We are Here Pty Ltd v Zandata Pty Ltd

[2010] NSWSC 262

CITATION:	We Are Here Pty Ltd v Zandata Pty Ltd [2010] NSWSC 262
HEARING DATE(S):	24.03.10, 25.03.10
JUDGMENT DATE :	9 April 2010
JUDGMENT OF:	Windeyer AJ
DECISION:	The plaintiff is entitled to orders for specific performance, that the cross claim be dismissed and that the defendant pay its costs
CATCHWORDS:	CONTRACTS – mistake – unilateral mistake – option to purchase included in lease by mistake – lease result of exercise of option for new lease which should not have included option to purchase – new lease assigned to plaintiff company which exercised option to purchase – whether defence to specific performance available on ground of mistake REAL PROPERTY – leases – assignment of leases – whether assignee had knowledge of mistake – whether specific performance available to assignee REAL PROPERTY – leases – whether option to purchase lease exercisable by assignee – effect after registration of knowledge gained prior to registration
LEGISLATION CITED:	Real Property Act 1900 Land Registration Act 1925 (UK)
CATEGORY:	Principal judgment
CASES CITED:	Blacklocks v JB Developments (Godalming) Ltd [1982] Ch 183 Downie v Lockwood [1965] VR 257 Tanzone Pty Ltd v Westpac Banking Corporation [1999] NSWSC 478; (1999) NSW ConvR 55-908 Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 Thirsty Mack’s Pty Ltd v Hasbeen Pty Ltd [2008] FCA 32 Tutt v Doyle (1997) 42 NSWLR 10 Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25; (2000) 9 BPR 17,521
PARTIES:	We Are Here Pty Ltd - plaintiff Zandata Pty Ltd - defendant
FILE NUMBER(S):	SC 09/288827
COUNSEL:	H Stowe - plaintiff Dr C Birch SC/J Atkin - defendant
SOLICITORS:	Fishburn Watson O’Brien - plaintiff Bonfield Riley Solicitors - defendant
LOWER COURT JURISDICTION:	Supreme Court

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER AJ

9 April 2010

2009/288827 We are Here Pty Ltd v Zandata Pty Ltd

JUDGMENT

Issue

1 The plaintiff We Are Here Pty Ltd (We Are Here) seeks specific performance of a contract claimed to have arisen between it as purchaser and the defendant Zandata Pty Ltd (Zandata) as vendor pursuant to the exercise of an option to purchase contained in a registered lease between Zandata and Mr and Mrs Boyd. The plaintiff by transfer from Mr and Mrs Boyd is now the registered proprietor of that lease. The defendant says that the clause in the lease granting the option was included by mistake. The question is whether or not specific performance should be granted.

Facts

2 The property in question is the land in folio identifier 241/751385 and Folio: Auto Consol 15436-93 upon which land is situated the Hi-Way Motel South Grafton. Zandata is the registered proprietor of the property.

3 The property was subject to a ten year lease registered No. 3391230 (the first lease) from Zandata to Rapidale Pty Ltd which was to expire on 19 August 2007. That lease included an option to purchase set out in cl 28 for a purchase price of $662,500 subject to a provision that notice of exercise was to be served not later than 35 months after commencement of the lease.

4 Clause 3.2 of the lease gave the tenant an option for a new lease of five years with two further option periods each of five years. The lease pursuant to exercise of the option was to be on the same terms and conditions except as to rent, and except that the option to purchase under cl 28 was not to be included in the subsequent lease and the option to renew was not perpetual. The right to exercise that option to purchase under the original lease had of course expired by about July 2000.

5 There were two assignments of the first lease. The first assignment dated 5 April 2000 was from Rapidale Pty Ltd to Jen Heiley Pty Ltd. The second assignment dated 11 February 2003 was from Jen Heiley Pty Ltd to Ronald Boyd and Margaret Boyd and was registered No. 9373836G. Zandata consented to each transfer. The lease in cl 8 gave to the landlord a right of first refusal in respect of the purchase of the tenant’s motel business.

6 On 13 July 2007 Mr and Mrs Boyd gave notice of exercise of the option for a new lease (the second lease). It is not suggested that this was not a valid notice.

7 Mr Ching Sau Cheung (“Mr Cheung”) is a director of the plaintiff. His affidavits affirmed on 4 September 2009 and 3 March 2010 are the only affidavit evidence of the plaintiff. Mr Cheung was cross-examined at some length. His evidence was that he and his wife were interested in acquiring a motel business; that he had inspected a few and was in contact with Mr Steve Harrington, a motel broker in Tamworth, and had arranged to inspect the motel and two others on a particular day.

8 On 27 August 2007 having obtained some information and having made a first inspection Mr Cheung wrote to the broker seeking certain information and asked for a copy of the lease. The broker provided him with the intended form of new lease pursuant to exercise of the option. It was prepared by Mr Matthew Riley of Bondfield Riley Solicitors for Zandata and sent on 15 July 2007 to Mr Roland of Foott, Law & Co, the solicitor acting for Mr and Mrs Boyd on sale of the business. The copy of the proposed lease pursuant to exercise of option, which was obtained by Mr Cheung, had been signed by Mr and Mrs Boyd but at that time had not been signed by Zandata. This document contained cl 28 in the same terms as the first lease. Mr Cheung and his wife made a written offer to purchase the motel business on 3 September 2007 noting this required an assignment of the lease to the purchaser. That offer was in the name of Mr Cheung and his wife but nothing turns on that and subsequently We Are Here became the purchaser. The offer of $340,000 subject to some conditions was accepted and on 4 September 2007 the broker sent details to Mr Roland asking him to prepare the necessary contract for the sale of business. Mr Roland prepared the contract and wrote to Mr Riley asking whether Zandata wished to exercise its right of first refusal and was ultimately told it would not.

9 The solicitor acting for Mr Cheung was Mr O’Brien of Fishburn Watson O’Brien of Coffs Harbour. Mr Cheung met with Mr O’Brien on 7 September 2007. It is clear from his evidence that he had given careful consideration to the lease by then and was well aware of the option to purchase. In his second affidavit of 3 March 2010 Mr Cheung said that the option to purchase was one of the main reasons to purchase the business and lease as he wanted a motel that was “freehold complete” or had a lease with a term of 20 years. As the lease and options to renew provided for only 15 years, the option to purchase made it desirable as he could stay as the lessee if he did “not find the motel as attractive as I thought. This was important to me as I had never been involved in motels before”. He said that he considered the total purchase price for the business and option figure to be reasonable and that it was close to his valuation of the freehold complete of about $1,000,000; that he had the profit figures for the years 2005-2006 and 2007 but did not use the profit figure for the year 2007 as it was an unsustainably high return for a particular reason; that he considered a reasonable return was between 15-17 per cent bringing about a value of between $1.2 million and $1.058 million; but that the motel was in poor condition needing about $300,000 spent on it which would result in a value on a return of 15 per cent of about $1,042,000 and on a 17 per cent return, a figure of about $758,000.

10 Paragraph 8 of his affidavit of 3 March 2010 is as follows:

“8. I was satisfied that the landlord was bound by the option to purchase in the new lease for the following reasons:
8.1 I recall reading the option provisions a number of times, and forming the view that the option was very clearly spelt out; and that the option was unconditional (except as set out in clause 28.1);
8.2 I had a meeting with my solicitor, Chris Obrien, fairly close to the time I signed the contract for the sale of business. During that meeting I recall Chris explaining the various provisions in the lease. Although I do not recall the specific words spoken in relation to the option, I recall Chris said something to this effect:
COB: ‘This option is not common. It is very good, and it makes it a good lease for you to acquire’.
Me: ‘It is an important part of the deal for me. I have read clause 28 which sets out a number of conditions for exercising the option. Are there any other unstated conditions I have to meet in order to be able to exercise the option?’
COB: ‘No’.
I recall at some later stage of the meeting a query flashed into my mind as to whether it was important for me to review the terms of the existing lease. I recall a conversation to this effect:
Me: ‘I have not seen the existing lease. Is there any reason why I need to review it?’
COB: ‘You don’t need to worry about the existing lease. When it is signed, the lease renewal attached to the contract for the sale of business will form an independent contract between the landlord and the lessee. The original lease will be irrelevant’.
In light of that statement, I did not seek to obtain (or review) a copy of the existing lease. I was not aware of the terms of the then existing lease, until the commencement of this litigation.”

11 There was email correspondence between Mr Cheung and Mr O’Brien. Mr Cheung asked or suggested to Mr O’Brien that he should seek confirmation that the Boyds had exercised their option to renew in time. Mr O’Brien replied there was no need to do this as the new lease being prepared and put forward confirmed this and would prevent the landlord from disputing it. In any event, the sale of business was subject to the transfer of lease.

12 At some time prior to 22 October 2007 Mr D’Agostino, one of the directors of Zandata signed the new lease, a deed of consent to assignment and another consent involving the National Australia Bank in the office of his solicitor Mr Riley. Mr Riley then sent these documents to a Mr Pippey, solicitor of P.H. Pippey & Son of Boxhill who acted for Miss Jenny D’Agostino, the other director of Zandata. Those documents were returned signed to Mr Riley on 13 November 2007.

13 The contract for sale of business was signed on 25 October 2007. Settlement of the purchase of the business and lease assignment took place on 15 November 2007. Mr Riley had confirmed that he held the new lease duly signed. It is dated 20 August 2007. That is its commencement date but it was executed after that.

14 On 27 February 2008 Mr Cheung sent an email to Mr O’Brien enquiring about the land size of the property saying that this was important if the company was going to buy the freehold. The last two paragraphs of that email are as follows:

“By now, the landlord must have signed the lease agreement and filed. Is it possible to get a copy? The copy that you gave me some 2 to 3 months ago did not have the landlord’s signature. You did tell me that the landlord’s attorney acknowledged that that was the same copy. But I do not feel too comfortable without seeing the signed document. Please help.
At the same time, the landlord’s agent told me that the landlord wanted to sell the freehold and he asked me to make an offer. I have put back the same question and asked him to get an offer from the landlord. I wonder, can I exercise clause 28 – Option to Purchase? If the landlord has a very different idea of the value of the motel, what can he do?”

15 There was delay in registration of the new lease for reasons not clearly identified but apparently through the need to comply with certain requisitions from the Property Information Service. It was eventually registered No. AE150508U on about 28 November 2008. This enabled the transfer of lease to be registered No. AE376693L.

16 On 10 March 2009 We Are Here gave notice of exercise of the option to purchase and enclosed a cheque for $66,250 for the deposit. Mr Riley wrote on 14 April 2009 returning the cheque. His letter included the following:

“The Option was included in the first lease commencing 20th August 1997 and was exercisable within 35 months of the date the lease commenced, that is by the 20th July 2000. The Option was not exercised within that time.
The Option to renew the lease was exercised in 2007 and the new lease reproduced the first lease in full, including clause 28. Plainly, the Option to purchase was only effective during the first term of the lease. To construe the lease otherwise would involve imposing a static purchase price determined at 1997 levels for 35 months commencing in each of 2007, 2012, 2017 and 2023. With respect, such a construction is so devoid of commercial reality to be bizarre.
In any event the renewal of the lease, and its assignment, was ineffective to renew and assign the Option to Purchase. The Option to purchase is a separate and distinct arrangement from the lease.”

17 The evidence of Mr D’Agostino in his affidavit was that when he executed the lease he was not aware it included an option to purchase in terms of the 1997 lease and there was no discussion about it being included. He said that had he been aware that the option to purchase was included he would not have signed the lease. He said had an option been included it would have reflected the then current market value of the property. In oral evidence in cross-examination Mr D’Agostino said that he signed the lease in Mr Riley’s office; that Mr Riley told him that cl 28 had been excluded and that there was special mention of this. I do not accept that evidence. It is clearly untrue. The reason it is obviously untrue is that the clause was included in the lease and there would be no possible basis for Mr Riley to make that statement. Mr Riley himself swore an affidavit which was read in these proceedings by the defendant. In that affidavit Mr Riley said that the option to purchase was included as an oversight and that he arranged for the 1997 lease to be reproduced with changes in rent and the like but failed to have regard to other clauses. In particular he failed to have regard to cl 28. He was in court when Mr D’Agostino gave his evidence and he denied the conversation that was said to have taken place. I accept his evidence. Mr Riley said that he could not say whether Mr D’Agostino read the lease or not although the gist of his evidence was that he just went in and signed. Miss D’Agostino said that she did not read the documents. She took the view that if her father said something was in order then she would accept this and that as he had signed the document she thought that it was in order. She said that had she noticed the option to purchase, she would have questioned her father about it.

18 There is no difficulty in the finding as a fact and I so find that cl 28 was included in the new lease by mistake and that this was brought by the mistake of Mr Riley and not by those responsible for the defendant company other than through their failure to read it.

Pleadings

19 The plaintiff seeks an order for specific performance of the contract brought about by exercise of the option to purchase subject to payment of the deposit. The claim for damages in addition to that order is not pressed. I should add that there is no claim for damages in lieu of specific performance. Although I would think that the court, if it refused specific performance, would have power to order an enquiry as to damages.

20 The defences as pleaded are:

(1) that the inclusion of cl 28 in the lease was the result of a mistake; that as a consequence of the mistake the offer to sell in cl 28 of the lease was ineffective to create a contract upon purported acceptance;

(2) the assignment of the lease did not carry the option to purchase;

(3) in the alternative the defendant says that if the option is found to be valid then any relief should be on terms of payment of the full market value at date of exercise; and

(4) that if the relief sought were granted without offering payment as claimed in sub par (3) above the plaintiff would be unjustly enriched and relief should be refused.

21 As to sub pars (3) and (4) above, no arguments or submissions were addressed to these parts of the defence for obvious reasons. As to sub par (2) above, the defendant now accepts as a consequence of s 53(3) Real Property Act 1900 (RPA) that the benefit of the option to purchase runs with the land and this together with s 51 of the RPA confers indefeasibility upon the option to purchase. However, it is argued that is not enough and that the questions of validity and enforceability remain. The contention is that the option for a new lease validly exercised by Mr and Mrs Boyd did not carry a right to a lease which included cl 28; that the lease did include that term as a result of mistake by the defendant lessor; the mistake was obvious so that the option was incapable of exercise by the Boyds and remained incapable of specific performance at the request of the plaintiff here. The original written outline argument of the defendant goes on to state “nothing in the authorities regarding indefeasibility holds that it overcomes what would otherwise be a defence to the decree of specific performance of a covenant in a registered instrument”. That statement may be correct in relation to an action between the original contracting parties but it does not follow it applies here. The real defence is that of mistake and what flows from it.

Additional facts - disputed matters

22 The front page of the second lease which sets out in brief form the essential features of the lease includes the following in the typed style shown:

“5. With an OPTION TO PURCHASE set out in clause of With a RIGHT OF FIRST REFUSAL set out in Clause 14.7 and OPTION TO PURCHASE set out in Clause 28.”

23 Clause 28 is the final clause in the lease. It is simple, clear and easily read. Mr D’Agostino said he did not read the lease or see the relevant provisions. He said that Mr Riley told him where to sign and that is what he did. He said he trusted his solicitor. Although he was challenged in cross-examination I accept this evidence. It accords with that of Mr Riley. I have said that the evidence of Mr D’Agostino as to his conversation with Mr Riley about cl 28 cannot be accepted in the light of cl 28 remaining in the lease. I accept the evidence of Mr Riley.

24 Miss D’Agostino said that she did not read the lease as she relied on her father’s judgment. I accept that. She said that had she been aware of the option to purchase she would have contacted her father as it was not a usual provision for Zandata which had other properties and intended to hold those which it had purchased and not sell them. I have some doubt about that evidence as to contacting her father but it does not matter as I accept that Miss D’Agostino did not read the lease. She signed it in the office of Mr Pippey her solicitor to whom it had been sent. She did not have it in her possession before that time. She said Mr Pippey did not explain the option to purchase to her.

25 Mr Cheung knew that the second lease resulted from the option to renew the first lease. He knew that before the contract for sale of business was signed, and as I said, he was anxious to get advice as to whether the option had been properly exercised. He did not see the first lease on or before settlement and there is no evidence he saw it at any other time at least until these proceedings commenced. The document he first saw was the form of second lease signed by Mr and Mrs Boyd but not at that time signed by the lessor. In cross-examination the following evidence was given at pp 24-26 of the transcript:

“Q. When you read clause 3.2(b), you saw that it provided that clause 28 wouldn't be included in any renewal. Do you see that?

A. Yes.

Q. You were also thinking at that time that there must have been a clause similar to 3.2 in the original lease that had just expired, that's correct, isn't it?
A. I recall I did not think that way. Well, for some reason I recall the way I thought was that if a clause like this exist then this option 28 will not exist in the next lease.

Q. Yes.
A. It will not exist in the next renewal. By the same logic, if the previous lease - well I must say first I did not know how many previous lease exist before this but my thinking was with the - these words, if it was the same wording in the previous lease, this clause should totally disappear from the lease.

Q. Correct. And that's what you realised when you read 3.2(b), wasn't it?
A. Yes. So I believe this is talking about an option available to the lessee from this lease.

Q. Well, that was one possibility. And the other possibility you realised was that if 3.2(b) had been in the same terms in the original lease--
A. No, I have no copy of the original lease.

Q. You say this and you thought to yourself, I want to suggest, that if in the original lease 3.2(b) was the same, then clause 28 should not have been included?
A. That's right.

Q. So one of the things which occurred to you was it was possible that clause 28 had been included by mistake in the document that had been sent to you?
A. No. I object this. I have no imagination that a fees charging lawyer would make such a mistake. I never thought that.

Q. You had some concerns later, though, before you concluded the deal about clause 28 and whether it would be enforceable?
A. Yes.

Q. That's correct, isn't it?
A. Yes.

Q. That was in part because you knew after you had read 3.2 that it was quite possible that a mistake had in fact been made?
A. No. I'm concerned if this is enforceable because it's a natural thing for myself; when I see something is good I ask myself is it really good or am I being trapped into some kind of false impression. I want to make sure this is not an illusion, it is something real.

Q. Yes. You've said in your affidavit that that was a matter that was of importance to you; you wanted to be sure that that option would be enforceable?
A. Yes.

Q. Of course one way of guaranteeing that the option would be enforceable would be to have the landlord acknowledge that clause 28 was valid and binding and could be exercised by you in any new term that you would take by assignment; do you agree?
A. No. The reason, one reason we have to realise at that moment my main contact is only the agent. I could not even contact the motel lessee directly, not just say about the landlord who is a little remote from this relationship. I am only buying a lease from the motel lessee, the landlord seems to be a third party in my opinion. I was not allowed to contact the lessee at all - sorry, I'm not allow to contact the landlord at all.

Q. I understand that M[r] (sic) Cheung, but there was no reason why you couldn't have said through the broker or your solicitor to the Boyds I'll buy your business provided the landlord gives me a written acknowledgment that clause 28 is enforceable and binding on him. Do you agree?
A. No. If I have query about enforceability of this clause after discussion with my lawyer, I probably would do that. But at that moment I read this I trust it's right, I talk to my lawyer and my lawyer believe it is good too. There is no reason for us to do that.

Q. Incidentally, was it your belief that whatever might be the position of the lease document as it was unexecuted by the landlord, the landlord would be bound once it became registered on the title?
A. No, I did not know about this. I did not even know about what is the effect of registration. I was just told that by law, the lawyer prepared a lease, have to register it. “

26 There was further questioning along the same lines. The intention of the cross-examiner was to show that Mr Cheung refrained from approaching the defendant landlord because he knew a mistake had been made which if brought to the attention of the landlord would have caused it to refuse to sign the lease. I accept the evidence of Mr Cheung as to this. He was buying a business from the lessee, not from the landlord. While it was necessary to obtain consent to the assignment, the contract set out the requirements for this and it was for the vendor of the business to apply for consent. It was natural for Mr Cheung to rely on the advice of Mr O’Brien as to the option. It was also natural for him, as he said, to assume the lease terms were those as written, as the option to purchase was so clear on the front page.

27 The defendant put in evidence an expert valuer’s report as to his opinion of the market value of the property on 20 August 2007 subject to the lease but excluding cl 28. The figure was $870,000. The following evidence was given in further cross-examination at transcript p 26:

“Q. You understood that this had come into being as a result of the exercise of the option by the Boyds, is that correct?
A. Well I understand that this lease is a result of the exercise of the renewal of the lease by the Boyds.

Q. Yes. And you understood that clause 28 was included because of the exercise of the option of renewal by the Boyds?
A. I believe I did not think about individual clauses, I just think in the way of the entire lease.

Q. You realised that that price of 662,500 must have been the price that had been agreed back when the original lease had been first arranged between the landlord and the tenant?
A. No. Again, I have not read any lease before this, I just regard what is available to me and this is the option available to me.

Q. You knew that the price, though, was an old price; that it didn't reflect a market value in August of 2007; you knew that, didn't you?
A. A market price in 2007?

Q. You knew that that price hadn't been negotiated as the market price in August 2007, and the sum had simply carried through from an earlier lease?
A. No, I did not think anything about that.”

28 I accept Mr Cheung’s evidence. It is probable that Mr Cheung considered the option price was favourable as the option to purchase was part of the reason for his entering into the purchase contract, but that does not mean he knew there was a mistake or that an earlier figure had been brought forward. In options for lease renewals it is normal for the rent provisions to be altered; here there was no reason why the purchase price under an option to purchase in a lease would not be altered. Mr Cheung appeared as a careful and intelligent man. Although it might appear that his evidence as to calculating price was given with the benefit of hindsight with this case in mind, I conclude that is not so, as the obvious way of comparing the three motels he was considering was to work out the expected return from them. While he did not say that he did this for the other two, there is no reason to think that he did not do that calculation as far as the Hi-Way Motel South Grafton was concerned.

29 As I said it took a long time for the second lease to be registered. The evidence is not quite clear on this but it seems that the Registrar General required that the names of the authorised persons signing for Zandata be printed under their signatures. Why this took over 15 months is hard to imagine but registration of the lease was finally achieved on about 28 November 2008. It is not clear on what date the transfer of lease was registered but presumably it was reasonably soon after that.

30 Mr O’Brien had advised Mr Cheung not to exercise the option until the lease was registered. That advice was given reasonably soon after the settlement. At that stage Mr Cheung was not considering exercise for one or two years. He said that by the time he made the enquiries of February 2008, he had changed his plans. He had never thought that registration would take so long. Whether Mr O’Brien’s original advice was given with indefeasibility in mind is unknown although registration of a transfer of lease would have been needed as well. There is no evidence of any mention of indefeasibility to Mr Cheung or its meaning or the effect of registration. The following evidence was given in the cross-examination of Mr Cheung (at p 36 of the transcript):

“Q. You were sufficiently worried about this clause that you were not prepared to exercise it until it had been confirmed to you that all the instruments had been registered, isn't that correct?
A. No, I don't think so. I think the situation is simply there was a promise I was provided before I bought the motel, and by around three months later the promise provided earlier was still not fulfilled. That start to make me feel something, somebody may be wrong. But that doesn't mean I was waiting for something because I really need to wait at least one year before I can exercise the option.

Q. When you had your discussions with Mr O'Brien, the trigger for you in exercising the option was whether or not the lease and the transfer had been registered, isn't that correct?
A. No, not correct at all. At the moment entering into the discussion that was before 15 November, at that moment I believe we both have understanding that the lease will be registered as it should be.

Q. Did you, in February 2008, entertain the desire to exercise the option to purchase sooner than you had initially planned?
A. Yes.

Q. You nevertheless postponed its exercise until after registration, that's correct, isn't it?
A. Totally wrong. In fact I have exercised option at the first chance it was available.

Q. I want to suggest that you exercised it when you did because you thought if you waited until after registration it would strengthen your hand if the landlord changed clause 28?
A. Not at all. I think we both believe in Matt Riley's promise, we just thought Matt Riley was just slow, lazy or whatever. We did not think about anything like you described.”

31 I accept Mr Cheung’s evidence. I thought it quite convincing. I should add that the advice of Mr O’Brien was correct. Section 41 RPA required the lease to be registered and s 53(3) of the RPA applies to registered leases: Thirsty Mack’s Pty Ltd v Hasbeen Pty Ltd [2008] FCA 32; Peter Butt, Land Law, 6th ed (2010) Thomson Reuters (Professional) Australia Ltd at par 15 175. In addition, registration of a transfer of lease is required to pass the rights under it to the transferee: s 51 RPA.

Amended pleadings – Cross Claim

32 At some stage during the hearing I asked Dr Birch, Senior Counsel for the defendant whether it was necessary if the defendant relied on mistake or rectification for it to make claims for rescission and rectification by way of cross claim. Counsel stated that these matters could be raised as defences to the claim for specific performance and he did not consider a cross claim to be necessary. On the final day of the hearing during submissions although he stated he was still of that view, he sought leave to file a cross claim seeking (a) rectification of the lease or (b) rescission of the contract arising through exercise of the option. It is fair to say that this was done as a result of statements I made to the effect that I considered it necessary. However, it is convenient to deal with the defences to the claim for specific performance without considering the cross claim, as that is or at least was, the way in which the defendant claims the action should be dealt with.

Arguments of Defendant

33 It is accepted the option to purchase was exercised in accordance with its terms. The question is whether there is some defence to the specific performance claim. The argument of the defendant is quite clear. It is that as between Zandata and Mr and Mrs Boyd specific performance of the option to purchase under the second lease would not be ordered because the inclusion of the option in the lease was as a result of a mistake-probably common mistake. This is because exercise of the option for a new lease brought about a contract for a lease which was not to include cl 28. The inclusion of this term was thus a result of mistake common to both parties. It was a mistake which would have entitled the defendant to rescind. I consider that to be clear enough, although I remain of the view that a claim for rescission ought to be made. Whether that view be correct or not, and the same reasoning would apply to a valid claim for rectification, the question remains as to how that bears on rights as between the lessor and an assignee of the lease. In general terms, it would not bear on those rights unless the assignee took with knowledge of the mistake. Again as a matter of practice I consider it would be very unusual to make an order for rectification or rescission without in this case the original lessees namely Mr and Mrs Boyd being joined as parties. The reason for joinder would be the risk of some claim against them by the plaintiff here and assuming the claim for rescission or rectification is a derivative claim the need to join the contracting parties to establish that claim. Counsel for the defendant did not accept this and perhaps if I considered it necessary I should have adjourned the hearing to enable it to be done. As I was not asked to do so and the costs involved would have been considerable I did not do so.

34 The question of knowledge was accepted as being important, if not crucial, to the case of the defendant. Dr Birch relied upon:

(1) the fact that the lease came into existence as a result of exercise of the option;

(2) the fact that while the option was said by Mr Cheung to be of importance to him he did not enquire direct of the lessor or instruct his solicitor to enquire of the lessor’s solicitors whether the option to purchase was good; and

(3) the letter from Mr Cheung to his solicitor after settlement seeking advice about the option.

Dr Birch said that these facts and the passages of the evidence set out were sufficient to enable the court to find that even if Mr Cheung did not have actual knowledge of the mistake, he had reason to know of the mistake.

35 As I said I accept Mr Cheung’s evidence on this. He said he had not seen the 1997 lease. The new lease was prepared by the solicitor Mr Riley. Another solicitor Mr Roland acted for Mr and Mrs Boyd on the lease. Neither of the directors of the defendant had read the lease, but Mr Cheung did not know this and he was not responsible for it. There is no evidence that Mr and Mrs Boyd or their solicitor did not read the lease. Mr Cheung did read it and obtained advice from his solicitor on the option to purchase. As he said, the option was very apparent on page 1 of the document. I do not think there was any reason for Mr Cheung to think that the purchase figure was the same as that included in the 1997 lease and there is no evidence that he considered the option price was at a substantial undervalue, although he did consider the option as favourable to him. For these reasons I conclude that Mr Cheung was not aware of the mistake of Zandata or if deliberate shutting of eyes amounts to knowledge, he was not guilty of such conduct.

36 It is important to bear in mind that this is not a claim between the original lessor and the original lessee. Had this been a claim for specific performance made by Mr and Mrs Boyd, I think it is clear that even after registration of the lease, the landlord would have been entitled to rectification. If it were not a common mistake then the Boyds must have had knowledge of the mistake and thus would become a party to it and it would be unconscionable of them to take advantage of it by not pointing it out to the lessor. The entitlement of Mr and Mrs Boyd arose through exercise of the option for a new lease. Indefeasibility would not overcome the right in personam to rectification.

37 The position of a lessor seeking to avoid an order for specific performance in favour of a third party namely an assignee of a lease is different. Knowledge of the lessee is not knowledge of the assignee. Obtaining the lessor’s consent to assignment can in no way make the lessee’s knowledge that of the assignee. Dr Birch placed considerable reliance on Tutt v Doyle (1997) 42 NSWLR 10 particularly the judgment of Handley JA but this does not assist. That was not a third party claim but a vendor and purchaser claim for rectification. To paraphrase that judgment at p 17 -Zandata was required to show that We Are Here through Mr Cheung knew or had reason to know that Zandata was or could be mistaken. - It did not so show. Thus assuming, without deciding that this could be applicable to claims by or against third parties, the defence fails.

38 It follows that while it is not altogether clear to me that in Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 the High Court prior to setting out at p 432 the well-known propositions as to rescission or rectification for unilateral mistake also “endorsed wider principles which entitle a court of equity to grant relief for unilateral mistake in cases not covered by this principle” as is stated by Handley JA in Tutt p 14, that does not matter here. I am bound by Tutt. However as some time was spent on it, I think with respect that a careful reading indicates there may not have been endorsement but rather a discussion of various writings and judgments before the Court stated the principle applicable to the facts in Taylor v Johnson.

39 I should add that I am aware of the statement in Peter W Young, Clyde Croft, Megan Louise Smith, On Equity (2009) Lawbook Co. at par 11.390 that a right to rectification may be enforced against a successor in title to the original contracting party. The cases cited to support this proposition are Downie v Lockwood [1965] VR 257 and Blacklocks v JB Developments(Godalming) Ltd [1982] Ch 183. Each of those cases relied upon particular legislation to bring about their result. As far as Downie is concerned I explained this in my judgment in Tanzone Pty Ltd v Westpac Banking Corporation [1999] NSWSC 478; (1999) NSW ConvR 55-908 at par 43. Blacklocks was a case concerning overriding interests under the Land Registration Act 1925 (UK). In the absence of particular legislation there is no such general right against third parties.

40 In light of this decision it is not necessary to go into other arguments much further. The plaintiff is the registered proprietor of the lease and as no fraud is alleged, takes free of other interests not noted on the title unless some claim in personam is available to the defendant. This could only arise if the plaintiff’s conduct in some way gave rise to such a claim. Again as a matter of practice this would really require the Boyds to be joined as parties. But leaving that aside something more than notice of an interest or mere equity attached to an interest is required to defeat an otherwise indefeasible title. There must be conduct to make it unconscionable to exercise the option to purchase. I set out my views on this in Tanzone at par 44, and will not repeat them here. That decision was reversed but on other grounds by the Court of Appeal in Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25; (2000) 9 BPR 17,521. The plaintiff here did not have notice but even if it did it did not agree to take subject to or to recognise any equity in the defendant to rescission or rectification.

Orders

41 The plaintiff is entitled to orders for specific performance, that the cross claim be dismissed and that the defendant pay its costs. I will direct that any matters relating to the working out of the order for specific performance be determined by the Registrar in Equity. I will stand the matter down for a short while to enable the draft orders to be prepared.

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