfied, to the standard required for rectification, that the parties would have agreed to any particular time frame or conditions in connection with subdivision. The obligation to convey the land agreed to be sold is that of the vendor, whose obligation therefore it is to procure the requisite subdivision to permit him to perform his contractual obligation to convey. Where the parties have not agreed on a time for a condition to be satisfied, the law will imply a reasonable time.

41 Thus the absence of express terms as to subdivision, and the inability to be able to say with certainty what the parties would actually have agreed in respect of subdivision had they turned their minds to it, is not an obstacle in this case to rectification: the law would supply the deficiency, not by inferring what the parties would in fact have agreed, nor by rewriting their contract, but by implying terms, just as would have been the case had the contract described the subject matter in the manner in which they intended.

42 In the present case, the vendor did not procure a subdivision. The purchaser Mr Smith completed notwithstanding. In those circumstances, the purchaser must be taken to have waived any right to rescind the contract. However, the mistake in the contract was repeated in the transfer, as a result of which Mr Smith took a transfer of the whole of lot 1 – which was never intended by either party – and to which he would not have been entitled under the contract, had it been rectified to accord with the parties’ true intent. But for the parties’ mistake, the purchaser should have received a transfer only of the eastern portion, which would not have been registrable [Real Property Act, s 37 and (NSW) Conveyancing Act 1919, s 23F].

43 In Tutt v Doyle (1997) 42 NSWLR 10, the Court of Appeal, upholding Young J (as his Honour the Chief Judge then was), held that where between contract and completion the vendor to the knowledge of the purchaser made a mistake as to the size of the lot to be transferred in a plan of subdivision, with the result that the transfer registered by the purchaser gave him a larger lot than was contracted for, the vendor was entitled to relief for unilateral mistake – as it would be unconscionable for the purchaser to avail himself of the advantage so obtained – and as rescission was impracticable in the circumstances, the court would order retransfer of an area equivalent to the excess. Handley JA, applying Oh Hiam v Tham Kong (1980) 2 BPR 9451, observed that the personal equities which may affect a registered title included the equity to order rectification and retransfer for mistake.

44 In Minister for Education & Training v Canham [2004] NSWSC 274, Pearlman AJ held that where the defendant/purchaser’s solicitor – having mistakenly included the disputed land in the transfer he drafted by reference to the whole of the land in an auto consol rather than part of that land – submitted it to the plaintiff/vendor’s solicitors in circumstances where he knew or ought to have known of the mistake, and the plaintiff’s solicitor mistakenly believed that the transfer was in accordance with the contract and did not check its accuracy, and relying on that mistaken belief had it executed and handed over on settlement, it would be unconscionable for the defendant to retain the disputed land and the plaintiff had a right in personam or a personal equity enforceable against the defendant as registered proprietor to relief by way of retransfer for mistake.

45 Both Tutt v Doyle and Minister v Canham were cases of unilateral mistake, in which relief would only be available, in accordance with the principles already mentioned, if the defendant knew of the mistake. But there is no reason why the same consequence should not apply in a case of common mistake – except that, consistent with the distinction between rectification for common mistake and unilateral mistake, in the former it is not necessary to establish knowledge or unconscionability on the part of the defendant. Indeed, common mistake is inconsistent with knowledge on the part of the vendor of the mistake; if knowledge were a requirement in a case of common mistake, rectification for common mistake would never be available; yet common mistake is the paradigm case for rectification, onto which rectification for unilateral mistake has been grafted.

46 In Tutt v Doyle, the orders made (both at first instance, and as varied on appeal) required a resubdivision. In the first instance judgment, Young J said:

The primary remedy appears to me to be conveyance of the disputed strip. The evidence of the actual value of the land in dispute as land appears to be somewhere between $3,000 and $12,000. However, its effect on lot 3064 probably has a greater value than that amount of money. In view of this it does not seem to me that equitable compensation is the appropriate remedy.

47 In the present case, there is evidence that the Coolamon Shire Council will approve a subdivision of the western portion from the eastern portion of lot 1. Nonetheless, entitlement to a retransfer must be conditional upon such subdivision. Subject to that, Mr and Mrs Harris are entitled to a retransfer of the western portion.

48 However, Mr Grant argues that restitutio in integrum is impossible. For present purposes I will assume, without holding, that impossibility of restitutio in integrum is an answer to a suit for rectification. Mr Grant pointed to the following matters. First, since purchasing the property, Mr Smith has effected substantial improvements to it. However, contrary to Mr Grant’s submission, the evidence was that these were unrelated to the western portion. Secondly, Mr Smith had incurred expenses in farming and improving the property, and paid all rates, levies and mortgage payments. So far as farming the property is concerned, this was unrelated to the western parcel. So far as rates and levies are concerned, a financial adjustment can be made to effect restitution. So far as mortgage payments are concerned, they are in respect of the finance which Mr Smith obtained to acquire what was intended to be only the eastern portion, and are not to be regarded as referrable to the western portion. Next, it is said that because, as a result of the dispute over the registration of its mortgage, Westpac has refused to permit Mr Smith to operate an overdraft facility on which he relied to conduct the business of the Mirrool hotel, he has had to surrender the licence and lease. However, I do not see why that is a matter that goes to restoring the parties to the positions in which they were but for the mistake. In any event, the refinance with Westpac was effected long after Mr Smith was aware of the mistake. Even if impossibility of restitution were an available defence, I do not accept that Mr Smith can invoke in that behalf any change in his position after he became aware of the mistake.

49 It is however established that rectification will not be decreed if to do so would prejudice the rights of a bona fide third party who has intervened [Garrard v Frankel (1862) 30 Beav 445; 54 ER 961; Smith v Jones [1954] 1 WLR 1089; Coolibah Pastoral Co v Commonwealth (1967) 11 FLR 173; Thames Guaranty Ltd v Campbell [1985] QB 210]. Here, it is said that Westpac is in that position. First, it is said that Westpac’s mortgage was taken on 18 May 2007, on which date Mr Smith executed it, whereupon Westpac acquired the rights under it, prior to any notice being given to it on 31 May 2007. I do not accept this. Although executed by Mr Smith as intending mortgagor on 18 May, that was in anticipation of settlement. The transaction was executory until settlement on 1 June. No funds were advanced until 1 June. In my view, the effective date of the mortgage, and the date at which Westpac’s state of knowledge or notice was relevant, was 1 June, not 18 May. Secondly, it is said that the evidence of the notice given on 31 May is unreliable. However, Ms Holzheimer gave evidence, which was neither contradicted nor challenged, as to having sent the facsimile letter to Westpac. Thirdly, it is said that even if such a facsimile were sent, it was sent to a fax number in Victoria whereas the evidence suggested that the relevant point of contact at Westpac was located in Griffith, New South Wales. However, this discrepancy was not put to Ms Holzheimer (when it easily could have been), and the correspondence itself suggests prior contact with the addressee in Victoria. Moreover, as I have recorded, Westpac has filed a submitting appearance, and in those circumstances the court would not strain to conclude that its rights would be prejudiced by granting relief to which it submits. The position might well have been different had the original mortgagee SESI remained on title, it apparently having obtained its mortgage in good faith, for value and without notice of Mr Harris’s claim. But SESI’s interest has been discharged, and as things now stand, rectification will not prejudice the rights of any bona fide third party.

50 As to the submission that rectification ought not be decreed where the contract is no longer capable of performance, the better view is that where a contract is incapable of performance, rectification will be refused as a matter of discretion if the impossibility of performance would render the remedy inutile [Meagher, Heydon & Leeming, Meagher, Gummow & Lehane’s, Equity: Doctrines & Remedies, (4th ed, 2002) p 899 [26-095]; Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326, 344-346 (Samuels JA)]. In this case, rectification of the contract would provide the basis for the conclusion that Mr Smith had no contractual entitlement to part of the land that was transferred to him, which in turn would found the remedy of retransfer. Such relief would, therefore, not be inutile.

51 In support of the argument that Mr Smith is protected against any notice of the Harris’s personal equity received after completion on 31 August 2006 and before registration on 17 October by Real Property Act, s 43A, Mr Grant invokes Tutt v Doyle, in which Handley JA, with whom Brownie AJA agreed, said (at 15B-C):

The Doyles' claim was "a mere equity" and not an equitable estate or interest in the land. See Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 at 277-278 per Kitto J. Accordingly they bore the onus of establishing that the Tutts knew, or had reason to know, that the Doyles were, or might well be, mistaken. The Tutts were not required to establish that they were bona fide purchasers for value without notice of the Doyles' mistake.

Real Property Act

52 Founding on that passage, Mr Grant submits that, in the absence of any suggestion that Mr Smith had notice after exchange and prior to completion – and that by definition in a claim based on common mistake nobody had notice and no claim in personam existed until after exchange – he was protected against any notice up until the time he became registered and thereafter had an indefeasible title.

53 This argument overlooks the difference between a claim based on unilateral mistake and one based on common mistake. The starting point is that the indefeasible title of a registered proprietor of land is subject not only to the exceptions contained in Real Property Act s 42, but also to in personam claims against the registered proprietor [Frazer v Walker [1967] 1 AC 569, 585; Breskvar v Wall (1971) 126 CLR 376, 384-5]. A personal equity arises where there is a recognised legal or equitable cause of action enforceable against the registered proprietor [Grgic v Australian & New Zealand Banking Group Ltd (1994) 33 NSWLR 202, 222]. Such personal equities include the equity to order rectification and retransfer for mistake [Oh Hiam v Tham Kong; Tutt v Doyle, 14; Minister for Education v Canham, [47]]. What Handley JA said in Tutt v Doyle – a case based on unilateral mistake – was that for the Doyles to have a personal equity against the Tutts, it was necessary that the Tutts have notice of the mistake – not of the personal equity – before completion, whereupon s 43A took effect to protect them against notice. That is because in a case of unilateral mistake, knowledge of the mistake on the part of the defendant is an essential component of the entitlement to equitable relief. Accordingly, in a case of unilateral mistake, there is no personal equity unless, before completion, the defendant has notice of the mistake.

54 But notice of the mistake is not an element in the entitlement of a party to equitable relief by way of rectification for common, as distinct from unilateral, mistake. For that reason, s 43A – and notice generally – is irrelevant to a claim for rectification for common mistake. The equity to rectification for common mistake is founded on the true agreement between the parties. Notice of the mistake forms no component of such a claim, and the personal equity arises and subsists quite apart from notice.

55 Mr Grant submits that in order to impugn a registered proprietor’s title by a personal equity, a plaintiff must establish that the registered proprietor has acted unconscionably. However, in my view a plaintiff invoking a personal equity for these purposes does not have to establish a superadded element of unconscionability. The contrary argument, advanced by Mr Grant, is set out at its highest in the dissenting judgment of Davies JA in White v Tomasel [2004] 2 QdR 438.

56 The starting point is that a plaintiff is entitled to bring a claim in personam against a registered proprietor for such relief as a court acting in personam may grant [Frazer v Walker; Breskvar v Wall, 384-5; Bahr v Nicolay (No 2) (1988) 164 CLR 604]. Two cases in the Court of Appeal – Grgic v Australian & New Zealand Banking Group and Garofano v Reliance Finance Corporation Pty Ltd (1992) NSWConvR ¶55-640 – hold that the expressions “personal equity” and “right in personam” encompass only known legal and equitable causes of action. Rectification for common mistake is, of course, a recognised equitable cause of action.

57 In the earlier High Court decision of Barry v Heider (1914) 19 CLR 197, Isaacs J said of the Torrens Acts (at 213, emphasis added):

but not in any way destroying the fundamental doctrines by which Courts of Equity have enforced, as against registered proprietors, conscientious obligations entered into by them

58 That was a positive statement that equitable obligations co-existed with the Torrens system, and not one intended to restrict the exception for personal equities to the enforcement of obligations where it would be unconscionable for the registered proprietor to insist on his strict legal right, at least to the extent of excluding rectification for common mistake.

59 In Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32, Mahoney JA said that there had been no comprehensive definition of “personal equity” for present purposes, pointing out that it may be possible to discern in the authorities two suggestions: that the interest must not be inconsistent with the terms or policy of the legislation, and that “personal equities” arise only from acts of the new owner. In Vassos v State Bank of South Australia [1993] 2 VR 316, Hayne J, having referred to those observations of Mahoney JA, said (at 333):

in personam

60 Again, that statement was directed to refute the assertion that the Bank was bound by a personal equity, arising from a forged dealing of which it did not have notice. In such a case, notice is an essential element of any equitable claim against the Bank. His Honour was not addressing all the circumstances in which a personal equity might arise, nor seeking to limit them the circumstances in which equity would act to those in which unconscionable conduct could be established. In a case of rectification, equity acts on common mistake. As McMurdo J observed in White v Tomasel (at 456), his Honour was excluding the grounds for the obligation sought to be imposed upon that registered proprietor in the facts and circumstances of that case, rather than attempting comprehensively to list the circumstances in which a registered proprietor might be bound by his own actions in relation to his registered interest.

61 In Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722, Gleeson CJ, quoting with approval the passage cited above from the judgment of Hayne J in Vassos, continued (at 737):

Even if the [registered proprietor] had been shown to have failed to make adequate investigation of what was going on within the company, that does not produce the result that it is against conscience for the Bank to rely upon its statutory rights.

62 Mahoney JA said (at 739):

Mercantile Mutual Life Insurance Co Ltd v Gosper

63 Story was another case in which a mortgagee had become registered as a result of a dealing forged by the mortgagor’s husband. The mortgagee had no notice of the forgery. Their Honours were explaining why in such circumstances there was no personal equity against the mortgagee. They were not purporting to hold that for there to be a “personal equity” required, in every case, that unconscionable behaviour be established.

64 In Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133, Ashley AJA said (at 162):

in personam

65 That is rather diffident support for the proposition that, for a personal equity to arise, the registered proprietor must be guilty of unconscionable conduct. In any event, it was obiter: his Honour was concerned to show that just because conduct could be characterised as unconscionable did not mean that it gave rise to a personal equity, rather than the reverse.

66 To my mind there is nothing in Frazer v Walker and Breskvar v Wall to suggest that, for there to be a “personal equity”, as well as the existence of a recognised legal or equitable cause of action against the registered proprietor, there is a superadded requirement of unconscionability. With respect, I entirely agree with what McMurdo J (with whom Williams JA agreed) wrote in White v Tomasel (at 455-456):

[73] But in the present case, the restitutionary obligation on the respondents does not derive from any knowledge or notice of another person's unregistered interest in the land. Instead, it derives from the respondents' actions in acquiring their title by the orders of a court which should not have been made. There is no tension here between the enforcement of the restitutionary obligation and the policy and objectives of a Torrens system of title. To exempt the respondents from the performance of their obligations simply because they have reached the high ground of a registered interest would not advance the purposes of the Torrens system, but it would undermine the administration of justice by significantly limiting the powers of courts to correct erroneous judgments and to reverse their consequences. To hold that the registered interest of a proprietor in these circumstances is the subject of an obligation enforceable against the proprietor is not to derogate from that interest; it is simply to say that the interest itself, like other property, can be the subject of rights as a result of circumstances of the proprietor's making.

Vassos v State Bank of South Australia

Story v Advance Bank Australia

Grgic v Australian and New Zealand Banking Group Ltd

Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd

Vassos

Mercantile Mutual Life Insurance Co Ltd v Gosper

Vassos

67 Thus while, in many cases, establishing a personal equity will involve establishing unconscionability, that is because unconscionability is an element of the relevant equitable cause of action. But it is not an element of every equitable cause of action. Where it is not, there is no superadded requirement to establish unconscionability in order to establish a “personal equity” for the purposes of that exception to indefeasibility.

68 Accordingly, the circumstance that unconscionability might not be established against Mr Smith is no objection to relief in the nature of rectification for common mistake.

69 For Mr Smith, it is submitted that there was delay on the part of Mr and Mrs Harris and their solicitors once the mistake was identified, as a result of which Mr Smith’s position was changed to his detriment. It is said that no steps were taken in the four to five week period following completion until 7 October 2006 when SESI became registered as mortgagee, and, in particular, no request was made to SESI not to register, nor was any caveat lodged.

70 However, I do not accept that this operated to Mr Smith’s detriment. He had already paid the purchase price for which he had received a transfer; he had already borrowed the funds from SESI, for which he had given a mortgage. His position did not materially deteriorate as a result of SESI becoming registered.

71 In any event, I do not accept that there was undue delay. After the mistake was discovered, and prior to SESI becoming registered, in response to Mr O’Kane’s request to “get me something in writing to put to our mortgagee”, Ms Holzheimer on 20 September, wrote to him, confirming that the intention of the parties was that only the house block be acquired by Mr Smith; on 21 September, Mr O’Kane forwarded that letter by facsimile to SESI; however, SESI proceeded to register the transfer and its mortgage on 17 October 2006.

72 I have also considered whether, in the circumstances, equitable compensation would be a sufficient or preferable remedy. The evidence establishes that the western portion is worth $40,000. However, the plaintiffs have pressed a case for rectification and retransfer; and the subject matter is real property, in respect of which equity ordinarily regards monetary compensation as an insufficient remedy, a consideration that is to some extent fortified in this case by the circumstance that the western portion is physically dissected from the eastern portion by the highway, but is contiguous to and forms part of the plaintiffs’ residual property, which it enhances by reason that it enjoys access to water rights which the plaintiffs’ other lot, lot 2, does not have.

73 I would therefore not decline relief on discretionary grounds.

74 It follows that the contract should be rectified, by substituting for the description of the land the subject of the sale in the “Land” panel, where the matter “part Auto Consol 5014-17 being lot 1 of DP 1080963 and the whole of the land in Certification of Title Folio Identifier 6/1080963” currently appears, the matter “part Auto Consol 5014-17 being so much of lot 1 of DP 1080963 as is located east of the Newell Highway and north of Burley Griffin Way, and the whole of the land in Certificate of Title Folio Identifier 6/1080963”. Had it not been registered, the transfer should have been rectified in the same way. Registration having taken place, the appropriate remedy is a retransfer to Mr and Mrs Harris of the western portion, subject to obtaining subdivision approval. If such approval cannot be obtained, it may then become necessary to consider a compensatory remedy.

Did Mr and Mrs Harris represent or warrant that the land the subject of the sale comprised 278.535 hectares (688.274 acres)?

75 Ultimately, Mr Grant conceded that were he to succeed on the basis of misrepresentation, the tortious measure of damages that would be applicable would result in Mr Smith recovering no damages, since the evidence established that the eastern portion was worth $350,000, which was the price paid. It would only be if Mr Smith succeeded on breach of warranty that the contractual measure of damages would result in him recovering an award. Accordingly, the misrepresentation case can be put to one side, and it is necessary to consider only the claim for breach of warranty.

76 Neither parties’ submissions devoted much attention to whether the “Schedule of Lands” attached to the contract, though not referred to in its terms, formed part of the contract and if so whether it amounted to a contractual warranty, Mr Grant merely asserting that it did, and Mr Loughnan for Mr and Mrs Harris not so much disputing that proposition as contending that it was part of the mistake that ought to be rectified.

77 Although there are cases in which a provision in a schedule to a contract or an attachment has been held not to be a term of the contract [Avim Pty Ltd v Guilianotti (1989) 16 NSWLR 666, 671; overruled on other grounds by Batey v Gifford (1997) 42 NSWLR 710, 715; Tefbao Pty Ltd v Stannic Securities Pty Ltd (1990) 5 BPR 11,189, 11,191], those cases did not concern a contract which contained a provision corresponding with condition 20.2 of the instant contract, which provides as follows:

20.2 Anything attached to this contract is part of this contract.

78 The Schedule of Lands was attached to the contract and in my view must, by reason of clause 20.2, be regarded as part of the contract, having contractual force [cf Sumy Pty Ltd v Southcorp Wines Pty Ltd, [2004] NSWSC 1000 [17]-[18]].

79 Whether a statement of fact in a contract is no more than a statement of fact, or amounts to a warranty, depends upon the inferences as to the intention of the parties, to be drawn from the document as a whole and from all the circumstances, including the importance of the terms to the parties concerned [Bentsen v Taylor, Sons & Co (No 2) [1893] 2 QB 274; Stephens v Selsey Renovations Pty Ltd [1974] 1 NSWLR 273, 279; Sumy v Southcorp Wines, [25] (Bergin J)]. It appears that it may be permissible to have regard to extrinsic evidence to determine whether a provision relating to the dimensions or area of land is to be treated as a warranty [Stephens v Selsey, 279; Sumy v Southcorp Wines, [28]]. In Stephens v Selsey, Mahoney J said (at 276):

Upon the construction of the words of description, the proper conclusion is, in my opinion, that the subject matter of the contract was the two lots of land specified and not land having a frontage of approximately 15 feet 6 inches to Mansfield Street. The basic structure of the language used in the description indicates in my opinion that the property sold is “ALL THAT piece or parcel of land being … lot F … and lot C …”. The words “having a frontage of approx 15′ 6″ to Mansfield Street” in such a context appear to be adjectival in their effect in respect of the piece of land which has otherwise been adequately described. A description of land in a contract of sale as being a specified and clearly identified lot or lots in a registered plan to my mind suggests strongly that that which was intended to be sold was the land comprised in that lot and normally statements describing the incidents of that lot or lots will be treated as merely adjectival to the land contracted to be sold.

80 However, his Honour proceeded to hold that, having regard to the oral evidence tendered without objection, it was clear that the existence of a frontage of 15 feet 6 inches to Mansfield Street was of such importance to the purchaser as to constitute the statement of that frontage in the contract a warranty, although if regard were had only to the terms of the document, the position was by no means so clear. But on balance his Honour concluded that the right of ownership of the relevant area was of such importance in the context as to constitute the statement as to frontage a warranty by the vendor to the frontage of the property.

81 In Sumy v Southcorp Wines, Bergin J held that a reference in a plan attached to and referred to in a contract, which recorded the area of part of the land as 23.59 hectares when in reality it was only 15.04 hectares, amounted to a contractual warranty, even though the dimensions (as opposed to area), which were also shown on the plan, were accurate.

82 In the present case, the conditions of the contract do not refer to the Schedule of Lands, nor does the description of the land sold. However, the Schedule of Lands was, as I have found, the subject of specific discussion between the parties on or about 22 September 2005, when Mr Harris at least confirmed to Mr Smith that it set out what he was to receive. As the subject matter of the sale was already described (albeit in one respect mistakenly) in the “Land” panel on the front page of the contract, the Schedule of lands was not descriptive of the subject matter of the sale. All it added to the contract, in substance, was reference to the area. Its inclusion in the contract, following specific discussion by the parties, was a pointless exercise, unless what it said about area had some effect.

83 The chronology and sequence of events – that following completion of the transaction with the RTA, the parties discussed the special conditions and the Schedule of Lands on 22 September, following which Ms Holzheimer on 29 September forwarded to Mr Harris the final version of the contract for execution, and that Mr and Mrs Harris executed and returned it to Ms Holzheimer on 20 October 2005 – supports the view that ascertainment of what was available for sale was objectively a matter of importance to the parties: Mr Smith was prepared to do the deal once the available acreage was established. Although Mr Smith’s insistence that he raised the question of acreage in a number of conversations was disputed, his evidence to the effect that had he been aware that he was purchasing only 621 acres or thereabouts, he would not have agreed to pay $350,000, was not. And although Mr Harris maintained that the sale price was $350,000 “inclusive … not a hectare based amount”, there is no evidence that that position was ever communicated to Mr Smith.

84 Having regard to all those matters – but most particularly to the circumstance that the Schedule of Land served no purpose at all unless its reference to acreage had contractual significance – I am satisfied that it was not merely descriptive, but a contractual warranty.

85 Mr Loughnan submitted that the appropriate rectification of the contract went beyond that which I have indicated above, and that the cover sheet of the contract should be rectified by omitting the description of the land as shown, and substituting “the lands set out in the Schedule of Lands”, and that the Schedule of Lands should also be rectified by amending the description to identify the eastern portion by reference to the annexed plan DP1080963, substituting 238.4 hectares for 275.1 hectares as the size of the eastern portion, and inserting a reference to the “teardrop”, having an area of 9.888 hectares.

86 Although, as I have said, I am quite satisfied that the parties truly intended that only the eastern portion be sold, I am quite unsatisfied that there was a common intention that any acreage other than 278.535 hectares (or 688.274 acres) be referred to in the contract. That such acreage was referred to may have been a result of the parties’ common mistake, but it was not a part of that mistake. There was no common intention that the contract refer to any other area. It is not open to rectify the Schedule of Lands in the manner proposed.

Was there a breach of warranty?

87 Once the contract is rectified in the manner which I have above indicated, the land the subject of the contract would be only 251.72 hectares, a deficiency of 26.81 hectares, which corresponds with the size of the western portion. It was not suggested that that was an immaterial matter, nor that 251 hectares could be said to be approximately 278 hectares.

88 Accordingly, breach of the warranty is established.

Damages

89 In contract, as distinct from in tort, for breach of warranty as distinct from misrepresentation, the measure of damages is the difference between the position in which the plaintiff would have been had the promise or warranty been correct, with that in which in fact the plaintiff is placed consequent on the breach. Had the warranty been correct, Mr Smith would have received 26.81 hectares more than he in fact received. The parties’ single expert valuer valued the 26.81 hectare western portion at $40,000, at the date of exchange, at the date of settlement, and now. It was not suggested that that was other than an appropriate indication of the value of an additional 26.81 hectares.

90 It was submitted that interest should not run on the award of $40,000, or if it did, for only part of the time. Interest is awarded not to penalise the unsuccessful party, but to compensate the successful party for being kept out of its money, of which the unsuccessful party has had the benefit and use in the meantime. Had the defendant had the benefit and use of the western portion in the meantime, that would have been a powerful argument against allowing interest, but the evidence establishes that at all times the western portion has been occupied by a tenant of the plaintiffs. In those circumstances, I see no reason why interest on the $40,000 should not run from the date of settlement, on 31 August 2006, which I allow at 10 percent for 1.75 years, amounting to $7,000.

91 I have therefore reached the following conclusions.

92 By common mistake, the contract failed to express the true intention of the parties, in that it described the subject matter of the sale as comprising the whole of lot 1 and lot 6, whereas it was intended only to sell the eastern portion of lot 1 together with lot 6. That mistake was perpetuated in the transfer. The contract can be rectified. Mr and Mrs Harris remain beneficially entitled to the western portion, and Mr Smith is bound by a personal equity, in the nature of an equity for rectification arising from the common mistake of the parties, to reconvey the western portion to Mr and Mrs Harris, subject to subdivision approval.

93 The reference to acreage in the Schedule of Lands was a contractual warranty. Although connected with the mistaken description of the subject matter of the sale, it was not part of the common mistake. Upon rectification of the contract to reflect the true intention of the parties as to the land sold, there will have been a breach of the warranty. Mr Smith is entitled to damages of $40,000, and interest of $7,000, for that breach.

94 Overall, the parties have had approximately equal measures of success. The plaintiffs have succeeded on their rectification and retransfer claim. The land which they have recovered was worth $40,000. However, the defendant has succeeded on his breach of warranty claim, for $40,000. Had a retransfer been impossible, the plaintiffs would have been awarded equitable compensation, presumably of $40,000. Rather than awarding the plaintiff the costs of the claim and the defendant the costs of the cross-claim, which in principle is the appropriate result, the quick, just and cheap resolution of the proceedings will be facilitated if each party is left to bear its own costs.

95 My orders are:

1. Order that the contract for sale of land dated 6 December 2005 between the plaintiffs Robert Lloyd Harris and Dorothy Christina Harris as vendors and the defendant David Anthony Smith as purchaser be rectified by substituting in the description of the “Land” on the front page of the contract, for the matter “lot 1 of DP1080963”, the matter “that part of lot 1 of DP1080963 as is located east of the Newell Highway and north of Burley Griffin Way”, and in the Schedule of Lands item 1, for the matter “lot 1 of Deposited Plan 1080963” the matter “that part of lot 1 of Deposited Plan 1080963 as is located east of the Newell Highway and north of Burley Griffin Way”.

2. Declare that the plaintiffs are beneficially entitled to that part of lot 1 of DP1080963 as is located to the west of the Newell Highway (“the western portion”).

3. Order that upon and subject to the registration of a plan of subdivision of the western portion from the eastern portion of lot 1/DP1080963, and tender to him of an appropriate transfer, the defendant execute and deliver to the plaintiffs a transfer in registrable form of the western portion.

4. Reserve liberty to apply in the event of any difficulty arising in the implementation of order 3.

5. Give judgment that the plaintiffs pay the defendant the sum of $47,000.

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Citations

Harris v Smith [2008] NSWSC 545

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FX Group Holdings Pty Ltd v Perpetual Trustee Co Ltd as trustee of the CPEC 8 Trust A (formerly the CHAMP IV Trust A) (No 3) (substantive) [2025] NSWSC 1055

Cases Cited

28

Statutory Material Cited

2

International Advisor Systems Pty Ltd v XYYX Pty Ltd [2008] NSWSC 2

Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23

Pukallus v Cameron [1982] HCA 63

CITATION:	Harris v Smith & ors [2008] NSWSC 545
HEARING DATE(S):	8-9 April 2008
JUDGMENT DATE :	6 June 2008
JURISDICTION:	Equity Division Expedition List
JUDGMENT OF:	Brereton J
DECISION:	The contract and the transfer failed to express the true intention of the parties. The contract can be rectified. Defendant is bound by a personal equity to reconvey the western portion to Plaintiffs, subject to subdivision approval. The reference to acreage in the Schedule of Lands was a contractual warranty. Mr Smith is entitled to damages of $40,000, and interest of $7,000, for that breach. Defendant ordered to retransfer portion to plaintiffs, subject to subdivision approval. Judgment for defendant on cross-claim for $47,000 (including interest).
CATCHWORDS:	CONTRACT – RECTIFICATION – COMMON MISTAKE – where contract for sale of land and transfer provided for transfer of whole of a registered lot where it was the intention of the parties to transfer only part of the lot – distinction between rectification for common and unilateral mistake – whether unconscionable conduct an element of common mistake – where transfer repeating mistaken description of land had been registered – whether retransfer to vendors of area mistakenly transferred available – discretionary considerations – whether relief should be withheld due to delay by vendors – whether Schedule of Lands attached to contract should be rectified – EQUITABLE DAMAGES – whether equitable damages appropriate in lieu of retransfer of land. - CONTRACT – RECTIFICATION – DEFENCES – where retransfer of mistakenly transferred land to vendors is appropriate remedy after order for rectification – whether restitutio in integrum relevant to suit for rectification – whether rectification and retransfer possible where a bona fide third party has taken an interest in the land – whether rectification and retransfer possible where contract no longer capable of performance – whether rectification and retransfer is inutile. - CONTRACT – RECTIFICATION – IMPLIED TERMS – relationship between implication of terms and rectification – where rectification of the contract would require provision for subdivision of the subject land – whether terms providing for subdivision of land can be implied into the contract for sale – whether rectification impossible due to uncertainty of terms in respect of subdivision – whether implication of terms requires same standard of certainty of content as suit for rectification. - CONTRACT – WARRANTIES – breach of warranty – whether Schedule of Lands attached to but not referred to in contract amounted to a warranty by vendor of total area land to be transferred – whether regard can be had to evidence extrinsic to contract to determine if Schedule is a warranty – DAMAGES – interest. - PROPERTY – Land under Torrens Title – (NSW) Real Property Act 1901, s 43A – indefeasibility of title – protection of purchaser from notice of unilateral mistake between settlement and registration – “personal equity” – in personam equitable claims against parties with registered interest – whether claim for rectification is a recognised equitable cause of action enforceable against a party with a registered interest – whether registered party’s protection against notice of mistake available where parties under common mistake – whether notice possible under common mistake – whether Real Property Act, s 43A relevant to suit for rectification under common mistake – whether unconscionable conduct by party with registered interest necessary to all in personam claims.
LEGISLATION CITED:	(NSW) Real Property Act 1900, ss 42, 43A (NSW) Conveyancing Act 1919, s 23F
CATEGORY:	Principal judgment
CASES CITED:	A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555 Avim Pty Ltd v Guilianotti (1989) 16 NSWLR 666 Bahr v Nicolay (No 2) (1988) 164 CLR 604 Barry v Heider (1914) 19 CLR 197 Batey v Gifford (1997) 42 NSWLR 710 Beaton v McDivitt (1987) 13 NSWLR 162 Bentsen v Taylor, Sons & Co (No 2) [1893] 2 QB 274 Breskvar v Wall (1971) 126 CLR 376 Brown v Heffer (1967) 116 CLR 344 Coolibah Pastoral Co v Commonwealth (1967) 11 FLR 173 Duncan v Mell (1914) 14 SR (NSW) 333 Easyfind (NSW) Pty Ltd v Paterson (1987) 11 NSWLR 98 Frazer v Walker [1967] 1 AC 569 Garofano v Reliance Finance Corporation Pty Ltd (1992) NSWConvR 55-640 Garrard v Frankel (1862) 30 Beav 445, 54 ER 961 Grgic v Australian & New Zealand Banking Group Ltd (1994) 33 NSWLR 202 International Advisor Systems Pty Ltd v XYYX Pty Ltd [2008] NSWSC 2 Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 McGeever v Kritsotakis (NSWSC Hodgson J, 18 March 1992, unreported) Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32 Metlife Insurance Ltd v Visy Board Pty Ltd [2007] NSWSC 1481 Minister for Education & Training v Canham [2004] NSWSC 274 O'Dwyer v Butts (1952) 52 SR (NSW) 256 Oh Hiam v Tham Kong (1980) 2 BPR 9451 Public Trustee for New South Wales v Gavel (1927) 40 CLR 169 Pukallus v Cameron (1982) 180 CLR 447 Riverlate Properties Ltd v Paul [1975] Ch 133 Smith v Jones [1954] 1 WLR 1089 Stephens v Selsey Renovations Pty Ltd [1974] 1 NSWLR 273 Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722 Sumy Pty Ltd v Southcorp Wines Pty Ltd [2004] NSWSC 1000 Taylor v Johnson (1983) 151 CLR 422 Tefbao Pty Ltd v Stannic Securities Pty Ltd (1990) 5 BPR 11,189 Thames Guaranty Ltd v Campbell [1985] QB 210 Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 Tutt v Doyle (1997) 42 NSWLR 10 Vassos v State Bank of South Australia [1993] 2 VR 316 White v Tomasel [2004] 2 QdR 438
TEXTS CITED:	Meagher, Heydon & Leeming; Meagher, Gummow & Lehane’s, Equity: Doctrines & Remedies, (4th ed, 2002)
PARTIES:	Robert Lloyd Harris (first plaintiff) Dorothy Christina Harris (second plaintiff) David Anthony Smith (first defendant) Westpac Banking Corporation (second defendant) Robert George Stone & ors t/as Commins Hendriks (third defendant) Commins Hendriks Pty Ltd (fourth defendant)
FILE NUMBER(S):	SC 3683/07
COUNSEL:	Mr S B Loughnan (plaintiffs) Mr A J Grant (first defendant) Mr P S Braham (third & fourth defendants)
SOLICITORS:	Hennessey & Co (plaintiffs) Thurlow Fisher Lawyers (first defendant) Gadens Lawyers (second defendant) DLA Phillips Fox (third & fourth defendants)