Mander Pty Ltd v Clements - [2005] WASCA 67

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE FULL COURT (WA)

CITATION: MANDER PTY LTD & ANOR -v- CLEMENTS [2005] WASCA 67

CORAM: MURRAY J
MCKECHNIE J
MCLURE J

HEARD: 23 & 29 NOVEMBER 2004

DELIVERED : 6 APRIL 2005

FILE NO/S: FUL 20 of 2004

BETWEEN: MANDER PTY LTD (ACN 009 401 049)
First Appellant (First Plaintiff)
ROYAL STREET PTY LTD (ACN 084 056 557)
Second Appellant (Second Plaintiff)
AND
PHILLIP CLEMENTS
Respondent (Defendant)

ON APPEAL FROM:
Jurisdiction              :  DISTRICT COURT OF WESTERN AUSTRALIA
Coram  :MARTINO DCJ
Citation  :MANDER PTY LTD & ANOR -v- CLEMENTS [2004] WADC 8
File No  :CIV 3421 of 2001

Catchwords:

Contract - Rectification - Scope of doctrine - Clause for an indemnity for owner of property - True owner a trustee company not a party to contract - Whether evidence of common intention to indemnify owner or person named in indemnity

Legislation:

Nil

Result:

Appeal dismissed

Category: A

Representation:

Counsel:

First Appellant (First Plaintiff)             :        Mr G A Rabe
Second Appellant (Second Plaintiff)         :        Mr G A Rabe
Respondent (Defendant)  :        Mr A R Beech

Solicitors:

First Appellant (First Plaintiff)             :        Scott & Kaminickas
Second Appellant (Second Plaintiff)         :        Scott & Kaminickas
Respondent (Defendant)  :        Geoffrey Coad

Case(s) referred to in judgment(s):

Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365
Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd (1919) 26 CLR 410
Bishopgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd (1981) 1 NSWLR 429
Bush v National Australia Bank Ltd (1992) 35 NSWLR 390
Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329
F Goldsmith (Sicklesmere) Ltd v Baxter [1970] 1 Ch 85
Fitzgerald v Masters (1956) 95 CLR 420
Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB 450
Frontier Petroleum NL v Anzoil NL, unreported; SCt of WA; Library No 970286; 4 June 1997
Kingstream Steel Ltd v Stemcor UK Ltd [2001] WASCA 138
Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336
Mincode Pty Ltd v Isa Pty Ltd (1996) 17 WAR 245
Pukallus v Cameron (1982) 180 CLR 447
Watson v Phipps (1985) 60 ALJR 1

Case(s) also cited:

Barrow v Barrow (1854) 18 Beav 529
Baxter v Commissioner of Taxation (Cth) (2002) 196 ALR 519
Davis v Federal Commissioner of Taxation (2000) 171 ALR 654
Hooker Town Developments Pty Ltd v Director of War Service Homes (1973) 47 ALJR 320
Warburton v National Westminster Finance Australia Ltd (1988) 15 NSWLR 238

MURRAY J: In this matter I have had the advantage of reading in draft the reasons for decision of McKechnie and McLure JJ. Their Honours approach the case differently, but in substance their judgments express a common view of both the law and the facts, leading their Honours to uphold the decision of the Judge and dismiss the appeal. I regret that I take a contrary view and it is incumbent upon me to explain my conclusion.
The case turns on the appellants' claim for rectification of Condition 8 in a contract for the sale of a strata title property, Lot 2 in the newly established Royal Medical Centre, made between the second appellant, Royal Street Pty Ltd as purchaser and Mr Clements as vendor. The contract was made in about January 1999 and recorded on a standard form of offer and acceptance. There were in fact two special conditions, the first, Condition 7, is not relevant to the appeal. The second, Condition 8, is the provision of the contract material to these proceedings. It provides:
"The parties acknowledge that the pharmacy business conducted by Gregory Gibbs ("Gibbs") at 19/217 Wanneroo Road, Balcatta, will be relet for purposes other than a pharmacy. If at settlement the premises are not let or are let or become let but at a rental less than $40,000 per annum, the Vendor shall indemnify Gibbs against any rental shortfall from the $40,000 per annum to be payable monthly in arrears. The maximum liability of the Vendor pursuant to this provision shall be $50,000."
There were two plaintiffs in the action below, Royal Street and Mander Pty Ltd, the first appellant. Mander is a family trust company of which the sole directors and shareholders are the Mr Gibbs referred to in Condition 8 and his wife. The plaintiffs sued on the contract, Mander claiming the sum of $50,000 and interest pursuant to Condition 8. At the same time, Mander claimed rectification of Condition 8 which it pleaded "did not properly or accurately reflect the common intention of the parties" in that "the parties intended to provide in Clause 8 that the defendant should indemnify the owner of unit 19 in the manner and to the extent provided and not Gibbs as stated". The rectification sought was to substitute for the reference to Mr Gibbs, a reference to the owner of 19/217 Wanneroo Road, Balcatta, namely, Mander.
In the end, the capacity of the Court to allow the claim for rectification assumed critical importance, but reading the transcript of the evidence at trial, one notes that there was little evidence directed to supporting the pleaded common intention of the parties. What evidence there was has been thoroughly reviewed by both McKechnie and McLure JJ. No doubt this question was given relatively little attention because the issued raised by the amended defence to resist the claim for rectification was not that the plaintiffs' were not entitled to rectification, but more fundamentally that Condition 8 "did not form part of the true contract reached between the Defendant and the Second Plaintiff".
In turn, the respondent, Mr Clements, the defendant below, claimed an order for rectification of the contract by striking out Condition 8. That was a counterclaim upon which the defendant failed. But, essentially for the reasons set out in [35] and [36] of the judgment of the trial Judge quoted by McKechnie J, the plaintiffs' claim for rectification also failed and with it, of course, went Mander's claim to be paid $50,000 and interest under Condition 8. Both the claim and counterclaim were dismissed.
The matter arises, as I understand it, in the following way having regard to the facts as found by the trial Judge. Royal Street is a company formed by Mr Gibbs and a Mr Wragg. Both Messrs Gibbs and Wragg are pharmacists. Mr Wragg initiated their business contact. He had met Mr Clements in 1995. Mr Clements was interested in developing a medical centre which became known as Royal Medical Centre in Yokine. Mr Wragg was interested in participating. It was agreed that the medical centre would require a pharmacy. There were then restrictions on the location of pharmacies within close proximity of each other. Mr Gibbs conducted his pharmacy business near the proposed new medical centre, at Unit 19/217 Wanneroo Road, Balcatta. Unit 19 is a strata title unit owned by Mr Gibbs and his wife through the legal owner, their trust company Mander.
Mr Gibbs did not wish to sell his business to enable a pharmacy to be included in the new development and, as McLure J has noted, it was proposed, and by 1997 agreed, that Mr Gibbs would relocate his business to Royal Medical Centre when it was developed, subject to protecting him from financial loss. Negotiations continued during 1996 and the broad terms of the agreement were, so far as presently relevant, that Mr Gibbs required compensation for loss that he might sustain because he would have to rent Unit 19 to a business other than a pharmacy and he was concerned that he would not be able to negotiate a rental as great as he could earn if he was able to rent the premises as a pharmacy or that there might be delay in obtaining rental income, as indeed ultimately there was. Condition 8, as it finally became, was designed to provide that compensation. There had been an earlier form of the clause in substantially the same terms. Condition 8 was incorporated into the contract when it was finally made when, in late 1998 or early 1999, the medical centre was ready for occupation.
It is clear from all the evidence that Mr Gibbs spoke of his interest in Unit 19, his ownership of it and his desire to be compensated in the manner described when he came into the business to be located at Unit 2 of Royal Medical Centre. Neither Mr Wragg, nor, importantly, Mr Clements knew anything about Mander and so, as has been seen, Condition 8 was drafted and inserted into the contract upon the basis that Gibbs was to be compensated, but, in my opinion, it is important to note that he was to be compensated as the owner of Unit 19.
He and Wragg were Royal Street, the purchaser. He and his wife were Mander. Gibbs obviously regarded himself as the beneficial owner of Unit 19 because Mander was the entity by which his family trust was operated. It is clear from Gibbs' evidence that he regarded himself as the owner. As he said, it was natural terminology to use in the discussions. As he said a number of times during his evidence, "I was the owner". He said, "I did not at any stage indicate that the legal owner was anyone in particular. Didn't even enter my head".
In my opinion, it is useful to keep clearly in mind the purpose of Condition 8. It starts with the accurate recital that Mr Gibbs conducted the pharmacy business at Unit 19 and that the premises "will be relet for purposes other than a pharmacy". Then the Condition refers to the circumstances which were to give rise to the vendor's obligation to compensate or "indemnify" Gibbs, but the compensation was for "any rental shortfall" from the nominated target of $40,000 per annum. That was compensation to be paid to the owner, the person who would receive the rent. Mr Gibbs was not to be compensated for any adverse impact the move would have on the profitability of the pharmacy business, but simply for a shortfall in rental which might be achieved below the target figure. It was only possible for Gibbs to receive that compensation or indemnification as the owner. In short, the common intention, in my opinion, was to compensate the owner of Unit 19 for a rental shortfall capped at $50,000. It could not have been their common intention to compensate Gibbs personally regardless of whether or not he was the owner. That is simply not the subject matter of the clause, which speaks of an indemnity against rental shortfall.
The law, so far as it is necessary to state it for the purpose of this case, seems to me to be clear. The caveat on the availability of rectification as a remedy is always, as McKechnie J has observed, that the remedy cannot be employed to alter the terms of the agreement. It is simply a device by which the recorded contract is made to conform to the true nature of the agreement between the parties. In a case of this kind, the law may be stated as it was by the High Court in Pukallus v Cameron (1982) 180 CLR 447, following the earlier decision of the Court in Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336. At 452 in Pukallus, Wilson J said:
"The case raises no issue as to the principles which govern the rectification of a contract. Those principles are not in dispute. There need not be a concluded antecedent contract, but there must be an intention common to both parties at the time of contract to include in their bargain a term which by mutual mistake is omitted therefrom. So long as there is a continuing common intention of the parties, it may not be necessary to show that the accord found outward expression, … . The second principle governing the rectification of a contract which is material to this case is that which requires the plaintiff to advance 'convincing proof' that the written contract does not embody the final intention of the parties. The omitted ingredient must be capable of such proof in clear and precise terms. The court must not assume for itself the task of making the contract for the parties."
In Commissioner of Stamp Duties(NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329, in a judgment with which Mahoney AP and McLelland AJA agreed, Sheller JA at 340 stated the law clearly in my respectful opinion when his Honour said:
"Essential to relief by rectification or reform of a document, … is mistaken expression of the true agreement. The plaintiff must prove that there was disconformity between the intention and the written instrument and that the intention continued to the time of execution of the instrument. The plaintiff must displace the hypothesis, arising from the execution of the written instrument, that it expressed the true intention. Proof sufficient to displace this hypothesis may be easy or difficult or impossible. Such proof may be more difficult, in some circumstances impossible, if the words of the instrument are purposely used or indicate that the parties or party no longer intended to give effect to the whole of the antecedent intention. … but if the claimant convinces the Court that the instrument does not conform with the intention of the parties or of the party which made it and the intention is clear and precise and can be a achieved by the language of an order for rectification, relief should be available."
In expressing his agreement, McLelland AJA at 345 said:
"In general, the remedy of rectification of an instrument is available where it is established by clear and convincing proof that at the time of execution of the instrument the relevant party or parties as the case may be had an actual intention (if more than one party, a common intention) as to the effect which the instrument would have which was inconsistent with the effect which the instrument as executed did have in some clearly identified way. In this context 'effect' means the legal and factual operation of the instrument according to its true construction, … ."
The law was stated in the same terms by the Court of Appeal of Victoria in Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526. It is useful for present purposes to quote from the leading judgment, that given by Phillips JA. At 540 [39] his Honour said that:
"… the principle upon which rectification depends always remains the same; it depends in every case upon a want of correspondence between the form of the document (that is, in the words actually used) and the common intention of the parties at the time when the document is executed. Where the disconformity is the product of a common mistake, that mistake may be as to what words have been employed in the document or the meaning or effect of such words as appear. But whatever the common mistake, the lack of correspondence must be between the form of the document and the common intention, if rectification is to be available."
I am satisfied that in this case, according to the findings of the trial Judge upon the evidence, which was all one way, the common intention of the parties to the agreement, Royal Street represented by Gibbs and Wragg and Mr Clements, was that the owner of the unit in which Mr Gibbs' pharmacy business had previously been conducted was to be

indemnified or compensated to the extent that the rental for the premises did not achieve $40,000 per annum, subject to the cap of $50,000. That was the clear intention expressed in the clause but the common intention was not given effect because of a common mistake. The parties believed that their common intention would be given effect factually and legally by providing that Mr Gibbs was to receive the compensation.

The words of the clause were chosen deliberately but it may be accepted that they failed to give effect to the purpose of the clause because Mr Gibbs was not the legal owner of Unit 19; Mander was that owner and Mr Gibbs was merely a beneficiary under the discretionary trust. It could never have been the intention of the parties that the clause would secure compensation for Gibbs personally, because he could not personally suffer any loss of the kind described in the clause.
In my respectful opinion, the trial Judge erred when his Honour decided the question of rectification upon the basis that the relevant mistake was that of Wragg and Clements who assumed that when Gibbs said he owned Unit 19, he meant that he was the legal owner, the entity which would be the landlord when the premises were rented. In my view, the relevant mistake was that common to the parties to the agreement, Royal Street and Clements; Royal Street acting by its directors, Gibbs and Wragg. That mistake was that the wording of the clause would be effectual to compensate the owner of Unit 19 for any rental loss of the kind described in the clause.
In fact, his Honour said, had the parties realised their error, "It is likely they would have inserted Mander's name into the condition in the place of Mr Gibbs' name …". I respectfully agree. The evidence may have been sparse but the proof was nonetheless clear and convincing. The relevant disconformity between the common intention of the parties and the words used in Condition 8 was established. The rectification proposed was clear and would give the contractual condition legal effect. In my respectful opinion, it should have been ordered and the Court should then have turned its attention to the question whether Mander had suffered the loss and damage for which it sued. I would allow the appeal.
MCKECHNIE J:
The issue in this appeal is simple. Mr Gibbs, who operated a pharmacy in Unit 19, 217 Wanneroo Road, Balcatta ("Unit 19"), joined with Mr Wragg to buy Unit 2, 162 Wanneroo Road, Yokine ("Unit 2"), for new pharmacy premises in a medical centre known as the Royal Medical Centre which was to be built. Part of the arrangement was that

the developer, Mr Clements, would indemnify Mr Gibbs in case Unit 19 proved difficult to let. To that end, it was agreed in the contract of sale by Condition 8:
"The parties acknowledge that the pharmacy business conducted by Gregory Gibbs ('Gibbs') at 19/217 Wanneroo Road, Balcatta will be relet for purposes other than a pharmacy. If at settlement the premises are not let or are let or become let but at a rental less than $40,000 per annum, the Vendor shall indemnify Gibbs against any rental shortfall from $40,000 per annum to be payable monthly in arrears. The maximum liability of the Vendor pursuant to this provision shall be $50,000."

Unit 19 did prove difficult to let and Mr Gibbs claimed payment under Condition 8. Mr Clements responded by asserting, in effect, that the agreement had been abandoned when, in further negotiations with Mr Wragg, the purchase price for the premises in the Royal Medical Centre was reduced to take account of various matters, including the rent indemnity.
Mr Gibbs then realised there was a problem. Although he had told the developer Mr Clements, the estate agent Mr Eftos and Mr Rousset who were acting for the developer, and indeed Mr Wragg, that he was the owner of Unit 19, he was not. Unit 19 was in fact owned by his family trust Mander Pty Ltd ("Mander"). Mander of course does not feature in Condition 8. Together with the corporate vehicle Royal Street Pty Ltd ("Royal") used by Messrs Gibbs and Wragg to actually purchase the new premises Mander took action in the District Court seeking rectification of Condition 8. This claim was advanced in par 8 of the statement of claim:
"Clause 8 did not properly or accurately reflect the common intention of the parties.
Particulars
The parties intended to provide in Clause 8 that the defendant should indemnify the owner of Unit 19 in the manner and to the extent provided and not Gibbs as stated."
The developer denied par 8 of the statement of claim and counterclaimed for an order for rectification striking out condition 8 from the written agreement.
The matter went to trial in the District Court. Martino DCJ held:
"[35]… As a result of the words used by Mr Gibbs at all times during their negotiations Mr Wragg and Mr Clements mistakenly believed that Mr Gibbs owned Unit 19. While that belief was incorrect there was no mistake as to the use of the words used in Condition 8. The parties used the words they intended to use. It is likely they would have inserted Mander's name into the condition in the place of Mr Gibbs' name if they knew the correct facts. However on my understanding of the law of rectification that does not entitle Mander or Royal to rectification.
[36]I conclude that the parties used the words in Condition 8 intentionally, but under the mistaken belief on the part of Mr Wragg and Mr Clements that Mr Gibbs owned Unit 19. That mistake does not entitle Mander or Royal to rectification of the contract."

Because the trial Judge preferred the evidence of Mr Wragg and Mr Gibbs to that of Mr Clements and Mr Rousset he found there was no agreement that the claims for rent indemnity were abandoned. He therefore dismissed both the claim and counterclaim.
The plaintiffs (Mander and Royal) appeal against that decision and seek orders rectifying the contract in the manner pleaded.

The appeal

I should say something about the grounds of appeal. At the hearing on 23 November 2004 there were only two grounds of appeal and each was argued. When asked, counsel for the appellants (Mander and Royal) agreed that he was not challenging the factual findings of the Judge, he was challenging the legal result that flowed from it:
"McKECHNIE J: … I just wish to confirm that your challenge really is not to the findings of fact made by his Honour.
RABE, MR: No, not at all."
However, in reply, counsel sought to make an argument that the Judge erred in fact in failing to find on the evidence that it was the common intention of the parties to indemnify the owner.
After hearing argument on the matter, the Court reluctantly indicated that it would receive the foreshadowed amendment. The consequence was that the respondent incurred further costs in meeting an argument that ought to have been raised in the notice of appeal, not in the closing stages of the appeal argument. This is unsatisfactory.
The grounds of appeal in summary now assert the following:
1.The Judge erred in law in finding rectification is not available where the common mistake made by the parties to the agreement is as to the legal effect of the words used.
2.The Judge erred in law in refusing to grant rectification in circumstances where the document was, as a matter of law, capable of being rectified.
3.The Judge erred partly in fact and partly in law in failing to make any finding on the existence of the common intention relied upon by the appellants as entitling them to an order for rectification.

Ground 3 – no finding

I will deal with ground 3 first. The Judge did not make any findings about common intention. He did not find there was a common intention, nor did he reject the possibility. The respondent argues that the effect of the judgment is that the Judge necessarily rejected a finding of common intention when he concluded as he did at [35] and [36].
Although the common intention that the owner would be indemnified was a pleaded issue, the trial was remarkable in that no witness ever appears to have been asked a question about their relevant intention, either in examination‑in‑chief or cross‑examination. As I have said, on the pleadings, the defence simply denied par 8 of the statement of claim. The respondent's position at trial, on which he lost, was that Condition 8 had been overtaken by events and should not have been included in the document at all.
Mr Clements' evidence, as set out by the Judge at [20], was that when he signed the final contract he did not notice Condition 8.
As a result of the failure to pursue the matter in the course of the trial, there is little direct evidence as to any party's intention at any relevant time.
It was, however, never in issue that Mr Gibbs had at all times described Unit 19 as "his".

(a) Mr Wragg

Mr Wragg was called on behalf of the plaintiffs. He gave evidence (AB 26 – 27) of becoming interested in the development of a medical centre north of the river and was introduced to Mr Clements, and to Mr Rousset who was acting as general agent, through Mr Eftos a real estate agent. It was realised that the development needed a pharmacy and so Mr Gibbs, who operated the nearby pharmacy was approached. According to Mr Wragg, Mr Gibbs' position was that he was not interested in moving into the project unless he could get full value for his goodwill. At an early meeting Mr Gibbs said he would be out of pocket with regard to the rental of the premises he was currently in (Unit 19) because he owned the premises. Mr Rousset asked Mr Gibbs what inducement would keep him happy. Mr Gibbs indicated his loss would be excessive but he would accept a capped $50,000 on any losses he made in respect of rental for 5 years. Thereafter (at AB 32, 34 & 36) the references in Mr Wragg's evidence to Mr Gibbs were on the basis that Mr Gibbs owned Unit 19. It was on that basis that the Eftos contract, (Exhibit 3 dated 3 February 1997) which the parties first signed, was prepared with Special Condition 1, which later became Condition 8 after further negotiations resulted in a lawyer drawing up a more formal agreement. In cross‑examination Mr Wragg confirmed the evidence about the negotiations that I have set out. When counsel was putting Mr Clements' case to Mr Wragg that the rent indemnity had been overtaken by the reduction in price, Mr Wragg said (at AB 54):
"…I never, ever could and never, ever did represent on behalf of Mr Gibbs what would only affect Mr Gibbs and that was particularly for the rental offset."
The point was reiterated at AB 77.
At AB 81 a previous statement made by Mr Wragg was put to him, including the following:
"'The price would be $720,000 and that would be the end then of any recompense that I would be able to get as an individual or Mr Gibbs to get as an individual with regard to goodwill and that a document should be prepared in the future reflecting that $720,000---'
Can I ask you about – what did you mean 'as an individual,' that that was to be the end of any recompense that you were to get 'as an individual'? Is there any significance in those words?---No. I believe I was just trying to separate the difference between Mr Gibbs and myself.
… Rather than the partnership."
Counsel then referred to the last sentence of the passage:
"'We also needed to be sure that it was zoned at the council and also that Mr Gibbs was happy to sign that document with his rental subsidy.'
Why would you need to check whether Mr Gibbs would be happy to sign the document with the rental subsidy?---Because Mr Gibbs was very difficult to deal with."

(b) Mr Gibbs

Mr Gibbs' evidence throws little further direct light on any common intention. At AB 90 he was asked whether he operated the Tuart Hill Pharmacy on the corner of Wanneroo Road and Morley Drive in Balcatta:
"Who or what entity owned the premises from which the business was conducted?---The premises were actually owned by my family trust, Mander Pty Ltd, of which myself and my wife are shareholders.
Were you and your wife the sole shareholders as at February 1999?---Yes."
Mr Gibbs gave evidence that he attended a meeting on 3 January 1997 at the offices of Don Eftos, real estate agent, in Leederville, with Mr Clements, Mr Rousset and Mr Eftos. Mr Gibbs believed that the primary interest he was there for was to ensure that the rental subsidy was going to be acted upon and put in a clause in respect of his old premises.
The passage which I now quote is perhaps the high‑water mark of the direct evidence and is a passage relied on by the appellants' counsel. Mr Gibbs was referred to the executed offer and acceptance (Exhibit 3) which contains Special Condition 1 on Annexure C concerning the rent subsidy and he said:
"…Special condition 1. Yes, in my discussions with Stephen and Robert they always referred to the strata at the old pharmacy as being owned by myself. It just made ease of discussion, and unfortunately it has been included in the clause as being owned by Gibbs, when in fact it's owned by my family trust, Mander Pty Ltd.
How did you come to make that error?---Well, as I say, I have always in my discussions mentioned that the problem I have with that strata is that I own it and people, I would assume, believed that I personally have owned it and it has been included in clauses accordingly.
Yes. So who in fact is the owner?---My family trust, Mander Pty Ltd."
Mr Gibbs explained that he forwarded the document to his solicitor to make it more legally binding.
Counsel on the appeal also put stress on Exhibits 5 and 6. These were an exchange of facsimiles which, as appears, were created well after the signing of the agreement. Exhibit 5, dated 15 April 1999, is a request for payment by Mr Gibbs from Mr Clements and reads:
"Dear Phil
I'm wondering when I can expect at least the first months rent of $3,333.33 which was due 16/3/99.
Is payment imminent?
Would you please let me know as soon as possible."
Mr Gibbs received a reply from Mr Clements dated 21 April 1999: Exhibit 6. The facsimile asserts the position taken at trial that the purchase price was lowered and the indemnity had disappeared. In the course of the fax Mr Clements said:
"…in particular the final price discount included any liability for loss of rent which you may incur… I should also point out that Robert has also advised me that you have received an offer to rent your old premises, however you declined to accept it. In the circumstances Greg, you will appreciate that no liability remains for me to indemnify you for any loss of rental as it has been allowed for in the purchase price."
I doubt whether these letters provide any evidence of a common intention at the time of the negotiations and arrangements concerning Unit 2 (the Royal Medical Centre) and Unit 19. Mr Clements' letter principally confirms that at the time of writing (Exhibit 6) he was continuing under the mistake (generated by Mr Gibbs) that Mr Gibbs was the owner of Unit 19. In cross‑examination Mr Gibbs confirmed that he had always represented himself as the owner of the property. At AB 112:
"You mentioned that you had never discussed Mander Pty Ltd being the owner of your other set of premises. Is that correct?‑‑‑That's correct.
So that it was never agreed by anyone that the rent indemnity would be in favour of Mander Pty Ltd. Is that correct?---That's correct. Just the owner.
But I think your evidence was that you had proceeded on the basis that you were the owner and that your discussions at least with Mr Wragg were on the basis that the rent indemnity would be in your favour?---Pardon? Don't understand.
Were the discussions about a rent indemnity in favour of you or in favour of the owner of the other premises?---Discussions with Mr Wragg?
Yes, we will start with those?---I always discussed the whole process, and in that I included that I was the owner. I own those premises and really needed to be secured. I don't know ever at any – well, I did not at any stage indicate that the legal owner was anyone in particular. Didn't even enter my head."
Although Mr Gibbs indicated in the passage I have just set out that he was "Just the owner" who was to be indemnified, that is at odds with his earlier evidence that he attended the meeting on 3 January 1997 to ensure a rental subsidy for "my old premises" and I have also quoted from (AB 98) his concession that people believed that he personally owned Unit 19. It is also at odds with Mr Wragg's evidence as to discussions and what was said about ownership.

(c) Mr Clements and Mr Rousset

Mr Clements and Mr Rousset both gave evidence. Their evidence in relation to the abandonment of the indemnity was not accepted by the Judge. The Judge made no findings in relation to other aspects of their evidence although he did conclude that Mr Clements had no clear recollection of the negotiations and that he and Mr Rousset tended to give their evidence in terms of conclusions rather than their recollections. Their evidence must be approached with that caution in mind.
In cross‑examination Mr Clements was taken to the meeting of 3 January 1997 and agreed that the rental indemnity would be included in the offer and acceptance. He was never asked any questions about his belief in ownership of Unit 19 or his intentions as to ownership of Unit 2 and the formation of the agreement. Nor was Mr Rousset. In evidence‑in‑chief Mr Rousset said (at AB 158) that Mr Gibbs had told he and Mr Clements:
"…that he was worried about not being able to lease his shop if he moved up the road with us and that became a little bit of a sticking point and so eventually we initially agreed to indemnify him should that situation arise; after a certain period of time, if he could not lease his shop, that we could indemnify him for that for a certain time."

The legal principles

The respondent agrees with the legal principles stated by the appellants in supplementary written submissions:
"5.In order to get rectification it is necessary show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly: per Denning LJ in Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB 450 at 461.
6.The High Court set out the conditions in Pukallus v Cameron (1982) 180 CLR 447 at 452 as follows:
a.Firstly, there need not be a concluded antecedent contract, but there must be an intention, to both parties at the time of contract, to include in their bargain a term which by mutual mistake is omitted therefrom. So long as there is a continuing common intention of the parties, it may not be necessary to show that the accord found outward expression."
I accept this statement and add brief references to the principles contained in some other cases which have a bearing on the appeal.
Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 is a recent examination of the principles of rectification. In the course of the judgment the decision in Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 is explained and distinguished.
Phillips JA, with whom Tadgell and Chernov JJA agreed, after consideration of the authorities said at 539 ‑ 540:
"Despite the differences in result that appear from case to case (for example, when Rose v Pim is contrasted with Carlenka), I venture to suggest that the principle upon which rectification depends always remains the same; it depends in every case upon a want of correspondence between the form of the document (that is, in the words actually used) and the common intention of the parties at the time when the document is executed. Where the disconformity is the product of a common mistake, that mistake may be as to what words have been employed in the document or the meaning or effect of such words as appear. But whatever the common mistake, the lack of correspondence must be between the form of the document and the common intention, if rectification is to be available. In Rose v Pim the parties were mistaken as to the effect of their words, but there was no disconformity between the words employed and what was held to be their common intention — and so rectification was not available. In Carlenka, there was a lack of correspondence between form and intention and so rectification was available."
In Bishopgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd (1981) 1 NSWLR 429 Yeldham J at 431 said:
"What many of the cases do make clear, however, is that the firm accord or common intention which must be established as a basis for rectification must be one that has been manifested in the words or conduct of the parties and not merely one which remained undisclosed in the course of the negotiations. But this is a different thing from a requirement that the respective intentions must be communicated, …"
That authority, together with the more recent authority of Bush v National Australia Bank Ltd (1992) 35 NSWLR 390, establishes that there is no need for communication of the common intention but there must be convincing proof that the parties in fact held the common intention so that the document sought to be rectified does not reflect that matching intention but would do so if rectified in the manner requested.

Conclusion

In order to succeed the appellants must show that the parties had a common intention to indemnify the owner of Unit 19.
The appellants' counsel points to a number of facts which he contends make manifest the common intention. Condition 8 is an indemnity. Only an entity entitled to the benefit of an indemnity can be in the contemplation of parties negotiating about one. The only entity capable of being indemnified for rent was the owner of the property: Mander.
Counsel for the appellants refers the passage at (AB 112) that the benefit was to be in favour of "Just the owner". The appellants further submit that the evidence shows an indifference of the parties to the precise legal structure of Mr Gibbs' business interests and points to the letters, to which I have referred, afterwards.
Part of the difficulty with the submission is that indifference does not necessarily equate with a common intention.
The evidence abundantly establishes that the words used in Condition 8 were precisely the words the parties intended to use. As the Judge found at [35] the parties used the words they intended to use even though it may have been likely that they would have inserted Mander's name into the condition in place of Mr Gibbs' name if they knew the correct facts. In my opinion, this underlying mistake of facts is not a mistake as to the legal effect of their common intention or the words used. Rather, the facts do not establish any common intention beyond an intention to indemnify Mr Gibbs, albeit in the belief that he was the owner of Unit 19. This was the mistaken belief of Mr Clements but not of Mr Gibbs.
I am inclined to think that the trial Judge did implicitly make a finding against common intention by reaching the result set out in [35]. However, even if he was in error in failing to find as a fact what the common intention of the parties was, this error does not avail the appellants because the evidence fails to establish the common intention which was pleaded and for which the appellants contend. The state of mind of Mr Gibbs was that he knew Mander was the legal owner of Unit 19 but this was a matter of complete indifference as he required an indemnity. The relevant state of mind of Mr Wragg, Mr Rousset and Mr Clements was that Mr Gibbs was the owner of Unit 19.
The appellants sought support from Kingstream Steel Ltd v Stemcor UK Ltd [2001] WASCA 138. That case does not assist. There the parties knew who the intended guarantor was to be. There was a slip in the recording of the name of the guarantor in the documents.
Counsel also referred to F Goldsmith (Sicklesmere) Ltd v Baxter [1970] 1 Ch 85. Counsel sought to draw comfort from a comment of Stamp J:
"I should perhaps add this: The name of the company on behalf of which Mr Brewster signed the memorandum was a matter of indifference to the defendant, provided only that the vendor could be identified with certainty."
However, that case does not assist the appellants. Mr Brewster used the wrong name in describing a piece of land on the title and subsequently in a contract for sale of the land. A supplemental conveyance put right the title. The purchaser took the view there was no contract and the plaintiff company sought specific performance. It succeeded because Stamp J considered that in all the circumstances the owner of the land had been described with sufficient precision. However, following the passage which I have quoted, Stamp J continued:
"The plaintiff company is entitled in my opinion, to have the contract specifically performed, but the claim for rectification is in my judgment misconceived. Either the plaintiff company was a party to the contract, or there was no contract, and I cannot rectify a non‑existent contract."
In this case the evidence does not disclose a common intention to indemnify the owner. At its highest the evidence might disclose a common intention to indemnify Mr Gibbs. I say "at its highest" because there may be a real issue that Mr Gibbs' intention was that Mander should be indemnified which would not be the common intention of Mr Clements or indeed, through Mr Wragg, Royal.
I acknowledge that an intention to use the actual words that were used in Condition 8 is not necessarily fatal to a claim for rectification: Club Cape Schanck Resort v Cape Country Club per Phillips JA at [38]. However, in this case the actual words used precisely reflected the parties' intentions.

Moreover, there was no mistake as to the legal effect of the words used. Condition 8 reflected the intention to indemnify Mr Gibbs.
A court can rectify a document which does not accord with the parties' agreement or intention but it cannot make a new contract for the parties and then record the new contract.
Having regard to the paucity of direct evidence, and despite the submissions as to the inferences which might be drawn as to the common intention of the parties, I am not persuaded that the common intention asserted in par 8 of the statement of claim is established.
I would dismiss the appeal.
MCLURE J: I have had the advantage of reading in draft form the reasons to be published by McKechnie J. I agree that the appeal should be dismissed. However, I propose to state my reasons for coming to that conclusion.
The issue in the appeal is the scope of the contractual doctrine of rectification; in particular, whether rectification is available where the document sought to be rectified contains the very words the parties intended it to contain. Unusually, the claim for rectification in this case is made by an entity who is not a party to the contract, the first appellant, Mander Pty Ltd. However, that was not raised as an issue in the action or in the appeal.
The rectification claim relates to an undated contract in writing stamped on 15 January 1999 between the second appellant, Royal Street Pty Ltd ("Royal"), and the respondent, Mr Phillip Clements ("the Contract"), whereby Royal agreed to purchase Unit 2 in the Royal Medical Centre, 162 Wanneroo Road, Yokine ("the Yokine premises").
At all material times Mander was the trustee of a discretionary trust. Its directors and shareholders were Mr Gregory Gibbs and his wife. Mr Gibbs is a pharmacist. The trial Judge notes in his reasons that prior to 16 February 1999 Mr Gibbs conducted a pharmacy business at Unit 19, 217 Wanneroo Road, Balcatta ("the Balcatta premises"), which premises were owned by Mander. The statement that Mr Gibbs conducted the pharmacy business at the Balcatta premises is unchallenged and I take it to be correct. From 16 February 1999 Mr Gibbs ceased conducting his pharmacy business at the Balcatta premises and thereafter conducted a pharmacy business in partnership with Stephen Wragg from the Yokine premises. Royal is a company associated with Mr Gibbs and Mr Wragg.

Mr Clements is a former legal practitioner who developed the Royal Medical Centre.

Mander sought rectification of Condition 8 of the Contract which is in the following terms:
"The parties acknowledge that the pharmacy business conducted by Gregory Gibbs ('Gibbs') at 19/217 Wanneroo Road, Balcatta will be relet for purposes other than a pharmacy. If at settlement the premises are not let or are let or become let but at a rental less than $40,000 per annum, the Vendor shall indemnify Gibbs against any rental shortfall from $40,000 per annum to be payable monthly in arrears. The maximum liability of the Vendor pursuant to this provision shall be $50,000."
The statement of claim alleges that cl 8 did not properly or accurately reflect the common intention of the parties and that the parties intended to provide that Mr Clements should indemnify the owner of the Balcatta premises, Mander, in a manner and to the extent provided in cl 8.
Mr Clements denied the allegations in par 8 of the statement of claim and further pleaded that Condition 8 had been included in the Contract by mistake. He counterclaimed for rectification of the Contract by its deletion.

Background

Prior to Mr Clements commencing the development of the Royal Medical Centre, he entered into a contract in writing dated 3 February 1997 with Mr Gibbs and Mr Wragg for the purchase of proposed strata suite number 1 ("the 1997 contract") which subsequently came to be designated as Unit 2, the subject of the Contract. Save for the parties and special conditions appropriate to the early stage of the proposed development, the 1997 contract was in materially similar terms to the Contract, which was executed after the completion of the development. Special Condition 1 of the 1997 contract provides:
"The parties acknowledge that the pharmacy business conducted by Gregory Graham Gibbs ('Gibbs') at 19/217 Wanneroo Road Balcatta will be transferred to the property and 19/217 Wanneroo Road Balcatta will be relet for purposes other than a pharmacy. If at settlement the premises are not let or are let or become let but at a rental less than $40,000.00 per annum, the vendor shall indemnify Gibbs against any rental shortfall from $400,000.00 per annum to be payable monthly in arrears. The maximum liability of the vendor pursuant to this provision shall be $50,000.00."
Clause 1 imposes an obligation on Mr Gibbs to move the pharmacy business from Balcatta and an associated benefit to him in the form of partial protection for any resulting rent shortfall in relation to the Balcatta premises.
It will be noted that the italicised words in cl 1 have been omitted from cl 8 of the Contract. I infer that is intended to reflect the fact that a new business was to operate from the Yokine premises. The amendment is not relevantly material. All of the evidence at trial was directed to the circumstances in which cl 1, and in particular the reference of the payment of rental to Mr Gibbs, came to be inserted in the 1997 contract. The trial Judge's summary of the evidence is accurate. He said (at [15]):
"Mr Gibbs' evidence was that on 3 January 1997 he met with Mr Clements, Mr Rousset and Mr Eftos at Mr Eftos' office. At the meeting he wished to ensure that the agreement to purchase the pharmacy site in the proposed new development included compensation to him for loss of rent on Unit 19. When that issue was discussed Mr Clements dictated a clause to record what was agreed. Mr Eftos wrote down what Mr Clements dictated and subsequently forwarded to Mr Gibbs a form of agreement to purchase the site which included the clause. Mr Gibbs took the clause to his solicitor Mr Kaminickas who drafted a clause to replace the clause dictated by Mr Clements. Mr Gibbs then forwarded the clause to Mr Eftos who included it in a form of contract for the sale of the pharmacy site which was signed by Mr Gibbs, Mr Wragg and Mr Clements. The page with the clause drafted by Mr Clements was marked 'Cancelled'. The purchase price on that agreement was $720,000, the same as the purchase price on the contract upon which Mander and Royal sue in this action. That agreement bore the logo of Mr Eftos' real estate agency."
Mr Eftos was a real estate agent acting for Mr Clements. Mr Rousset also represented Mr Clements.
Mr Gibbs' evidence was that in his discussions with persons involved in the negotiations, he spoke as if he, not Mander, owned the Balcatta premises. Mr Gibbs knew the premises were owned by Mander, but spoke as though he owned it for "ease of discussion". It appears the offer and acceptance for the Contract was prepared by the vendor's real estate agent. There is no other relevant evidence relating specifically to cl 8 of the Contract. The trial Judge relies on the evidence leading to the execution of the 1997 contract in determining the rectification claim.
After referring to relevant authorities on rectification, the trial Judge continued (at [35] - [36]):
"I have set out earlier in these reasons Mr Gibbs' evidence as to how his name appeared in Condition 8. I accept that evidence. As a result of the words used by Mr Gibbs at all times during their negotiations Mr Wragg and Mr Clements mistakenly believed that Mr Gibbs owned Unit 19. While that belief was incorrect there was no mistake as to the use of the words used in Condition 8. The parties used the words they intended to use. It is likely they would have inserted Mander's name into the condition in the place of Mr Gibbs' name if they knew the correct facts. However on my understanding of the law of rectification that does not entitle Mander or Royal to rectification.
I conclude that the parties used the words in Condition 8 intentionally, but under the mistaken belief on the part of Mr Wragg and Mr Clements that Mr Gibbs owned Unit 19. That mistake does not entitle Mander or Royal to rectification of the contract."
The law applied by the trial Judge was that if the parties' intention was to use a particular form of words and that form was used, rectification is not available and that is so even if the parties share the same mistake as to the meaning of the words they used, relying on Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd (1919) 26 CLR 410 at 415 and Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB 450. The appellants contend he erred in so confining the scope of the equitable doctrine of rectification.

Rectification

If a written contract fails accurately to record a concluded antecedent agreement or the parties' common continuing intention, it may be rectified so as to give effect to the antecedent agreement or common intention. The appellants contend that the parties had a common continuing intention to pay the rental offset to the owner of the Balcatta premises.
Rectification is available where the disconformity between the common intention and the instrument occurs as a result of an operative mistake in the formal step of reducing the common intention to writing, but not where the mistake arises in the formation of the common continuing intention (see Spry Equitable Remedies, 6th Ed, at 612; Cheshire and Fifoot's Law of Contract, 8th Ed, at 12.30; Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 341, per Sheller JA; Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 at [38] - [40]). Other contractual doctrines or remedies may apply when the mistake arises in the formation of the common intention.
A more restrictive statement of principle is that rectification is not available if the words used in the instrument are definitely chosen. This principle was applied by the trial Judge and reflects the traditional approach: Meagher, Gummow and Lehane's Equity Doctrines and Remedies, 4th Ed, 26‑065; Cheshire and Fifoot's Law of Contract, 8th Ed, at 12.30.
Applying the traditional approach, rectification would not be available where the parties are mistaken as to the meaning or effect of words deliberately chosen. However, it has been repeatedly held by single judges of this Court that rectification is available where the parties are mistaken as to the meaning or effect of words deliberately chosen: Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365 at 367 ‑ 368, per Kennedy J; Frontier Petroleum NL v Anzoil NL, unreported; SCt of WA; Library No 970286; 4 June 1997, per Anderson J; Mincode Pty Ltd v Isa Pty Ltd (1996) 17 WAR 245, per Steytler J. These authorities are, however, consistent with the broader statement of principle to which I referred because the operative mistake occurs in the formal step of reducing the common intention to writing.
This appeal can be determined by the application of the principle that the mistake must occur when reducing the common intention to writing not in its formation without considering the correctness of the narrower rule applied by the trial Judge. Further, the former has the advantage of providing a framework to assist in the identification of the relevant common intention. The point can best be understood by reference to the facts in the Frederick Rose case relied on by the trial Judge. In that case, the plaintiffs received an order from Egypt for "Moroccan horsebeans described here as feveroles". The plaintiffs did not know what feveroles were and asked the defendant's representative who, after making inquiries, told the plaintiffs that feveroles were a synonym for horsebeans. After negotiations on that basis a written contract was concluded between the plaintiffs and the defendant for the sale and purchase of horsebeans. The plaintiffs in turn sold and delivered them to an Egyptian buyer who claimed damages because the horsebeans were not feveroles. The plaintiffs' application to rectify the written contract was unsuccessful on the basis that "the parties had throughout a clear common intention and purpose of buying and selling horsebeans" and the contract exactly recorded what they had agreed: per Morris LJ at (463). The parties had merely repeated in the written contract the words used by them in their negotiations to arrive at their common intention; the relevant mistake arose in the formation of the common intention and not in the course of reducing the common intention to writing.
I turn now to the facts of this case. Mr Gibbs and Mr Wragg signed the Contract for and on behalf of Royal. Based on Mr Gibbs' advice, Messrs Wragg and Clements would have understood that Mr Gibbs owned the Balcatta premises. Mr Gibbs knew that Mander owned the Balcatta premises. Mr Gibbs must have signed the Contract in that knowledge. He gives no explanation of why he did so other than to say it was "an error". On the evidence as it stands, it is difficult to conclude that Mr Gibbs' intention was other than that recorded in cl 8. The mistake which led to the formation of that intention is not disclosed.
The two directing minds of Royal, Mr Gibbs and Mr Wragg, had different states of knowledge as to the owner of the Balcatta Premises. Further, there is no direct evidence from Mr Wragg (or Mr Clements) that the intention to pay the rental offset to Mr Gibbs was based on the assumption that Mr Gibbs owned the Balcatta premises. They may not have addressed their minds to the question. If they did, they may have linked it with Mr Gibbs' ownership of the pharmacy business on these premises. Matters relating to their intention were not explored in evidence. However, to the appellants' advantage I will assume that both Royal and Mr Clements proceeded on the mistaken assumption that Mr Gibbs was the owner of the Balcatta premises.
In determining the common intention, it is necessary to have regard to the 1997 contract and the events leading to it. In the course of negotiations leading to the 1997 contract, Mr Gibbs informed those participating in the negotiations that he was the owner of the Balcatta premises. Mr Gibbs negotiated for a rental offset. His solicitors drafted cl 1 and it was approved by Mr Clements (or his agents) and subsequently inserted in the 1997 contract. The negotiations preceding and leading to the formation of the common intention were based on the erroneous assumption that Mr Gibbs owned the Balcatta premises. In the 1997 contract between Mr Gibbs, Mr Wragg and Mr Clements, Mr Clements agreed to pay the rental offset to Mr Gibbs. There was no relevant or operative mistake in reducing the 1997 contract to writing; rather, cl 1 accurately recorded the parties' common intention. Nothing of significance occurred thereafter up to the execution of the Contract that supports a conclusion that there was an operative mistake when cl 8 was reduced to writing in the Contract. The mistake occurred in the formation of the common intention, not in reducing that intention to writing.
The appellants rely on Kingstream Steel Ltd v Stemcor UK Ltd [2001] WASCA 138 and F Goldsmith (Sicklesmere) Ltd v Baxter [1970] 1 Ch 85 as well as objective indicators in the clause itself in support of the rectification claim. Where there are obvious errors or ambiguities in the terms of a contract, a court will construe the document to conform with the objectively determined contractual intent without (formal) rectification of the contract. Courts can insert, delete, alter or interpret words in such a fashion as to make the document sensible as a matter of construction (see Fitzgerald v Masters (1956) 95 CLR 420; Watson v Phipps (1985) 60 ALJR 1). This principle applies where there is a misnomer or misdescription in the name of a contractual party, which is what occurred in Kingstream Steel and F Goldsmith. In both cases it was apparent from the terms of the contracts (and any admissible evidence of surrounding circumstances) that the person named in the contract was intended to correspond with the person claiming to be the party in question. This is not a case of misnomer or misdescription. To the contrary, the evidence in support of rectification establishes that the parties intended to name Mr Gibbs.
The appellants also contend that the use of the word "indemnify" in cl 8 itself demonstrates that the common intention of the parties was that the rental offset be paid to the owner of the Balcatta premises. That is not correct. The word "indemnify" connotes that Mr Gibbs is to be compensated for any loss suffered by him. Clause 8 in isolation does not mandate an inference that Mr Gibbs is indemnified as owner; it could also cover an alternative commercial arrangement, namely that Mr Gibbs leased the Balcatta premises from which he conducted his pharmacy business and was subject to the usual obligation to indemnify the landlord for any loss arising from early termination. Somewhat surprisingly, there is no evidence relating to the commercial arrangements between Mr Gibbs and his associated entities in relation to the pharmacy business in Balcatta.
For these reasons I have concluded that rectification is not available and I would dismiss the appeal.