Perry v Dusty Hotel Pty Ltd

[2003] NSWSC 1215

CITATION:	Perry & Anor v Dusty Hotel Pty Ltd [2003] NSWSC 1215
HEARING DATE(S):	15 December 2003
JUDGMENT DATE:	15 December 2003
JUDGMENT OF:	McDougall J at 1
DECISION:	See paras [50] and [51] of judgment
CATCHWORDS:	RECTIFICATION - of mortgage - whether common mistake - whether unilateral mistake and unconscientious taking advantge by defendant of that mistake
CASES CITED:	Australasian Performing Right Association Limited v Austarama Television Pty Limited (1972) 2 NSWLR 467, 473 Hooker Town Developments Pty Limited v Director of War Service Homes (1973) 47 ALJR 320, 323-324 Maralinga Pty Limited v Major Enterprises Pty Limited (1973) 128 CLR 336, 349-350 Lovell & Christmas Limited v Wall (1911) 104 LT 85, 93
PARTIES :	Martin Frederick Perry and Adam Martin Perry v Dusty Hotel Pty Limited
FILE NUMBER(S):	SC 50096/03
COUNSEL:	J A Trebeck (Plaintiffs) F P Donohoe (Defendant)
SOLICITORS:	Gordon Garling Moffitt, Lawyers, Grenfell (Plaintiffs) Access Business Lawyers, Wollongong (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

McDOUGALL J

Monday 15 December 2003

DUSTY HOTEL PTY LTD

JUDGMENT (Ex tempore; revised 16 December 2003)

1 HIS HONOUR: The plaintiffs seek rectification of a mortgage dated 14 February 2003 given to them by the defendant. The mortgage encumbers the property that has been referred to in the proceedings as, and that, for convenience, I will continue to call, the Barmedman Hotel.

2 It appears to be common ground that the plaintiffs acquired the Barmedman Hotel in August 1997 and that on 15 September 2001 they leased it to Mr David Anthony Smith and his partner Miss Lisa Jane Condon.

3 It is common ground that there were conversations between Mr Adam Perry and Mr David Smith as to the possibility of the plaintiffs selling the hotel to Mr David Smith or perhaps to Mr David Smith and others. There is a dispute as to when those conversations commenced and there is dispute as to the content of the conversations that did occur.

4 A conversation that is of some significance for present purposes occurred in early November 2002. By then, it would appear, there was an expression of interest on the part of Mr David Smith in relation to the purchase of the hotel, but with a discussion of the difficulties that he would have in raising all the money required. It is apparent that prior to early November 2002, Mr Adam Perry had offered assistance by way of vendor finance.

5 Mr Perry says that in the conversations in early November 2002 the figure of $60,000 as vendor finance was fixed upon and that an interest rate of 8 percent per annum was fixed upon. Mr Perry says, further, that he proposed that the principal sum would be repaid at the rate of $1,000 per month over the life of the loan and that interest would accrue on the principal over that time. Mr Smith says that there was a conversation but that the details including the amount, the interest rate and the specifics of monthly instalments of principal repayment were not specified. He says, in substance, that if vendor finance was to be offered Mr Perry's solicitors should write to Mr Smith's solicitors and sort the deal out.

6 On 8 November 2002, Mr Perry consulted his solicitor, Mr David Withers, of a firm known as Garden and Montgomerie. Mr Withers sets out an account of the conversation in his affidavit that is based completely upon a file note that was in evidence before me. I should make it perfectly plain that I accept the evidence of Mr Withers and I accept that the instructions given to him on 8 November 2002 are as set out in paragraphs 2 and 3 of his affidavit and in the file note to which he refers in those paragraphs. It follows that I find that Mr Perry told Mr Withers, among other things, that the amount of vendor finance to be provided was $60,000, that it was to be repayable over 60 months, that it was to carry interest at the rate of 8 percent per annum and that the principal or any part could be repaid at any time without penalty. In saying those things I do not mean to limit the extent of the instructions given by Mr Perry to Mr Withers on that day to those matters.

7 It was not suggested to Mr Perry in cross-examination that he deliberately sought to mislead Mr Withers as to the bargain that he said had been struck between him and Mr David Smith shortly prior to 8 November. Nor, in my view, is it likely that in what appears to have been the short time that elapsed between the discussions between Messrs Perry and David Smith, in which the bargain was struck, and 8 November, when Mr Perry gave instructions to Mr Withers, that Mr Perry would have confused or forgotten the essential terms of the bargain.

8 To the extent that it is necessary to resolve the conflict in the evidence between Messrs Perry and David Smith as to what was said in the conversation in early November 2002, I therefore find that Mr Perry's account is the more reliable to the extent that it is corroborated by the evidence of Mr Withers, to which I have referred. I have said that I do not think that it was likely that Mr Perry would have forgotten or confused the terms of the bargain between the time when he struck it with Mr David Smith and the time when he told Mr Withers of it. It follows that to the extent Mr Withers does not corroborate Mr Perry's account of the bargain I do not accept Mr Perry's evidence.

9 The difference between Messrs Perry and David Smith as to what was said in early November is important if at all in one particular respect. I say that because it seems to me on the whole of the evidence that the basis of rectification must be found, if at all, in later communications between Mr Withers and his counterpart, Mr Michael Devitt of the firm known as Access Business Lawyers. The significance of what passed between Messrs Perry and David Smith bears on one aspect of the rectification sought by the plaintiffs, namely, by way of declaratory relief and relief giving effect to what they say was an antecedent agreement or understanding that the principal would be repaid at the rate of $1,000 per month. Although Mr Perry gave evidence that he discussed that with Mr David Smith in early November 2002 and that in substance Mr David Smith agreed, Mr David Smith denied this. There is no evidence in Mr Withers’ affidavit or in his file note to his having been instructed that principal was to be repaid at the rate of $1,000 per month. What his file note says on this is:

“$60,000 left in.
Payable over 60 months.
8 percent p.a.".

10 It follows that I am not prepared to find that there was any consensus or bargain between Messrs Perry and David Smith arising out of their discussions up to and including the discussions of early November 2002 that principal was to be repaid at the specified rate of $1,000 per month.

11 The conveyancing steps that Mr Withers undertook can be put to one side up until late December 2002. On 20 December 2002 Mr Devitt wrote to Mr Withers noting that the contract that Mr Withers had prepared and sent earlier had been executed by Mr Devitt's client in anticipation of exchange. That letter also informed Mr Withers who the purchaser would be. (I interpose that the identify of the corporate purchaser was not known at the time Mr Withers prepared the draft contract.)

12 Mr Devitt's letter also stated:

“Please let us have an agreement in relation to the vendor finance at $60,000.00 to be executed simultaneously with an exchange of contracts.”

13 Mr Withers replied to that letter on 23 December 2002. Omitting formal parts his letter read as follows:

“We refer to the above matter and your facsimile dated the 20th of December 2002.

Your proposed special condition 39 may be annexed to the Contract.

It will not be possible to provide an agreement for execution prior to Christmas. We have been instructed however, that the terms of the loan are as follows:

1. Principal $60,000.00.
2. Interest eight (8%) percent per annum.
3. Principal and interest to be paid over 60 months.
4. Balance of loan may be paid at an earlier date.

Please advise any comment or instructions you may have in relation [sic] any further matters to be included in the agreement.
We have not received the Survey Certificate at this office.”

14 If the question of intention is to be ascertained objectively - a matter to which I will return - then it seems to me the intention that the plaintiffs should be taken to have had is what may be gathered objectively from the terms of that letter. In other words, it seems to me the contractual intention of the plaintiffs is what that letter, on a fair reading or its proper construction, provided.

15 After Mr Devitt received the letter, and on about 15 January 2003, he telephoned Mr Withers and inquired whether the interest referred to in the second numbered paragraph was flat or reducible. Mr Withers made a note against paragraph 2 of the letter that reads:

“ - flat or monthly
- reducible.”

16 Mr Withers says that he confirmed to Mr Devitt that the interest rate was reducible. I infer, from what happened next, that Mr Devitt then asked for documentation relating to the loan to be submitted.

17 On 15 January 2003 Mr Withers wrote to Mr Devitt. His letter enclosed a draft mortgage and confirmed "that the interest payments will be reducible and not at a flat rate”.

18 The following day, 16 January 2003, Mr Devitt responded in the following terms:

“We refer to previous correspondence and, in particular, to your facsimile dated 15 January 2003.
We are instructed by our client that the draft Mortgage is acceptable.
We note that the Mortgage is to secure $60,000.00 of the purchase price and is to be stamped but unregistered.
We also note that the interest payments are reducible.
We enclose Contract for Sale executed by the Purchaser.
We look forward to receiving the Contract signed by the Vendors to complete the exchange.”

19 Mr Graeme Smith, who is the father of Mr David Smith, and who, I infer, was the guiding mind of the defendant company for the purposes of this transaction, gave evidence that he received from Mr Devitt on or about 23 December 2002 a copy of Mr Withers’ letter of that date. He says that he interpreted paragraph 3 "to mean that the loan was an interest only loan noting that the principal and interest could be paid at any time over the period of 60 months".

20 Mr Graeme Smith's evidence as to his receipt of that letter was far from convincing. Initially in cross-examination he denied having received a copy of that letter on or about 23 December 2002. Ultimately, when taken back to paragraph 2 of his affidavit, he agreed that he had received it and that his evidence in cross-examination must have been mistaken. I do not think that his evidence in this regard was mistaken. I think that he denied receipt of the letter on that day because he appreciated the significance of the question that on his instructions, a few weeks later (allowing for the Christmas/New Year break), Mr Devitt asked Mr Withers - namely, whether the interest rate was reducible or flat. I am satisfied that Mr Graeme Smith perceived that if he had received the letter of 23 December 2002 on or about that date, then it could be inferred that the instruction to Mr Devitt to ask that question was given because Mr Graeme Smith appreciated that the letter, on its face, provided for principal and interest to be paid over sixty months and that, contrary to his sworn evidence, he understood that to be a reference to monthly repayments in reduction of principal as well as in payment of interest.

21 I interpolate that Mr Smith, on his evidence, is a finance broker. It may be inferred from this that he would have had a clear understanding of the terms of the letter. In this context, and jumping ahead, I should refer to a letter emanating from Access Business Lawyers of 15 April 2003 - after the parties were in dispute - in which it was asserted on behalf of Mr Graeme Smith that he "is also of the view that it was always an interest only loan as reflected in the mortgage document when signed". That letter, apart from confirming that the 23 December 2002 letter from Mr Withers was sent to Mr Graeme Smith upon receipt, also contained what I infer to be his instructions as follows:

“Upon reflection, he [Mr Graeme Smith] read point 3 to be an interest only loan at which time the principal and interest could be paid at any time over a period of sixty months. If the loan was to be a principal and interest loan it should in his view have been identified as: ‘Principal and interest payable monthly over sixty months'.
The above interpretation may seem to you to be creative, however, Mr Graeme Smith is a mortgage broker and has genuinely communicated to this office that it was always his understanding that it was to be an interest only loan.”

22 The comments in the letter of 15 April 2003 were not put to Mr Graeme Smith in cross-examination. However, I have the very greatest difficulty in understanding why the form of words attributed to him in that letter would identify a loan as a principal and interest loan, whereas the form of words actually used by Mr Withers would not. Specifically, I see no relevant distinction between the word "payable" favoured by Mr Graeme Smith and the words "to be paid" in fact used by Mr Withers. If the word "payable" indicates a principal and interest loan, then it seems to me the words "to be paid" must do so as well. The only matter added by Mr Graeme Smith is the word "monthly". This is of some significance because it seems to me to appreciate a clear understanding on his part that a principal and interest loan of the kind under consideration (by which I mean as alleged by the plaintiffs) would involve monthly instalments.

23 I have said that Mr Graeme Smith caused Mr Devitt to inquire of Mr Withers on 15 January 2003 whether the interest rate specified in Mr Withers' letter of 23 December 2002 was flat or monthly. Mr Graeme Smith was cross-examined as to why he caused this inquiry to be made. His evidence again was unsatisfactory. He had said, at least twice, that his understanding of the paragraph numbered 4 of the letter of 23 December 2002 was that the balance of the loan could be paid prior to the expiry of the term of the loan, but that this was, in effect, a once only opportunity and did not permit payment of bits and pieces of principal at various times. In fairness to Mr Graeme Smith, it must be said that at other times he appeared to indicate that his understanding of the paragraph was that it did permit multiple prepayments. However, I find, based on the totality of his evidence, that his understanding when he received and read a copy of the letter of 23 December 2002 was that paragraph 4 provided for one only opportunity to prepay and that of necessity that required, as the paragraph said, prepayment of the balance of the loan, that is of the whole of the loan then outstanding.

24 On that basis it is clear that the letter was drawing a distinction between principal on the one hand (paragraph 3) and the balance from time to time on the other (paragraph 4). I am of the view that Mr Graeme Smith fully appreciated this distinction and that his attempts in evidence to say otherwise should not be accepted.

25 However, the significance of paragraph 4 goes beyond this. If, as I find Mr Graeme Smith understood, there was only one opportunity to prepay and that required prepayment of the entire amount outstanding, then there was no need for an inquiry as to a flat or reducible interest rate, unless up until the time of prepayment the amount of principal was to be reduced. If the loan were to be repaid by instalments of principal and interest, then of course the principal balance would reduce over time. That is consistent with the distinction that, in my view, the letter draws between "principal" on the one hand and the "balance” (i.e., of the principal) on the other. If, however, the loan were an interest only loan, then the principal would not be reduced. Further, if the only right to prepay was to prepay the entirety of the loan, then by definition the fact of prepayment, in terms where there was to be no continuing interest obligation, would render irrelevant the question of whether the interest rate was flat or reducible.

26 I therefore find that Mr Graeme Smith, contrary to one version of his evidence, was conscious at the time he received and read the letter of 23 December 2002 that the offer that that letter made included the obligation on the part of the defendant to repay the advance by instalments of principal and interest over sixty months. As I have already said, I also find that this, in Mr Graeme Smith's understanding, attracted monthly rather than (for example) quarterly repayments.

27 There were other aspects of Mr Graeme Smith's evidence that were unsatisfactory. I will refer to one only of them. That is the fact that, again dealing with his understanding of the letter of 23 December 2002, he answered a question in cross-examination in a way that indicated that he understood that the balance of principal would (I interpolate, not “might”) reduce over the life of the loan. However, he sought to change that answer and not just to change it by saying that he had been mistaken, but to deny that the earlier answer had been given. In my view, Mr Graeme Smith took advantage of a break in the flow of cross-examination occasioned by an objection and my ruling on it to seek to present to the Court a different view than that to which he had slightly earlier affirmed. I should say that I am not suggesting that the objection was taken to permit him to do this and, indeed, it was an objection which, although I overruled it, was properly taken. The criticism goes not to counsel, but to the witness unconscientiously taking advantage of the opportunity offered by counsel's intervention.

28 Mr Graeme Smith's evidence as to what happened when he received the mortgage document was, again, somewhat unclear. Initially he said that he had read the document previously, or glanced at it briefly, and he volunteered, although it was non-responsive, that it was read by his solicitor. Subsequently he said that he read the relevant pages. Later again, he identified the pages that he had read as being the front page, the second page and the signature section on the last page. However, he then said that he probably did not read every word on the second page, but that he did more than glance at it, although thereafter he denied that answer.

29 I am of opinion that Mr Graeme Smith's evidence on this point was intended to establish that he did not execute the mortgage, on behalf of the defendant, knowing that it contained a mistake. However, I find that he did read the relevant part of the mortgage and that he did appreciate that it was not in accordance with the terms of the letter of 23 December 2002. If it is necessary to corroborate the first point, the corroboration may be found in the letter from Mr Devitt to Mr Withers of 16 January 2003 to which I have earlier referred. In the second paragraph, as I have noted, Mr Devitt recorded his instructions "by our client that the draft mortgage is acceptable". It is clear that Mr Graeme Smith was the person who was, in effect, handling the transaction for the defendant. In the absence of evidence to the contrary, I infer that the instructions that Mr Devitt referred to came from Mr Graeme Smith. I do not think that an experienced finance broker, having an interest in the subject matter of the transaction, would have given those instructions to Mr Devitt unless he had read the mortgage. (In this context I should note that Mr Devitt was not called to give evidence, although he is a solicitor practising in Wollongong and there was nothing in the evidence to suggest that he was unavailable.) Nor do I think that, having read the mortgage, Mr Graeme Smith would have failed to see that it was not in accordance with the terms of the letter of 23 December 2002.

30 The evidence of the plaintiffs as to execution of the mortgage under a mistake as to its terms is somewhat scanty. Mr Adam Perry says simply that, at the time he executed the mortgage, "I did not realise that the mortgage did not clearly disclose that repayments were to be $1,000 per month plus interest." Mr Martin Perry has not given evidence at all. Mr Withers says that when he drafted the mortgage "I erroneously failed to stipulate clearly that the mortgagor was required to pay monthly instalments of $1,000 plus interest." It is unclear to me why Mr Withers would have included this stipulation in the mortgage given that nowhere in his affidavit or in the file note recording his discussions of 8 November 2002 with Mr Adam Perry, does he record instructions that the mortgage was to be so payable.

31 However, despite the less than satisfactory nature of this evidence, I conclude that the plaintiffs executed the mortgage not knowing that it was an interest only mortgage. It was put to Mr Withers that he might have explained the mortgage to the plaintiffs before they signed it and he agreed that this was a possibility. However, I do not think that he could have done this because, had he done so, he would have realised clearly the mistake to which he referred. Had that happened, then the matter would have been rectified. It was not rectified and this seems to me to confirm that the mortgage was executed under a belief that it provided for repayments of principal and interest over the life of the mortgage.

32 The conveyancing transaction was settled on 14 February 2003. There is no evidence that there had been any relevant change in the intention of the parties, in so far as that was communicated to each other, from 23 December 2002.

33 It is unnecessary to say a great deal about subsequent events, except to say that the defendant made the first repayment, due on 14 March 2003, in the amount of $400. That is equivalent to interest at the rate of eight percent on $60,000. It was said that this provided some evidence that the defendant believed that that was the extent of its obligation. However, I find the reality is that it reflected Mr Graeme Smith's appreciation that the defendant's obligation under the terms of the mortgage was so limited, although, as I have found, he appreciated that the mortgage was not consistent with the terms of the letter of 23 December 2002.

34 It is against that factual background that the plaintiffs seek rectification of the mortgage. I shall for the moment pass over the claims for declaratory relief and turn to the prayers for rectification. The first prayer set out in paragraph 2a of the summons seeks rectification by the insertion in lieu of the present clause B(1) of annexure 8 of the mortgage of a clause providing for principal to be repaid by 60 equal instalments of $1,000 each. The second prayer seeks to amend the statement of the interest obligation. The third prayer seeks to insert, for the benefit of the defendant, an entitlement to prepay.

35 There was some dispute between the parties as to the basis upon which rectification is ordered in the case of common mistake. There was also dispute as to the basis upon which rectification is ordered in cases of unilateral mistake, but I shall come to that later.

36 In my opinion the true basis upon which rectification is ordered in cases of common mistake is that set out by Street J in Australasian Performing Right Association Limited v Austarama Television Pty Limited (1972) 2 NSWLR 467 at 473 where his Honour, having set aside the suggestion that rectification could only be ordered where there was a prior concluded and binding contract, said: "It seems rather that the true principle involves finding an identical corresponding contractual intention on each side, manifested by some act or conduct from which one can see that the contractual intention of each party met and satisfied that of the other. On such facts there can be seen to exist objectively a consensual relationship between the parties”. (emphasis supplied)

37 That statement of principle received the explicit approval of Menzies J in Hooker Town Developments Pty Limited v Director of War Service Homes (1973) 47 ALJR 320, 323-324.

38 Mr Donohoe of counsel, who appeared for the defendant, pressed on me the statement of principle by Mason J in Maralinga Pty Limited v Major Enterprises Pty Limited (1973) 128 CLR 336, 349-350. However, I think, there is nothing in what his Honour there said that is inconsistent with what Street J said in the earlier case as approved by Menzies J in Hooker Town Developments. Indeed, I think, it is apparent from the citation by Mason J at 349-350 of what Buckley LJ said in Lovell & Christmas Limited v Wall (1911) 104 LT 85, 93 that his Honour was of the view that the essential element is the objective manifestation of common intention or common agreement, and that it was where there was such an objective manifestation that rectification might be ordered on the ground of common mistake.

39 In my view the proper inference to be drawn from the events between 23 December and 15 January is that the parties each communicated to the other a common intention in terms of Mr Withers' letter of 23 December 2002. That is to say, I find that whatever that letter provides on its proper construction is the objective manifestation of each party to the other of the contractual intention. That is so because on 15 January 2003 Mr Devitt, as I have said, made an inquiry of Mr Withers in relation to the letter and, apparently being satisfied with the results of that inquiry, called for the mortgage document. If the matter is to be determined by objective intention, then it would be inferred from that, firstly, that the plaintiffs, through Mr Withers, were representing to the defendant that they would offer finance on the terms summarised in Mr Withers' letter of 23 December 2002, and secondly, that the defendant, through Mr Devitt, was indicating that it would accept finance offered on those terms as clarified by his oral inquiry and the response to it.

40 On that basis it is necessary to determine what the letter says, as a matter of its proper construction. In my view the crucial clause - cl 3 - on its proper construction means that instalments of principal and interest are to be paid over the life of the loan. That seems to me to follow both from the wording of the clause itself - "principal and interest to be paid ..." and from the contrast that I have already noted between the use of the word "principal" in clauses 1 and 3 and the reference to "balance of loan" in paragraph 4. The word "balance" in my view is apt to refer to the amount from time to time outstanding and it would be the natural word to use if, as I think is the case, cl 3 was intended to require instalment reductions of principal. However, the word "balance" would be inappropriate if cl 3 were intended to impose only an obligation to pay interest.

41 If the matter is to be determined by reference to objective intention, then I am of the opinion that the objective intention of the parties manifested to each other through the conduct that I have referred to was that there should be an obligation to repay the principal over the life of the loan. However, as I have said, I am not satisfied - and indeed the letter of 23 December 2002 does not mention it - that there was to be any obligation to repay the principal by monthly instalments of $1,000. Instead, I think, either on the proper construction of paragraph 3 or as a matter of implication from its words, there are to be sixty equal instalments each compounded of principal and interest such that the principal will be reduced to nil over the life of the loan. The letter does not indicate how those instalments are to be calculated, but that, it seems to me, is a matter of machinery and not a fundamental matter.

42 In addition, of course, as paragraph 4 makes clear, there is to be a right of prepayment of the balance of the loan prior to its expiry. In my view, on its proper construction, that is a right to make one payment to repay the whole of the loan, not to make a number of smaller payments to reduce the principal from time to time.

43 It would follow from this analysis that the plaintiffs have, in principle, made out a case for rectification on the ground of common mistake.

44 If, however, what is required to be considered is a subjective intention of the parties, then I am not sure that common mistake is made out. I say this because it seems to me it follows necessarily from my conclusion as to Mr Graeme Smith's understanding and the way in which he acted upon it, that he intended to contract on the basis of that subjective understanding. That is to say, it seems to me that he decided, in effect, that the defendant would accept not the offer set out in the letter of 23 December 2002, but the offer set out in the letter of 15 January 2003 and its attachment. However, that gives rise to the alternative basis upon which the plaintiffs put their case, namely rectification upon the basis of unilateral mistake.

45 It is clear that rectification for unilateral mistake is not generally available: see, for example, Meagher Gummow and Lehane, Equity Doctrines and Remedies (4th Edition, 2002), paragraph 26-075 at page 896. However, in my view, where one party knows that the contractual document submitted by the other is believed by the other to contain a term that is missing and unconscientiously takes advantage of that mistake, then rectification may be ordered on the basis of unilateral mistake. Mr Donohoe submitted that the examples of the exceptions given in Meagher Gummow and Lehane do not precisely cover the present facts. That is correct. However, for the first and second exceptions and, indeed, on one analysis for the third exception, if it is an exception, it is the unconscientious taking advantage by the defendant of a mistake that it knows has been made by the plaintiff that engenders the equity of rectification.

46 In my opinion, if one looks at the question of subjective intention, Mr Graeme Smith was, for the reasons I have given, aware of the mistake and was aware that the mistake would confer a commercial advantage on the defendant company. It would do so because the instalments payable by the defendant company would be substantially lower on an interest only basis than if it were required to repay instalments of principal as well. This would give cash flow advantages to the defendant. I make that finding notwithstanding Mr Graeme Smith's disavowal of it. It seems to me to be inevitable that a person with his occupation and commercial experience would have appreciated that self-evident fact.

47 If, therefore, it is relevant to examine the question of subjective intention, then I would conclude that rectification is also the principle available, not on the basis of common intention, but on the basis of unilateral mistake, whereof Mr Graeme Smith unconscientiously caused the defendant to take advantage.

48 I should say that I have emphasised the evidence and the role of Mr Graeme Smith because, as I have found, he was the guiding mind of the defendant and to the extent that the transaction was proposed and discussed before the defendant was brought into being, it was he who was the decision maker in relation to the transaction. This was confirmed by both the affidavit and oral evidence of Mr David Smith and also by the oral evidence of Mrs Margaret Smith. It is therefore, in my view, unnecessary to go beyond Mr Graeme Smith in seeking for an understanding of the defendant's mind or motivation, to the extent that those concepts can be attributed to a corporation. In truth, of course, the search is for the intention or motivation of the guiding mind of a corporation and that, as I have said more than once, resided in Mr Graeme Smith.

49 However, concluding that the plaintiffs have in principle, and whichever way one approaches the case, made out their claim for rectification, does not completely answer the matter. The particular difficulty that I see is that, as I have indicated, there is no basis upon which rectification could be ordered as prayed in paragraph 2a of the summons. That is because there is not, in my opinion, any evidence of the relevant corresponding contractual intention in relation to repayment of principal at the rate of $1,000 per month. However, as I have said, the letter of 23 December 2002, either on its proper construction or by way of necessary implication, should be taken to provide for equal instalments compounded of both principal and interest, the effect of which will be to discharge the principal over the sixty month life of the loan. It should also be taken, for the reasons that I have given, to provide for those instalments to be made monthly.

50 I therefore indicate that in my opinion the plaintiffs have made out their case for rectification, but that in respect of prayer 2a the entitlement is not as sought, but to rectification to provide that the mortgage imposes on the defendant an obligation to repay the principal sum, together with interest, by equal instalments over the life of the loan at the interest rate specified and subject to the right of prepayment.

51 I do not propose, myself, to undertake the task of drafting the orders, that will follow from these reasons. I therefore stand the matter over to Friday 19 December 2003, at a time convenient to counsel, to enable short minutes of order to be brought in to reflect these reasons, and to allow submissions on costs to be advanced.

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Last Modified: 12/23/2003