In the matter of Border Express Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S ECI 2022 04387

IN THE MATTER OF BORDER EXPRESS PTY LTD (ACN 000 533 880)

BORDER EXPRESS PTY LTD (ACN 000 533 880)	Plaintiff
and
MAXWELL JAMES LUFF & ORS (according to the attached Schedule)	Defendants
and
COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA	Intervener

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JUDGE:	Attiwill J
WHERE HELD:	Melbourne
DATE OF HEARING:	15 and 22 March 2023 and 11 April 2023
DATE OF JUDGMENT:	19 December 2023
CASE MAY BE CITED AS:	In the matter of Border Express Pty Ltd
MEDIUM NEUTRAL CITATION:	[2023] VSC 769

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CONTRACT – Construction and interpretation of contracts – Whether an alleged condition precedent is inferred or implied in contracts for the issue of shares – Where the alleged condition precedent is that the shares to be issued under the contracts are not subject to capital gains tax on sale or other disposition – Where the alleged condition precedent is not inferred or implied – Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39 and BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 applied.

COMMON MISTAKE AT COMMON LAW – Whether a contract may be void for common mistake at common law and, if so, in what circumstances – Where there are limited circumstances in which a contract may be void for common mistake at common law and the present case is not within one of those circumstances – Where, even if the present case is within one those circumstances, the grounds for relief have not been established – Taylor v Johnson (1983) 151 CLR 422, Great Peace Shipping Ltd v Tsavliris Salvage Ltd [2003] QB 679, Bell v Lever Brothers Ltd [1932] AC 161, Associated Japanese Bank (International) Ltd v Credit du Nord S.A. [1989] 1 WLR 255 applied.

COMMON MISTAKE AT EQUITY – Circumstances in which equity may set aside a contract based upon common mistake – Where equity may set aside a contract based upon common mistake in circumstances of equitable fraud or misrepresentation or where a condition can be found expressed or implied in the contract – Where it is otherwise difficult to conceive of other circumstances in which equity may set aside a contract for common mistake – Whether there was equitable fraud in the nature of unconscionable conduct by the Intervener in its conduct in this proceeding – Where no unconscionable conduct by the Intervener – Where mistake not fundamental – Where the parties to the contracts are not able to make restitution – Taylor v Johnson (1983) 151 CLR 422 applied – Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328 not followed – Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102, Pacer v Westpac Banking Corporation (Supreme Court of New South Wales, Santow J, 2 August 1996) and Hawcroft v Hawcroft General Trading Co Pty Ltd [2016] NSWSC 555 applied.

CORPORATIONS – Shares – Application by the company to correct its register of members – Where the grounds for relief not established – Application refused – Corporations Act 2001 (Cth), Re Australian Organic Eggs Pty Ltd [2022] VSC 747 applied.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P W Collinson KC with Ms F L Shand and Mr C Tsang	HWL Ebsworth Lawyers
For the Intervener	Mr S A Linden	Hall & Wilcox

TABLE OF CONTENTS

INTRODUCTION.............................................................................................................................. 1

BACKGROUND................................................................................................................................. 1

The Luff family and the Luff companies................................................................................... 1
Mr Stanton, the accountant.......................................................................................................... 2
Introduction of Capital Gains Tax.............................................................................................. 3
Max and Lynn and their testamentary purpose....................................................................... 5
Issued share capital of Border Express immediately prior to the share issue on 5 April 1990 6
Issue of shares on 5 April 1990.................................................................................................... 7
Border Express..................................................................................................................... 7
MJ Luff................................................................................................................................ 11
MJ Nominees...................................................................................................................... 12

Alleged mistake........................................................................................................................... 14
Transfers of Border Express shares to MJ Luff on 6 February 2003.................................... 14
CGT and the issue of shares in Border Express on 5 April 1990.......................................... 15
Alternative transaction to achieve equal number of shares?................................................ 16
Discovery of the alleged mistake and subsequent events..................................................... 17
Third party rights?...................................................................................................................... 22
Hypothetical future tax liability................................................................................................ 23

SECTION 175(1) OF THE CORPORATIONS ACT AND THE GROUNDS FOR THE APPLICATION........................................................................................................................... 23

ALLEGED CONDITION PRECEDENT...................................................................................... 25

Introduction................................................................................................................................. 25
The contracts................................................................................................................................ 26
Subjective intention of Max not relevant................................................................................. 28
Inferred term?.............................................................................................................................. 30
Submissions........................................................................................................................ 30
Analysis............................................................................................................................... 34

Implied term?............................................................................................................................... 42
Submissions........................................................................................................................ 42
Analysis............................................................................................................................... 42
Reasonable and equitable?...................................................................................... 44
Business efficacy....................................................................................................... 46
So obvious that it goes without saying?................................................................ 47
Capable of clear expression?................................................................................... 48
Contradict any express term of the contract?....................................................... 48

Conclusion.......................................................................................................................... 49

Conclusion on alleged condition precedent............................................................................ 49

COMMON MISTAKE AT COMMON LAW............................................................................. 49

May a common mistake render a contract void at common law?....................................... 49
Submissions........................................................................................................................ 49
Analysis............................................................................................................................... 52

If the contracts may be void at common law for common mistake, what is the applicable test?.............................................................................................................................................. 61
Submissions........................................................................................................................ 61
Analysis............................................................................................................................... 62

Has Border Express established the grounds for relief for common mistake at common law?.............................................................................................................................................. 63
Common mistake?............................................................................................................. 63
Submissions.............................................................................................................. 63
Analysis..................................................................................................................... 65
Fault/ No reasonable grounds for belief....................................................................... 67
Submissions.............................................................................................................. 67
Analysis..................................................................................................................... 68

Impossibility of performance? Essentially different? Essentially and radically different? Destruction of subject matter?......................................................................................... 72
Introduction.............................................................................................................. 72
Impossibility of performance?............................................................................... 72
Essentially different and essentially and radically different?........................... 72
Destruction of subject matter?............................................................................... 74

Conclusion.......................................................................................................................... 74

COMMON MISTAKE IN EQUITY.............................................................................................. 75

Circumstances in which a court may set aside a contract in equity based upon common mistake.............................................................................................................................................. 75
Submissions.............................................................................................................. 75
Analysis..................................................................................................................... 76

Has Border Express established the grounds for relief for common mistake in equity?. 81
The mistake......................................................................................................................... 81
Unconscionability?............................................................................................................ 81
Fundamental?..................................................................................................................... 82
Fault?................................................................................................................................... 83
Entitlement to relief........................................................................................................... 83
Void or voidable?..................................................................................................... 83
Is rescission available?............................................................................................ 85

Conclusion.......................................................................................................................... 88

CONCLUSION AND ORDERS.................................................................................................... 89

HIS HONOUR:

INTRODUCTION

Border Express Pty Ltd (Border Express) seeks an order pursuant to s 175(1) of the Corporations Act 2001 (Cth) (Corporations Act) that its share register be rectified to accord with a deed made on 24 November 2022 (the deed). It submitted that its issue of shares, undertaken pursuant to contracts to which it was a party made on 5 April 1990 (the contracts), are void ab initio or alternatively should be rescinded ab initio. The defendants, who were the other parties to the contracts and the recipients of the shares, support the application and adopted the submissions of Border Express. The Court granted leave to the Commissioner of Taxation of the Commonwealth of Australia (the Intervener) to intervene. The Intervener opposed the application. I have concluded that Border Express is not entitled to an order pursuant to s 175(1) of the Corporations Act as it has not established any grounds for such an order.

BACKGROUND
The Luff family and the Luff companies

Border Express is primarily a national transport and distribution business and is based in Albury. It operates from depots located around Australia and has approximately 1,700 staff, including sub-contractors.[1] It is a private family run business operated and managed by the Luff family. At the time of the contracts (i.e. 5 April 1990) Border Express was named “M J Luff Operations Pty Ltd”. MJ Luff Pty Ltd (MJ Luff) is the holding company.[2] MJ Luff Nominees Pty Ltd (MJ Nominees) is the trustee of the Luff Family Trust. Max and Lynn Luff are married and have four adult sons, Mark, Grant, Geoffrey and Jonathon. Max was chairman of the board of directors of Border Express until he retired in 2020.[3] He remains a director of Border Express, MJ Luff and MJ Nominees (the Luff companies). Lynn has been the secretary and a director of the Luff companies.[4] Mark, Grant, Geoffrey and Jonathon have all worked for Border Express in various operational and management roles.[5] Grant retired from the business in 2019 (apart from undertaking some short term roles)[6] and the other sons still work in the business.[7] They are each a director of the Luff companies and were appointed prior to 5 April 1990, except for Jonathon, who was appointed a director of the Luff companies on 5 April 1990.
[1]Affidavit of Maxwell James Luff sworn 28 October 2022 [31] (‘Max’s affidavit’).
[2]Ibid [21].
[3]Ibid [32].
[4]Court Book filed 1 March 2023, 268, 275, 376 (‘Court Book’).
[5]Max’s affidavit [35].
[6]Ibid [39] and Affidavit of Grant Anthony Luff sworn 28 November 2022 [10] (‘Grant’s affidavit').
[7]Max’s affidavit [35]-[40].

Mr Stanton, the accountant

In the 1970s, a Mr Bruce Stanton became the accountant for Max, Lynn, the Luff companies and the Luff Family Trust.[8] Since at least the 1970s, Mr Stanton worked for various accountancy firms. Mr Stanton is deceased.[9] Mr Stanton prepared the tax returns for Border Express and the personal tax returns for Max and Lynn.[10] Mr Stanton also attended to company secretarial work such as preparing minutes of meetings and company resolutions.[11] Max met Mr Stanton at least once a year when the annual accounts and tax returns were done and sometimes during the year to obtain advice.[12] Border Express did not hold formal directors' meetings. The family did have meetings and discussed business, but these meetings were generally informal.[13] The usual practice at meetings was that resolutions, minutes and other company documents were prepared in advance by Mr Stanton and then signed with little, if any, discussion.[14] Max relied upon Mr Stanton’s advice on accounting and taxation matters.[15] Mark also met with Mr Stanton from time to time. He met him alone or with Max.[16] Lynn did not usually question Max or Mr Stanton about the details of what was being signed and relied on them to tell her what needed to be signed.[17]
[8]Ibid [47]-[48].
[9]Affidavit of Brendan Anthony Earle sworn 28 November 2022 [11(e)] (‘Mr Earle’s affidavit’).
[10]Max’s affidavit [48].
[11]Ibid.
[12]Ibid [50].
[13]Ibid [51]-[52].
[14]Ibid.
[15]Ibid [50].
[16]Mark’s affidavit [26].
[17]Affidavit of Lynn Elizabeth Luff sworn 28 November 2022 [13] (‘Lynn’s affidavit’).

Introduction of Capital Gains Tax

On 19 September 1985, the then Treasurer made a statement to the House of Representatives in which he stated that the Government had decided to introduce a capitals gains tax that would apply to gains on assets purchased or acquired after 19 September 1985 (CGT).[18] That same day, Max met with Mr Stanton. At this time, Mr Stanton was a partner of the firm Lange Stanton & Simpson. On 23 September 1985, Mr Stanton sent a letter to Max which stated:[19]
[18]Court Book 182.
[19]Ibid 183.

Dear Mr. Luff,
M. J. Luff Operations Pty. Ltd.
(formerly known as Border Building Supplies Pty. Ltd.)
We refer to the interview you had with Mr. R. B. Stanton on Thursday, 19th September, 1985 and as requested, enclose four Share Certificates pertaining to the share ownership of M. J. Luff Operations Pty. Ltd. (formerly known as Border Building Supplies Pty. Ltd.).
The four Share Certificates enclosed are as follows :-
Certificate No. 8. M. J. Luff Pty. Ltd.     600 Shares.
Certificate No. 9. M. J. Luff Pty. Ltd.     398 Shares.
Certificate No. 10. Maxwell J. Luff         1 Share.
Certificate No. 11. Lynn E. Luff              l Share.

On Share Certificates Nos. 9, 10 and 11, would you please place the Common Seal of the Company, that is Border Building Supplies Pty. Ltd. and you should sign the three Share Certificates in your capacity as Director. Mrs. L. E. Luff should sign the Share Certificates in her capacity as Secretary.
Thereafter the four Share Certificates should be retained by you for safe keeping.
Yours faithfully,
LANGE, STANTON & SIMPSON,
[signed]
R. B. STANTON,
Partner.
Encl.

The share certificates referred to in the letter concern transfers of shares in Border Express that were the subject of resolutions passed by the directors of Border Express at directors’ meetings on 28 June 1978 (Certificate No. 8) and 20 September 1983 (Certificates No. 9, 10 and 11).[20] Max does not recall the meeting with Mr Stanton on 19 September 1985.[21] I find it likely that Max requested the share certificates pertaining to the share ownership of Border Express (then named M J Luff Operations Pty Ltd) as this is specifically referred to in the letter. Max gave evidence:[22]
[20]Mr Earles’s affidavit [26], [27]. See also Court Book 176, 177.
[21]Max’s affidavit [56].
[22]Ibid [53]-[54].

53.I was aware of the introduction of Capital Gains Tax (CGT) laws from my business dealings and the newspapers. The proposal to introduce CGT was big news in the leadup to its introduction and I was aware of CGT from at least the time it started.

54. From around the time CGT was introduced, I had spoken on several occasions with Mr Stanton about the impact of CGT on the Border Express business. It was my understanding, including based on what Mr Stanton had told me in those conversations, that Border Express was a pre-CGT company. In other words, I understood that all the shares in Border Express held by me, my wife and MJ Luff were all issued before CGT was introduced and therefore those shares would not be subject to any CGT on any sale.

I accept this evidence. Border Express submitted that in September 1985, on the eve of the introduction of CGT, Max met with Mr Stanton to confirm the pre-CGT status of the shares in Border Express.[23] I find it is likely that Max and Mr Stanton discussed the introduction of CGT on 19 September 1985 given the meeting was on the same day the Treasurer made the ministerial statement concerning CGT and concerned the shareholdings in Border Express. I also find, based upon Max’s evidence,[24] that it is likely that Mr Stanton told Max around the time of the introduction of CGT that as the shares in Border Express held by Max, Lynn and MJ Luff were issued before CGT was introduced, these shares would not be subject to any CGT on any sale.[25] As a result, I also find it likely that Mr Stanton knew from no later than around the time of the introduction of CGT that the shares in Border Express held by Max, Lynn and MJ Luff were issued before CGT was introduced and that these shares would not be subject to any CGT on any sale.
[23]Summary of the Parties’ Key Contentions filed 31 March 2023 [3(c)(ii)] (‘Summary of the Parties’ Key Contentions’).
[24]Max’s affidavit [54].
[25]Ibid.

On 24 June 1986, the CGT provisions in Part IIIA of the Income Tax Assessment Act 1936 (Cth) came into effect with retrospective effect from 20 September 1985.[26]
[26]See Plaintiff’s Chronology of Events filed 24 February 2023 (‘Chronology’). The Intervener only disputed the matters set out in the Chronology for 5 April 1990 concerning the belief of members of the Luff family. See also the Income Tax Assessment Amendment (Capital Gains) Act 1986 (Cth).

Max and Lynn and their testamentary purpose

Max gave evidence that since the mid to late 1980s, it has been his intention to pass the Border Express business to his sons equally, regardless of whether they ultimately decided to work in the business.[27] Max also gave evidence that in early to mid-1990, but he could not recall precisely when, he was considering estate planning matters with Lynn.[28] He gave evidence that, as at April 1990, it was his plan that on his and Lynn's passing that their sons would between them share control of the business.[29] Max gave evidence that he has no doubt that he told Mr Stanton of his intention to eventually pass on the Border Express business equally to his four sons, but that he does not remember a specific conversation.[30] I accept this evidence.[31] Lynn also gave evidence that her intention has always been that upon her and Max’s death their assets, including their shares in Border Express, would be left to their sons equally.[32] I also accept this evidence.
[27]Max’s affidavit [44].
[28]Ibid [57].
[29]Ibid [58].
[30]Ibid [49].
[31]Ibid [49]. See also Chronology.
[32]Lynn’s affidavit [16].

Since joining the Border Express business, Mark has had many conversations with Max about what would happen to the Border Express business upon Max’s and Lynn's passing. Mark could not recall any specific conversation but did recall that Max told him that upon his passing Max wanted to leave the Border Express business to him and his brothers equally.[33] Grant gave similar evidence.[34] I accept this evidence. Max, Lynn, Mark and Grant were aware of the testamentary purpose as at 5 April 1990 and likely much earlier.
[33]Mark’s affidavit [20].
[34]Grant’s affidavit [11].

In about early to mid-1990, Max and Lynn engaged a Mr Bob Greig from Belbridge Hague & Co to have new Wills prepared.[35] HWL Ebsworth Lawyers have not been able to locate the files of the solicitors who prepared the Wills.[36] On 7 June 1990 Max made a Will. Clause 3(b) provides:[37]

3IF my said wife shall not survive me for the period of thirty (30) days then:
…
(b)I GIVE DEVISE AND BEQUEATH all my real and personal property of whatsoever kind and wheresoever situate to such of my sons as are living at the date of my death and if more than one as tenants in common in equal shares for their own use absolutely.

[35]Max’s affidavit [57].

[36]Mr Earle’s affidavit [12].

[37]Court Book 214.

On 19 July 1990, Lynn made a Will in similar terms.[38] Border Express submitted that Max and Lynn had a testamentary purpose to leave the Border Express business equally to their four sons. The Intervener did not submit the contrary. I find that the testamentary purpose of each of Max and Lynn, as at the date of the share issue on 5 April 1990, was to leave their property, including their shares in Border Express, to the surviving spouse[39] and then equally to their four sons (the testamentary purpose). This is consistent with their evidence concerning their testamentary purpose and their Wills which were made shortly after 5 April 1990.
[38]Ibid 217.
[39]This was subject to the surviving spouse surviving for a period of 30 days: see clause 3(b) of the Wills.

Issued share capital of Border Express immediately prior to the share issue on 5 April 1990

The issued share capital of Border Express immediately prior to the share issue on 5 April 1990 was 1,000 ordinary shares with a par value of $1.00 held as follows:[40]
[40]Mr Earle’s affidavit [28].

(a) Max: 1 ordinary share, being 0.1% of the share capital;

(b) Lynn: 1 ordinary share, being 0.1% of the share capital; and

(c) MJ Luff: 998 ordinary shares, being 99.8% of the share capital.

These shares were acquired by Max, Lynn and MJ Luff prior to the introduction of CGT on 20 September 1985 and, as at 5 April 1990, were not CGT assets.

Issue of shares on 5 April 1990
Border Express

On 5 April 1990, there was a meeting of the directors of Border Express.[41] At this time, the directors were Max, Lynn, Geoffrey, Mark and Grant. Jonathon was not a director.[42] Max, Mark and Grant were present at the meeting.[43] Lynn and Geoffrey were noted as apologies and did not attend.[44] Mr Stanton was in attendance.[45]
[41]Court Book 196-197.
[42]Ibid 376.
[43]Ibid 196.
[44]Ibid.
[45]Ibid.

At the meeting, the directors of Border Express resolved that the following shares be allotted (i.e. issued) to the applications received as follows:

(a) application No. 8: MJ Luff, 2,994 ordinary shares at $1.00, fully paid; share numbers 1,001 to 3,994 and share certificate No. 12;

(b) application No. 9: Max, 3 ordinary shares at $1.00, fully paid; share numbers 3,995 to 3,997 and share certificate No. 13;

(c) application No. 10: Lynn, 3 ordinary shares at $1.00, fully paid; share numbers 3,998 to 4,000 and share certificate No. 14.

The directors also resolved, inter alia, that share certificates No’s. 12, 13 and 14 be issued to the applicants and that the secretary of Border Express was instructed to lodge the necessary form with the Corporate Affairs Commission as soon as possible and arrange to enter the transactions in the company share register.[46]
[46]Ibid 197.

It was also resolved that Jonathon be appointed a director of Border Express. Max gave evidence that it had always been his intention that all his sons have equal representation and participation in the family business.[47]
[47]Max’s affidavit [65].

Lynn, Mark, Grant and Geoffrey cannot recall the applications for the shares or their issue.[48] Max, Mark, Grant and Geoffrey also cannot recall attending the meeting.[49] As I have already said, Geoffrey was noted as an apology and did not attend. I find that it is likely that on or prior to 5 April 1990 Mr Stanton prepared the documents relevant to the issue of the shares on 5 April 1990, including the applications and the minutes of meeting.[50]
[48]Lynn’s affidavit [19]-[21]; Affidavit of Mark Alexander Luff sworn 28 November 2022 [32]-[33] (‘Mark’s affidavit’); Grant’s affidavit [16]-[17]; Affidavit of Geoffrey Phillip Maxwell Luff sworn 29 November 2022 [11]-[12] (‘Geoffrey’s affidavit’).
[49]Max’s affidavit [63], [76]; Mark’s affidavit [31]-[33]; Grant’s affidavit [15]-[17]; Geoffrey’s affidavit [10]-[12].
[50]Transcript of Proceedings, In the Matter of Border Express Pty Ltd (Supreme Court of Victoria, S ECI 2022 04387, Attiwill J, 15 and 22 March 2023 and 11 April 2023) 136.11-136.15 (Mr Linden). All following references to the transcript in this judgment will be expressed in the format of T followed by the page number(s) and line number(s), e.g. T136.11-136.15.

The issue of the shares did not change the relative proportion of the shares in Border Express held by its shareholders:

(a) Max: 4 ordinary shares, being 0.1% of the share capital;

(b) Lynn: 4 ordinary shares, being 0.1% of the share capital;

(c) MJ Luff: 3,992 ordinary shares, being 99.8% of the share capital.

The Intervener submitted that there is no evidence that there were any spoken words at the meeting.[51] It relied upon the evidence that the directors present at the meeting cannot recall the applications or the allotment of the shares. It is not surprising that no-one can recall these matters. The events took place over 30 years ago. There was no dispute between the parties that there was, in fact, a meeting as described in the minutes. Max gave evidence that there was little if any discussion at meetings of the directors of Border Express in the 1980s and early 1990s. As a result, I find it is likely that at the meeting on 5 April 1990 there was little if any discussion but there was at least a discussion in which the directors who were present stated their agreement to the matters recorded in the minutes that had been prepared by Mr Stanton.
[51]Summary of the Parties’ Key Contentions [12].

On 5 April 1990, Border Express recorded the allotment of 2,994 shares to MJ Luff and 3 shares to each of Max and Lynn in the ‘Register of Members’ of Border Express.[52]
[52]Court Book 200-201, 371.

On 6 June 1990, Border Express lodged a form titled ‘Return of Allotment of Shares’ with the National Companies and Securities Commission concerning the allotment of 2,994 shares to MJ Luff and 3 shares to each of Max and Lynn.[53] It was signed by Max on 5 April 1990.
[53]Ibid 198-199.

HWL Ebsworth Lawyers have not been able to locate the applications for the shares or the share certificates relevant to the resolutions for the allotment and issuing of shares at the 5 April 1990 meeting.[54] HWL Ebsworth Lawyers have also not been able to locate, inter alia, the files of Stirlings (an accounting firm to which Mr Stanton was a part of) concerning the share issue.[55]
[54]Mr Earle’s affidavit [12].
[55]Ibid.

There was no dispute between the parties that Max, Lynn and MJ Luff each made an application for the shares that are recorded in the minutes of the meeting. I also find that it is likely that Border Express issued share certificates to each of Max, Lynn and MJ Luff for the shares. This is because the directors resolved to do so and there is also evidence that other steps were taken that are recorded in the minutes.

Max gave evidence that from the time he started operating the business of Border Express in October 1981, there has been no need to raise capital in the business.[56] Max also gave evidence that the shares were not issued to raise capital as there was no reason for it to do so.[57] Mr Earle, a solicitor of HWL Ebsworth Lawyers, gave evidence that the par value of $1.00 per share was well below the market value for those shares given the value of the net tangible assets of Border Express as at 30 June 1989 and 30 June 1990.[58] Mr Earle has 26 years’ experience providing clients with corporate and commercial legal advice, particularly in relation to the acquisition and disposal of businesses and corporate restructuring, including corporate finance, capital raisings and other transactions that affect share capital or involve the issue or transfer of shares.[59] I accept that the issue of shares on 5 April 1990 was not undertaken to raise capital.
[56]Second affidavit of Maxwell James Luff sworn 28 November 2022 [5] (‘Max’s supplementary affidavit’).
[57]Max’s supplementary affidavit [5].
[58]Mr Earle’s affidavit [32]-[34].
[59]Ibid [2].

Max cannot recall having a discussion about CGT with Mr Stanton or anyone else around 5 April 1990.[60] There is no evidence that any member of the Luff family, including Max, sought or obtained any advice from Mr Stanton concerning the taxation, including CGT consequences, of the share issue or the contracts.
[60]Max’s affidavit [63].

As a result of the share issue, the shareholders of Border Express were MJ Luff (3,992 ordinary shares), Max (4 ordinary shares) and Lynn (4 ordinary shares).

I find it likely that Max and Lynn applied for the shares in Border Express to facilitate the testamentary purpose, given that:

(a) the shareholdings of each of Max and Lynn in Border Express were not divisible by four immediately prior to 5 April 1990. Upon the issue of the shares on 5 April 1990 their shareholdings were divisible by 4;

(b) the shares were not issued on 5 April 1990 to raise capital;

(c) upon the issue of the shares on 5 April 1990, the relative proportion of the shares held by Max, Lynn, and MJ Luff remained the same;

(d) I accept that the shares held by MJ Luff in Border Express would not form part of Max or Lynn’s Estate but is clear that the parties also intended to make its shareholdings also divisible by 4;

(e) I also refer to the issue of shares in MJ Luff and MJ Nominees that also took place on 5 April 1990 in which the shareholdings also became divisible by 4 (except for those shares held by the sons in MJ Nominees).

I find it likely that Mr Stanton knew that the applications and the minutes of meeting were prepared to facilitate the testamentary purpose, given Max’s evidence that he had told Mr Stanton of the testamentary purpose, and Mr Stanton’s likely involvement in preparing the applications and the minutes of meeting. The deed records that “[a]t that time [i.e. April 1990], Maxwell Luff and Lynn Luff were considering estate planning matters and it was their desire to divide the underlying ownership of [Border Express] to each of their four sons equally and it came to their attention that the shares each of them held personally in [Border Express] would not be divisible by 4 to enable them to bequeath an equal number of shares in [Border Express] to each of their 4 sons.”[61] The deed does not record that these matters came to their attention by Mr Stanton and no member of the Luff family gave evidence that he did so.
[61]See Recital C of the deed: Judgment [52].

On 5 April 1990, meetings of the directors of MJ Luff, and of the directors of MJ Nominees, also took place.

MJ Luff

On 5 April 1990, the directors of MJ Luff resolved that the following shares be allotted to the applications received as follows:[62]

(a) application No. 4: Max, 4 8% cumulative preference shares at $1.00, fully paid; share numbers 408 to 411 and share certificate No. 8; and

(b) application No. 5: Lynn, 1 8% cumulative preference share at $1.00, fully paid; share number 412 and share certificate No. 9.

[62]Court Book 207-208.

Max, Mark and Grant were present. Mr Stanton was in attendance. Lynn and Geoffrey were apologies and did not attend. Max cannot recall attending the meeting.[63] Lynn, Mark, Grant and Geoffrey did not give evidence about this meeting. It was also resolved that Jonathon be appointed a director of MJ Luff. As a result of these share allotments, the shareholders of MJ Luff were:
[63]Max’s affidavit [71].

(a) MJ Nominees (200 ordinary shares);

(b) Max (108 preference shares), being an increase of 4 preference shares; and

(c) Lynn (104 preference shares), being an increase of 1 preference share.

Border Express submitted that these share issues were undertaken to give effect to the testamentary purpose.[64] I find it likely that Lynn applied for the shares in MJ Luff to facilitate the testamentary purpose. There was no evidence why Max applied for an additional 4 shares. Border Express was unable to explain why Max applied for these additional shares.
[64]Plaintiff’s Outline of Submissions filed 30 November 2022 [2.1.27] (‘Border Express’ submissions’).

MJ Nominees

On 5 April 1990, the directors of MJ Nominees resolved that the following shares be allotted to the applications received as follows:[65]
[65]Court Book 209-210.

(a) application No. 1: Max 39 ordinary shares at $1.00, fully paid; share numbers 3 to 41 and share certificate No. 3;

(b) application No. 2: Lynn 39 ordinary shares at $1.00, fully paid; share numbers 42 to 80 and share certificate No. 4;

(c) application No. 3: Geoffrey 5 ordinary shares at $1.00, fully paid; share numbers 81 to 85 and share certificate No. 5;

(d) application No. 4: Grant 5 ordinary shares at $1.00, fully paid; share numbers 86 to 90 and share certificate No. 6;

(e) application No. 5: Mark, 5 ordinary shares at $1.00, fully paid; share numbers 91 to 95 and share certificate No. 7;

(f) application No. 6: Jonathon, 5 ordinary shares at $1.00, fully paid; share numbers 95[66] to 100 and share certificate No. 6.

[66]This appears to be erroneous as share number 95 is the subject of share certificate No. 7.

Max, Mark and Grant were present. Mr Stanton was in attendance. Lynn and Geoffrey were apologies and did not attend. Max cannot recall attending the meeting.[67] Lynn, Mark, Grant and Geoffrey did not give evidence about this meeting.
[67]Max’s affidavit [74].

As a result of these share allotments, the shareholders of MJ Nominees were:

(a) Max (40 ordinary shares), being an increase from 1 ordinary share;

(b) Lynn (40 ordinary shares), being an increase from 1 ordinary share;

(c) Geoffrey (5 ordinary shares);

(d) Grant (5 ordinary shares);

(e) Mark (5 ordinary shares);

(f) Jonathon (5 ordinary shares).

It was also resolved that Jonathon be appointed a director of MJ Nominees.

Border Express submitted that these share issues were undertaken to give effect to the testamentary purpose.[68] I find it likely that Max and Lynn applied for the shares in MJ Nominees to facilitate the testamentary purpose.
[68]Border Express’ submissions [2.1.27].

Alleged mistake

Max deposed to the following matters in his affidavit:[69]

67.At the time of, and after the 1990 Share Issue, I believed and intended that any documents which changed the shareholding of Border Express that were prepared by Mr Stanton and I had signed would not have any CGT consequences (then or in the future), for myself, Lynn or MJ Luff, and would not change the CGT status of the shares in Border Express.

[69]Max’s affidavit [67]-[68].

The Intervener objected to this. Each of Lynn, Mark, Grant and Geoffrey gave evidence substantially in similar terms to which similar objection was taken.[70]
[70]Lynn’s affidavit [24]; Mark’s affidavit [34]; Grant’s affidavit [19]; Geoffrey’s affidavit [13].

Max also gave evidence to which no objection was taken:[71]

68.At the time, if I had been aware that the effect of the documents which changed the shareholding of Border Express prepared by Mr Stanton and that I signed would have CGT consequences (then or in the future), for myself, Lynn or MJ Luff, or would change the CGT status of the shares in Border Express, I would not have made the applications or resolutions or taken any other step referred to in the 1990 Minutes.

[71]Max’s affidavit [68].

Each of Lynn, Mark, Grant and Geoffrey gave evidence substantially in similar terms to which no objection was taken.[72] I address the objections later in this judgment in the context of each of the grounds for relief.
[72]Lynn’s affidavit [25]; Mark’s affidavit [35]; Grant’s affidavit [20]; Geoffrey’s affidavit [7], [14].

Transfers of Border Express shares to MJ Luff on 6 February 2003

On 28 January 2003, the directors of Border Express met and approved the following transfers of shares:[73]

(a) 4 ordinary shares from Max to MJ Luff;

(b) 4 ordinary shares from Lynn to MJ Luff.

[73]Mr Earle’s affidavit [36]. See also Court Book 240.

This represented all of the shares then held by Max and Lynn in Border Express. Max, Lynn and a Mr Stephen Hogg were present at the meeting. On 6 February 2003, Max and Lynn each transferred their four ordinary shares in Border Express to MJ Luff for a consideration of $9,000 per share, resulting in a total consideration paid by MJ Luff for the shares of $72,000.[74] As a result of these share transfers:
[74]Court Book 241-244.

(a) MJ Luff became the holder of 4,000 ordinary shares in Border Express, being an increase of 8 shares;

(b) MJ Luff became the sole shareholder in Border Express and Border Express became a wholly owned subsidiary of MJ Luff;

(c) Max and Lynn ceased to be shareholders in Border Express.

Mr Earle gave evidence that the transfers of Border Express shares to MJ Luff in 2003 are consistent with an intention for MJ Luff to wholly own the shares in Border Express in preparation for becoming a tax-consolidated group. Mr Earle referred to the financial statements for MJ Luff for the financial year ended 30 June 2005 which provide in Note 1 under the heading ‘Tax Consolidation’ that “[t]he parent entity and its subsidiaries have implemented the tax consolidation legislation and have a tax-consolidated group from 1 July 2003”.[75]
[75]Mr Earle’s affidavit [38].

Max also gave evidence that, to the best of his knowledge, these share transfers were undertaken for group tax consolidation purposes which required Border Express to be wholly owned by MJ Luff.[76]
[76]Max’s affidavit [84].

CGT and the issue of shares in Border Express on 5 April 1990

The following was common ground:

(a) the shares in Border Express issued prior to 20 September 1985 were not CGT assets;[77]

(b) the shares issued in Border Express on 5 April 1990 had the immediate consequence that the shares issued on that day were CGT assets;[78] and

(c) this meant that any net capital gain arising from a disposal by MJ Luff, Max or Lynn of the shares issued in Border Express on 5 April 1990, being 75% of Border Express’ total share capital, would be a capital gains tax event.[79]

[77] See Chronology.

[78]T166.24-166.29 (Mr Linden).

[79]T166.31-167.2 (Mr Linden). See also Chronology.

This was also supported by the evidence of Mr Schachna. He is a partner of HWL Ebsworth, the solicitors for Border Express. He has had 24 years of experience in providing taxation advice to clients, particularly the acquisition and disposal of businesses and property. He has a Bachelor of Laws and Bachelor of Economics from Monash University and is a fellow of the Taxation Institute of Australia. Mr Schachna gave evidence that the share issue on 5 April 1990 had the immediate consequence that any net capital gain arising from a disposal by MJ Luff, Max or Lynn of the shares they acquired on 5 April 1990 in Border Express would be assessable as income (and subject to tax and their relevant marginal tax rates) under the relevant taxation legislation.[80] Mr Schachna gave evidence that any net capital gain arising from a disposal by MJ Luff, Max or Lynn of the shares they acquired prior to 5 April 1990 in Border Express would not be assessable as income under the relevant taxation legislation, as they were acquired prior to 20 September 1985.[81]
[80]Affidavit of Ari Schachna sworn 28 November 2022 (‘Mr Schachna’s affidavit’) [17]-[25], especially at [23].
[81]Ibid [25].

Alternative transaction to achieve equal number of shares?

Mr Schachna also gave evidence of a possible alternative transaction to the issue of shares by Border Express on 5 April 1990. Mr Schachna gave evidence that another transaction could have been undertaken so that the number of shares that MJ Luff, Max and Lynn held were divisible by 4 so that on their deaths they could leave an equal and whole number of shares in Border Express to each of their 4 sons. Mr Schachna gave evidence that this could have been achieved in the form of a “3:1 share split”.[82] He also gave evidence that the net capital gain arising from a disposal by MJ Luff, Max or Lynn of such shares would not be assessable as income under the relevant taxation legislation, and that the shares issued as a result of the share split would have all been pre-CGT assets.
[82]Ibid [43]-[51].

Mr Schachna did not provide an adequate explanation as to how a 3:1 share split would have resulted in a whole number of shares divisible by 4. Self-evidently, splitting each of Max’s and Lynn’s 1 share into 3 shares would have created 3 shares held by each of Max and Lynn and not 4 shares. This is of no consequence, however, as I accept that it could have been achieved by a 4:1 share split.

The Intervener submitted that if a share split was undertaken and the shares were passed on to the sons and the sons sold the shares, then there would have been a CGT event on the sale of the shares, but that capital gain would be the increasing value after the date of death.[83] The Intervener did not otherwise develop this submission.
[83]T207.4-12 (Mr Linden).

Discovery of the alleged mistake and subsequent events

In 2020, Max and Lynn became aware that the shares issue on 5 April 1990 might have CGT consequences.[84] In August 2020, Border Express engaged HWL Ebsworth Lawyers to advise it on the share issue.[85] On 22 July 2022, HWL Ebsworth Lawyers, on behalf of Border Express, MJ Luff, Max and Lynn, lodged an application to the Commissioner of Taxation of the Commonwealth of Australia for a private ruling. Border Express submitted that this private ruling was not relevant to the legal issues.[86] On 24 November 2022, Border Express, MJ Luff, Max, Lynn, the directors of Border Express (Jonathon, Geoffrey, Grant, Mark and Tom Vukovic) and the directors of MJ Luff (Jonathon, Geoffrey, Grant and Mark) entered into the deed. It is convenient to set out the Recitals:[87]
[84]Lynn’s affidavit [30]; Mark’s affidavit [89].
[85]Mr Earle’s affidavit [7].
[86]Plaintiff’s Outline of Reply Submissions filed 13 February 2023 (‘Border Express’ reply submissions’) [2.1.1].
[87]Court Book 343-345.

A.In April 1990, the Company only had 3 members and their shareholdings were:
(a)Maxwell Luff – 1 ordinary share;
(b)Lynn Luff – 1 ordinary share;
(c)MJ Luff – 998 ordinary shares.

B.At that time, each member had acquired their shares in the Company before the introduction of capital gains tax in September 1985.
C. At that time, Maxwell Luff and Lynn Luff were considering estate planning matters and it was their desire to divide the underlying ownership of the Company to each of their four sons equally and it came to their attention that the shares each of them held personally in the Company would not be divisible by 4 to enable them to bequeath an equal number of shares in the Company to each of their 4 sons.
D.To facilitate each of Maxwell Luff and Lynn Luff holding a number of shares divisible by four, the Company's accountant prepared documents for the application and issuing of three shares for every one share then held, with the result that their total shareholding became 4 ordinary shares (which is a number divisible by 4). The accountant did not advise Maxwell Luff, Lynn Luff, the Company or MJ Luff that the issuing of further shares in the Company would have any capital gains tax consequences.
E. At a meeting of directors of the Company on 5 April 1990 (the minutes of the meeting for which record that Maxwell Luff, Mark Luff and Grant Luff were present are attached as Annexure A) it was resolved that a further 3000 ordinary shares with a par value of $1.00 (Purported Share Issue) be allotted to the applications received (Applications) and share certificates be issued (Resolutions) as follows:
(a)In respect of Application No 8, MJ Luff be allotted and issued 2,994 ordinary fully paid shares at the par value of $1.00;
(b)In respect of Application No 9, Maxwell Luff be allotted and issued 3 ordinary fully paid shares at the par value of $1.00; and
(c)In respect of Application No 10, Lynn Luff be allotted and issued 3 ordinary fully paid shares at the par value of $1.00.

F.On or about 11 June 2021, the directors of the Company, the directors of MJ Luff as a member of the Company and Maxwell Luff and Lynn Luff as members of the Company on 5 April 1990 were advised that any capital gain to be made if and when the shares issued under the Purported Share Issue were disposed would be assessable.
G.At the time of the Applications, the Resolutions and the Purported Share Issue, Maxwell Luff, Lynn Luff, the Company and MJ Luff believed and intended that the Purported Share Issue would not have any capital gains tax consequences (then or in the future) for Maxwell Luff, Lynn Luff or MJ Luff (Mistake). If Maxwell Luff, Lynn Luff, or the directors of the Company or MJ Luff had been aware of the Mistake, they would not have made the Applications or the Resolutions which allowed the Purported Share Issue to proceed.
H.On 6 February 2003, in anticipation of the tax consolidation regime being introduced in Australia (which requires members of a tax consolidated group to be wholly owned), Maxwell Luff and Lynn Luff made the Share Transfers so that MJ Luff would own all of the issued shares in the Company.
I.On 6 February 2003, Maxwell Luff and Lynn Luff were the only directors of the Company and MJ Luff. As at the date of this deed, the directors of the Company and MJ Luff have a majority of directors in common and a majority of directors who were directors of the respective companies on 5 April 1990.
J.The Company, MJ Luff, Maxwell Luff and Lynn Luff now enter into this deed to acknowledge and declare that due to the Mistake the Purported Share Issue is of no legal effect.
K.The Company, MJ Luff, Maxwell Luff and Lynn Luff enter into this deed to acknowledge and declare that the Share Transfers must also be reversed to reflect that the Purported Share Issue is set aside and is of no legal effect.

It is also convenient to set out the relevant operative provisions. Clauses 2 to 4 provide:[88]
[88]Ibid 347-349.

2. Mistake and reversal of Purported Share Issue
(a)By this deed, MJ Luff, Maxwell Luff, Lynn Luff and the Company acknowledge and declare that:
(i)in respectively making the Applications, the Resolutions and the Purported Share Issue, they each unwittingly made the Mistake; and
(ii)but for the Mistake they each made they would not have made respectively the Applications, the Resolutions and the Purported Share Issue.

(b)The Company, MJ Luff, Maxwell Luff and Lynn Luff each declare and record that due to the Mistake the Purported Share Issue is not, nor ever has been, of any legal effect.
(c)Having made enquiries, the Company, MJ Luff, Maxwell Luff and Lynn Luff each declare and record their belief that no third party rights or interests would be prejudiced or qualified in any way if the Purported Share Issue is of no legal effect.
(d)To give effect to declaring the Purported Share Issue to be of no legal effect:
(i)the Company has on the date of this deed repaid the issue price for the shares being the sum of $2994 to MJ Luff, and MJ Luff acknowledges receipt of that sum by signing this deed;
(ii)the Company has on the date of this deed cancelled the share certificate numbered 12 issued to MJ Luff in connection with the Purported Share Issue (it being acknowledged that the share certificate numbered 13 issued to Maxwell Luff in connection with the Purported Share Issue and the share certificate numbered 14 issued to Lynn Luff in connection with the Purported Share Issue were previously cancelled arising from the Share Transfers);
(iii)the Company has on the date of this deed repaid the issue price for the shares being the sum of $3 to Maxwell Luff, and Maxwell Luff acknowledges receipt of that sum by signing this deed;
(iv)the Company has on the date of this deed repaid the issue price for the shares being the sum of $3 to Lynn Luff, and Lynn Luff acknowledges receipt of that sum by signing this deed.

(e)Each of the current Directors of MJ Luff and the Company execute this deed to acknowledge and affirm their agreement with its terms.

3. Reversal of specific Share Transfers
(a)Consequently, the Company, MJ Luff, Maxwell Luff and Lynn Luff each declare that each of the LL Transfer (3) and the ML Transfer (3) be and is reversed and extinguished on the basis that the Purported Share Issue is and was of no legal effect.
(b)To give effect to reversing and extinguishing the share transfers as provided for in clause 3(a):
(i)Maxwell Luff has on the date of this deed repaid the sum of $27,000 to MJ Luff, and MJ Luff acknowledges receipt of that sum by signing this deed;
(ii)Lynn Luff has on the date of this deed repaid the sum of $27,000 to MJ Luff, and MJ Luff acknowledges receipt of that sum by signing this deed;
(iii)the Company has on the date of this deed cancelled the share certificate numbered 19 issued to MJ Luff in connection with the LL Transfer;
(iv)the Company has on the date of this deed cancelled the share certificate numbered 17 issued to MJ Luff in connection with the ML Transfer.

4. Application to the Court to correct the share register
(a)The Company has on the date of this deed corrected the share register of the Company in the manner set out in Annexure D, F and H to reflect that the Purported Share Issue is of no legal effect.
(b)The Company, MJ Luff, Maxwell Luff and Lynn Luff agree to co-operate and take all necessary action at the Company's cost to make any necessary application to the Supreme Court to correct the Company's register of members including to reflect the following matters:
(i)The register of members for Maxwell James Luff shown in Annexure C is corrected by:
(A)deleting the entry for 5 April 1990 in its entirety;
(B)recording the ML Transfer (1) to MJ Luff Pty Ltd on 6 February 2003,

as shown in Annexure D.
(ii)The register of members for Lynn Elizabeth Luff shown in Annexure E is corrected by:
(A)deleting the entry for 5 April 1990 in its entirety;
(B)recording the LL Transfer (1) to MJ Luff Pty Ltd on 6 February 2003,

as shown in Annexure F.
(iii)The register of members for MJ Luff Pty Ltd shown in Annexure G is corrected by:
(A)deleting the entry for 5 April 1990 in its entirety;
(B)recording the LL Transfer (1) and the ML Transfer (1) to MJ Luff Pty Ltd on 6 February 2003,

as shown in Annexure H.

Annexures D, F and H of the deed set out proposed corrections to the ‘Register of Members’ of Border Express. Mr Earle provided a convenient summary of the corrections in a table he prepared. The table shows share transactions that are proposed to be corrected in bold/italics as follows:[89]

[89]Mr Earle’s affidavit [41].

Third party rights?

Max, Lynn and MJ Luff, the parties to the contracts and the recipients of the Border Express shares on 5 April 1990, are defendants and support the application. They are also the parties to the share transfers made on 6 February 2003. Max, Lynn, Mark, Grant and Geoffrey gave evidence that they are aware that Border Express’ solicitors have been corresponding with the Deputy Commissioner of Taxation and that they are otherwise not aware of any third party rights or interests that would be affected in any way if the issues of shares on 5 April 1990 is declared to be of no legal effect and void from the beginning, and the share register is corrected to reflect that.[90] Jonathon did not give such evidence. The Commissioner of Taxation, in any event, intervened in the proceedings.
[90]Max’s affidavit [91]; Max’s supplementary affidavit [7]; Lynn’s affidavit [32], Mark’s affidavit [40]; Grant’s affidavit [23]; Geoffrey’s affidavit [16].

Mr Earle gave evidence that, upon the assumption that the transfers of shares on 6 February 2003 were to enable MJ Luff to wholly own the shares in Border Express in preparation for the introduction of the tax consolidation rules, the achievement of that purpose would not be disturbed by the granting of the relief sought in the Originating Process.[91] He gave evidence that this was because, in that event, MJ Luff would still own all of the shares in Border Express in 2003.[92] This is premised, inter alia, upon the Court finding that the share transfers on 5 April 1990 are void resulting in Max and Lynn holding 1 share each as at that date which they subsequently transferred on 6 February 2003. Border Express does not seek to impugn the transfers by Max and Lynn of these single shares on 6 February 2003. This is set out in the table I have set out above from Mr Earle’s affidavit.[93]
[91]Mr Earles’s affidavit [42].
[92]Mr Earles’s affidavit [42].
[93]See Judgment [54].

Hypothetical future tax liability

Mr Schachna gave evidence of the potential tax payable by MJ Luff under the relevant taxation legislation upon an assumed and confidential sale price by MJ Luff of its 4,000 shares in Border Express, including the shares issued on 5 April 1990,[94] which is confidential. This does not concern the position as at 5 April 1990.
[94]Mr Schachna’s affidavit [26]-[42].

SECTION 175(1) OF THE CORPORATIONS ACT AND THE GROUNDS FOR THE APPLICATION

Section 175(1) of the Corporations Act provides:

175 Correction of registers
(1)A company or registered scheme or a person aggrieved may apply to the Court to have a register kept by the company or scheme under this Part corrected.

The applicable law is well established and was not in dispute. Section 175(1) does not confer a power to correct a register.[95] Instead, it assumes that the Court already has such a power at general law.[96] The power to order correction of a register is discretionary.[97] As observed by Fullagar J in Grant v John Grant & Sons Pty Ltd:[98]

The power to order rectification of the register must clearly, I think, be in all cases discretionary. The person claiming rectification must show that he has some equity which the court will protect. If he is a shareholder, then prima facie he shows such an equity if he establishes that a name is wrongly included in or omitted from the register of his company. Some definite reason must be shown, I would think, for refusing rectification before rectification will be refused.
…
But the power of a court of equity to order rectification is no more and no less than a part of its general jurisdiction to “act in personam” in aid of a legal right, and it must be subject to the same principles which apply generally to equitable remedies.

[95]In the matter of Mogul Stud Pty Ltd [2012] NSWSC 1639 [7] (Black J).

[96]Ibid.

[97]Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1, 51 (Fullagar J).

[98]Ibid (citations omitted).

Recently, Button J conveniently summarised the applicable principles upon an application pursuant to s 175(1) in Re Australian Organic Eggs Pty Ltd:[99]

117.Section 175 does not confer jurisdiction on the Court to rectify the share register, but assumes the Court has the power to do so. It is well established that the Court has such power as part of its general jurisdiction as a court of equity. The power is discretionary, and an explanation of the practical advantages of rectifying the register is required before the power will be exercised. The person applying for rectification must demonstrate that they have an equity which the court will protect. Such an equity is prima facie established where a person’s name was wrongly included or omitted from the register. The same applies where ‘the number of shares attributed to that person is incorrectly recorded, so as to impose a disadvantage on that person or on other shareholders’.

118. An order may be made under s 175 to rectify the share registry nunc pro tunc, fixing a particular date for the correction.

[99]Re Australian Organic Eggs Pty Ltd [2022] VSC 747 [117]-[118] (Button J) (citations omitted).

Border Express relied upon the following grounds for its application:[100]
[100]The grounds are conveniently set out and addressed in the Joint List of Issues and the Summary of the Parties’ Key Contentions.

(a) the contracts are each subject to an inferred, alternatively an implied, condition precedent that was not satisfied. It submitted “we firmly elect for condition precedent as our standard bearer”;[101] or

(b) alternatively, the contracts are void at common law by reason of a common mistake; or

(c) alternatively, the contracts should be set aside ab initio in equity by reason of a common mistake.

[101]T25.30-25.31 (Mr Collinson KC).

I accept Border Express’ submission that the Court will not make an order which affects the interests of third parties in their absence.[102] The relevant third parties are defendants, being parties to the contracts and recipients of the shares on 5 April 1990 and the parties to the transfers of shares on 6 February 2003. The Commissioner for Taxation is an intervener.
[102]Border Express’ submissions [3.1.2].

ALLEGED CONDITION PRECEDENT
Introduction

Border Express submitted it was an inferred term, alternatively an implied term, of the contracts as follows:

It is a condition precedent to this contract that the shares to be issued hereunder are not subject to capital gains tax on sale or other disposition.

I accept Border Express’ submission that where an occurrence of an event is a condition precedent, the existence of the contract or the obligation to perform the contract, depending upon what the parties agreed in this respect, is subject to the prior occurrence of the event.[103] This was not in dispute. Border Express submitted that as the condition precedent has not been satisfied, no contracts arose for the issue of the shares.[104] It submitted that the issue price for each of the shares must be refunded by Border Express and Border Express’ share register must be corrected to reflect the fact that there are no underlying contracts to support the registration of the shares, the subject of the contracts, to MJ Luff, Max or Lynn on 5 April 1990.[105]
[103]Ibid [5.1.1].
[104]Ibid [5.1.13].
[105]Border Express’ submissions [5.1.13].

There was no dispute between the parties that the shares that were issued on 5 April 1990 were CGT assets and subject to CGT on sale or other disposition. As a result, if the alleged condition precedent is a term of the contracts, it was not satisfied.

The contracts

The following was also common ground:

(a) the alleged condition precedent was not an express term of the contracts;[106]

(b) the offer by each of Max, Lynn and MJ Luff to take shares in Border Express are constituted by the three written applications for the allotment of shares in Border Express and made by each of them and received by Border Express.[107] Those applications cannot be located; and

(c) separate contracts were formed between Border Express and each of MJ Luff, Max and Lynn concerning the applications and the issue of shares that were the subject of the resolutions made by the directors of Border Express on 5 April 1990.[108]

[106]Border Express’ reply submissions [5.1.2].

[107]T266.13-18 (Mr Collinson KC).

[108]T157.22-28 (Mr Linden).

A company’s acceptance of an offer for the issue of shares would usually be constituted by the company’s issue of the shares and the communication of that to the person.[109] This is what occurred in the present case. Border Express made the entry into the register of the shares issued to Max, Lynn and MJ Luff. I have already found that it is also likely that it issued share certificates to each of them. It is not relevant to take into account what occurred at the meeting of Border Express on 5 April 1990 for the purpose of determining whether Border Express’ acceptance of the offers was communicated to the persons present at that meeting. This is because the persons present attended the meeting in their capacity as directors of Border Express and not in their own personal capacity or their capacity as directors of MJ Luff. In case it is relevant to take into account what occurred at the meeting of Border Express to determine whether the acceptance of the offers was communicated[110] then, in the case of:
[109]Commonwealth Homes & Investment Co Ltd v Smith (1937) 59 CLR 443, 461 (Dixon J), 454 (Latham CJ).
[110]Border Express submitted that this was the “better approach”: T266.29-31 (Mr Collinson KC).

(a) Max, he was present at the meeting when the directors made the resolutions. As a result, the acceptance of his offer was communicated to him at the meeting;

(b) Lynn, she was not present at the meeting. As a result, the acceptance of her offer was communicated when she received her share certificate;

(c) MJ Luff, three of its directors (namely Max, Mark and Grant) were present at the meeting when the directors made the resolutions. The acceptance of its offer was communicated to it at the meeting.

The first step in determining the terms of a contract is to identify the express terms and ascertain their meaning. The express terms are set out in the applications for the allotments of the shares which cannot be located but are recorded in the minutes of meeting of the directors of Border Express on 5 April 1990. I have already found that the applications were likely prepared by Mr Stanton and contained express terms concerning the allotment of shares as recorded in the minutes of meeting. As a result, I find the express terms of the contracts to be as follows:

(a) contract between Max and Border Express: Border Express will issue 3 ordinary fully paid shares, being share numbers 3,995 to 3,977, to Max for $1.00 each and record this in share certificate No. 13;

(b) contract between Lynn and Border Express: Border Express will issue 3 ordinary fully paid shares, being share numbers 3,998 to 4,000, to Lynn for $1.00 each and record this in share certificate No. 14;

(c) contract between MJ Luff and Border Express: Border Express will issue 2,994 ordinary fully paid shares, being share numbers 1,001 to 3,994, to MJ Luff for $1.00 each and record this in share certificate No. 12.

Subjective intention of Max not relevant

The words and conduct of each party must be understood by reference to what the words and conduct would have led a reasonable person in the position of the other party to believe.[111] The ultimate question is what reasonable people with knowledge of the background circumstances then known to both parties would have taken by their words and conduct to have agreed.[112] In Toll (FGCT) Pty Ltd v Alphaphram Pty Ltd[113] the High Court said:[114]
[40] This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
[111]Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39 (‘Realestate’), [15] (Kiefel CJ and Gageler J).
[112]Ibid [15] (Kiefel CJ and Gageler J).
[113]Toll (FGCT) Pty Ltd v Alphaphram Pty Ltd (2004) 219 CLR 165.
[114]Ibid 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ) (citations omitted).
Border Express initially accepted that the parties’ subjective intentions are not relevant to the issue of whether a matter is a term of a contract.[115] In response to the Intervener’s submissions, it submitted that the parties’ subjective intentions are of no relevance but in any event, Border Express (through its directors), MJ Luff (through its directors), Max and Lynn made the assumption that the issue of shares would not have CGT consequences, and that had they been aware that it did, they would not have taken steps to allow it to proceed.[116] It also further submitted that where you have the same directing mind and will on each side of a transaction you do not have to find that someone communicated with themselves. It submitted that Max was the controlling mind of MJ Luff and Border Express and that Max’s subjective intentions are relevant in determining the terms of the contracts between Border Express and him and between Border Express and MJ Luff. It submitted that this did not apply in the case of Lynn. Border Express submitted that it was common ground between Border Express and the Intervener that Max was the controlling mind of MJ Luff as the Intervener made submissions to this effect.
[115]Border Express’ reply submissions [5.1.4].
[116]Ibid.

Border Express’ submissions are contrary to the principle of objectivity stated by the High Court by which the rights and liabilities of the parties to a contract are determined.[117] The subjective intentions of the parties, including Max, are irrelevant.[118]
[117]See also Fisher v DivineHomes [2011] NSWSC 8, [50] (Barrett J).
[118]I uphold the Intervener’s objections to the evidence I have set out earlier in this judgment at [39]-[40] insofar as it concerns the claims that the alleged condition precedent was a term of the contracts. It is not relevant.

In case Max’s subjective intentions are relevant, I am not satisfied that Max was, in fact, the controlling mind of Border Express.[119] This is a question of fact to be established by Border Express on the evidence.[120] Apart from submitting in its reply that there is evidence of this “controlling mind” it did not identify any evidence to support this submission.[121] I am not satisfied that Max was the “controlling mind” of Border Express having regard to the following evidence:
[119]I accept that the Intervener submitted that Max was the controlling mind of MJ Luff. See, for example, T204.31-205.1 and T210.11-12 (Mr Linden).
[120]See Australasian Annuities Pty Ltd (in liq) v Rowley Super Fund Pty Ltd [2015] VSCA 9, [115]-[116] (Warren CJ).
[121]Border Express also did not address the matter in the Joint List of Issues or the Plaintiff’s Supplementary Submissions filed 14 April 2023 (‘Border Express’ supplementary submissions’) which were both filed after the reply.

(a) as at 5 April 1990, immediately prior to the meeting of the directors of Border Express on that day, there were 5 directors of Border Express, namely Max and Lynn and three of their adult children: Mark, Geoffrey and Grant. Max was the chairman;

(b) Mark, Grant and Geoffrey were appointed directors of Border Express in 1986 as part of the process of them becoming more involved in the business;[122]
[122]Max’s affidavit [43].

(c) by April 1990, Mark, Grant and Geoffrey were all working in the Border Express business.[123] Jonathon was too but he was not a director prior to 5 April 1990;
[123]Ibid [58].

(d) the Luff family had regular informal meetings to discuss the Border Express business, including forming general plans.[124] It is and had always been a family business;[125]

(e) since 1985, Mark also met with Mr Stanton, sometimes with Max but sometimes alone, to seek accounting and tax advice in relation to the Border Express business;[126]

(f) Border Express also submitted that “[a]t all relevant times, Border Express has been ultimately controlled and owned by members of the Luff family”.[127]

[124]See Mark’s affidavit [13]; Ibid [41], [51].

[125]Max’s affidavit [34].

[126]Mark’s affidavit [26].

[127]Border Express’ submissions [2.1.1]. See also Max’s affidavit [29].

Inferred term?
Submissions

Border Express submitted that the alleged condition precedent is inferred in the contracts. It made the following key submissions:

(a) a term of a contract may be inferred from the parties’ spoken words and conduct, and the overall circumstances, in which event the enquiry is simply “what did the parties intend”? It relied upon Realestate;[128]
[128]Summary of the Parties’ Key Contentions [1].

(b) the question of whether the alleged condition precedent is inferred in the contracts focuses attention on what the parties actually intended by reference to surrounding circumstances.[129] Border Express submitted that “with the possibility of finding a term that's inferred from the actions and the words spoken by the parties, one is focusing upon their actual intention”.[130] Border Express also submitted “these parties to these bargains did not intend that the issue of the shares would come into being if the pre-CGT status of Border Express were to be removed”;[131]
[129]Border Express’ supplementary submissions [3].
[130]T106.16-19 (Mr Collinson KC).
[131]T111.28-30 (Mr Collinson KC).

(c) Border Express submitted that this application is unusual, because the decision makers on both sides of the contracts are the same, unlike most of the relevant decisions which are concerned with separate parties with competing interests.[132] It submitted that this aspect was highly probative in ascertaining that there was an objective intention that the parties only intended the contracts to come into existence if the alleged condition precedent was satisfied;[133]
[132]Border Express’ reply submissions [1.1.2(a)].
[133]Ibid [5.1.6].

(d) the terms of the contracts were not wholly reduced to writing because the applications for the shares were no more than offers to be accepted orally or by conduct.[134] There was no document titled “allotment contract”.[135] Border Express submitted these contracts were not the kinds of contracts where the whole of the terms could be isolated in one document[136] and a contract to have shares allotted is simpler and shorter than other contracts, such as contracts of hundreds of pages where one could readily infer that everything the parties wanted to cover would be included.[137] It submitted that formality of a contract is a matter of degree and “the more one looks at a document and sees that it’s been drafted professionally – that is, by lawyers – and signed with signature at the end in the usual way, the less room there is for drawing out inferred terms or implied terms”;[138]
[134]Summary of the Parties’ Key Contentions [2].
[135]T272.12-15 (Mr Collinson KC).
[136]T271.4-6 (Mr Collinson KC).
[137]T271.11-22 (Mr Collinson KC).
[138]T270.8-13 (Mr Collinson KC).

(e) Border Express initially submitted, in addition, that it was a term of the contracts that the shares were issued to give effect to the testamentary purpose.[139] This submission was ultimately abandoned;[140]
[139]T272.16-20, T276.9-14 (Mr Collinson KC).
[140]Border Express’ supplementary submissions [3].

(f) the alleged condition precedent is “readily apparent” from the surrounding circumstances;[141]
[141]Summary of the Parties’ Key Contentions [3].

(g) the testamentary purpose is one of the surrounding circumstances supporting the inference because otherwise the sons would not be left the Border Express business equally. Instead, they would be left with shareholdings in Border Express, MJ Luff and MJ Nominees having differing positions in terms of CGT liability.[142] It also relied upon other surrounding circumstances;[143]
[142]Border Express’ supplementary submissions [3]. See also T279.4-12 (Mr Collinson KC).
[143]Summary of the Parties’ Key Contentions [3].

(h) the alleged condition precedent was not satisfied because the shares were CGT assets and subject to CGT on a later sale;[144]

(i) the existence of the alleged condition precedent was supported by the meeting between Max with Mr Stanton, on the eve of the commencement of CGT,[145] Max and Lynn’s transfer of their shares in Border Express to MJ Luff, and that no CGT was reported in Max and Lynn’s personal tax returns for the financial year ended 30 June 2003;[146]

(j) there was relevant evidence of spoken words between the parties, including conversations between Max and three of his sons, Mark, Grant and Geoffrey, about Border Express not being subject to CGT,[147] Max informing two of his sons, Mark and Grant, of the testamentary purpose,[148] and Max communicating the testamentary purpose to Mr Stanton.[149]

[144]Ibid [4].

[145]Border Express’ submissions [5.1.10].

[146]Ibid [5.1.11].

[147]Summary of the Parties’ Key Contentions [3(b)(iii)]; T289.10 (Mr Collinson KC).

[148]Summary of the Parties’ Key Contentions [3](b)(iv); T289.11 (Mr Collinson KC).

[149]Summary of the Parties’ Key Contentions [3](c)(v); T289.11 (Mr Collinson KC).

The Intervener made the following key submissions in response:

(a) a term cannot be inferred in a contract articulated in writing;[150]
[150]T178.9-12 (Mr Linden).

(b) a term of a contract can only be inferred from the parties’ spoken words, conduct and/or the overall circumstances in a contract not articulated in writing;[151]
[151]Summary of the Parties’ Key Contentions [8] and [11].

(c) the contracts were articulated in writing and were formal, not informal contracts.[152] The contracts were constituted by offers made by Max, Lynn and MJ Luff by their applications and the acceptance by Border Express by resolution of the directors on 5 April 1990 and/or the issue of share certificates.[153] The completion of the contracts occurred by entry of the share allotments in the register of members of Border Express;[154]
[152]Ibid [10].
[153]Ibid [9].
[154]Ibid.

(d) evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language of a contract is ambiguous or susceptible to more than one meaning;[155]
[155]Summary of the Parties’ Key Contentions [8].

(e) evidence of surrounding circumstances is not admissible to contradict the language of the contract when it has a plain meaning;[156]

(f) in any event, there is no evidence of any spoken words between the parties;[157]

(g) the parties’ subjective intention, belief, knowledge and motivation is irrelevant.[158]

[156]Ibid.

[157]Ibid [12].

[158]Ibid [13].

Analysis

In Realestate, the High Court considered the terms of licence agreements that were not in writing and where there was no express oral agreement for the grant of the licences.[159] The trial judge held that there were agreements containing a particular term that was to be inferred from the conduct of the parties including their course of dealings or to be implied in order to give them business efficacy.[160] Kiefel CJ and Gageler J (as he then was) said that in a case where the terms of an agreement between the parties have not been articulated, those terms must be ascertained by reference to the parties’ words and conduct.[161] Their Honours also said:[162]

The words and conduct of each party must be understood by reference to what the words and conduct would have led a reasonable person in the position of the other party to believe. The ultimate question is what reasonable people with knowledge of the background circumstances then known to both parties would be taken by their words and conduct to have agreed.

‘Mistake’ might, of course, afford a ground on which equity would refuse specific performance of a contract, and there may be cases of ‘mistake’ in which it would be so inequitable that a party should be held to his contract that equity would set it aside. No rule can be laid down a priori as to such cases: see an article by Professor R. A. Blackburn in Res Judicatae (1955), vol. 7, p. 43. But we would agree with Professor Shatwell (1955) 33 Can. B.R., at pp. 186, 187 that it is difficult to conceive any circumstances in which equity could properly give relief by setting aside the contract unless there has been fraud or misrepresentation or a condition can be found expressed or implied in the contract.

Denning L.J., in Solle v. Butcher, had likewise expressed the view that, in the absence of fraud or misrepresentation, resort must be had to equity to escape from the terms of the contract on the grounds of unilateral mistake.
… It therefore becomes necessary to consider the scope of the basis upon which relief in equity is available from the contractual consequences of unilateral mistake. Dixon C.J. and Fullagar J. referred, in the above passage from their judgment in Svanosio, to a difficulty in conceiving circumstances in which equity could properly give relief by setting aside the contract unless there had been fraud or misrepresentation or a condition could be found expressed or implied in the contract. Presumably, their Honours were referring to “fraud” in the wide equitable sense which includes unconscionable dealing. If they were not, we do not share the difficulty to which they referred. To the contrary, it seems to us that the reported cases, including Solle v. Butcher itself, readily provide concrete examples of such circumstances.

The High Court also stated, in the particular circumstances of the case, as follows:[382]

The particular proposition of law which we see as appropriate and adequate for disposing of the present appeal may be narrowly stated. It is that a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension.

[382]Ibid 432 (Mason ACJ, Murphy and Deane JJ).

I agree with the learned authors of Cheshire and Fifoot Law of Contract that “[i]n Australia the equitable rules for setting aside contracts because of mistake were unconditionally embraced by the High Court in Taylor”.[383] I also agree with the observations of the learned author of Heydon on Contracts that “[t]he Australian position is that there is no general jurisdiction of the type Denning LJ described in equity [i.e. in Solle v Butcher].”[384]
[383]Nick Seddon, Rick Bigwood, Cheshire & Fifoot Law of Contract (LexisNexis Australia, 12^th ed, 2022) [12.3] (‘Cheshire and Fifoot Law of Contract’).
[384]Heydon on Contracts (n 278) [15.200].

The Court of Appeal in Great Peace did not follow Solle v Butcher.[385] It is not necessary to further consider Great Peace and the further developments in English law in relation to common mistake in equity given the judgment of the High Court in Taylor. The majority in Australia Estates said in obiter that there is no equitable jurisdiction to set aside a contract on the ground of common mistake where the contract was valid and enforceable at common law.[386] In Rees v Rees (Rees),[387] McMillan J declined to follow Australia Estates on this issue.[388] Her Honour stated that “it is established that there is an equitable jurisdiction to set aside contracts entered into under a common mistake.”[389] Justice McMillan cited Taylor. Justice McMillan stated “[w]hile the circumstances under which rescission is available at equity for common mistake may not be clearly defined, there is High Court authority for the proposition that the remedy exists for common mistake.”[390] Importantly, her Honour also stated:[391]

104Critically, the defendant did not argue that the conditions for the exercise of the equitable jurisdiction to set aside contracts entered into under a common mistake (whatever those conditions may be) are not satisfied. What the defendant did argue is that there was no mistake for two reasons: the plaintiff had imputed knowledge of the true state of affairs and any mistake was the product of Mr Brack’s carelessness. Those two arguments have been rejected and I have found there was a common mistake. The defendant’s case was then that if the Court concluded that there had been a common mistake, the appropriate remedy is to set aside the deed in equity and put the plaintiff and the defendant back in the position that they were in prior to its execution. In other words, the defendant submitted that if a common mistake is found, the Court should set aside the deed.
105Based on what the parties have asked the Court to do, and my findings that there were two common mistakes and that rectification is not appropriate in this case, it is appropriate to set aside the deed.

[385]See Great Peace (n 297) especially at [160] (Lord Phillips of Worth Matravers MR, May and Laws LJJ).

[386]Australia Estates (n 289) [50]-[64], especially [52] and [64] (Atkinson J, Jerrard JA agreeing at [14]).

[387][2016] VSC 452 (‘Rees’).

[388]Ibid [103] (McMillan J).

[389]Ibid [99] (McMillan J).

[390]Ibid [103] (McMillan J).

[391]Ibid [104]-[105] (McMillan J).

Her Honour did not otherwise identify the applicable elements that must be satisfied for the exercise of the jurisdiction. I agree with Justice McMillan’s observation that the “the circumstances under which rescission is available at equity for common mistake may not be clearly defined”.[392]
[392]Ibid [103] (McMillan J).

I also decline to follow Australia Estates insofar as the majority stated in obiter that there is no equitable jurisdiction to set aside a contract on the basis of common mistake. It is contrary to the decision of the High Court in Taylor. I also agree with the following observations of the learned authors of Cheshire and Fifoot Law of Contract (citations omitted):[393]

The Queensland Court of Appeal has chosen to endorse this development [i.e. Great Peace], despite the binding authority of the High Court in Taylor v Johnson which, as already noted, unequivocally embraced mistake in equity. Until the High Court says otherwise, the doctrine of mistake in equity is part of the law of Australia.

[393]Cheshire and Fifoot Law of Contract 737 (n 383) [12.3], 736. See also ibid [99] (McMillan J).

In Pacer v Westpac Banking Corporation (Pacer),[394] Santow J referred to the relevant observations of Denning LJ in Solle v Butcher and said:[395]

Even given the unclear state of the law in regard to mistake in providing grounds for rescission of a contract, it is clear that this statement of Lord Denning is too wide. This statement does not provide the qualification that equity will only intervene when it would be unconscionable for one party to seek to uphold the agreement in light of the mistake.

[394](Supreme Court of New South Wales, Santow J, 2 August 1996) (‘Pacer’).

[395]Ibid 29 (Santow J).

Santow J also said in Pacer:[396]

I am satisfied that I should follow the dicta in Taylor v Johnson that there is a general equitable jurisdiction to set aside a conveyance or contract on the grounds of common mistake where it would be unconscionable for one party to have the agreement subject to mistake, upheld.
The presence of such substantive unconscionability provides the element of “fraud” necessary to found a right of rescission under equitable principles.

[396]Ibid 17 (Santow J).

In Hawcroft, Young AJ said:[397]

65.   Counsel for the Plaintiff submits that a Court of Equity will not grant rescission absent some fraud or misrepresentation on the part of the Plaintiff. He cites in support Svanosio v McNamara [1956] HCA 55; (1956) 96 CLR 186 at 196; Taylor v Johnson[1983] HCA 5; (1983) 151 CLR 422 at 444.
66.   This citation is not as strong as it would first appear. The passage quoted from Svanasio actually reads that Dixon CJ and Fullagar J found it difficult to conceive of cases where relief would be given where fraud or misrepresentation or a condition expressed or implied in the contract was not demonstrated. The passage in Taylor comes from the dissenting judgment of Dawson J who took a completely different view of the case generally to that taken by the plurality.
67.   The Plaintiff’s submission may be broadly accepted so long as ‘fraud” is taken in the sense of equitable fraud or unconscionable conduct and one substitutes “rarely’ for “not”, i.e. “absent equitable fraud or misrepresentation on the part of a plaintiff, equity will rarely grant rescission for common mistake”.
68.   However, in this case, the precise form of the principle makes little difference to the result. Both parties were represented by solicitors, neither party sought to take advantage of the other, neither party could be considered “vulnerable”; there is therefore no unconscionable conduct and no special reason has been advanced as to why equity should interfere.

[397]Hawcroft (n 274) [65]-[68] (Young AJ).

I also agree with these observations. His Honour’s reference to “plaintiff” at [67] was in the context in which it was the defendant seeking to impugn the relevant transaction on the basis of common mistake.

A contract based upon common mistake may be set aside in equity in circumstances of equitable fraud or misrepresentation or where a condition can be found expressed implied in the contract. Fraud in this context is a reference in the wide equitable sense, which includes unconscionable dealing. It is otherwise difficult to conceive of other circumstances in which a contract would be set aside in equity for common mistake.

The parties accepted that the mistake must be fundamental.[398]
[398]Summary of the Parties’ Key Contentions [53], [62]. See also Pacer (n 394) 17 (Santow J).

The “fault” of the parties to the contracts is a relevant consideration in a determination of whether equity will intervene.[399] I agree with Santow J in Pacer that “fault” in equity concerns whether the “fault” is of such a nature to deny entitlement to equitable relief. As explained by Santow J in Pacer:[400]

... substantive unconscionability looks to the injustice which would result if relief were not granted, rather than concentrating upon the prior conduct of the parties. In such circumstances, the unconscionability lies in the insistence on strict legal rights in circumstances where to do so is considered to be contrary to equity and good conscience because of the hardship which would thereby be caused to the other party.
…
The jurisdiction to set aside contracts on the basis of common mistake recognizes that Equity will intervene to prevent wrongful and undue advantage being taken by one mistaken party of the other, in holding that other to a bargain both mistakenly entered into. It is an apt illustration of the general principle that "a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct"...
[399]See Pacer (n 394) 29 (Santow J).
[400]Pacer (n 394) 31 (Santow J) .

Has Border Express established the grounds for relief for common mistake in equity?
The mistake

I refer to the matters I have addressed concerning the nature of the mistake earlier in this judgment.[401]
[401]See Judgment [156]-[163].

Unconscionability?

Border Express submitted that if, contrary to its submissions that Solle v Butcher sets out the applicable test, fraud, misrepresentation, unconscionable conduct or a condition express or implied are necessary, then it submitted that there has been unconscionable conduct. It submitted that it relies upon the conduct of the Intervener in this proceeding “to have the bargain upheld” and that the Intervener “wants to uphold the bargain”, and the Intervener “is not even a party to the contract”.[402] It relied upon Pacer. It submitted that the Intervener, who has no role in the contract at all, cannot be in a better position to a party to a contract.
[402]T321.16-16, T322.10-15 (Mr Collinson KC).

I do not accept these submissions. Pacer does not assist Border Express. In Pacer, Santow J found that Mr Pacer and Westpac entered into a contract under a common mistake whereby Mr Pacer agreed, with others, to consent to judgment by Westpac against them under a guarantee and to paying the judgment debt by certain dates.[403] Santow J found “unconscionability arises from Westpac’s conduct in seeking to retain the benefit of the consent judgment entered against Mr Pacer in circumstances where it has now become apparent that Mr Pacer may have a valid and complete defence to Westpac’s claim.”[404] This finding was based upon his Honour’s observations of the relevant principles concerning unconscionability. This included Santow J’s observation that “[t]he jurisdiction to set aside contracts on the basis of common mistake recognizes that Equity will intervene to prevent wrongful and undue advantage being taken by one mistaken party of the other, in holding that other to a bargain both mistakenly entered into. It is an apt illustration of the general principle that ‘a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct’: Legione v Hateley (1983) 152 CLR 406, per Mason and Deane JJ at 444.”[405] The Intervener was not a party to the contracts and is not a defendant in this proceeding. It does not seek to retain any benefit under the contracts or to seek to exercise any legal right under them. As a result, in my view, the Intervener has not engaged in unconscionable conduct by making submissions in this proceeding in its capacity as an intervener.
[403]Pacer (n 394) 27 (Santow J).
[404]Ibid 33-34 (Santow J).
[405]Ibid 31 (Santow J).

Fundamental?

The mistake was not fundamental.[406] It concerned the CGT consequences of a possible future sale of the shares the subject of the contracts.
[406]Border Express relied upon its submissions concerning common mistake at common law. As a result, I also refer to the matters I have addressed in this Judgment in the context of common mistake at common law: Judgment [171]-[174].

Fault?

As I have found that the Intervener did not engage in the identified unconscionable conduct and that the mistake was not fundamental, it is not necessary for me to consider whether the parties to the contracts were at “fault” such as to deny them entitlement to equitable relief. This issue also depends, in part, upon the nature and extent of the unconscionable conduct which I have found has not been established.

Entitlement to relief

Even if Border Express established that it was entitled to relief in equity for common mistake it would not be entitled to relief that would constitute a ground upon which the Court would grant relief pursuant to s 175(1) of the Corporations Act. This is because:

(a) the contracts would be voidable and not void; and

(b) Border Express would not be entitled to rescission as Max and Lynn are unable to make restitution in the present circumstances.

Void or voidable?

Border Express initially accepted that if it established that it was entitled to relief in equity for common mistake the contracts will be voidable and not void.[407] It submitted “quite rightly we accept this, that if there’s a mistake in equity, the contract is merely voidable”.[408] Border Express then subsequently submitted that where mistake is shown, a court of equity may order a contract to be “void ab initio” pursuant to its jurisdiction to set aside a contract on such terms as the Court thinks fit.[409] It relied upon Solle v Butcher at 690 and Rees at [104].[410] The Intervener submitted that if common mistake in equity was established then the contracts would be voidable and not void.[411]
[407]T78.6-78.12 (Mr Collinson KC).
[408]T128.15-17 (Mr Collinson KC).
[409]Summary of the Parties’ Key Contentions [55].
[410]Ibid.
[411]Ibid [57].

The law is well established and not in any doubt. The contracts will not be void if Border Express establishes an entitlement to equitable relief. The contracts will be voidable. Solle v Butcher does not assist Border Express. Denning LJ said:[412]

In order to see whether the lease can be avoided for this mistake it is necessary to remember that mistake is of two kinds: first, mistake which renders the contract void, that is, a nullity from the beginning, which is the kind of mistake which was dealt with by the courts of common law; and, secondly, mistake which renders the contract not void, but voidable, that is, liable to be set aside on such terms as the court thinks fit, which is the kind of mistake which was dealt with by the courts of equity.

[412]Solle v Butcher (n 260) 690-691 (Denning LJ).

Rees also does not assist Border Express. Her Honour set aside the deed based upon what the parties asked her Honour to do.[413] Justice McMillan did not otherwise address the basis upon which her Honour made the order. In HWG Holdings, Sifris J said in obiter:[414]

The essential remedial difference is that mistake at law renders the contract void whereas mistake in equity renders the contract merely voidable. Of course as pointed out this is not the issue in this case. This case only concerns the common law position.

[413]Rees [105] (McMillan J).

[414]HWG Holdings (n 252) [47] (Sifris J).

I agree with the observations of Sifris J on this issue. I also agree with the observations of the learned authors of Cheshire and Fifoot Law of Contract (citations omitted):[415]

Agreements in respect of which equity may give relief for common mistake
Summary of jurisdiction in equity
The fact that a contract founded on common mistake is not void does not necessarily mean that all relief is refused to the parties. Equity, in the exercise of its concurrent jurisdiction, will provide possible relief by refusing specific performance; or by setting aside the transaction; or by rectifying an erroneously recorded agreement.
The most important point to note about equity’s intervention in setting aside a contract for mistake is that equity’s remedy is not the drastic one of declaring the contract to be void from the beginning. Flexibility in remedy has generated flexibility in the type of mistake for which a remedy is given. Thus, it will be seen that the types of mistakes that justify a court in setting aside a contract would never have provided a remedy at common law.
[415]Cheshire and Fifoot Law of Contract (n 383) [12.22].

Is rescission available?

Border Express submitted that if it established an entitlement to equitable relief, the contracts should be rescinded ab initio.[416] It submitted it was entitled to rescission as Max, Lynn and MJ Luff are able to give restitution as a condition of rescission. In the case of MJ Luff, it submitted that MJ Luff still owned the shares. This was not in dispute between the parties. In the case of Max and Lynn, it submitted that, pursuant to the deed, each of their subsequent transfers of their 3 shares on 6 February 2003 were extinguished and reversed, being the 3 shares issued to them pursuant to the contracts on 5 April 1990. It submitted that restitution was “easily satisfied” as the shares (i.e. issued on 5 April 1990) would be expunged from the share register.[417]
[416]Border Express’ submissions [1.1.2].
[417]T318.7-12 (Mr Collinson KC).

Border Express referred to Vadasz v Pioneer Concrete (SA) Pty Ltd (Vadasz)[418] and submitted that there is a “well known requirement that restitution is required as a condition of rescission where the contract has been wholly or partly executed…”.[419] In Vadasz, the High Court said:[420]

Where, as in this case, the court has granted equitable relief in the shape of rescission of a contract, the result is to set aside the contract ab initio. While equity followed the law in requiring restitution as a condition of rescission where the contract had been wholly or partly executed, it allowed greater flexibility in the basis upon which restitution and accounting between the parties may be ordered. Thus, equity did not require complete restitution of the position which existed before the contract but allowed its remedies, particularly an order for monetary accounts, to be utilised to achieve practical restitution and justice. That point was made by Dixon CJ, Webb, Kitto and Taylor JJ in Alati v Kruger:
If the case had to be decided according to the principles of the common law, it might have been argued that at the date when the respondent issued his writ he was not entitled to rescind the purchase, because he was not then in a position to return to the appellant in specie that which he had received under the contract, in the same plight as that in which he had received it: Clarke v Dickson. But it is necessary here to apply the doctrines of equity, and equity has always regarded as valid the disaffirmance of a contract induced by fraud even though precise restitutio in integrum is not possible, if the situation is such that, by the exercise of its powers, including the power to take account of profits and to direct inquiries as to allowances proper to be made for deterioration, it can do what is practically just between the parties, and by so doing restore them substantially to the status quo.

[418]Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 (‘Vadasz’).

[419]Border Express’ supplementary submissions [8].

[420]Vadasz (n 418) 111-112 (Deane, Dawson, Toohey, Gaudron and McHugh JJ) (citations omitted).

Border Express submitted that restitution, as a condition of equitable rescission, can be given by Max and Lynn in respect of the 3 shares issued to each of them pursuant to the contracts on 5 April 1990.[421] It did not rely upon any other basis to contend that restitution could be made.
[421]Border Express’ supplementary submissions [10].

The Intervener submitted it is not competent for the parties to rescind a non-executory contract ab initio (i.e. the transfers of the 3 shares of each of Max and Lynn on 6 February 2003).[422] It further submitted that there was no basis to avoid the transfers made on 6 February 2003 at common law or in equity.[423] It also relied upon Baird v BCE Holdings Pty Ltd[424] in which Young J said:[425]
[422]Intervener’s submissions [58].
[423]Intervener’s reply submissions filed 19 April 2023 [4].
[424]Baird v BCE Holdings Pty Ltd (1996) NSWLR 374 (Young J).
[425]Ibid 379 (Young J).

If there has been a conveyance or transfer, then again it would seem that the parties are incompetent to rescind the transaction by agreement but would, of course, be entitled by virtue of their agreement to rescind, to have a reconveyance.

…

In the instant case, as there has been a transfer of shares registered and all parties have done all they are bound to do under the contract, the contractual regime is at an end. Thus there is no executory contract that can now be rescinded. Alternatively, if the parties do now rescind, there has to be a reconveyance so that capital gains tax will not only be payable once, it may be payable twice. For these reasons it does not seem to me that this matter of rescission by agreement need be pursued further.

Border Express submitted that the passage cited by the Intervener states the position at common law and deals with when one ceases to be able to rescind ab initio an agreement by consent.[426] It further submitted that the decision in Baird declined to follow the general rule concerning rescission in equity, and that therefore the feature that the contracts (i.e. the contracts of 5 April 1990) have been performed does not stand as an obstacle to granting rescission ab initio for mistake in equity.[427]
[426]Border Express’ reply submissions [6.1.2].
[427]Ibid [6.1.3]-[6.1.5].

The Intervener further submitted:[428]

The plaintiff relies on the ‘Deed of Acknowledgment and Declaration’ executed after this proceeding commenced for the purported reversal and extinguishment of the 2003 transfer of Max and Lynn’s shares issued under the Contracts (1990 Shares) to MJ Luff (2003 Share Transfers) as a basis to claim that Max and Lynn can give restitution of the 1990 Shares to Border Express.
However, the purported reversal and extinguishment of the 2003 Share Transfers is wholly dependent on the 1990 Shares being void ab initio or of no legal effect. Unless and until a court determines that the 1990 Shares were void ab initio or of no legal effect, the 1990 Shares remain valid and effective and, consequently, the 2003 Share Transfers remain valid and effective.

[428]Intervener’s reply submission [2]-[3] (citations omitted).

Border Express accepted that restitution, in the circumstances of this case, is required as a condition for rescission as the contracts have been fully performed.[429] It submitted that Max and Lynn can give restitution as they each still hold the 3 shares the subject of the contracts on 5 April 1990.
[429]Border Express’ supplementary submissions [8].

In the event that Border Express is entitled to rescission, then the parties will be treated in equity as if the contracts never occurred.[430] There is no issue that MJ Luff still holds the shares issued to it on 5 April 1990. Max and Lynn do not hold the shares and cannot give restitution as submitted by Border Express.
[430]See Greater Pacific Investments Pty Ltd (in liq) v Australian Industries Ltd (1996) 39 NSWLR 143, 153 (McLelland AJA with whom Priestley JA and Meagher JA agreed).

First, the purported reversal and the extinguishment of the share transfers on 6 February 2003 provided for in clause 3 of the deed is expressly consequent upon the issue of the shares on 5 April 1990 being of no legal effect (i.e. void). This is evident from the following matters set out in the deed:

(a) Recital K provides: “The Company, MJ Luff, Maxwell Luff and Lynn Luff enter into this deed to acknowledge and declare that the Share Transfers [i.e. the transfers of the 3 shares by Max and Lynn on 6 February 2003 that were issued to them on 5 April 1990] must also be reversed to reflect that the Purported Share Issue [i.e. the shares issued on 5 April 1990] is set aside and is of no legal effect.”

(b) Clause 2 sets out matters concerning the reversal of the share issue (i.e. the shares issued on 5 April 1990);

(c) Clause 3(a) provides: “Consequently, the Company, MJ Luff, Maxwell Luff and Lynn Luff each declare that each of [i.e. the transfers of the 3 shares by Max and Lynn on 6 February 2003 that were issued to them on 5 April 1990] be and is reversed and extinguished on the basis that the Purported Share Issue [i.e. the shares issued on 5 April 1990] is and was of no legal effect.”

In those circumstances, assuming that Border Express has not established the contracts are of no legal effect (i.e. void) there is no basis for the purported consequent reversal and extinguishment of the share transfers on 6 February 2003 that is provided for in the deed.

Secondly, I accept, in any event, the Intervener’s submissions that the parties were not competent to agree to reverse and extinguish the share transfers made on 6 February 2003. It is these transfers that resulted in Max and Lynn ceasing to hold the shares issued to them on 5 April 1990. This is because the contracts for those share transfers on 6 February 2003 have been fully performed. Border Express did not seek to establish any other basis upon which the share transfers on 6 February 2003 were able to be reversed and extinguished.

As a result, Max and Lynn presently do not hold any shares in Border Express. Even if Border Express established the elements for common mistake in equity, Max and Lynn cannot give restitution as a condition of the rescission of the contracts made on 5 April 1990.

Conclusion

As a result, Border Express has not established a ground for an order under s 175(1) of the Corporations Act based upon common mistake in equity.

CONCLUSION AND ORDERS

In conclusion, Border Express has failed to establish any ground for an order pursuant to s 175(1) of the Corporations Act. I will make an order dismissing the proceeding. I will hear from the parties on the precise form of the order and on the question of costs.

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SCHEDULE OF PARTIES

BORDER EXPRESS PTY LTD (ACN 000 533 880)	Plaintiff
And
MAXWELL JAMES LUFF	First Defendant
LYNN ELIZABETH LUFF	Second Defendant
MJ LUFF PTY LTD (ACN 001 001 850)	Third Defendant
And
COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA	Intervener

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19 December 2023