Oliver Hume (Australia) Pty Ltd v Land Source Australia Pty Ltd & Ors (No 2)
[2016] VSC 72
•11 March 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
LIST A
S CI 2014 00215
| OLIVER HUME (AUSTRALIA) PTY LTD (ACN 068 318 712) | Plaintiff |
| v | |
| LAND SOURCE AUSTRALIA PTY LTD (ACN 132 726 151) | Defendant |
S ECI 2014 00220
| OLIVER HUME (AUSTRALIA) PTY LTD (ACN 068 318 712) | First Plaintiff |
| and | |
| OLIVER HUME REAL ESTATE GROUP PTY LTD (ACN 158 513 190) | Second Plaintiff |
| v | |
| ELYSIAN GROUP PTY LTD (ACN 114 025 204) | First Defendant |
| and | |
| HEATH ADAM WOODMAN | Second Defendant |
S ECI 2014 00221
| OLIVER HUME (AUSTRALIA) PTY LTD (ACN 068 318 712) | First Plaintiff |
| and | |
| OLIVER HUME REAL ESTATE GROUP PTY LTD (ACN 158 513 190) | Second Plaintiff |
| v | |
| CA & CA BALLAN PTY LTD (ACN 006 578 972) | First Defendant |
| and | |
| ADAM BALLAN | Second Defendant |
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JUDGE: | CAMERON J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 20 and 21 May 2015 |
DATE OF JUDGMENT: | 11 March 2016 |
CASE MAY BE CITED AS: | Oliver Hume (Australia) Pty Ltd v Land Source Australia Pty Ltd & Ors (No 2) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 72 |
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AMENDMENT OF PLEADING — Objection to proposed amendments to pleading which plead rectification and misleading and deceptive conduct – Where pleading is defective – Estate agent arguably failed to comply with the statutory requirements in the Exclusive Sales Authorities – Estate Agent Act 1980 s 49A, s 50 – Whether illegality precludes the Court from granting the equitable remedy of rectification – Where pleadings are defective – Objection affirmed – Leave granted to replead.
PLEADING STRIKE OUT —Application of the defendants seeking to strike out part of the amended statements of claim by the plaintiffs which plead rectification and misleading and deceptive conduct – Whether the amended statements of claim should be struck out – Supreme Court (General Civil Procedure) Rules 2005 r 23.02 – Estate agent arguably failed to comply with the statutory requirements in the Exclusive Sales Authorities – Estate Agent Act 1980 s 49A, s 50 – Whether illegality precludes the Court from granting the equitable remedy of rectification – Where pleadings are defective – Pleadings struck out in part – Leave granted to replead.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr L. Glick, one of her Majesty’s Counsel with Mr D.F. McAloon | Strongman & Crouch |
| For the Defendant (Land Source proceeding) | Mr P.L. Ehrlich | Norton Gledhill |
| For the Defendant (Ballan; Elysian proceedings) | Mr D.J. Batt, one of her Majesty’s Counsel with Mr S. Gory | Maddocks |
HER HONOUR:
Background
There are three separate proceedings before the Court. Oliver Hume (Australia) Pty Ltd (‘Oliver Hume’) is the plaintiff in proceedings against Land Source Australia Pty Ltd (‘Land Source’). Oliver Hume and Oliver Hume Real Estate Group Pty Ltd (‘Oliver Hume Real Estate’) are the plaintiffs in the two other proceedings. The defendants in those proceedings are respectively Elysian Group Pty Ltd and Heath Adam Woodman (‘Elysian’), and CA & CA Ballan Pty Ltd and Adam Ballan (‘Ballan’).
I set out the factual background to the Land Source proceeding in my judgment dated 6 March 2015 and I will not repeat it here.[1] In relation to Elysian and Ballan, the relevant facts are almost identical and I will, in summary, refer to them. Otherwise, I will proceed on the basis that my earlier reasons have been read and the background understood. I have not previously heard any applications in relation to Elysian or Ballan, so my previous reasons did not consider their position. They raise new arguments which ought properly be heard afresh which have, in large part, sought to be adopted by Land Source.
[1]Oliver Hume (Aust) Pty Ltd v Land Source Australia Pty Ltd [2015] VSC 77.
Oliver Hume is a real estate agent and has made claims against Elysian and Ballan for allegedly unpaid commissions in relation to particular property sales. Elysian and Ballan have denied those claims to commission and have also counterclaimed against Oliver Hume to be repaid the amount of commission that they have already paid to Oliver Hume.
In similar terms to the Land Source proceedings, Elysian and Ballan claim that, amongst other things, the relevant agreements between them and Oliver Hume, that is, Exclusive Sale Authorities (‘ESAs’), do not comply with the requirements of s 49A(1) and s 50 of the Estate Agents Act 1980 (‘the Act’). They claim that Oliver Hume has committed an offence under the Act and is shut out from relief because, it was put, equity will not come to the aid of a party in the face of illegality.
In particular, Elysian and Ballan claim that Oliver Hume failed to comply with s 49A(1)(c) by failing to hold a signed written appointment which sets out the amount payable on commission both in percentage and dollar terms.[2] In addition, it is said that the agent failed to comply with the Act as any written appointment should include a rebate statement in the form specified in s 49A(4)(c) and s 49A(1)(c)(iii) which, it is said, the written agreement failed to do.[3]
[2]Estate Agents Act 1980.
[3]Ibid.
In relation to the Land Source proceeding, Land Source adopted the submissions of Elysian and Ballan as to illegality.
In addition, Land Source raises particular objections to the form of the amended pleading against it. It was submitted that the pleading fails to properly disclose a cause of action in respect of both claims for rectification and misleading and deceptive conduct.
The applications before the Court
The applications before me were as follows:
(1)A summons dated 8 May 2015 issued by Elysian seeking to strike out paragraphs 7A to 7O (inclusive), paragraph 2 of The Prayer for Relief, and annexures A to P (inclusive) of Oliver Hume’s Amended Statement of Claim dated 1 May 2015 pursuant to r 23.02 of the Supreme Court (General Civil Procedure) Rules 2005 (‘the Rules’);
(2)A summons dated 8 May 2015 issued by Ballan seeking to strike out paragraphs 7A to 7O (inclusive), paragraph 2 of the Prayer for Relief and Annexures A to G (inclusive);
(3)A summons dated 28 November 2014 issued by Oliver Hume in the Land Source proceeding seeking that Lindsay Kotzman be joined to the present proceeding as second defendant and that Oliver Hume be granted leave to file and serve an amended writ and statement of claim;
(4)A summons dated 30 September 2014 filed by Land Source seeking summary judgment to dismiss Oliver Hume’s claim and for relief on its counterclaim; and
(5)A summons dated 12 December 2014 filed by Land Source seeking to have certain questions in relation to the statutory compliance of the Exclusive Sale Authorities entered into between it and Oliver Hume (‘the Land Source ESAs’) to be tried before the trial of the proceeding, pursuant to r 47.04 of the Rules.
The summonses in sub-paragraphs (4) and (5) came before me at the hearing for directions and were, pending the outcome of the other applications, adjourned sine die.
In the Elysian and Ballan proceedings,[4] Oliver Hume proposed amendments to its statements of claim dated 1 May 2015.
[4]Proceeding no S ECI 2014 000220 and S ECI 2014 000221.
The amended statements of claim filed by Oliver Hume against Elysian and Ballan are nearly identical in substance. In effect, Oliver Hume seeks rectification of the ESAs.
Firstly, Oliver Hume seeks to rectify the ESAs by including 16 annexures reflecting the specific amount of commission in relation to each of the properties sold by the Oliver Hume, should the Court find the ESAs in breach of ss 49A and 50 of the Act, (which, it should be noted, is not admitted by Oliver Hume).
Secondly, in the amended statements of claim, Oliver Hume alleges that, unless the ESAs are varied to remove the ‘preclusion clauses’, Oliver Hume will suffer loss and damage. The ‘preclusion clauses’, in effect, are to prevent Oliver Hume from receiving any commission on the deposit received and kept by the defendants, in the situation where a contract of sale was terminated before settlement.
Oliver Hume alleges the defendants had not disclosed to the plaintiff the preclusion clauses, to the detriment of Oliver Hume, which would amount to misleading and deceptive conduct in contravention of the Australian Consumer Law.
In the Land Source proceeding,[5] Oliver Hume, pursuant to orders of this Court,[6] filed an amended statement of claim to seek rectification and sought to join Mr Kotzman to that proceeding. In essence, the issues raised by Land Source are the same as those raised by Elysian and Ballan.
[5]Proceeding no S CI 2014 00215.
[6]Orders of the Honourable Justice Cameron dated 12 March 2015.
I will deal with summonses (1) to (3) in turn but firstly I will consider the legislative provisions.
It was submitted, and I accepted, that as the three summonses before me raised almost identical issues, they ought be dealt with in one ‘package’. That is how I propose to proceed.
Relevant provisions of the Act
Section 49A of the Act sets out certain requirements that an estate agent must comply with and certain information that she or he must provide in order to obtain payment for work done. This section also provides that failure to comply with these requirements is a criminal offence.
49A Offence not to give certain information about commission
(1)An estate agent must not obtain, or seek to obtain, any payment from a person in respect of work done by, or on behalf of, the agent or in respect of any outgoings incurred by the agent unless—
(a)the agent holds a written engagement or appointment that is signed by the person (or the person's representative); and
(b)before obtaining the person's signature to the engagement or appointment, the agent (or an agents’ representative employed by the agent) informed the person (or the person’s agent or representative) that the commission to be paid to the agent under the engagement or appointment and any money to be paid by the person in respect of outgoings were subject to negotiation; and
(c)the engagement or appointment contains—
(i)details of the commission and outgoings that have been agreed; and
(ii)if a fee is to be calculated on a percentage basis, a statement of that fee expressed as both a percentage and as the dollar amount that would be payable on the reserve price or any other relevant amount set out in the engagement or appointment; and
(iii)a rebate statement that complies with subsection (4); and
(iv)a statement in a form approved by the Director as to where a complaint concerning any commission or outgoings in the engagement or appointment can be made; and
(v)anything else required by the Director; and
(d)the agent (or an agent’s representative employed by the agent) gave the person a copy of the signed engagement or appointment.
Penalty: 100 penalty units.
(2)An estate agent or agent’s representative must not destroy any document required by this section and must retain any such document for the prescribed period.
Penalty: 100 penalty units.
(3)If an estate agent takes any money in respect of commission or outgoings from any money held in trust by the agent on behalf of a person, the agent must give the person written notice of the amount taken, and why it was taken, within 7 days of taking it.
Penalty: 100 penalty units.
(4)A rebate statement complies with this subsection if it is in a form approved by the Director and it contains—
(a)a statement of whether or not the agent will be, or is likely to be, entitled to any rebate in respect of—
(i)any outgoings; or
(ii)any prepayments made by the person engaging or appointing the agent (the client ) in respect of any intended expenditure by the agent on the client's behalf; or
(iii)any payments made by the client to another person in respect of the work; and
(b)if such an entitlement will, or is likely to, occur, details of—
(i)the goods or services to which the rebate relates; and
(ii)the name of the person providing the rebate; and
(iii)the amount of the rebate that will be attributable to the engagement or appointment, or if that amount is not known at the time the statement is made, an estimate (in dollars) of the amount; and
(c)a statement that the agent is not entitled to retain any rebate and must not charge the client an amount for any expenses that is more than the cost of those expenses; and
(d)any other statements or details required by the regulations.
(5)Section 48C also applies for the purposes of subsection (4)(b)(iii).
Similarly, s 94 renders all non-compliance with the Act an offence.
94 Offences
(1)Every person who contravenes or fails to comply with any provision of this Act or of the regulations shall be guilty of an offence against this Act.
(2)A person who is guilty of an offence against this Act for which no penalty is expressly provided is liable to a penalty of not more than 25 penalty units.
(3)Where two or more persons commit or knowingly authorize or permit the commission of any offence against this Act each person shall be liable for the offence and the liability of each person shall be independent of the liability of the other or others.
Section 50 of the Act sets out the consequences of non-compliance with s 49A,[7] including that the estate agent is not entitled to recover or retain the commission.
[7]Estate Agents Act 1980.
50 Commission
(1)An estate agent is not entitled to sue for or recover or retain any commission or money in respect of any outgoings for or in respect of any transaction unless—
(a)at all material times in relation to the transaction he or she is the holder of an estate agent's licence; and
(b)the agent has complied with section 49A(1) with respect to the engagement or appointment to undertake the transaction and is not in breach of section 49A(2) with respect to the engagement or appointment; and
(c)the agent has complied with sections 48A and 48B with respect to the engagement, appointment or transaction.
(4)Any estate agent who demands or receives or retains from or pays out of any moneys held by him or her on behalf of another person any fee in respect of negotiating or procuring an advance under the Co-operative Housing Societies Act 1958 or any loan under the Housing Act 1983 and any estate agent who for or in respect of any service or transaction or any auctioneer who for or in respect of the sale by auction of any real estate demands receives or retains from any moneys received by him or her an amount by way of commission or otherwise which is in excess of the amount allowed by the agent's engagement or appointment to act shall be guilty of an offence against this Act; and the Court, in addition to imposing any penalty, may order the agent or auctioneer, to refund any excess or improper amount received or retained by him or her.
(5)Any covenant agreement or condition whereby any person agrees to waive or surrender any right or remedy which he or she may have in respect of the excess or improper amount received or retained by an estate agent or auctioneer, or in any event, any covenant agreement or condition whereby any person agrees to waive or surrender any right or remedy which he or she may have against any estate agent or auctioneer under this Act shall be absolutely void and of no effect whatsoever.
The threshold question – should rectification be allowed where a statutory offence has (arguably) been committed?
The threshold question for determination is whether the remedy of rectification is available at all in circumstances where a statutory offence has (arguably) been committed.
For the purposes of determining this point, I note that Oliver Hume maintains that it has complied with the relevant provisions of the Act which, of course, is yet to be determined. As I have previously observed, that is a matter for trial.
Submissions of Elysian and Ballan
In summary, Elysian and Ballan contend that:
(i)If a court were to grant relief in the form of rectification where a statutory offence has been committed, the ‘coherence’ of the law would be undermined or otherwise statutory policy would be stultified.[8] It is said that this would result in a fracturing of the law;
(ii)This is such a case as Oliver Hume (it is alleged) failed to comply with s 49A of the Act and, it is said, committed a criminal offence;
(iii)If the remedy of rectification was to be available in these circumstances, then ‘any person could apply to rectify a written instrument that was entered into in breach of a criminal provision on the basis that the person did not intend to breach that provision’;[9] and
(iv)If the court granted relief in these circumstance it would, in effect, cure an offence committed under s 94(1) and ‘make legal which is illegal’.[10]
[8]Defendants’ Outline of Submissions 5 [16] nn 16.
[9]Ibid 5 [17].
[10]Ibid 6 [17].
In particular, it was submitted by Elysian and Ballan, and adopted by Land Source, that this argument was fatal to Oliver Hume’s claim to retain any commission that it has already been paid or to seek payment of further commission. I note that Oliver Hume ultimately did not pursue any objection to Land Source effectively raising (or developing) new arguments (that is, illegality) which may not have been fully agitated before me previously.
As Land Source adopted Elysian and Ballan’s submissions in relation to illegality, my comments and observations in relation to Elysian and Ballan ought be understood to apply equally to Land Source.
In summary, Elysian and Ballan advanced two principal arguments. These were:
(i)The authorities establish that where there is an illegal transaction, a party is precluded from seeking rectification, even if it were properly pleaded and established on its facts. As I have observed, it is said, in this case, that an offence has been committed by virtue of the operation of ss 49A and 94 of the Act; and
(ii)Rectification is not available to assist Oliver Hume in this case in any event. It was submitted that even if all the facts in Oliver Hume’s Amended Statements of Claim were made out (which I am required to accept in the context of this application in relation to Elysian and Ballan), the instruments (being the ESAs) are binding in their form. Most importantly, it was submitted that Oliver Hume seeks rectification because of the ‘effect’ of the ESAs. It was submitted that this effect is collateral, remote or external to the ESAs themselves. Accordingly, it was submitted, this is beyond the reach of the boundaries of the remedy of rectification.
I was not directed to any authority by Elysian, Ballan or Land Source which specifically dealt with the remedy of rectification in the context of the commission of an offence.
In the course of their submissions, Elysian and Ballan relied on the High Court decision in Nelson v Nelson.[11] In that case, a person illegally procured a subsidy to purchase a house. In short, the question of the beneficial ownership of the house was in issue and the question was whether the person could receive the benefit of a declaration of ownership in circumstances where that ownership would contravene legislation. The issue was whether equity would assist ‘to obtain for the first appellant the actual fruits of her unlawful conduct’.[12]
[11](1995) 184 CLR 538.
[12]Ibid 573 (citations omitted).
Counsel for Elysian and Ballan relied on this case in support of the proposition that equity ought not come to the aid of a party where that may yield a result which is inconsistent with legislation that creates a criminal offence. It was submitted that the High Court held that this is particularly the case where the statute demonstrates an intention that the rights in question be unenforceable in the event of non-compliance as follows:
Illegality and statute
In a case where principles of illegality operate, the result is to impugn the plaintiff’s rights, legal and equitable. It is true that, on occasion, the courts, in refusing to order reconveyance to the plaintiff of property transferred to further a purpose forbidden by statute, have said that the plaintiff lacks clean hands. An example is Groves v Groves (36) where land had been so conveyed to give a property qualification to the transferee; but Alexander CB also said that the illegal object of the conveyance required refusal to interfere “consistently with law and equity”. In some cases the doctrine as to parties in pari delicto has been treated as the common law “counterpart” to the equity maxim, so that the two concepts are interchangeable (37).
However, in cases of illegality, it is not merely a question, as is involved with the operation of the maxim that he who comes to equity must come with clean hands, of denying the plaintiff equitable remedies, for example, specific performance of a contract, whilst leaving the plaintiff to the remedy at law, for example, damages for breach of contract. The distinction between the operation of the equity maxim, as a discretionary defence to a claim to equitable relief, and the notion of illegality has been drawn by Professor Pettit. Writing as contributor to the title “Equity” in Halsbury and with citation of much authority, he says (38):
“Where the transaction is itself unlawful it is not necessary to have recourse to this principle. In equity, just as at law, no suit lies in general in respect of an illegal transaction, but this is on the ground of its illegality, not by reason of the plaintiff's demerits.” [13]
[13]Ibid 613 (Deane and Gummow JJ).
It was also submitted that, consistent with Miller v Miller,[14] the court should consider the public policy issues associated with enforcing a party’s rights where there is illegality. In that case it was held that ‘the central policy consideration at stake is the coherence of the law’.[15] In that case, the Court considered a potential conflict between a criminal offence and the tort of negligence. It was held that ‘[u]ltimately, the question is: would it be incongruous for the law to proscribe the plaintiff’s conduct and yet allow recovery in negligence for damage suffered in the course, or as a result, of that unlawful conduct?’.[16]
[14](2011) 242 CLR 446.
[15]Ibid 454.
[16]Ibid 455.
In Equuscorp Pty Ltd v Haxton,[17] the High Court held that it was not possible to claim restitutionary relief in relation to loan agreements which were in breach of company legislation. The High Court came to this conclusion after considering the purpose of the statutory provisions that had been breached, finding that ‘[t]he availability of restitutionary relief [would] stultify the purpose of the statutory provisions’.[18]
[17](2012) 246 CLR 498.
[18]Ibid 499.
On the basis of these authorities, Elysian and Ballan submitted that there was a lack of coherence created in this case and equitable relief should not be granted. This, it was said, is because the Act expressly provides that where s 49A has not been complied with,[19] it is a criminal offence to seek or retain commission. To award rectification in these circumstances, it was argued, would be to place equitable principles in direct conflict with the clear statutory prohibition and would go against the policy aims of the Act. Strict compliance with the Act, it was said, is required and the aim of the Act is to prevent recovery or retention of commission where there is non-compliance. There would, it was submitted, be a clash of systems, with equity coming to the aid of a party who had committed an offence, thus creating a fracturing in the law.
[19]Estate Agents Act 1980.
Submissions of Oliver Hume
Oliver Hume’s submissions in relation to these matters were to this effect:
(i) The Court, by the March judgment, has considered these arguments and they have been rejected (although this point was not pressed);
(ii) Rectifying the ESAs and the Land Source ESAs does not result in a conflict between the criminal and civil law;
(iii) The Elysian and Ballan’s submissions conflate the concepts of illegality in relation to enforcement with rectification; and
(iv)There is, in any event, a distinction between rectification and other equitable remedies as the remedy of rectification operates retrospectively (as distinct from other equitable remedies) with the effect that the contract is treated as if it had always complied with the law.
In support of these submissions, Oliver Hume relied on the judgment of Davies J in King v Lynpeat Australia Pty Ltd.[20] In that case it was held that:
It is not sufficient merely to show some dishonest or unmeritorious conduct. The relevant conduct must have the requisite necessary relation to the equity sued on in order to found refusal of relief.[21]
[20][2012] VSC 140.
[21]Ibid [34].
It was argued that this case demonstrates that there needs to be an immediate relationship between the equitable remedy and the illegal act. It was submitted that this close relationship was not established in this case because the Act does not render the contract itself illegal; it renders the act of collecting or retaining commission pursuant to that agreement illegal.
Oliver Hume argued that granting rectification in this case would not result in a lack of coherence in the law because it would not make an unlawful contract lawful. The parties accepted that the instruments were legal; the point of dispute was the question of their enforceability and, specifically, the right to charge and retain commission. Furthermore, because rectification operates retrospectively, the ESAs and the Land Source ESAs would be treated as always having complied with the Act and therefore seeking or retaining commission pursuant to them would be lawful.
Rectification and Illegality
The key question for determination in relation to the threshold question is this:
Is it the case that the remedy of rectification is never available in circumstances where a statutory offence may have been committed prior to any remedy of rectification being granted?
I have previously considered this issue in my judgment dated 6 March 2015.[22] I am not persuaded to depart from those reasons on this occasion. I will repeat, in general, my observations made in that judgment here.
[22]Oliver Hume (Aust) Pty Ltd v Land Source Australia Pty Ltd [2015] VSC 77.
In my opinion, having regard to the authorities and principles, the answer to the threshold question is no. In other words, rectification is available even where a statutory offence may have been committed prior to an order for rectification having been made – but this would be a rare and specific case and courts ought to approach these matters with extreme caution.
The remedy of rectification operates retrospectively. It gives full effect, by that retrospective operation, to the instrument which ought have properly reflected the common intention of the parties.
There is no doubt that, in some cases, an offence may have been committed prior to an instrument being rectified. But that offence, committed at a point in time, ought not be the reason that a court of equity should let stand in the way of granting the remedy of rectification. To do otherwise would mean that a party who committed an offence on the basis of an instrument that was not in accordance with the common intention of the parties, which was a result of a mistake and resulted in a disconformity between the parties’ intention and the instrument as drafted, would not be able to seek the assistance of a court of equity.
As I said, I do not agree with that view and, to do so, would rob a court of equity of its very essence. Such a position would, necessarily, require the Court to conclude that an offence had been committed on the basis of an instrument that was not (should that instrument be rectified) the instrument which reflected the common intention of the parties.
In my opinion, Nelson v Nelson does not stand in the way of a court granting rectification in a case such as this.[23] There is no lack of coherence or fracturing of the law in circumstances where an instrument is rectified to properly reflect the common intention of the parties, to address a disconformity between their intention and an instrument and to correct a mistake. To conclude otherwise would result in the consequences of legislative provisions being visited upon an instrument which was not the instrument intended by the parties or was the result of a mistake.
[23](1995) 184 CLR 538.
I note that McHugh J in Nelson v Nelson said that:[24]
The courts, including courts exercising equitable jurisdiction, will not enforce an unlawful agreement or trust and, frequently will not enforce an agreement or trust that has been entered into for an unlawful purpose. But these propositions do not lead to the conclusion that a person who participated in the making or execution of such an agreement or trust never has a curial remedy. A court that finds that an agreement is unlawful or has an unlawful purpose has merely set the stage for a further inquiry: are the circumstances surrounding the agreement such that the court should deny a relevant remedy to the party seeking the assistance of the court? Certainly, many cases contain statements that, stripped of their factual context and read in ignorance of other decisions, support the contentions of Mr Coles. But I doubt that the common law or equity ever maintained a doctrine of illegality as disabling as that for which he contends.
…
The principle contained in this dictum applies in both law and equity (250). But it is subject to exceptions which allow relief to be granted despite the presence of illegality (251). First, the courts will not refuse relief where the claimant was ignorant or mistaken as to the factual circumstances which render an agreement or arrangement illegal (252)
…
[24]Ibid 604
Despite the unlawful conduct of Mrs Nelson, McHugh J said that ‘[o]f course, equity cannot condone Mrs Nelson’s unlawful purpose or encourage it. So far as is possible, rights associated with or arising out of unlawful conduct should only be enforced on condition that the wrongdoer takes all lawful steps to overcome the consequences of that conduct’.[25]
[25]Ibid 617.
I do not consider that considering the grant of rectification, in the context of the present case, is inconsistent with the policy of the Act, undermines its objectives or defeats or destroys its purpose.
Rectification, as I have previously said, is not a means to have a further attempt to fix, refine, change or amend a fully negotiated and documented instrument, into which the parties properly entered with full knowledge. Equity will not come to the aid of parties merely because of commercial or professional regret.
It is trite law that the remedy of rectification is a creature of equity and therefore discretionary. A document will be rectified where, but for the rectification, reliance on the document would be unconscionable. But for the rectification the instrument would not reflect the agreement reached between the parties and would not give effect to their actual or true intention.
There is a more troubling case, however, where the parties, knowing well the terms of their agreement, reflected in the instrument, are mistaken as to its legal effect. Much has been said about the meaning of the word ‘effect’ in the context of the applications before me. My observations in relation to this issue ought be considered in conjunction with my earlier reasons.
What do the cases say about rectification?
In Maralinga Pty Ltd v Major Enterprises Pty Ltd, the High Court, by majority, held that a unilateral mistake made by the appellant as to the legal effect of the contract did not warrant the order of rectification.[26] The Court found that there was no basis for such order as the parties were clear about the content of the written contract and knew that the written contract differed from their earlier oral bargain. In that case, Mason J emphasised that in order for rectification to be granted, the burden lies with the plaintiff to displace the assumption that the written instrument is the true agreement of the parties.[27] The Court has to be satisfied that the written instrument had failed to give effect to an antecedent agreement by common mistake between the parties.[28]
[26](1973) 128 CLR 336.
[27]Ibid 351 (Mason J).
[28] Ibid.
I was taken to Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd[29] a number of times by counsel for Oliver Hume, Land Source, Elysian and Ballan, both in written and oral submissions. In that case, an amendment to a trust deed, intended for the purpose of permitting only distribution of trust income to a company, had the additional unintended, or mistaken, legal effect of entitling that company to share in the trust’s capital which subsequently resulted in the company being liable to duty pursuant to the Stamp Duties Act 1920 (NSW).
[29](1995) 41 NSWLR 329 (‘Carlenka’).
The trust deed contained words used purposely. However, the words used resulted in a mistaken and unintended effect. The trustee, trust accountant and the solicitor all gave uncontested evidence to the Court regarding the true intention of the trustee in drafting the amended deed. The New South Wales Court of Appeal ordered rectification of the document on the basis that the disconformity between the parties’ intention regarding the effect of the instrument, and the actual effect of the instrument, was clearly identifiable.
McLelland AJA provided the following statement of principle regarding the definition of ‘effect’ in these circumstances (which has been recited numerous times, and was used to distinguish the facts in Mayo v W & K Holdings (NSW) Pty Ltd (in liq) (No 2)[30] to which I will refer):
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, 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).[31]
[30][2015] NSWCA 119 (‘Mayo’).
[31]Carlenka (1995) 41 NSWLR 329, 345 (McLelland AJA).
Elysian and Ballan relied on Franknelly Nominees Pty Ltd v Abrugiato[32] in support of the contention that equity will not permit rectification where a mistake relates only to the expected consequences or advantages of a contract or transaction or, external, collateral or other matters, rather than to the expression in the instrument of what the parties actually agreed or intended.
[32][2013] WASCA 285.
In that case, the Supreme Court of Western Australia held that:
[R]ectification will not be available where the parties are merely mistaken as to the consequences of, or the advantages to be gained by, a contract or transaction recorded in an instrument. That is, equity will not grant rectification where a mistake by the parties relates only to the expected consequences or advantages of a contract or transaction, and not to the expression in the instrument of what the parties actually agreed or intended.[33]
[33]Ibid [179] (citation omitted).
Oliver Hume placed significant reliance on Mayo.[34] In that case, the Court was asked to determine whether rectification was available in relation to a number of alleged mistakes in eight lease agreements between the parties. The alleged mistakes related to interest rate calculations, a duplication of GST charges, and the payment of bank fees.
[34]Mayo [2015] NSWCA 119.
The Court was called upon to ascertain the common intention of the contracting parties at the time of execution of the leases; specifically, the ways in which one party may come to know another’s intention (other than where those intentions are directly stated). The parties needed to prove ‘the consensual nature of the common intention which must be established as a basis for rectification’.[35]
[35]Ibid [103].
The Court upheld the trial judge’s decision to rectify the leases to reflect the common governing intention of the parties that interest be charged on a reducible (as opposed to a flat) basis. The leases included a mistaken duplication of GST charges to the respondent. There was no evidence before the Court that the parties discussed, nor indeed turned their minds to, any matters relating to GST. The plaintiff gave evidence that had she known that GST was being improperly charged, she would have corrected the calculation. Mr Leonard, the manager and sole director of the respondent company, also gave evidence to satisfy the Court that this was a shared subjective intention.
The Court was satisfied that the parties shared a positive intention that the leases treated GST correctly and ordered rectification on that basis. Because of the clear disconformity between the wording of the leases and their desired effect, the Court determined that the leases could be rectified to achieve that intended effect. In relation to the ‘intended effect’ of the leases, the Court stated that:
This was not a legal or factual consequence of the operation of the leases of a remote or a collateral kind of the type referred to by McLelland AJA in Carlenka, where rectification would not be appropriate.[36]
[36]Ibid [100].
The Court regarded as fatal the absence of any evidence that Mr Leonard intended that no bank fees would be required. Even if he had such an intention, it was not one which was shared with the plaintiff, and thus could not substantiate rectification. Absent this intention, the court saw no basis for reforming the leases in relation to this matter.
Analysis
Oliver Hume contended that the law of rectification is developing and in a state of flux. The Court was urged to follow Mayo which,[37] it was argued, demonstrates the softening of the rectification principles. It was said that a fact driven inquiry into the parties’ governing common intention is required.
[37]Ibid.
In Mayo,[38] there was a clear and discernable mistake on the face of the leases which created an obvious disconformity between the common intention of the parties when executing the leases, and the effect, albeit unintended, of the leases.
[38]Ibid.
The questions raised by these proceedings require the closest of consideration by the Court, as reflected in my previous judgment.
The issues between the parties in the proceedings before the Court test the boundaries of when the remedy of rectification is available. That is, is the mistake of the parties such that there is a disconformity between their intentions and the written instrument so that equity ought come to their aid? Was the mistake or error here simply a legal or factual consequence which was remote or collateral to the instrument as documented?
It was submitted that the proposed amendments to the ESAs are tantamount to a wholesale rewriting of them.
It must be said that the proposed amendments in paragraphs 7A to 7O in the Amended Statement of Claim dated 1 May 2015, paragraph 2 of the Prayer for Relief and Annexures A to P in the Elysian proceeding (and the same may be said of the Ballan and Land Source proceeding) are extremely specific, detailed and voluminous. It is established that it is not for the Court to rewrite a contract where parties have simply not turned their minds to an issue which, in retrospect, may have made a considerable difference to the benefits of their commercial bargain reflected in their instrument as documented.
In my opinion, there is not inconsiderable force in Elysian and Ballan’s submissions about the deficiencies of the Amended Statements of Claim (being the Amended Statement of Claim in each of their proceedings). The same may be said of Land Source’s submissions.
There is no doubt that the Amended Statements of Claim do not adequately plead the basis of the common mistake. Of course, this is capable of correction.
The Court will not lightly exercise the power to dismiss a claim on the basis that it discloses no cause of action. There ought be a high degree of certainty about the ultimate outcome of a proceeding, if it went to trial, before the Court will exercise such a power. In Annesley Plant Hire Pty Ltd v Wilson (No 2), Robson J held that:[39]
[39][2014] VSC 350.
122On the issue of whether a reasonable cause of action has been disclosed the relevant principles have the relevant principles have been conveniently summarised by Black J in Re Colorado Products Pty Ltd (in prov liq)99 as follows:
[45] It is well-established that the power to dismiss a claim because it discloses no reasonable cause of action will not lightly be exercised: General Steel Industries Inc v Cmr for Railways [1964] HCA 69; (1964) 112 CLR 125 at 128-130; Webster v Lampard (1993) 177 CLR 598 at 602-603. In Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 at [57], Gaudron, McHugh, Gummow and Hayne JJ observed:
“Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way.” (footnote omitted)
[46] That formulation has been adopted in Batistatos v Roads and Traffic Authority (NSW) [2006] HCA 27; (2006) 226 CLR 256 at [46]; Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118 at [24] and Shaw v New South Wales [2012] NSWCA 102. In Spencer v Commonwealth above at [24], French CJ and Gummow J summarised the relevant principles as follows (omitting citations):
“The exercise of powers to summarily terminate proceedings must always be attended with caution. That is so whether such disposition is sought on the basis that the pleadings fail to disclose a reasonable cause of action or on the basis that the action is frivolous or vexatious or an abuse of process. The same applies where such a disposition is sought in a summary judgment application supported by evidence. As to the latter, this court in Fancourt v Mercantile Credits Ltd said:
The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried.
More recently, in Batistatos v Roads and Traffic Authority (NSW) Gleeson 99 [2013] NSWSC 1613 (Colorado). 25 T0350 CJ, Gummow, Hayne and Crennan JJ repeated a statement by Gaudron, McHugh, Gummow and Hayne JJ in Agar v Hyde which included the following:
Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way.”
[47] In exercising the Court’s power to strike out a Statement of Claim under UCPR r 14.28, the Court must also give effect to the overriding purpose stated in s 56(1) of the Civil Procedure Act 2005 (NSW), namely “to facilitate the just, quick and cheap resolution of the real issues in the dispute or proceedings”. Section 58(1) requires the Court to act in accordance with the dictates of justice, and s 58(2) requires that the overriding purpose specified in s 56(1) be taken into account: Shaw v New South Wales above at [128]ff.
123In my opinion, the observations of Black J on the Civil Procedure Act 2005 (NSW) are equally apposite to the Civil Procedure Act 2010 (Vic) (Civil Procedure Act).[40]
[40]Ibid [122]-[123].
Carlenka stands for the principle that rectification is not available to correct ‘consequences which the parties did not have in their minds when the deed was executed even if, had they thought of them, they would have intended them.’[41] In Mayo, the Court was satisfied with what one party’s intention would have been, had she been asked at the time of executing the leases. This seems, at first blush, to sit uncomfortably with the principles enunciated in Carlenka. But it must be noted that the mistake in relation to GST in Mayo was clearly identifiable and clearly a mistake.
[41](1995) 41 NSWLR 329, 332D.
Should Oliver Hume’s pleading against Elysian and Ballan be, in part, struck out?
The principles in relation to when a pleading should be struck out are clear. It is equally clear that, for the purposes of a strike out application, the Court accepts the facts as alleged in the pleading. It is also accepted that the threshold is very high and a court ought be satisfied, before striking out a pleading, or part of it, that there is no real defence.
Rule 23.02 of the Rule provides that:
Where an indorsement of claim on a writ or originating motion or a pleading or any part of an indorsement of claim or pleading—
(a) does not disclose a cause of action or defence;
(b) is scandalous, frivolous or vexatious;
(c)may prejudice, embarrass or delay the fair trial of the proceeding; or
(d) is otherwise an abuse of the process of the Court—
the Court may order that the whole or part of the indorsement or pleading be struck out or amended.
Courts have struck out pleadings on the basis that they are confusing, vague, and lacking in a factual or legal basis such that it is not possible to understand the elements of the cause of action and not possible for the other party to respond to it.[42]
[42]See eg, Environinvest Ltd v Pescott; Environinvest Ltd v Blackburne Pty Ltd [2011] VSC 325 [25].
Further, in relation to the court’s power to strike out, Byrne J, in Opat Decorating Service (Vic) Pty Ltd v Jennings Group Ltd, held that:
The power is, of course, subject to my overriding discretion to refuse to strike out an offending part, a discretion which has as its starting point the requirement that pleadings and particulars be sufficient to enable the defendants to know what it is they have to meet and the trial judge to conduct a trial which is fair to all parties. Insofar as it is contended that a particular paragraph or paragraphs does not disclose a cause of action I am not determining a demurrer. A plaintiff will be stopped from putting a claim forward only where, assuming the facts pleaded have been established, the claim is so manifestly hopeless that a trial would be a futility. In case of doubt I should refuse to exercise the power.[43]
[43]Opat Decorating Service (Vic) Pty Ltd v Jennings Group Ltd (unreported, Supreme Court of Victoria, 16 September 1994).
Courts have held that this power should be exercised carefully,[44] and that it is not appropriate to exercise it when there is a debatable question of law involved. In Healey v Bank of New South Wales,[45] it was held that it was not appropriate to strike out a defence where ‘the defence raised is a defence upon which a great deal of argument may be addressed by both sides’.[46]
[44]EA Negri Pty Ltd v Technip Oceania Pty Ltd (2010) 27 VR 31.
[45](1898) 24 VLR 405.
[46]Ibid 407.
For these reasons, on an interlocutory basis, I do not consider that Oliver Hume should be denied the opportunity to agitate its claims in each of the three proceedings at trial and, in my opinion, this is the most appropriate course.
I have formed this view for the following reasons. There are real questions as to:
(1)What the common intention of the parties was and how, and in what circumstances, that was formed and whether there was any operative mistake;
(2)Were there any business practices or conventions in accordance with which, even if unexpressed, the parties intended to act;
(3)Did the ESAs and the Land Source ESAs reflect or were they in disconformity with the parties’ intentions;
(4)Whether equity, specifically the remedy of rectification, will come to the aid of Oliver Hume in the face of the strict provisions of the Act, given the facts and circumstances and in light of the principles enunciated in Mayo and Carlenka. That is, does this case test the outer limits of the doctrine of rectification?
Whilst I do not fully accept the submissions of Oliver Hume that the law is in a state of flux in relation to rectification claims, I do accept that it is fertile ground for further judicial consideration and refinement.
Each of these proceedings are not, in my opinion, so hopeless that a strike out of its claims, in the absence of an opportunity to re-plead, is justified.[47]
[47]See Wickstead v Browne (1992) 30 NSWLR 1, 5 (Kirby P); Transcript 127.
I also note that no party has directed me to an authority in relation to rectification in the context of illegality.
Oliver Hume has conceded that it has not pleaded mistake as a basis for its claims. It has conceded, in addition, that it is prepared to do so.[48]
[48]Transcript 179.
By contrast, the Court is urged by Elysian and Ballan that the Amended Statements of Claim ought be struck out on this basis alone – that is, the failure to plead a mistake upon which the (alleged) common intention was formed. Land Source also pressed similar arguments.
In addition, Elysian and Ballan (also echoed by Land Source) contend that Oliver Hume’s pleading that each of them engaged in misleading and deceptive conduct as a result of a non-disclosure by Elysian and Ballan in relation to certain provisions in the ESAs. These provisions concerned Oliver Hume’s entitlement to commission in relation to sales that did not proceed. It was contended by Elysian and Ballan that, whatever the evidence on the facts, critical elements of that cause of action, specifically the basis of a duty to disclose, were not pleaded. Further, Elysian and Ballan contended that both the claims of rectification and misleading and deceptive conduct were circular and self-contradictory.
These arguments are not frivolous. However, I do consider that there is little doubt as to the nature of the case to be met by Elysian, Ballan and Land Source (to which I will later refer).
Certainly, amendments ought be made to the pleadings, so much has been conceded by Oliver Hume. But the issues, in my view, are clear enough.
Land Source’s submissions in its proceeding
Land Source filed comprehensive written submissions in relation to the Amended Statement of Claim of Oliver Hume.
In summary, Land Source says that:
1.Oliver Hume’s Amended Statement of Claim and the joinder of Mr Kotzman ought be refused because of statutory illegality;
2.The rectification claim is deficient and is neither properly formulated nor constituted;
3.There are other pleading deficiencies, in particular, that there is no pleading of common intention, mistake and that there is no allegation that those who made the decision to enter into the Land Source ESAs were operating under a mistake; and
4.There is no foundation for the claim for misleading and deceptive conduct.
I have considered the issue of illegality in the context of the Elysian and Ballan proceeding, and I will not repeat those comments here. Suffice to say that I do not consider that to be a bar to Oliver Hume’s claims.
I find merit in Land Source’s other complaints in relation to the proposed pleading, particularly in relation to the articulation of common intention and the basis of mistake. Oliver Hume’s pleading in relation to misleading and deceptive conduct is not an adequate foundation for that cause of action, as presently pleaded.
Notwithstanding these observations, in my opinion, there is clarity in the issues raised in the pleadings even if their form is deficient. Land Source could not be under any misapprehension as to the nature of the case that it is required to meet and the issues in dispute.
Decision
As I have observed, the Court should proceed with great caution before striking out certain claims such as are pleaded by Oliver Hume in the three proceedings. In my opinion, these proceedings ought properly proceed to trial, given the matters to which I have referred presenting, as they do, both factual and legal issues. Having said this, I note that Oliver Hume has had numerous opportunities to refine its pleadings.
For the reasons I have set out, there is scope for refinement of the pleadings in each of the proceedings.
Notwithstanding this, however, and as I have observed, I do consider that the issues between the parties are clear and the matter ought proceed to trial.
In these circumstances, I order that paragraphs 7A to 7O (inclusive) in the Elysian proceeding and paragraphs 7A to 7O (inclusive) in the Ballan proceeding be struck out. However, I grant leave to Oliver Hume to file an amended pleading in each of these proceedings, not limited to those particular paragraphs.
In relation to the Land Source proceeding, I order that paragraphs 2B, 2C, 11A to 11V be struck out, however I grant leave for Oliver Hume to file a further amended pleading in this proceeding, again, not limited to those particular paragraphs.
I also note that, in the context of the Land Source proceeding, Messrs Betts and Mortimer were signatories to certain of the six agreements (being the Land Source ESAs) between Oliver Hume and Land Source. At present, no common intention is pleaded in relation to these persons and indeed it is a point of some contention as to the nature of their obligations (whether they are primary or secondary obligations) and whether any common intention needs to be brought home to each of them. In view of these submissions, I also grant leave for Oliver Hume to amend its pleading in respect of Messrs Betts and Mortimer (if it so chooses) and order that, in any event, they be notified about the proceeding, a course that was urged upon me by Land Source with which I agree.
I have previously indicated in my previous judgment that Mr Kotzman be joined to the Land Source proceeding and, in light of my decision, I propose to make that order.
I will hear the parties on the appropriate form of orders and the question of costs.
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