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The right words

Feature Articles

Cite as: (2003) 77(4) LIJ, p.46

A mistake between parties may result in the wrong words being used in a document to describe their common intention, or it may result in the words, although correctly chosen to express their common intention, not having the meaning or effect assumed by the parties. The rectification of a document, so as to give effect to the true intention of the parties, responds only to the former case.

By Andrew Kincaid

A rectification proceeding reaching judgment seems uncommon. The Victorian Court of Appeal decision in The Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd[1] stands, therefore, as a useful reminder to practitioners of the limitations of the remedy where parties are mistaken about the legal effect of the words they have chosen to use.

The remedy of rectification has long responded only to common mistakes made by parties in recording their concluded contract.[2] For example, where A agrees to sell a piece of land to B but excluding a certain portion, and the relevant written agreement fails to exclude that portion from the land to be conveyed, rectification of the written agreement will be ordered.[3] In such cases the words used are not deliberately chosen, nor is a relevant omission deliberately intended.

Where, however, the parties are mistaken about the meaning or effect of words that they have deliberately chosen, whatever other remedies may be available,[4] rectification is not one of them.

TWO ALTERNATIVES

1. Words deliberately chosen, no mistake concerning their meaning, effect does not accord with common intention
A party seeking rectification of a contract who is unable to demonstrate correspondence between the form of the document (that is, the words actually used) and the common intention of the parties at the time the document was executed, will not be able to successfully claim rectification. This applies even if the parties would have used different words had they known the true facts.

For example, in Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd,[5] the plaintiff seller was required to fill an Egyptian buyer’s order for “Moroccan horsebeans described [in Egypt] as feveroles”. The plaintiff’s representative did not know what feveroles were and asked the defendant’s representative who, after making inquiries, told him that feveroles were just horsebeans. Acting on this information the plaintiff entered into a contract for the purchase of “horsebeans” from the defendant, and duly supplied them to its buyer. When the horsebeans were supplied to the Egyptian buyer, the buyer found that they were not feveroles as ordered (but horsebeans, known as “feves”) and sued for damages. The plaintiff sought to have its contract with the defendants rectified so as to make it refer to “feveroles”, not “horsebeans”. The plaintiff’s object in doing so was to cover itself against a claim by the Egyptian buyer.

The English Court of Appeal declined to order rectification on the grounds that the concluded oral agreement between the parties was for horsebeans, and the written contract was in the same terms. The fact that the parties were under an erroneous assumption that “horsebeans” would satisfy the order of the Egyptian buyer for “horsebeans described [in Egypt] as feveroles” did not warrant the Court granting rectification. Morris LJ observed as follows:

“But the fact that they were under a mistaken impression as to what their agreement would achieve does not disturb the clarity and fixity of the agreement which they in fact made. The defendants intended to offer horsebeans and the plaintiff intended to accept horsebeans: the written agreements correctly reflected and incorporated what they had agreed.”[6]

In a much-quoted judgment, Denning LJ provided the rationale for the rule as follows:

“Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly; and in this regard, in order to ascertain the terms of their contract, you do not look into the inner minds of the parties – into their intentions – any more than you do in the formation of any other contract. You look at their outward acts, that is, at what they said or wrote to one another in coming to their agreement and then compare it with the document they have signed. If you can predicate with certainty what their contract was and that it is, by a common mistake, wrongly expressed in the document, then you can rectify the document; but nothing less will suffice.”[7]

There are many examples of rectification not being available because the plaintiff is unable to demonstrate correspondence between the form of the document (that is, the words actually used) and the common intention of the parties at the time that the document was executed.[8] If the writing is exactly what the parties intended, notwithstanding that it may have a different effect from what was intended, there will be no remedy by way of rectification.

2. Words deliberately chosen, mistake concerning their meaning, effect does not accord with common intention
Where words are purposely used, but in the mistaken belief by the parties that they bear a different meaning from their correct meaning as a matter of true construction, rectification will be available. For instance, In re Butlins Settlement Trusts v Butlin & Ors,[9] a settlor sought rectification of a voluntary settlement by introducing a power for a majority of trustees to make decisions binding on the minority. The express terms of the clause concerning majority power in fact enabled the majority of trustees to act only in the event of a non-concurring trustee being unable to take an active part due to “illness, infirmity or temporary absence abroad”. Evidence given by the settlor and one of the trustees to the effect that the settlor always intended that the relevant settlement should contain an unconstrained power for a majority of the trustees to bind the minority was accepted by the Court. The Court concluded that the settlor and his legal advisers had misread the relevant clause as containing a general power for a majority to bind the minority. Rectification of the terms of the settlement was ordered so as to make it concur with the settlor’s intention.[10]

If evidence shows that deliberately chosen words do not, by a “draftsman’s blunder” or otherwise, carry into effect the intention of the parties, the court may rectify the instrument so that it does so.[11] In other words, if rectification is to be available the common mistake must lie in the lack of correspondence between the form of the document and the common intention of the parties. In Commissioner of Stamp Duties (NSW) v Carlenka,[12] the instrument of which rectification was ordered was a deed poll that was executed with a view to amending a deed of trust. The amending deed was clearly and convincingly proved to have been made with the intention of achieving no more than the empowerment of the trustee to distribute income to a nominated person or company. The draftsman, however, misinterpreted the terms of the trust deed, as a result of which terms were used in the amending deed poll that would have entitled a nominated beneficiary to share in a distribution of capital. This would have brought about a resettlement and a consequent liability to stamp duty. Rectification of the deed poll was ordered. The terms of the deed poll had been selected in the mistaken belief that their legal effect was narrower than that which, on their proper interpretation, they were apt to support.[13]

THE CLUB CAPE SCHANCK DECISION

A dispute arose between the parties concerning charges for the supply of sewerage treatment services by the respondent to land owned by the appellant. Terms of settlement were entered into on 25 June 1998 which provided in cl 2 that failing the parties’ agreement concerning ongoing sewerage treatment charges, either party was at liberty to refer their determination to the Planning Division of the Administrative Appeals Tribunal (subsequently taken by the parties to be a reference to the Victorian Civil and Administrative Tribunal (VCAT) which came into being on 1 July 1998). The appellant subsequently applied to VCAT for a determination of the charges but VCAT declined to make a determination on the proper ground that it lacked jurisdiction. The respondent applied to the Supreme Court for rectification of the settlement agreement by substituting the reference to either party being entitled to apply for a determination of the charges by VCAT to a reference by which either party could refer to VCAT the question whether consent should be given to any ongoing increases in servicing charges (in regard to which VCAT had power).

At first instance, the judge found that because of the “common intention” of the parties that their settlement agreement would enable VCAT to determine the ongoing sewerage treatment charges, he would order rectification in terms of the relief sought.

The Court of Appeal reversed the decision of the trial judge. In doing so it highlighted the facts that:

(a) the expressed common intention of the parties, that found expression in the terms of settlement was, on an application by a party, for VCAT to “determine” the ongoing sewerage treatment charges (there being no mistake as to form); and

(b) there was a mistaken assumption by the parties that an application to VCAT by one of the parties would in fact enable VCAT to make such a determination (a mistake as to the effect of the agreement).[14]

Phillips JA said:

“[It is] not to say, however, that comparably with the position in Carlenka, the mistake [in The Club Cape Schanck] resulted in a legal and factual operation of the words used in clause 2 which, upon their true construction, was fundamentally inconsistent with what the parties had determined that the clause should achieve. It is true enough that the clause failed to achieve the parties’ expectation, but that was not by reason of words that were used or omitted; there were, indeed, no words that could have been used to achieve that expectation, for the tribunal could not have jurisdiction conferred upon it by agreement that by statute it did not possess.”

The Court of Appeal was careful to limit the perceived breadth of Carlenka, as it seems to have been the subject of extensive argument before the trial judge. A wide reach of that decision may have been inferred from both the terms of the judgment of Sheller JA in Carlenka[15] and the headnote to the report.[16] The Court of Appeal emphasised that each aspect of Carlenka had to be seen in the context of its facts, where there had been a mistake as to form alone.[17] In Carlenka the reason why the amending deed did not give effect to the common intention of the parties (and why rectification was ordered) was that the form of the document did not accord with the parties’ intentions. In The Club Cape Schanck no such disparity could be discerned. Phillips JA said:

“...the principle upon which rectification depends always remains the same; it depends in every case upon a want of correspondence between the form of the document (that is, the words actually used) and the common intention of the parties at the time when the document is executed. Where the disconformity is the product of a common mistake, that mistake may be as to what words have been employed in the document or the meaning or effect of such words as appear. But whatever the common mistake, the lack of correspondence must be between the form of the document and the common intention, if rectification is to be available.”[18]

Given that there was no mistake by the parties as to the embodying of their common intention in the terms of settlement (albeit based on the parties’ common apprehension concerning the powers of the tribunal), there was therefore no basis on which the court could properly rectify the terms.

SUMMARY

The Court of Appeal in The Club Cape Schanck confirmed that Carlenka, when seen in its context, did not amount to a departure from the settled law of rectification. In summary, if there is a mistake or misapprehension as to what words meant (a mistake as to the form of the document), as a result of which the document has an unintended legal effect beyond what the parties intended to achieve, rectification will go. If there is no mistake in the form of the document as reflecting the agreement of the parties, yet the document has an effect that the parties did not intend, rectification will not be available.


ANDREW KINCAID is a member of the Victorian Bar, practising in commercial law. He conducts biannual two-day workshops on “Construing contracts” at the Leo Cussen Institute with colleague Matthew Harvey.


[1] [2002] 3 VR 526.

[2] There need not be a concluded antecedent agreement, but there must be an intention common to both parties at the time of entering into a written contract to include in its conditions a term which by mutual mistake is omitted therefrom: see Slee v Warke (1949) 86 CLR 271; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 350.

[3] See, for example, Craddock Bros v Hunt [1923] 2 Ch 136 at 159-160.

[4] An erroneous assumption underlying the contract “might have been set aside on the ground of misrepresentation or mistake”; see Denning LJ in Frederick E Rose (London) Ltd [1953] 2 QB 450, at 462.

[5] Note 4 above.

[6] Note 4 above, at 463.

[7] Note 4 above, at 461.

[8] See, for example, Pukallus v Cameron (1982) 180 CLR 447.

[9] [1976] Ch 251.

[10] A document cannot be rectified unless all the parties thereto have acted by mistake. The Court was therefore faced with the question of the extent to which the settlor, seeking rectification of a voluntary settlement to which trustees are also parties, has to establish that the mistake was mutual. The Court was able to say that in the ordinary case trustees are simply cognisant of the terms of a proposed settlement before execution and therefore do not “strike any bargain” with the settlor as to its terms. In such circumstances, the Court held that it is not essential for a settlor to prove that the settlement fails to express the intention of the parties. The Court left open the possibility that it may in its discretion decline to rectify such an instrument where there is a protesting trustee who on proper evidence objects to that course.

[11] See also NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740 and Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226.

[12] (1995) 41 NSWLR 329.

[13] Summary of facts taken from judgment of Tadgell JA in note 1 above.

[14] Note 1 above, at 530 para 12 per Tadgell JA and 538 paras 35-37 per Phillips JA.

[15] Sheller JA said: “In the first place the availability of the relief [by way of rectification] depends on disconformity between the form or effect of the document executed and the intention of the parties or party who executed it.” (emphasis added)

[16] “The court may order rectification of a document which contains words used purposely, but mistakenly as to their effect, so as to give effect to the true intention of the parties.”

[17] Note 12 above, at 528 paras 5 and 6 per Tadgell JA and 538 para 36 per Phillips JA respectively.

[18] Note 1 above, at 539-540.

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