Macdonald v Shinko Australia Pty Ltd

[1998] QCA 53

IN THE COURT OF APPEAL	[1998] QCA 053
SUPREME COURT OF QUEENSLAND

Appeal No. 4073 of 1997

Brisbane

[Macdonald & Anor v. Shinko Australia P/L]

BETWEEN:

JOHN ROBERT MACDONALD and
DERRICK CATHCART TURNER

(Plaintiffs) Appellants

AND:

SHINKO AUSTRALIA PTY. LTD.
ACN 010 664 196

(Defendant) Respondent

McPherson J.A.
Davies J.A.

Moynihan J.

Judgment delivered 27 March 1998

Separate reasons for judgment of each member of the Court; each concurring as to the order made.

APPEAL DISMISSED WITH COSTS.

CATCHWORDS:	CIVIL - Construction of Building Contract - Mistake - Innocent misrepresentation - Whether contract should be rectified to reflect common intention of parties - Whether summary judgment should have been granted - Whether triable issue - Whether parol evidence admissible.
The Life Insurance Co. Pty. Ltd. v. Phillips (1925) 36 C.L.R. 60.
Counsel:	Mr. D.R. Cooper for the appellants Mr B.D. O’Donnell Q.C. for the respondent
Solicitors:	McCarthy Durie Ryan Neil for the appellants McCullough Robertson for the respondent
Hearing Date:	18 February 1998

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 4073 of 1997

Brisbane

Before McPherson J.A.
Davies J.A.
Moynihan J.

[Macdonald & Anor v. Shinko Australia P/L.]

BETWEEN:

JOHN ROBERT MACDONALD and
DERRICK CATHCART TURNER

(Plaintiffs) Appellants

AND:

SHINKO AUSTRALIA PTY. LTD.
ACN 010 664 196

(Defendant) Respondent

REASONS FOR JUDGMENT - McPHERSON J.A.

Judgment delivered 27 March 1998

This is an appeal from a decision refusing summary judgment in an action by the plaintiff

purchasers to recover a deposit paid to the defendant vendor under a contract dated 19 August 1995

for the sale of a building unit. At the time the contract was made the defendant was engaged in

constructing and selling a series of apartment buildings on Hope Island, or was preparing to do so. The

unit, which was one of several of the same or similar design in a building to be named “Troon”, was,

as the saying goes, sold “off the plan”. It is designated or delineated on a floor plan forming part of the

contract in such a way as to identify it as being located on the northern side of the proposed building.
In due course the building was completed, the building units plan was registered, and the

contract was ready for settlement. It was, as the defendant claims, then discovered that the wrong unit

had mistakenly been designated in the floor plan forming part of the contract. Instead of being on the

northern side of the “Troon” apartment building, the unit which the defendant had intended to sell was

on the southern side of that building. In the material before the primary judge there is an explanation

from the defendant of how the mistake came about. In an action which as matters now stand will go

to trial, it is neither necessary nor desirable to examine or pass upon the evidentiary material in any

detail. Suffice to say that there is evidence on behalf of the defendant which in its present state is not

implausible.

The defendant intends to defend the action and to counterclaim for rectification of the contract

so that it reflects what it claims was the common intention of the parties that the real subject matter of

the contract; that is, a unit on the southern side of the “Troon” apartment building corresponding to a

unit on the southern side of the “Vaucluse” apartment building (which the plaintiffs had earlier contracted

to buy but which was not to proceed), and not that on the northern side of “Troon” which is said to

have been incorrectly designated in the contract.

So far as the facts are concerned, a triable issue is shown which ought not to be determined

summarily

Various points were advanced in the proceedings below and in the appellants’ written outlines

of argument. At the hearing before this Court, however, Mr Cooper of counsel confined his

submissions to a single question of law. It depends on the proper interpretation and effect of cl.28.1

of the contract of sale, which is in the following terms:

“ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties as to its subject matter
and supersedes and cancels all prior arrangements, understandings and negotiations in
connection with it.”

Mr Cooper submits that, having regard to that contractual provision, it is not open to the defendant to

refer to parol evidence of what is said to be the continuing common intention of the parties in order to

demonstrate that the subject unit contracted to be sold was mistakenly and incorrectly designated in the

written contract.

An initial response to that submission is one of surprise. Since the purpose of rectification is to

ensure that the relevant written instrument reflects the demonstrated prior common intention of the

parties to it, it is difficult to see how that form of relief could ever be available if acts and words outside

the terms of the written instrument were not admissible to establish the requisite intention. The fact is,

however, that neither of the able counsel who appeared on the appeal has succeeded in locating

authority in which the question has been considered in the context of a contractual provision like cl.28.1

in the present case. It therefore becomes necessary to consider the matter as one of principle.

It is well established that parol evidence is admissible to identify the subject matter of a written

contract. A recent example, which in some ways resembles the present, is Akot Pty. Ltd. v.

Rathmines Investments Pty. Ltd. [1984] 1 Qd.R. 302. But in that instance, and in the decisions

discussed in it, the written contract was, as regards subject matter, expressed in an uncertain or

ambiguous fashion. Here there is no uncertainty or ambiguity in the contractual identification of the

subject matter. The designation in the written contract of 29 August 1995 may have been the result of

a mistake; but on its face it is perfectly plain. Parol evidence of pre-contractual statements is not needed

in order to identify it from the description given in the written contract.

It is equally well settled that a contractual “merger” provision like cl.28.1 does not prevent the

adduction of parol evidence in proof of fraud: cf. S. Pearson & Son Ltd. v. Dublin Corporation

[1907] A.C. 351. No doubt, however, that is because, fraud, as the saying goes, opens all doors. That

is so even at common law, from which the parol evidence rule derives its origin. Whether a provision

in the form of cl.28.1 operates to exclude proof of a prior innocent misrepresentation is another matter.

In The Life Insurance Co. Pty. Ltd. v. Phillips (1925) 36 C.L.R. 60, 82-83, Isaacs J. seems to have

accepted that it does; but his Honour was there considering the case of a pre-contractual innocent

misrepresentation made by an independent “agent” of a party, and not by a contracting party himself.

Despite some later decisions possibly ascribing a wider scope to his Honour’s remarks on that topic,

it does, I think, remain an open question in this Court whether a provision like cl.28.1 is capable of

excluding reference to a pre-contractual misrepresentation that is innocent: cf Byers v. Dorotea Pty.

Ltd. (1986) 69 A.L.R. 715, 724-725, where the matter was considered by Pincus J. Before the

Judicature Act, equity would relieve against a contract induced by innocent misrepresentation. Now

that equity prevails, it is difficult to see why such relief is not still available in respect of the whole

contract induced in that way, including the merger provision incorporated in it.

The attitude of equity to innocent misrepresentation affords a closer analogy to the equitable

remedy of rectification arising from common mistake than common law fraud. As regards the latter,

equity simply followed the law. If at law a contract was void, or voidable and avoided, equity did not

contradict that outcome by attempting to set up the contract and enforce it. In equity, however, fraud

bore a wider meaning or at any rate a different significance than it did at common law. Equity regarded

the fraud as residing essentially in the insistence by one party on performance of a contract that was

known to have been induced by a mistake on the part of the other. In Townshend v. Stangroom (1801) 6 Ves. Jun. 329, 336-338; 31 E.R. 1076, 1079, even Lord Eldon was prepared to view such

conduct as being rightly stigmatised as “unconscientious” and “morally wrong”.

In referring to that and other early decisions in the context of rectification, Story in his

Commentaries on Equity Jurisprudence §155 had this to say:

“§155. It is upon the same ground that equity interferes in cases of written agreements, where there has been an innocent omission or insertion of a material stipulation, contrary to the intention of both parties, and under a mutual mistake. To allow it to prevail in such a case, would be to work a surprise or fraud upon both parties; and certainly upon the one who is the sufferer. As much injustice would surely be done under such circumstances, as by a positive fraud, or an inevitable accident. A court of equity would be of little value, if it could suppress only positive frauds, and leave mutual mistakes, innocently made, to work intolerable mischiefs, contrary to the intention of parties. It would be to allow an act, originating in innocence, to operate ultimately as a fraud, by enabling the party, who receives the benefit of the mistake, to resist the claims of justice, under the shelter of a rule framed to promote it. In a practical view, there would be as much mischief done by refusing relief in such cases, as there would be introduced by allowing parol evidence in all cases to vary written contracts.”

Having said so, the learned author went on to add that the cases in which equity allowed parol evidence

to rectify written contracts or instruments were therefore to be treated as exceptions to the parol

evidence rule and as being based on an equity outside, or as Story expressed it, dehors the instrument.

What was said there was, of course, not directed to an instrument containing an express

“merger” provision like cl.28.1. But I do not consider the fact that in this contract the provision is

express can be regarded as affecting the result or producing a different conclusion. In excluding material

outside the four corners of a written instrument, the parol evidence rule, at least on one view of its

operation, arises from the inference that a document which appears on its face to be a complete record

of the parties’ contract is conclusively presumed to be so: see State Rail Authority of New South

Wales v. Heath Outdoor Pty. Ltd. (1986) 7 N.S.W.L.R. 170, 191. Once that presumption applies,

it is doubtful if a merger clause like cl.28.1 adds much if anything to the parol evidence rule. Yet, as the passage from Story makes clear, the equitable remedy of rectification operates outside the contract and

despite the rule. Indeed, it may well be impossible for the parties by means of any contractual provision,

however artfully drawn, to escape the court’s jurisdiction to order rectification in a matter calling for its

exercise. Any attempt which relies on cl.28.1, to exclude the only evidence on which that jurisdiction

can be exercised must inevitable attract the same result.

In my opinion, cl.28.1 will not preclude the court at the trial of the defendant’s counterclaim for

rectification from receiving evidence to prove that the designation of the unit on the northern side of the

apartment building known as “Troon” was not in accordance with the continuing common intention of

the parties at the time they entered into the written contract dated 29 August 1995.

It follows that the learned judge was correct in holding there was an issue of fact fit to be tried,

and that the appeal should be dismissed with costs. I am authorised by Moynihan J. to say that he

agrees with these reasons and with that order.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 4073 of 1997

Brisbane

Before McPherson J.A.
Davies J.A.
Moynihan J.

[Macdonald and Anor. v. Shinko Aust. P/L]

BETWEEN:

JOHN ROBERT MACDONALD and

DERRICK CATHCART TURNER

(Plaintiffs) Appellants

AND:

SHINKO AUSTRALIA PTY. LTD. (ACN 010 664 196)

(Defendant) Respondent

REASONS FOR JUDGMENT - DAVIES J.A.

Judgment delivered 27 March 1998

I have read the reasons for judgment of McPherson J.A. and I agree with him that this appeal

should be dismissed with costs. His Honour has set out the facts relevant to this appeal and I shall not

repeat them here. As his Honour has pointed out, the appellant submits that, because of cl.28.1 of the

instrument of contract between the parties the respondent cannot refer to evidence outside the

instrument to prove a prior oral contract or a continuing common intention of the parties to buy and sell

a unit different from that identified in the contract in order to seek rectification of that instrument. The

clause is in the following terms:

"ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties as to its subject matter
and supersedes and cancels all prior arrangements, understandings and negotiations in
connection with it."
The purpose of that clause, it seems to me, is to exclude any such evidence either to prove

terms additional to or different from the written instrument or collateral contracts or to construe the

instrument in a way different from the meaning to be inferred solely from its terms. But to seek the

equitable relief of rectification is not to seek to do any of those things. Equitable relief for common

mistake, whether by way of rescission or rectification of a written contractual instrument, is based on

unconscionability; that it would be unconscientious of the party relying on the written instrument, to rely

on it in the circumstances; cf. Taylor v. Johnson (1983) 151 C.L.R. 422. And it would generally be

unconscientious of the party relying on the written instrument of contract to rely on it if it had been

executed by the parties under the mistaken belief that it recorded the oral contract which they had made

or their continuing common intention.

Once that is seen to be the purpose of such equitable relief it can be seen also that it does not

deny that, at law, the writing represents the entire agreement between the parties; but it prevents a party

to that instrument from exercising any legal right arising thereunder because to do so would be

unconscionable: Coolibah Pastoral Co. v. The Commonwealth (1967) 11 F.L.R. 173 at 190-191.

There is therefore nothing inconsistent between giving full effect, at law, to cl.28.1 and granting equitable

relief, whether by rescission or rectification, and as for the latter purpose to prove a prior oral agreement

or continuing common intention.