Mayo v W & K Holdings (NSW) Pty Ltd (in liq) (No 2)

[2015] NSWCA 119

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:	Mayo v W & K Holdings (NSW) Pty Ltd (in liq) (No 2) [2015] NSWCA 119
Hearing dates:	15 December 2014 and 24 March 2015
Decision date:	08 May 2015
Before:	Meagher JA at [1]; Gleeson JA at [2]; Sackville AJA at [125]
Decision:	1.  Appeal allowed in part. 2.  Vary orders 1(c)(iii), 2(c)(iii), 3(c)(iii), 4(c)(iii), 5(c)(iii), 6(c)(iii), 7(c)(iii), 8(c)(iii) made by Sackar J on 8 October 2013, by deleting the figures “$0.00” appearing next to the words “Bank Fees” and substitute the figure “$10.00”. 3.  Vary orders 1(c)(iv), 2(c)(iv), 3(c)(iv), 4(c)(iv), 5(c)(iv), 6(c)(iv), 7(c)(iv), 8(c)(iv) made by Sackar J on 8 October 2013, by deleting the figure appearing next to the words “Amount Payable” and substitute the following figures in: a.  order 1(c)(iv) – $2,707.55; b.  order 2(c)(iv) – $217.79; c.  order 3(c)(iv) – $881.85; d.  order 4(c)(iv) – $421.02; e.  order 5(c)(iv) – $875.51; f.  order 6(c)(iv) – $402.28; g.  order 7(c)(iv) – $468.93; h.  order 8(c)(iv) – $1,144.50. 4.  The appeal be otherwise dismissed. 5.  Direct the parties to file within 14 days any consent order with respect to the amount owing (including prejudgment interest) by the respondents to the appellant in relation to bank fees under the lease agreements. 6.  In default of agreement between the parties as to the amount of the judgment sum referred to in 5 above, direct the parties to file and serve within 21 days their proposed short minutes of order together with short submissions in support not exceeding three pages. 7.  The appellant to pay the second respondent’s costs of the appeal.
Catchwords:	CONTRACT – relief – rectification – where the appellant leased equipment to the respondent pursuant to lease agreements – whether there was sufficient evidence of the parties’ actual common intention to order rectification – whether the parties’ intended to charge interest on a flat or reducible basis – whether the parties’ intended that leases achieve the effect of charging GST correctly – whether the parties’ intended that the payment of bank fees was required
Legislation Cited:	A New Tax System (Goods and Services Tax) Act 1999 (Cth) ss 9-5, 9-40
Cases Cited:	Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; 149 CLR 337 Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 Equuscorp Pty Lt v Glengallan Investments Pty Ltd [2004] HCA 55; 218 CLR 471 Fox v Percy [2003] HCA 22; 214 CLR 118 Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603 Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; 128 CLR 336 Mayo v W & K Holdings (NSW) Pty Ltd [2014] NSWCA 120 New South Wales Medical Defence Union v Transport Industries Co Ltd (1986) 6 NSWLR 740 Newey v Westpac Banking Corporation [2014] NSWCA 319 Pukallus v Cameron [1982] HCA 63; 180 CLR 447 at 452 Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; 69 NSWLR 603 Sindel v Georgiou [1984] HCA 58; 154 CLR 661 Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21 Winks v W H Heck & Sons Pty Ltd [1986] 1 Qd R 226 W & K Holdings (NSW) Pty Ltd v Mayo [2013] NSWSC 1063 W & K Holdings (NSW) Pty Ltd v Mayo (No 2) [2013] NSWSC 1581
Texts Cited:	J W Carter, Contract Law in Australia, (6th ed 2013, LexisNexis Butterworths) I C F Spry, The Principles of Equitable Remedies, (8th ed 2010, Lawbook Co)
Category:	Principal judgment
Parties:	Laureen Margaret Mayo (Appellant) W & K Holdings (NSW) Pty Ltd (in liq) (First respondent) William Arthur Leonard (Second respondent)
Representation:	Counsel: H Stowe (Appellant) D Allen (Second respondent) Solicitors: Mason Lawyers (Appellant) Catalyst Legal (Second respondent)
File Number(s):	2013/332269
Decision under appeal	Court or tribunal: Supreme Court Jurisdiction: Equity Citation: [2013] NSWSC 1063 Date of Decision: 09 August 2013 Before: Sackar J File Number(s): 2009/289575

HEADNOTE

[This headnote is not to be read as part of the judgment]

This appeal concerns a challenge to a successful claim for the rectification of eight equipment leases. The appellant (Ms Mayo) was a long-term employee of the first respondent (the company) and a close personal friend of the second respondent (Mr Leonard), who was the sole director and ultimate proprietor of the company. The company conducted a civil construction business.

By September 2005, the company was experiencing difficulties raising finance to acquire equipment. Ms Mayo raised the possibility with Mr Leonard and the company’s accountant (who also acted for Ms Mayo) of Ms Mayo borrowing money to obtain funds to acquire equipment using her home as security, and leasing that equipment to the company. In December 2005, the company and Ms Mayo entered into the first two of what would ultimately be eight such leases (although one remained unexecuted). The lease documentation was prepared by Ms Mayo and the accountant, and the accountant included all the relevant numerical particulars (rental payments, GST, bank fees, rental frequency and cost of the equipment) for each lease. All the leases were in relevantly identical terms except for these particulars.

The monthly rental payment amounts were calculated by the accountant on a flat interest basis, which equated to a higher reducible rate of interest. There was a dispute between the accountant and Mr Leonard as to whether the accountant told him that interest was to be charged on a flat basis. Other features of the leases were that GST was charged twice for six of the eight leases, and all the leases included a $10 monthly bank fee. The respondents sought to have the eight leases rectified in four respects. By the time of the trial, the company was in liquidation.

Mr Leonard was successful before the primary judge. The primary judge found that: (a) Ms Mayo and Mr Leonard had a common intention that interest would be charged on a reducible basis; (b) Ms Mayo and Mr Leonard had left the calculation of GST to the accountant on the assumption that he would appropriately account for it, and had a positive common intention that GST would be correctly treated in the leases; (c) the parties did not intend that bank fees would be charged; and (d) the parties intended for the transfer of the title to the machinery to the company at the end of the leases provided it made the lease payments.

Ms Mayo appealed the primary judge’s decision. The issues on appeal were limited to whether the primary judge erred in finding:

1.   that Mr Leonard had the governing intention that the rental payments be calculated on the basis of reducible as opposed to flat interest;

2.   the parties had a common intention that GST be “appropriately treated” in the leases; and

3.   the parties had a common intention that there be no monthly payments in respect of each lease of $10 on account of “bank fees”.

Held per Gleeson JA (Meagher JA and Sackville AJA agreeing):

In relation to (1)

There was no error in the primary judge’s factual findings in rejecting the evidence of the accountant and accepting the evidence of Mr Leonard that his intention was that the rental payments be calculated on the basis of reducible interest. These findings were not glaringly improbable or contrary to compelling inferences: [65]-[92].

Applied: Fox v Percy [2003] HCA 22; 214 CLR 118.

In relation to (2)

The accountant made a mistake when preparing the leases by charging GST (in six of the leases). The primary judge did not err in finding that the parties intended the leases to achieve a particular effect, namely for GST to be charged correctly and that the leases failed to achieve that intended effect: [95]-[100].

Considered: Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603; Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; 149 CLR 337.

In relation to (3)

The primary judge erred in finding that the parties had a common intention that bank fees were not to be charged in the leases because his Honour did not make a finding in respect of Mr Leonard’s intention on this subject, and Mr Leonard gave no evidence that he intended that the payment of bank fees was not required: [103]-[118].

Applied: Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; 69 NSWLR 603.

The parties had accepted at trial that the eighth lease, although unsigned, was binding by reason of a course of conduct and the primary judge ordered rectification of the eighth lease. The Court noted that Ms Mayo did not contend at trial, or on appeal, that rectification should not be ordered in the absence of a written document signed by the parties: [117], [119]-[121].

Considered: Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; 128 CLR 336; Sindel v Georgiou [1984] HCA 58; 154 CLR 661; Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21.

The Court dismissed the appeal except on the bank fees issue. The orders of the primary judge were varied so as to reinstate the charge for bank fees in the leases.

Judgment

1. MEAGHER JA: I agree with Gleeson JA.

2. GLEESON JA: This appeal concerns a dispute relating to the terms of certain lease agreements in respect of machinery which the first respondent, W & K Holdings (NSW) Pty Ltd (the company) leased from the appellant, Laureen Margaret Mayo (Ms Mayo). The second respondent, William Arthur Leonard (Mr Leonard), gave personal guarantees of the obligations of the company to Ms Mayo.

3. The principal issue between the parties in the Court below was whether the leases should be rectified in four respects as claimed by the company, so as to: (a) alter the basis upon which interest was calculated from “flat” to “reducible”; (b) delete the charge for GST which had been duplicated; (c) omit a monthly charge of $10 in respect of bank fees; and (d) include a provision for the transfer of title to the machinery to the company at the end of the lease unconditionally.

4. The distinction between charging interest on a “flat” basis as opposed to a “reducible” basis was described by the primary judge in the following terms (which was not challenged on appeal) – a “flat” interest rate is a rate applied to the initial principal sum over the whole term of the loan. Every payment of interest is calculated by reference to the initial principal sum without regard to the reduction in principal from time to time by virtue of repayments made throughout the term of the loan. By contrast, a “reducible” interest rate is a rate applied to the reducing balance of the principal sum owing at each repayment date throughout the term of the loan. Interest paid in each instalment is assessed by reference to the principal outstanding from time to time.

5. Ms Mayo cross-claimed against the company and Mr Leonard seeking payment of outstanding amounts under the leases, damages, return of the machinery, a declaration that certain debenture deeds given by the company to Ms Mayo and the guarantees given by Mr Leonard were valid and subsisting and a declaration that she was entitled to appoint a receiver or manager to the property of the company.

6. The primary judge (Sackar J) concluded in a judgment given on 9 August 2013 that the terms of the leases should be rectified largely in the manner sought by the company. In relation to ownership of the equipment at the end of the leases, his Honour found that the common intention of the parties was that ownership would be transferred to the company provided it made the lease payments. His Honour found that Ms Mayo was entitled to certain amounts under the leases, however that sum was substantially less than Ms Mayo’s claim by reason of the effect of the rectification order. He rejected Ms Mayo’s claim for the return of the equipment and found that the debentures and guarantees were valid: W & K Holdings (NSW) Pty Ltd v Mayo [2013] NSWSC 1063 (the principal judgment).

7. Orders were made on 8 October 2013 specifying the rectification ordered in relation to the terms of eight leases. A declaration was made that as at 23 August 2013 the debenture deed dated 13 May 2008 between Ms Mayo and the company was valid and subsisting, and the sum of $19,611.18 was owing in respect of the leases after taking into account mutual setoffs. Costs were reserved.

8. The Court also noted certain agreements and the acknowledgments of the parties including: that the company had paid the sum of $19,611.18 to Ms Mayo in full satisfaction of the balance owed pursuant to the leases; and that the company had elected to take title to the equipment the subject of the leases and such title had passed to the company.

9. In a supplementary judgment given on 31 October 2013, the primary judge dealt with costs. His Honour ordered that: (a) Ms Mayo pay 60% of the company’s costs assessed on an ordinary basis; (b) the company pay 30% of Ms Mayo’s costs of her cross-claim, assessed on an ordinary basis; and (c) Mr Leonard pay the costs of his unsuccessful cross-claim against Ms Mayo, assessed on an ordinary basis: W & K Holdings (NSW) Pty Ltd v Mayo (No 2) [2013] NSWSC 1581 (the costs judgment). References below to paragraphs of his Honour’s reasons are to those in the primary judgment unless otherwise indicated.

10. Ms Mayo appeals against the orders for rectification and the consequential relief granted by the primary judge.

11. One preliminary matter should be mentioned. On 8 November 2013, a winding up order was made against the company. Subsequently, on 7 April 2014, Barrett JA made an order pursuant to s 471B of the Corporations Act 2001 (Cth) that Ms Mayo have leave to proceed with this appeal against the company: Mayo vW & K Holdings (NSW) Pty Ltd [2014] NSWCA 120. The company by its liquidator did not appear on the appeal. Correspondence between the liquidator and Ms Mayo’s legal representatives indicated that the funds currently held by the liquidator were relatively small ($15,441.12). The active parties on appeal were Ms Mayo and Mr Leonard.

12. For the reasons that follow, the appeal should be allowed, in part, by setting aside the rectification ordered with respect to the payment of bank fees. The amount involved is relatively trivial ($4,800). The appeal should otherwise be dismissed.

Factual background

13. The following summary of the background to the dispute is taken from the primary judge’s reasons. It will be necessary to refer later in these reasons to the competing evidence as to the parties’ intentions at the time of entering into the leases.

14. The company was involved in the civil construction industry, performing mostly direction drilling, trenching and excavation for the installation of underground services. Mr Leonard was the managing director, sole director, and ultimate proprietor of the company. The primary judge recorded (at [8]) that it was common ground between the parties that Mr Leonard possessed an unusually high level of numerical literacy and arithmetical ability, but had difficulty reading and alleged he had dyslexia, though no medical evidence was led to support that allegation.

15. Ms Mayo was a long term employee of the company. Her role was exclusively administrative, including acting as secretary, office manager and performing bookkeeping functions.

16. Mr Doberer was the company’s accountant since about November 2004. The primary judge recorded that Mr Doberer acted as an accountant and advisor to each of Ms Mayo, the company and Mr Leonard in relation to the proposed lease transactions: at [14]. His Honour noted that no party appeared to have averted to the significance of Mr Doberer’s clear conflict of duties in acting for all parties: at [15].

17. In about September 2005 the company sought new equipment for its business. Attempts by the company to obtain finance to purchase new equipment were largely unsuccessful. An offer was received from one financier to provide finance at an interest rate of 25%. This was rejected by the company because Mr Leonard considered that the company could not afford to service a loan at that rate of interest.

18. Ms Mayo was involved in the discussions with at least one of the finance brokers from whom Mr Leonard was seeking finance. After the finance broker advised that no finance could be offered, Ms Mayo raised with the broker the possibility of whether she could borrow money, secured against her unencumbered property at Tingira Heights, with a view to using that money to purchase equipment, which she would then lease to the company for use in its business. Ultimately this is what Ms Mayo did after discussions with Mr Leonard and Mr Doberer.

19. Mr Doberer arranged for the registration of the business name “Mayo Spirit” for the purpose of Ms Mayo’s provision of finance to the company. Lease documentation was prepared using a previous CBFC Ltd lease as a template. Each lease was typed by Ms Mayo and reviewed by Mr Doberer. The leases were entirely in typescript except for certain handwritten details in the first to fourth leases, namely: the date of execution of the lease, the date of commencement of the lease, the end date for the lease, the rate percentage and all numerical figures (including rental payments, GST, bank fees, rental frequency and cost of the equipment).

20. Mr Doberer personally provided the numerical particulars for each lease – including the amount of rental payments, GST, bank fees, rental frequency and cost of the equipment. The primary judge observed (at [17]) that it was apparent from the monthly payment figures calculated by Mr Doberer that the amount of the monthly payments for each lease was on a flat interest rate basis.

21. The details of the eight leases and three debentures entered into by the company with Ms Mayo are summarised in his Honour’s judgment as follows:

[18] The first and second leases, and related security documentation, were executed on 2 December 2005 in the kitchen of Mr Doberer’s home office. Those present were Ms Mayo, Mr Leonard, Mr Doberer and Mr Doberer’s wife, Ms Joy Doberer. The first lease was for a “Jet Trac Drilling Rig”, which had been acquired from “Ditch Witch Australia Division” of Batequip Pty Ltd for $129,950, and stipulated monthly payments by the company to Ms Mayo of $3,140.46 for rental, $314.04 for GST and $10 for bank fees (i.e. a total of $3,464.50 per month).

[19] The second lease was for a second hand boat which had been acquired from a Mr Wayne Dark for $9,100, and stipulated monthly payments to Ms Mayo of $219.92 for rental, $21.99 for GST and $10 for bank fees (i.e. a total monthly payment of $251.91).

[20] The first debenture is also dated 2 December 2005. As this document is not the subject of any dispute between the parties, I do not propose to elaborate on its terms. Broadly, it secured the company’s obligations under the leases by charging assets of the company in Ms Mayo’s favour.

[21] In respect of both the first and second leases, the company was required to make monthly payments, of the amounts specified in the respective leases, commencing from 2 December 2005 and ending on 2 November 2011 (ie a period of 60 months), the residual value of the equipment at the expiry of the respective leases was nil, and personal guarantees were signed by Mr Leonard in favour of Ms Mayo in respect of the company’s payment obligations under the leases.

[22] Also, for both leases, a rate of 9% “Diminishing Value” was specified under the heading “Tax depreciation rate and type”. This is the only rate ever specified in the leases. In the template document that was prepared and ultimately executed by the parties, the heading “Tax depreciation rate and type” appears on the bottom of a page, and the boxes within which “9%” (in handwriting) and “Diminishing Value” (in typescript) appear, were on the top of a new page. The parties and Mr Doberer accept that the inclusion of “9%” under the heading “Tax depreciation rate and type” was an error made by Mr Doberer, and that the value of 9% in fact specifies the rate of interest. However, the parties are in disagreement as to whether the words “Diminishing Value” (located immediately beside the rate “9%”) refer to the basis on which interest would be charged, or were kept in the document by error and should have been deleted or omitted. The plaintiff alleges that the words “Diminishing Value” refer to the basis on which interest at 9% would be charged, while the defendant alleges that those words were included by error, that they relate to depreciation, that they are remnants from the CBFC Ltd lease template, and that they should have been crossed out.

...

[30] The third lease, dated 22 December 2005, was for a second hand “International 1850D Truck”, acquired from “Midcoast Trucks” for $42,000, stipulated monthly payments to Ms Mayo from the company of $1,015 for rental, $101.50 for GST and $10 for bank fees (i.e. a total monthly payment of $1,126.50), and commenced 22 December 2005 and ended on 22 November 2010 (i.e. a period of 60 months). The residual value of the truck was nil, and Mr Leonard again signed a personal guarantee of the company’s obligations under the third lease. The “Rate” was specified as 9%, and, as with the previous and subsequent leases, the words “Diminishing Value” appear immediately beside it, despite the monthly rental payment figure being calculated on a flat basis. At the time of execution of the third lease (i.e. 22 December 2005), Ms Mayo and the company also executed a second debenture deed. Again, as the second debenture deed is not relevant to any dispute between the parties, I do not propose to set out its terms.

[31] The fourth lease is dated 23 February 2006. According to Mr Doberer, prior to the execution of the fourth lease, he expressed to Ms Mayo concern about her position and warned her of the possibility that she could “lose everything” as a result of these transactions, but Ms Mayo indicated that she wished to continue with the transaction to assist Mr Leonard in his business. The fourth lease was for an “Enviro Clean Vacuum Pump Tank”, acquired from “Orara Construction & Maintenance” for $19,800, and stipulated a rate of 9%, monthly payments of $478.50 for rental, $47.85 for GST and $10 for bank fees (i.e. a total monthly payment of $536.35) and commenced 23 February 2006 and ended 23 January 2011 (i.e. a period of 60 months). Again, the residual value of the equipment was nil, and Mr Leonard signed a personal guarantee of the company’s obligations in favour of Ms Mayo. No further debenture deed was executed on this occasion.

[32] The fifth lease, dated 18 August 2006, was for a “Kubota KX91–3HGLA Excavator” with various accessories, acquired from “All Class Construction Equipment” for $41,500, stipulated a rate of 9.2% and monthly payments of $1,009.83 for rental, $11.98 for GST and $10 for bank fees (i.e. a total monthly payment of $1,120.81). The sixth lease, dated 17 May 2007, was for a 1985 “Hino Tipper Truck”, acquired from a Mr Robert White for $17,000, stipulated a rate of 9.45% and monthly payments of $417.20 for rental, $41.72 for GST and $10 for bank fees (i.e. a total monthly payment of $468.92). The seventh lease, dated 26 November 2007, was for a new 2007 “Toyota Work Mate” utility, acquired from “Cardiff Toyota” for $21,500, stipulated a rate of 10.2% and monthly payments of $541.08 for rental, $54.11 for GST and $10 for bank fees (i.e. a total monthly payment of $605.19).

[33] As with the other leases, the fifth to seventh leases were each for a period of 60 months commencing on their respective dates of execution, the residual value of the equipment in respect of each lease was nil, and Mr Leonard signed personal guarantees in favour of Ms Mayo to secure the company’s repayment obligations. Again, immediately beside the percentage rate specified in each lease, the words “Diminishing Value” appeared, but the monthly payment figures were actually calculated on a flat rate basis.

...

[36] A third debenture deed was executed on 13 May 2008...In summary, the effect of the debenture deed is to secure the sum of $310,000 over the whole of the company’s undertaking and present and future-acquired property, and to confer on Ms Mayo the right to appoint, in appropriate circumstances, an administrator or a receiver (or both) to the company’s property.

...

[40] An eighth lease, dated 24 June 2008 (but unsigned), was for a second hand “Kubota KX161–3HLA Excavator” with various accessories, acquired from “Allclass Construction Equipment” for $52,000, stipulated a rate of 11.15%, monthly payments of $1,349.83 for rental, $134.98 for GST and $10 for bank fees (i.e. a total monthly payment of $1,494.81), commencing from 24 June 2008 and ending on 24 June 2013, with a residual value of nil. As with the previous leases, the words “Diminishing Value” appear immediately beside the specified rate, and the monthly payments were calculated on the basis of a flat rate of interest. [Emphasis added.]

22. In summary, the effect of the leases as executed by the company and Ms Mayo, as well as the unsigned eighth lease, was that:

1. interest was calculated on the monthly lease payments on a flat basis of the total amount financed, not on a reducing basis. With respect to the first four leases, the monthly lease payments were calculated on a flat basis of 9% per annum. With respect to the subsequent leases, the monthly lease payments were calculated on a flat basis of 9.2%, 9.45%, 10.2% and 11.15% per annum respectively;

2. except it seems for the second and sixth leases, GST was double charged on the leases because it was included in the computation of the monthly lease payments (which were calculated on the gross purchase price of the equipment inclusive of GST), as well as separately charged on those payments. The second and sixth leases involved second-hand goods – a boat and a Hino truck – which Ms Mayo acquired from individuals and there is no evidence of any GST component being paid in respect of those acquisitions. Nor is there any evidence that the vendors of these goods were registered, or required to have been registered for GST in the absence of which, there would be no “taxable supply” by these vendors to Ms Mayo: ss 9-5 and 9-40 of A New Tax System (Goods and Services Tax) Act 1999 (Cth). Accordingly, it does not seem that the gross purchase price used to calculate the monthly lease payments on the second and sixth leases included any amount of GST, before the separate charge for GST on the finance leases was added;

3. a $10 bank fee was included in the monthly payments; and

4. the company acknowledged that it did not have any right, obligation or option to purchase the equipment under the lease.

23. By around 9 April 2008, the company had ceased to engage Mr Doberer as its accountant, and instead engaged Mr Barry Douglas (Mr Douglas). The company also terminated Ms Mayo’s employment sometime between about 25 July 2008 and 20 August 2008.

Issues on appeal

24. The appeal is concerned wholly with factual findings which were based on the primary judge’s evaluation of the evidence and the credibility of the three principal witnesses, Ms Mayo, Mr Leonard and Mr Doberer. In order to succeed on appeal, Ms Mayo must establish that the judge's conclusions were erroneous by reason of incontrovertible facts, or uncontested testimony, or that the decision is glaringly improbable, or contrary to compelling inferences: Fox v Percy [2003] HCA 22; 214 CLR 118 at [28], [29]. It must also be accepted, of course, that, insofar as the judge made credibility findings, he had the very considerable advantage of seeing the relevant witnesses give their oral evidence and was thus able to bring to bear aspects of judgment and appraisal that are simply unavailable to this Court: Fox v Percy at [23].

25. The grounds of appeal which were ultimately pressed are as follows:

• Grounds 1 and 2: his Honour erred in finding that Ms Mayo and Mr Leonard had a common governing intention at the time of execution of the eight leases, that the payments under the leases be calculated on the basis of reducible interest.

• Grounds 3 and 4: his Honour erred in finding that Ms Mayo and Mr Leonard had a common intention at the time of execution of the leases, for GST to be “appropriately treated” in the leases, or otherwise treated in a manner different to the written terms of the leases.

• Grounds 5 and 6: his Honour erred in finding that Ms Mayo and Mr Leonard had a common intention at the time of entry into the leases, that there be no monthly payments in respect of each lease in the amount of $10 on the account of “bank fees”.

26. Ms Mayo did not press appeal grounds 7, 8 and 9 concerning the claim for rectification insofar as it related to ownership of the equipment at the end of the leases. Nor did she press ground 10 relating to the alleged repudiation of the leases by the company. It followed that the claims for proprietary relief and damages against the company were also not pressed.

27. As a result, the only matters in issue on appeal related to the rectification ordered by the primary judge with respect to the basis for the calculation of interest, the calculation of GST and the payment of bank fees by the company.

The primary judge’s reasons

28. After setting out the factual background, the primary judge first dealt with the construction argument raised by the company that the leases provided for interest to be charged on a reducing basis because the “diminishing value” rate specified under the heading “Tax depreciation rate and type” in box 5 of the lease schedules should trump the monthly rental payment figures under box 11, which were acknowledged to be calculated on a flat interest basis. His Honour rejected this construction of the leases.

29. Turning to the claim for rectification, at [64]-[68], the primary judge set out some generally applicable statements of principle relating to rectification for common mistake. His Honour referred to the need for the party seeking rectification of a contract to advance “convincing proof” to show that at the time of execution of the contract the parties held a “common intention” which was inconsistent with what is provided for in the written contract: Pukallus v Cameron [1982] HCA 63; 180 CLR 447 at 452. His Honour also noted that the relevant type of “intention” is the subjective or actual intention of the parties: Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; 149 CLR 337 (Codelfa) at 346 (Mason J).

30. No complaint is made on appeal concerning his Honour’s statement of the legal principles.

The interest issue

31. At [70]-[74], the primary judge referred to the affidavit and oral evidence of Ms Mayo, Mr Doberer and Mr Leonard.

32. His Honour found that the evidence of Ms Mayo demonstrated that she was devoid of understanding as to the critical distinction between the terms “flat” and “reducible”, but that she held an actual or subjective intention to charge the company interest in a manner that replicated the basis on which interest was charged on her home loan, which, in fact, was reducible. Her subjective understanding of the basis on which interest of “9%” would be charged in the leases was always by reference to the basis on which she was paying interest of “7%” on her home loan: at [78].

33. His Honour observed that the context in which the interest rate discussions took place was important. This was that Ms Mayo understood the company was not in a healthy financial position. She was a long-term employee of the company. She had known Mr Leonard for some time and described him as “a close personal friend”. This was the context in which Ms Mayo acknowledged in her evidence her non-profit intention in offering to provide finance and her sole concern to simply cover her borrowing costs: at [80].

34. His Honour accepted that Mr Doberer and Ms Mayo probably had a conversation in which Mr Doberer advised her to charge an interest rate on a flat basis and that Ms Mayo even agreed to this though selecting a lower interest rate than that advised by Mr Doberer. He further accepted that Mr Doberer probably mentioned to Ms Mayo that interest charged at 9% on a flat basis was equivalent to approximately 13% on a reducible basis: at [82].

35. Nonetheless his Honour considered that this did not assist in identifying Ms Mayo’s actual intention because she did not understand what was conveyed by the terms “flat” and “reducible” rate of interest, but understood a “flat” rate to mean a rate of interest that simply did not fluctuate, like her home loan. His Honour found that Ms Mayo’s actual intention was not to make a profit, but just to cover her borrowing costs, with only a 2% margin above what she was actually paying to her bank on her home loan: at [83].

36. His Honour was satisfied that there was “convincing proof” that Ms Mayo had no intention to charge interest on a flat basis (properly understood), and that she possessed an intention to charge interest on a basis that replicated the basis on which interest was charged on her home loan, namely, a reducible basis: at [84].

37. At [87], his Honour noted the submission of Ms Mayo’s counsel that the present case was in the category of “difficult cases” in which the parties are aware of the precise terms of the relevant part of their agreement, but misapprehend their effect. His Honour referred to the views expressed in I C F Spry, The Principles of Equitable Remedies, (8th ed 2010, Lawbook Co) at 611-612, that in these circumstances the Court should distinguish between two positions, which his Honour summarised as follows:

The first position occurs where the concurrent intention (i.e. the intention the document is desired to effectuate) remains the dominant and governing intention at the time of execution. In this event, it should not matter that the precise terms of the document have been seen by the parties, and rectification, where otherwise appropriate, should be ordered. The second position arises where the parties, whatever their previous intention may have been, have ceased to retain that intention as their governing intention and have formed instead an intention to be bound by the precise terms of the document in question, regardless of discrepancies between its provisions and other intentions they possess.

38. His Honour continued (at [87]) noting that these propositions had been cited with apparent approval by Tobias JA (Mason P and Campbell JA relevantly agreeing) in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; 69 NSWLR 603 (Ryledar) at [130] ([sic] and [131]) and by Sheller JA in Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 (Carlenka) at 341-344.

39. At [100], his Honour recorded the argument advanced by Ms Mayo’s counsel that she possessed a concurrent intention to contract simply on the terms Mr Doberer drafted, whatever those terms might entail, which conflicted with her intention to charge interest on a reducible basis. His Honour noted that counsel’s submission concerning the need to identify the “governing intention”, was principally based on the analysis by Hodgson J in Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 where his Honour stated (at 407), as set out by the primary judge:

In such cases, it will often be the case that each party will have conflicting intentions as to the document. It may well be the case that each party intends to give effect to the document as it is worded, but also intends to enter into a transaction with a particular legal effect, which is not the true legal effect of the document as worded... [A] decision may have to be made as to which intention should prevail... So one needs to be able to say that, although in a sense the parties intended to be bound by a document which included certain words, nevertheless their intention to achieve a legal effect which was not the true legal effect of those words was somehow predominant over that other intention, and clearly predominant. [Primary judge’s emphasis.]

40. His Honour accepted that there was some force in the submission that Ms Mayo held conflicting intentions: at [102]. However his Honour was not persuaded that complete deference to Mr Doberer was relevantly Ms Mayo’s governing intention: at [103]. He found that Ms Mayo’s governing intention with respect to the terms of interest, was to contract on the basis of a reducible rate of interest: at [104]. It is important to appreciate that there is no challenge to this finding.

41. The primary judge then turned to the question of Mr Leonard’s intention. His Honour found that his governing intention was also to contract on a reducible interest basis: at [106]. His Honour gave the following reasons:

Mr Leonard's evidence was that he intended to contract on a reducible interest basis (see for example T12.1-T12.9 and T89.38-T89.42). He also gave affidavit and oral evidence, contrary to Mr Doberer's evidence, that no one advised him that the defendant would be charging interest on a flat basis (for example T11.47-T11.49). In the affidavit of Ms Mayo, there is no allegation that at the time Mr Leonard executed any of the leases he was advised that interest was calculated on a flat basis. She simply alleges that it was Mr Doberer's practice to simply state "the interest rate is [X]%", without specifying the basis on which such interest was to be calculated. Further, despite the many meetings and discussions involving Mr Leonard, Ms Mayo and Mr Doberer, there is no reference in Ms Mayo's affidavit to any occasion when Mr Doberer said to Mr Leonard, in her presence, that interest would be charged on a flat basis. In fact, when advising Mr Leonard of the interest rate, she did so by reference to a particular margin on her home loan. I am satisfied, on the basis of what in my view is compelling evidence, that Mr Leonard intended to contract on a reducible rate of interest. Insofar as it is necessary to do so, I should indicate that I prefer Mr Leonard's evidence on this issue over that of Mr Doberer and, for that matter, Ms Mayo.

42. In arriving at this conclusion, the primary judge rejected the contention advanced by counsel for Ms Mayo, that even if Mr Leonard’s subjective intention was to contract on a reducible interest basis, his governing intention was to contract on the basis of the instalment figures as specified in the leases: at [107].

43. Having reached the above conclusions in relation to the first and second leases, his Honour found that the understanding which the parties developed about the terms of the first two leases was carried through to the subsequent lease transactions. He also noted that the parties had conducted the case at trial on the basis that a course of dealing was established to that effect: at [108].

44. Accordingly his Honour concluded that the leases should be rectified so that interest was charged on a reducible basis and not on a flat basis: at [109].

The GST issue

45. The primary judge accepted (at [110]) the evidence of Mr Douglas, an accountant with experience as an auditor and tax assessor at the Australian Taxation Office, concerning the method of charging for GST in lease agreements. This was that GST could be charged by either calculating the monthly lease payments by reference to gross purchase price inclusive of GST for the equipment, or alternatively by reference to the net purchase price of the equipment and then charging GST on each monthly lease payment.

46. Here the gross purchase price inclusive of GST was used by Mr Doberer to calculate the monthly lease payments. However, GST was also separately charged on the monthly payments so calculated.

47. The primary judge noted that Mr Doberer conceded in cross-examination that his calculation of the total monthly lease payment mistakenly charged twice for GST. His Honour also noted that Ms Mayo candidly accepted in cross-examination that it was not her intention to overcharge the company for GST: at [110].

48. At [114], the primary judge found that the parties left the calculation of GST to Mr Doberer, on the assumption that he would appropriately account for it. However he rejected Ms Mayo’s contention that the parties possessed no intention whatsoever in respect of GST. His Honour found that they intended to rely on Mr Doberer’s calculation, but also clearly did not intend for GST to be overcharged, and critically, they possessed a positive intention that GST be treated correctly in the terms of the leases. His Honour found that if Ms Mayo had known that GST was improperly being charged twice, she would have agreed to correct the calculation. He also found that Mr Leonard’s intention was that GST be charged only once: at [117].

45. The primary judge concluded that rectification was available with respect to the charge for GST because the parties intended the leases to achieve a particular effect (that is, for GST to be charged correctly), but the written terms of the leases (by double charging for GST) failed to achieve the intended effect. His Honour noted that so far as the GST issue arguably involved a mistake as to a matter of law, namely, the proper treatment of GST, rectification was available citing Winks v W H Heck & Sons Pty Ltd [1986] 1 Qd R 226 and New South Wales Medical Defence Union v Transport Industries Co Ltd (1986) 6 NSWLR 740.

46. As mentioned at [22(b)] above, it seems that GST was not double charged in relation to the second and sixth leases. The orders of the Court made on 8 October 2013 reflect this fact, as the monthly lease payments as rectified (before adding the separate charge for GST on the taxable supply of equipment under the finance lease) are calculated on the cost of the equipment ($9,100 for the boat and $17,000 for the Hino truck) which amounts did not include any charge for GST.

The bank fees issue

51. The primary judge referred to the evidence of Ms Mayo in cross-examination that the $10 charge for bank fees was really pure profit and that it was not her intention to make a profit of $10 on each transaction. She intended to contract simply on the basis of the calculations prepared by Mr Doberer. His Honour found (at [120]) that Ms Mayo’s intention was to assist the company and not to make a profit from the transactions.

52. At [121], his Honour found that Ms Mayo intended to enter into the lease arrangements on the terms drafted by Mr Doberer, but also intended not to charge bank fees. He further found that her intention for the leases to achieve a particular effect (namely, “to only cover her costs and not make a profit of $10 on account of alleged fees”) was not embodied in the written terms of the leases due to a mistaken belief, on advice from Mr Doberer, that such a term was necessary to cover her costs.

53. His Honour found (at [122]) that Ms Mayo’s governing intention at the time of execution of the leases was not to incorrectly charge for bank fees. His Honour was satisfied that had it been brought to the parties’ attention that the transactions did not cost Ms Mayo a monthly charge of $10, they would have omitted the bank fees on the terms of the leases.

54. It is to be observed that his Honour’s conclusion that the leases should be rectified to omit the monthly charge of $10 for bank fees, was made in the absence of any express finding as to Mr Leonard’s intention on this subject. The significance of the absence of such a finding is considered below.

Consideration

55. No issue of principle arises on this appeal concerning the principles which govern the rectification of a written contract. The authorities were considered by the Court in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603 (Franklins v Metcash) and in Ryledar (see also Newey v Westpac Banking Corporation [2014] NSWCA 319). It is sufficient to refer to the following principles.

56. First, a written document that has been executed is presumed to be the true record of the parties’ agreement: Equuscorp Pty Lt v Glengallan Investments Pty Ltd [2004] HCA 55; 218 CLR 471 at [33]. However if there is clear evidence of a mistake in the recording of their agreement the equitable remedy of rectification is available to reform the parties' document, but not to reform the parties' bargain: Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; 128 CLR 336 (Maralinga) at 350 (Mason J); J W Carter, Contract Law in Australia, (6th ed 2013, LexisNexis Butterworths) at [21-02].

57. Secondly, the rationale of rectification of a written document in equity is that it is unconscientious for a party to the contract to seek to apply the contract inconsistently with what that party knows to be the common intention of the parties at the time the written contract was entered into: Ryledar at [315] (Campbell JA; Mason P agreeing).

58. Thirdly, the "intention" that is relevant to rectification of the contract is the subjective intention of the parties, sometimes called the actual intention: Ryledar at [267]. Before rectification of the contract is granted, the actual intention needs to exist in circumstances where it can be seen that there is a common intention of all those entering into the contract: Ryledar at [279].

59. In Ryledar at [281], Campbell JA emphasised that when that intention relates to the terms upon which the parties will contract with each other, it is still necessary for them to know enough of each other's intentions for it to be said that there is a common intention. His Honour explained that the parties might come to know each other's intentions where those intentions are directly stated, or through the various other means by which one person's intentions can become known to another person. Those means sometimes involve a process of conscious and deliberate inference and could also involve simply perceiving a gestalt in a series of events. His Honour also noted that negotiation of any contract takes place in a context in which various facts are known or assumed by the negotiating parties. Thus, for example, if a contract is negotiated in a context where there are well understood business practices and conventions, and nothing is said about those practices and conventions not applying, it can be legitimate to conclude that both parties to the contract intended to act in accordance with those practices and conventions, even if they did not expressly communicate to each other that they intended to act in accordance with those practices and conventions.

60. It is convenient to consider the subject matter of the rectification dispute in the same order as dealt with by the primary judge and again by the parties in oral argument on appeal.

(a) The basis for calculation of interest (flat or reducible)

61. The starting point is to note that the challenge to his Honour’s findings on the interest rate issue is directed solely to the finding that Mr Leonard’s intention was to contract on a reducible rate of interest.

62. Counsel for Ms Mayo contended that this finding is glaringly improbable and contrary to compelling inferences.

63. Alternatively, counsel contended that even accepting that Mr Leonard had a subjective understanding that the underlying interest was charged on a reducible basis, this was not his “governing” or “predominant” intention. It was argued that Mr Leonard’s governing intention was to contract on the basis of the instalment figures as specified in the leases.

64. The focus of the submissions of both parties was on the first and second leases. Argument proceeded upon the basis that the outcome of the flat or reducible rate issue with respect to the first two leases would be determinative of the same issue with respect to the subsequent leases. Neither party suggested that a different outcome might apply to the subsequent leases.

Discussion

65. It is uncontroversial that Ms Mayo did not advise Mr Leonard that interest was calculated on the flat basis. Nor is there any challenge to his Honour’s finding (at [106]) that Ms Mayo did not suggest in her affidavit evidence that Mr Doberer said to Mr Leonard, in her presence, that interest would be charged on a flat basis: at [106]. Thus the primary judge was not required to resolve any conflict in the evidence as between Ms Mayo and Mr Leonard.

66. The substance of Ms Mayo’s argument challenging the primary judge’s acceptance of Mr Leonard’s evidence is that the primary judge should have accepted Mr Doberer’s evidence that he told Mr Leonard that the interest rate would be a flat rate. In addition, counsel for Ms Mayo emphasised that Mr Leonard recanted his evidence on several issues and for this reason the evidence he gave as to his subjective belief at the time of entering the leases should be characterised as implausible.

Rejection of Mr Doberer’s evidence

67. The difficulty with the first part of this argument is that the primary judge simply did not accept Mr Doberer’s evidence where it conflicted with Mr Leonard’s evidence. That was a significant hurdle for the appellant to overcome on appeal.

68. The primary judge recorded (at [73]) the evidence of Mr Doberer that he advised Mr Leonard in the weeks leading up to the execution of the first and second leases that the interest rate would be charged on a flat basis, and therefore the “effective reducible rate is double less a bit”. His Honour noted (at [74]) that Mr Leonard had given a brief affidavit denying that he had such a conversation with Mr Doberer, but in cross-examination was not as definite in his evidence saying that he could not recall the conversation, that he did not think it happened, but he could not be 100 percent sure. Nonetheless, his Honour accepted Mr Leonard’s affidavit and oral evidence that no one advised him that Ms Mayo would be charging interest on a flat basis: at [106].

69. Mr Leonard’s uncertainty in his evidence might have led the primary Judge to be cautious about accepting Mr Leonard’s denial that Mr Doberer had told him that interest would be charged on a flat rate basis, if Mr Doberer’s evidence on the point was clear and convincing. But it was not. The principal difficulty with Mr Doberer’s evidence of what he advised Mr Leonard prior to execution of the first two leases, is that it is inconsistent with Ms Mayo’s statement to him that she wanted to charge only 2% above her home rate and that she wanted to keep Mr Leonard’s costs as low as possible. Given that Mr Doberer had been told that this was Ms Mayo’s intention, it is not surprising that the primary judge rejected his evidence that he told Mr Leonard before signing the first two leases that the interest rate was to be 9% per annum flat, which would have produced a far more burdensome commitment for the company under the leases and would have been contrary to Ms Mayo’s wishes.

70. As a separate matter, there were obvious problems with Mr Doberer’s credibility which clearly affected the primary judge’s assessment of his evidence.

71. One problem is that Mr Doberer changed his evidence on the critical topic of what he said to Mr Leonard at the meeting on 2 December 2005 when the first and second leases were executed. In his affidavit evidence, Mr Doberer stated that he pointed out to Mr Leonard that the interest rate “was 9%”. However, in cross-examination, Mr Doberer asserted that he told Mr Leonard on 2 December 2005, when explaining the terms of the first lease, that “it is 9% flat”. Notably, this proposition had not been put to Mr Leonard in cross-examination. It was also inconsistent with Ms Mayo’s evidence of what was said by Mr Doberer on that occasion. Mr Doberer later acknowledged that his oral evidence was inconsistent with his affidavit evidence. However, no attempt was made in re-examination of Mr Doberer to explain this significant omission from his affidavit.

72. Another problem, as the primary judge found, was that Mr Doberer was in a situation of hopeless conflict of interest from the outset and yet charged fees for his “services” to the company, whilst also acting for Ms Mayo.

73. A further and even more significant problem arose from admissions by Mr Doberer which were incorporated in correspondence between Ms Mayo and Mr Doberer on 1 September 2008, which he later purported to withdraw. Ms Mayo recorded Mr Doberer informing her, at a conference on 31 August 2008, that he had unintentionally miscalculated the lease payments for all nine leases and that his explanation was that he had incorrectly utilised interest rate computer modelling based upon commercial hire purchase agreements at a flat rate of interest and not lease agreements, as should have occurred.

74. Unsurprisingly, Mr Doberer was strongly pressed in cross-examination to explain his asserted admissions. Mr Doberer repeatedly gave answers to the effect “I don’t recall that”, but did not deny making the admissions to Ms Mayo. Nor could Mr Doberer explain why (if the admissions had not been made by him) he had not responded to Ms Mayo’s letter of 1 September 2008 by simply asserting that he had not made any error in the calculation of the lease payments. Overall the unconvincing answers given in cross-examination by Mr Doberer provided strong support for the primary judge’s rejection of his evidence.

Acceptance of Mr Leonard’s evidence

75. As already mentioned, the primary judge was not required to resolve any conflict in the evidence as between Ms Mayo and Mr Leonard. The assessment of Mr Leonard’s evidence essentially turned on the conflict between the evidence of Mr Doberer and Mr Leonard and whether, in any event, Mr Leonard appreciated the basis on which interest had been calculated.

76. The conflict between the evidence of Mr Doberer and Mr Leonard has been addressed above at [67]-[74]. For the reasons given, the challenge to the primary judge’s rejection of Mr Doberer’s evidence must fail.

77. The primary judge accepted Mr Leonard’s evidence that he believed at the time the first two leases were executed that interest would be calculated at 9% per annum reducible. The challenge to this finding should be rejected for the following reasons.

78. First, Ms Mayo does not challenge the finding as to her own state of mind. That finding is that at the time the first two leases were executed she believed the interest rate was 9% per annum reducible. Nor is in dispute that Ms Mayo communicated to Mr Leonard that she wanted interest calculated at 2% above her home loan rate of 7% per annum and there is no challenge to his Honour’s finding that Ms Mayo’s home loan rate was reducible. By saying to Mr Leonard “I will make 2%”, Ms Mayo communicated her intention that she would mark up the interest she was paying on her home loan by 2% as the basis on which the company would pay interest under the leases. This evidence provides corroboration of Mr Leonard’s evidence as to his state of mind.

79. Secondly, Ms Mayo agreed in cross-examination that she told Mr Leonard that the company could have leases “the same as the last CBFC”. Mr Leonard gave unchallenged evidence that interest was calculated at a rate of 9% per annum on a reducible basis on the prior leases entered into by the company with CBFC Ltd. This provides further corroboration of Mr Leonard’s evidence of his state of mind.

80. Thirdly, the contention that Mr Leonard gave disingenuous evidence by using the expression “diminishing value” to describe his understanding of a reducing interest rate should be rejected. Counsel for Ms Mayo ultimately acknowledged that this proposition had not been put directly to Mr Leonard in cross-examination (AT 24/3/15, 30 at lines 1-24; 39 at line 47 – 40 at line 2).

81. Fourthly, it may be accepted, as the primary judge acknowledged expressly, that Mr Leonard changed his evidence on several significant matters. This included his evidence about his lack of awareness that he was executing a personal guarantee and signing a debenture on behalf of the company. However, the asserted implausibility of Mr Leonard’s evidence is not demonstrated by simply pointing to the fact that Mr Leonard changed his evidence on other significant matters and this cast suspicion over the veracity of his evidence that he believed at the time the leases were executed that the interest rate was calculated on a reducible basis.

82. What is critical is that he was never challenged on his evidence that he did not appreciate at or before the execution of the leases that the monthly instalments recorded in the first two leases were inconsistent with an interest rate of 9% per annum reducible. Counsel for Ms Mayo acknowledged that he did not specifically ask Mr Leonard whether he did appreciate the significance of the figures included in the leases (AT 24/3/15, 16 at lines 22-36). As a consequence, Ms Mayo’s case on appeal necessarily relied on inferences from more general evidence. These do not provide a sound basis for concluding that the primary judge made a finding that is glaringly improbable.

83. The more general evidence upon which counsel for Ms Mayo placed greatest emphasis, was Mr Leonard’s evidence in chief as to what he would have (hypothetically) done if he was told at the 2 December 2005 meeting, the cost price of the goods ($129,950) and the monthly repayments ($3,464.50) with respect to the first lease. Mr Leonard gave evidence that he would have tried to find finance elsewhere. He explained that the monthly payment multiplied by 60, was “roughly” $200,000, whereas it should be around “the 160 mark”. Mr Leonard said that based on his “rule of thumb” of 30%, the interest component should be roughly about 30% on top of the cost price of the goods over 5 years. Mr Leonard said that he had been informed of this “rule of thumb” by a representative of CBFC Ltd (from whom the company had previously obtained finance equipment leases at a rate of 9% per annum reducible). The representative from CBFC Ltd had told Mr Leonard that to derive the monthly repayment to see if the company could comfortably afford it, the “rule of thumb” was to take the cost price of the goods add 30% and divide it by 60. Mr Leonard gave similar evidence as to what he would have hypothetically done in relation to the other leases, if he had been told the cost price of the equipment and the monthly instalments.

84. Counsel for Ms Mayo contended that this evidence was “probative dynamite” which rendered implausible Mr Leonard’s evidence that he subjectively believed that the leases were at 9% per annum reducible (AT 24/3/15, 37 at lines 1-7). Counsel pointed to Mr Leonard’s evidence in cross-examination that he was aware of the cost of the equipment and the monthly instalments at the time of execution of the leases. Counsel argued that Mr Leonard would have automatically undertaken the mental arithmetical calculations he had performed when giving his evidence in chief, if he was aware of those facts at the time of entering the leases.

85. The difficulty with this submission is that again the critical questions were never put to Mr Leonard in cross-examination. It was never put directly to him that he had a usual practice, before entering into leases, of calculating the total cost of the finance and comparing that to the cost of the equipment using his “rule of thumb” that the interest component should be about 30% of the cost of the equipment. Nor was it put directly to Mr Leonard that on the particular occasion of the 2 December 2005 meeting, or with respect to the subsequent leases, he calculated the total payments under the leases in comparison to the cost of the equipment and concluded that the interest component was greater than 30% of the cost of the equipment.

86. Indeed, Mr Leonard’s unchallenged evidence in cross-examination was that although he later came to the conclusion that the total lease payments represented a figure of 50% “extra” than the cost of the equipment, he did not undertake that calculation at the time of signing the leases.

87. It may be accepted that cross-examination of Mr Leonard on these matters might have undermined the company’s claim for rectification on this subject matter, having regard to Mr Leonard’s demonstrated arithmetical ability when giving his evidence in chief and his relatively simple 30% “rule of thumb” for the interest component of the finance. Nonetheless, in the absence of such cross-examination, it is not open to this Court to infer what the answers would have been and to proceed from that speculative foundation to find that the primary judge made findings of fact that were implausible or contrary to compelling inferences.

Mr Leonard’s “governing” intention

88. Counsel for Ms Mayo contended, in the alternative, that even if Mr Leonard had a subjective understanding that the interest rate in the leases was to be charged on a reducible basis, the primary judge’s finding that this was Mr Leonard’s “governing” intention is glaringly improbable and contrary to compelling inferences. Counsel argued that the primary judge should have found that Mr Leonard had a concurrent intention to contract on the basis of the instalment figures specified in the leases and, furthermore, that this was his “governing” intention.

88. The difficulty with this argument may be seen from Ms Mayo’s written submissions, which included the following contention:

The embedded rate of interest is significant to the extent that it substantially determines the calculation of the instalment amount; however, it logically can not have a significance which transcends and prevails over the quantum of those instalment amounts. At the end of the day, it is the number and amount of the instalments which is intuitively of paramount significance.

90. However, it was never put directly to Mr Leonard that the instalment figures specified in the leases, rather than the interest rate embedded in the monthly payments, was of paramount concern to him. Nor was it put directly to him that it was his intention to contract on the basis of the amount and number of instalments irrespective of the amount of the interest component under the leases.

91. The assessment of Mr Leonard’s governing intention must be based on the evidence, not assumptions as to what might be thought to be intuitively of paramount significance to him. Counsel’s submissions on this topic ignored the critical evidence of Mr Leonard that whilst he understood the company was contracting on the basis of the monthly instalment figures specified in the leases, it was his intention to contract at an interest rate calculated on a reducible basis. Further Mr Leonard gave unchallenged evidence that he would not have entered the leases if he had appreciated that the interest rate was calculated on a flat basis, which equated to a much higher rate of interest calculated at a reducible rate.

92. The challenge to the primary judge’s finding as to Mr Leonard’s governing intention with respect to interest is not made out.

(b) The GST issue

93. Ms Mayo challenged his Honour’s finding that the parties had a common intention at the time of entry into the leases, for GST to be appropriately treated in the leases. Ms Mayo contended that this finding is glaringly improbable and contrary to compelling inferences.

94. In her challenges to the primary judge’s findings of fact, Ms Mayo contended for a finding that she intended GST to be treated in the manner provided for in the written terms of the leases. In practical terms, this amounted to the somewhat surprising contention that Ms Mayo intended that GST be double charged in the leases.

Discussion

95. The starting point is that it is common ground that Mr Doberer made a mistake when preparing the leases by charging GST twice (except it seems in relation to the second and sixth leases: see [22(b)] above) – once by including GST in the gross purchase price of the equipment which was used to calculate the monthly lease payments and again by including a separate charge for GST on each lease payment.

96. The substance of Ms Mayo’s argument is that there was no direct evidence to support the finding by the primary judge that the parties intended that GST be treated correctly, that is, not overcharged. That submission must be rejected. Ms Mayo gave evidence to that effect. Having given evidence that she left the charge for GST up to Mr Doberer, Ms Mayo agreed with the cross-examiner that it was not her intention to overcharge for GST. Mr Leonard also gave evidence from which the inference could be drawn that he also had an actual intention that GST be correctly charged.

97. Complaint was also made that the primary judge used his finding that Ms Mayo would have agreed to correct the calculation if she had known that GST was being improperly charged twice, as the basis for erroneously ordering rectification in respect of a subject matter “which the parties did not have in their mind when the leases were executed even if, had they thought of them, they would have intended them”: Carlenka at 331 (Mahoney AP); Franklins v Metcash at [445] (Campbell JA); Codelfa at 346. This contention must be rejected. His Honour relied upon this finding for a different purpose. This was that Ms Mayo’s evidence that she would have agreed to correct the calculation if she had known that GST was being improperly charged, supported the finding that Ms Mayo had an actual intention at the time of execution of the leases, that GST be appropriately treated. This did not involve the type of erroneous reasoning which the authorities such as Franklins v Metcash have warned against.

98. Nor was there any error in his Honour’s conclusion that the parties intended the leases to achieve a particular effect, namely for GST to be charged correctly, but the written terms of the leases (by double charging for GST) failed to achieve that intended effect. Ms Mayo’s evidence is consistent with her having that intention and so is the evidence of Mr Leonard. Ms Mayo’s conduct in seeking to take advantage of the mistake in overcharging GST (except it seems on the second and sixth leases), was unconscionable.

99. In Carlenka, McLelland AJA observed (at 345), that in general the remedy of rectification is available where, at the time of execution of the instrument, the relevant parties may have had an actual 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. His Honour continued:

... [i]n this context 'effect' means the legal and factual operation of the instrument according to its true construction, but does not include legal or factual consequences of the operation of the instrument of a more remote, or collateral, kind (for example, its liability to stamp duty).

100. Here the effect of the leases as executed was that the charge for GST was duplicated. The leases failed to achieve their intended effect as to the amount to be charged to the company for GST. This was not a legal or factual consequence of the operation of the leases of a remote or collateral kind of the type referred to by McLelland AJA in Carlenka, where rectification would not be appropriate.

(c) The bank fees issue

101. Ms Mayo also challenged his Honour’s finding that the parties had a common intention at the time of entry into the leases, that there be no monthly payments in the amount of $10 on account of bank fees. Again, Ms Mayo contended that this finding is glaringly improbable and contrary to compelling inferences.

102. In her challenges to the primary judge’s finding of fact, Ms Mayo contended that there was no proper basis for a finding that the transactions did not cost Ms Mayo a monthly charge of $10, or that she would have agreed to omit the bank fees if Mr Leonard had raised concerns about the bank fees. Counsel argued that the bank fee was for cost recovery, because Ms Mayo was paying bank fees on her loan and the monthly bank fee included in the leases were to recover those costs.

Discussion

103. Ms Mayo’s written submissions on the bank fees issue focused solely on the primary judge’s finding that Ms Mayo’s intention at the time of executing the leases was that no payment of bank fees would be required. No complaint was made that the primary judge made no finding that Mr Leonard’s intention at the time of executing the leases was that no payment of bank fees would be required. Such a finding was essential having regard to the consensual nature of the common intention which must be established as a basis for rectification: Ryledar at [282]. Accordingly, the written submissions, like ground 5 of the notice of appeal, entirely missed the point.

104. After the Court drew this matter to the parties’ attention, counsel for Mr Leonard accepted that the primary judge made no finding as to Mr Leonard’s intention with respect to bank fees (AT 24/3/15, 43 at line 11). Nonetheless, counsel contended that this Court should make a finding that Mr Leonard had a common intention with Ms Mayo not to include bank fees in the leases. Counsel for Ms Mayo responded that such a finding should not be made in relation to Mr Leonard’s intention, and therefore rectification with respect to bank fees should not have been (and should not be) ordered.

105. Argument on this issue proceeded in this Court on the basis of the matters which were debated and recorded in the transcript, notwithstanding the absence of a formal ground of appeal, or a notice of contention. In view of the relatively small sum involved, it is appropriate for the Court to proceed on this basis.

106. The absence of a finding by the primary judge as to Mr Leonard’s intention with respect to bank fees is unsurprising when one considers the way in which the company conducted its case at trial.

107. First, the company’s pleaded case did not include any contention that it was the common intention of the parties up to and including at the time of signing the leases, that there be no monthly charge of a $10 bank fee (see para 32, Third Further Amended Statement of Claim (FASC)). Whilst the company did claim relief by way of rectification, the claim was based on an alleged prior oral agreement (as pleaded in paragraph 11 FASC) the terms of which made no reference to payment of bank fees (see para 33 FASC).

108. Thus the company’s claim for rectification with respect to bank fees was based on the contention that because bank fees were not mentioned, let alone agreed during the initial discussions between Ms Mayo and Mr Leonard, the parties had a common intention at the time of entry into the leases not to include bank fees in the leases. But by the time the lease schedules had been prepared by Mr Doberer and Ms Mayo, the contrary was clear on the face of the lease schedules signed by Mr Leonard on behalf of the company.

109. Secondly, at trial, Mr Leonard did not give any evidence that it was his intention immediately prior to signing the leases that no payment of bank fees was required.

110. Thirdly, the company’s closing written submissions on the bank fees issue were extremely brief, comprising only two paragraphs. These submissions were directed solely to Ms Mayo’s intention not to charge a bank fee. No submission was made with respect to Mr Leonard’s intention.

111. However, in support of this Court making a finding that Mr Leonard intended that no payment for bank fees was required, counsel for Mr Leonard pointed to the evidence of the discussion between Ms Mayo and Mr Leonard that she would charge the company 9% interest, and the absence of any mention of a charge for bank fees. Counsel also emphasised the context of the relationship between Ms Mayo and Mr Leonard, being that Ms Mayo was attempting to assist the company financially in circumstances where it could not obtain finance elsewhere.

112. Against making such a finding are a number of matters. The first and most significant matter is that which has already been mentioned – Mr Leonard gave no evidence that it was his intention that no bank fees would be required. Nor did Mr Leonard give evidence of sharing a common understanding with Ms Mayo that her offer to assist the company financially in circumstances where it could not obtain finance elsewhere, was on the basis that there would be no costs involved to the company beyond the interest charged. Indeed Mr Leonard’s evidence that GST would be appropriately charged on the leases, was inconsistent with any assumption by him that there would be no other costs except for the interest charge.

113. Secondly, in cross-examination, Mr Leonard conceded that at the time of execution of the first and second leases on 2 December 2005, Mr Doberer could have said to him words to the effect “these are the payments due”, when pointing with his finger to box 11 of the lease schedules, prior to requesting Mr Leonard to place his initials next to the hand written amounts appearing in box 11. Mr Leonard agreed that he would have looked at box 11 and identified the amount of the rental payment, “the first one”. He also agreed with the cross-examiner’s proposition that when he looked at box 11 on 2 December 2005, he could read and understand what the figures were conveying in terms of amounts of money, although he qualified this by saying “I would have looked at the box, yes, I would have seen the figures in that box where it said ‘Rental 3,140.46’”.

114. Mr Leonard’s initials appear next to box 11 in the lease schedules for the first and second leases, immediately adjacent to the rental figure under the box marked “Rental $”. The boxes immediately following are headed “GST”, “Bank Fees” and “Amount Payable”. Underneath the box headed “Bank Fees” appears the handwritten figure “10.00”.

115. It is probable that Mr Leonard paid little attention prior to signing the leases to the bank fees referred to in box 11, because the amount was relatively small. However, I am not persuaded that the evidence permits a finding that Mr Leonard was unaware of the charge for bank fees of $10 per month, when he initialled box 11 in the lease schedules on 2 December 2005. This is fatal to any finding of an actual common intention that no payment of bank fees would be required.

116. The position in relation to Mr Leonard’s execution of the subsequent leases is either the same or similar, with the exception of the eighth lease which was unsigned. The third lease contains Mr Leonard’s initials next to box 11, where the reference to bank fees of $10 per month appears. The fourth, fifth, sixth and seventh leases, each contain Mr Leonard’s signature at the bottom of the page where box 11 appears.

117. In relation to the eighth lease, a lease was prepared but not signed by the parties. The lease schedule contains the same charge for bank fees of $10 per month in box 11. There was a factual dispute at trial in relation to the eighth lease as to whether Ms Mayo had requested Mr Leonard to sign the document and whether Mr Leonard delayed doing so. Nonetheless it was common ground on appeal, as the primary judge had found (at [41]), that the unsigned eighth lease was binding by reason of the course of conduct between the parties on previous occasions.

118. In my view, the evidence does not establish that Mr Leonard had an intention that the payment of bank fees was not required. Even if (contrary to my view) he had such an intention, it remained undisclosed to Ms Mayo. Although the primary judge’s attention was not directed to the critical point, in my opinion, the primary judge erred in ordering rectification with respect to this subject matter of the leases.

Other matters

119. As mentioned above, the eighth lease was not signed by the parties. Rectification is only available to reform the parties' document, but not to reform the parties' bargain: Maralinga at 350 (Mason J); J W Carter, Contract Law in Australia, (6th ed 2013, LexisNexis Butterworths) at [21-02]. In Sindel v Georgiou [1984] HCA 58; 154 CLR 661, the High Court ordered rectification in the case of an exchange of parts of a contract for the sale of land where each party had only signed their counterpart of the contract.

120. In Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21 (Vantage Systems) at [181] Buss JA (McClure P and Newnes JA agreeing) the Western Australian Court of Appeal ordered rectification in circumstances analogous to those in Sindel v Georgiou. In Vantage Systems a revised proposal for a lease of premises, together with a licence in respect of six car bays, was executed by the lessor and submitted to the proposed lessee. The proposed lessee did not execute the revised proposal but rather sent an email to the lessor accepting the revised proposal. The Court of Appeal held (at [170]) that those documents together constituted a contract and, also, an instrument for the purposes of the law of rectification.

121. In the present case, no issue was raised by Ms Mayo either at trial, or on appeal, that rectification should not have been ordered in relation to the eighth lease because it was unsigned by both parties. The matter is mentioned here only to show that it has not been overlooked. It is unnecessary, in view of the way in which the parties framed the dispute, to say anything further on this issue.

Conclusion

122. The appeal has failed on all grounds except the bank fees issue. The rectification of the leases ordered by the primary judge with respect to bank fees should be set aside.

123. On the question of costs, I do not consider that Mr Leonard should be deprived of any part of his costs of the appeal. The matters which lead to this conclusion are first, Mr Leonard’s overall success in resisting the appeal, including on the central or dominant issue of the basis of the calculation of interest. Secondly, Ms Mayo has achieved only limited success on the bank fees issue, but not on the grounds raised in her notice of appeal, rather, on the basis raised by the Court in the course of argument. The amount involved is relatively trivial ($4,800). If a proper ground of appeal had been raised, it may be that Mr Leonard would have conceded on this point. In any event, no written submissions were directed to the relevant issue and the point occupied only a very small amount of time in oral argument.

124. Accordingly, I propose the following orders:

1.   Appeal allowed in part.

2.   Vary orders 1(c)(iii), 2(c)(iii), 3(c)(iii), 4(c)(iii), 5(c)(iii), 6(c)(iii), 7(c)(iii), 8(c)(iii) made by Sackar J on 8 October 2013, by deleting the figures “$0.00” appearing next to the words “Bank Fees” and substitute the figure “$10.00”.

3.   Vary orders 1(c)(iv), 2(c)(iv), 3(c)(iv), 4(c)(iv), 5(c)(iv), 6(c)(iv), 7(c)(iv), 8(c)(iv) made by Sackar J on 8 October 2013, by deleting the figure appearing next to the words “Amount Payable” and substitute the following figures in:

1. order 1(c)(iv) – $2,707.55;

2. order 2(c)(iv) – $217.79;

3. order 3(c)(iv) – $881.85;

4. order 4(c)(iv) – $421.02;

5. order 5(c)(iv) – $875.51;

6. order 6(c)(iv) – $402.28;

7. order 7(c)(iv) – $468.93;

8. order 8(c)(iv) – $1,144.50.

4.   The appeal be otherwise dismissed.

5.   Direct the parties to file within 14 days any consent order with respect to the amount owing (including prejudgment interest) by the respondents to the appellant in relation to bank fees under the lease agreements.

6.   In default of agreement between the parties as to the amount of the judgment sum referred to in 5 above, direct the parties to file and serve within 21 days their proposed short minutes of order together with short submissions in support not exceeding three pages.

7.   The appellant to pay the second respondent’s costs of the appeal.

125. SACKVILLE AJA: I agree with Gleeson JA.

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Decision last updated: 08 May 2015