Australian Guarantee Corporation Limited v David Bates Bowman; John Tomich; Graham Keith Daniels; David Lake Bremer; Peter Leonard Trewin; Richard Peter Freeman; Francis Bannatyne Lewis; Geoffrey Arthur Cohen; John Albert Howe; Jean Mabel Howe; Tarak Mana [1986] ACTSC 15 (7 March 1986)

SUPREME COURT OF THE ACT

AUSTRALIAN GUARANTEE CORPORATION LIMITED v. DAVID BATES BOWMAN; JOHN TOMICH;
GRAHAM KEITH DANIELS; DAVID LAKE BREMER; PETER LEONARD TREWIN; RICHARD PETER
FREEMAN; FRANCIS BANNATYNE LEWIS; GEOFFREY ARTHUR COHEN; JOHN ALBERT HOWE;
JEAN MABEL HOWE; TARAK MANAGEMENT SERVICES PTY. LIMITED; NORDRAX PTY. LIMITED;
CHRISTOPHER ROOT; MICHAEL ROOT; ALBERT THOMAS DAVIES; NANCY ROOT; PETRES PTY.
LIMITED; TREVOR BURTON HUTTLEY; KELVIN JOHN DYER and JOHN BARRY COLLIER
S.C. No. 604 of 1985
Practice - Contract

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Miles C.J.(1)

CATCHWORDS

Practice - procedure - applications for summary judgment under Order 15 - principles applicable.

Contract - right of rescission where both parties mistaken as to fundamental matter and party seeking to set aside not at fault.

Contract - misrepresentation - misrepresentation by agent.

Harry Smith Car Sales Pty. Ltd. v. Claycom Vegetable Supply Co. Pty. Ltd. (1978) 29 ACTR 21

Fancourt v. Mercantile Credits Ltd. [1983] HCA 25; (1983) 154 CLR 87 at p 99

Fraser Henleins Pty. Ltd. v. Cody [1945] HCA 49; (1945) 70 CLR 100

Walplan Pty. Ltd. v. Wallace (unreported), Full Court of the Federal Court of Australia, 19 December 1985.

Solle v. Butcher (1950) 1 KB 671 at p 693

Equity Doctrines and Remedies (2nd ed.) paras. 1412-1426

McRae v. Commonwealth Disposals Commission [1950] HCA 12; (1951) 84 CLR 377

Taylor v. Johnson [1983] HCA 5; (1983) 45 ALR 265

Actionable Misrepresentation (3rd. ed.) para. 89

Academy of Health and Fitness Pty. Ltd. v. Power (1973) VR 254

HEARING

CANBERRA
7:3:1986

ORDER

The plaintiff's claim for summary judgment against the various defendants named in the three summonses will be dismissed and those defendants are given liberty to defend the plaintiff's action.

Costs of the summonses to be reserved to the hearing of the action.

DECISION

These are applications under Order 15 of the Supreme Court Rules, made by way of three summonses heard together by consent, seeking summary judgment against the various defendants named in each of the summonses.

2. The two affidavits in support of the applications were sworn on 10 October 1985 by Gerard Victor Castle and Michael Graeme Syme. Each of the deponents states that he is able to swear positively to the facts deposed to from his own knowledge and Mr. Castle further swears that in his belief the defendants have no defence to the action. Mr. Castle is the Credit Manager of the plaintiff for the States of Victoria and Tasmania.

3. By Statement of Claim amended on 6 January 1986 pursuant to Order dated 28 November 1985, the plaintiff sues the sixteen persons named as the first defendants for rental due under a lease agreement relating to an aircraft, together with a further sum alleged to be due under the terms of the lease agreement. The second and third defendants are sued as guarantors, but only the thirdnamed of the third defendants, Mr John Barry Collier, is concerned in the present application.

4. The lease agreement in question was entered into on 20 March 1981 between the plaintiff as lessor and the first defendants as lessees. The first defendants were members of a partnership known as "Marquise Aircraft Charter" (Marquise). The term of the lease was forty-eight months from 20 March 1981. The rental instalments were $32,775.65 per month. No instalments were paid beyond 20 August 1983. The aircraft was later repossessed by the plaintiff purporting to act in accordance with the provisions of the lease agreement and sold. The plaintiff claims the rental instalments falling due from 20 August 1983 to the date of the sale of the aircraft on 24 December 1984. In addition the plaintiff claims that Marquise has repudiated the agreement and that pursuant to the terms of the lease agreement, Marquise is liable to the plaintiff for the further amount by which the residual value of the aircraft (as calculated in accordance with the lease agreement) exceeds the net proceeds of sale. There is a further claim for damages which, according to counsel for the plaintiff, arises as a result of the plaintiff losing its right to recover rent after the goods were repossessed and sold, but it is unnecessary to consider this third head of the plaintiff's claim for the purposes of the present application.

5. The affidavit material verifies the amount claimed under paragraph 7A of the amended Statement of Claim in respect of rental instalments at $547,186.05 and the further amount claimed in paragraph 10 of the amended Statement of Claim, being the difference between the residual value of the aircraft and the net proceeds of sale assessed at $637,000.00.

6. There is no dispute and I am satisfied that the plaintiff has made out, on the face of it, a case for leave to enter judgment in accordance with Order 15 Rule 1(1). The real dispute is whether the defendants have satisfied me under Order 15 Rule 1(2) that they have a defence to the action on the merits, or have disclosed such facts as are deemed sufficient to entitle them to defend the action generally.

7. The nature of the jurisdiction under Order 15 has been the subject of many decisions both in this Territory (see especially Harry Smith Car Sales Pty. Ltd. v. Claycom Vegetable Supply Co. Pty. Ltd. (1978) 29 ACTR 21 per Blackburn CJ) and in other places where there are provisions similar to those in Order 15. Anything I say about the principles to be applied is likely to be, at least, repetitious. Perhaps what might still be worth emphasizing is that it is not necessary for the defendant to positively show by admissible evidence facts which establish matters which go to a defence. The High Court has recently said in Fancourt v. Mercantile Credits Ltd. [1983] HCA 25; (1983) 154 CLR 87 at p 99:

"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: see Clarke
v. Union Bank of Australia Ltd. [1917] HCA 19; (1917) 23 CLR 5;
Jones v. Stone (1894) AC 122; Jacobs v. Booth's
Distillery Co. (1901) 85 LT 262. In our view, it
is not possible to say without doubt, on the whole
of the material, that there is no question to be
tried concerning the payment of the deposits by
the appellants. The facts which are established
are inconclusive, but the respondent, as well as
the appellants, was in a position to establish
conclusively the payment of the deposits if that
fact could be established and, given the
opportunity, it did not do so. That leaves, we
think, a question to be tried and, although the
appellants have not succeeded in positively
establishing a defence, they should not in the
circumstances be debarred from defending the
action."

8. I now turn to the material that the defendants have placed before the Court in order to support their contention that there is a real question to be tried between the parties. Much of that material is, in the terminology of the High Court in Fancourt, inconclusive, and much of it is in a form which would be inadmissible at a trial. As none of it was objected to however, no rulings as to admissibility were made by me on the material presented on behalf of the defendants. Weighing the probative value of all the material, I conclude that the following factual picture is one that could be presented by the defendants at a trial.

9. In about 1980 a business known as Schutt Aviation, owned by the second defendant and controlled by a man called Sent and another man called Forshaw, sought to bring about an arrangement whereby Marquise would be able to lease a certain aircraft for the purpose of operating it at a profit, or possibly even at a loss. The arrangement was described as a speculative investment and it was necessary for its success that Marquise (and possibly the plaintiff) have the benefits of Subdivision B of Division 3 of the Income Tax Assessment Act 1936. That subdivision provided for substantial deductions to taxpayers in respect of investment allowances. For the Commissioner of Taxation to allow such a deduction, however, it was necessary that the aircraft, the subject of the allowance, be "new" within the meaning of the Act. It was anticipated that the Commissioner of Taxation would allow such deductions for part of the rental of the aircraft in question. The Schutt Aviation people indicated that they would be able to arrange for finance for the project to be made available from the plaintiff. The arrangement was acceptable to Marquise and it was envisaged by Schutt Aviation and Marquise that Marquise would apply to the plaintiff to lease the aircraft from the plaintiff and that in the event of the plaintiff approving, the plaintiff would acquire the aircraft from or through Schutt Aviation and that Marquise would then obtain delivery of the aircraft as lessee. The lease application was made on behalf of Marquise through the plaintiff's Oakleigh office. It was approved by Mr. Farley, a Credit Manager of the plaintiff, in its Victorian head office. Mr. Farley concedes that at all material times the plaintiff was aware of the requirement of the Commissioner of Taxation that the aircraft be new in order that the benefit of the investment allowance be available and further that the plaintiff assumed that the aircraft was new and made no enquiries of its own in that regard. Prior to 20 March 1981, the day of the lease and of settlement and delivery, the plaintiff obtained a copy of a certificate of airworthiness dated 15 August 1980 issued by the Australian Department of Transport, which is in evidence. This certificate of airworthiness does not give any indication as to whether at that stage the aircraft was new or not nor as to the extent to which the aircraft may have already been put to use.

10. However, the investment allowance was disallowed by the Commissioner of Taxation because the aircraft was not regarded as new, and the project became financially unattractive. In about 1983 enquiries made on behalf of Marquise led it to the conclusion that the the Commissioner was correct and that the aircraft was not new as had been assumed. It is unnecessary to set out in detail all the material relating to the history of the aircraft. It is sufficient to say that it was manufactured in the United States in March 1979 and was first placed in "demonstrator service" until sold on 9 May 1980. It was delivered to the original purchaser, whoever that may have been, on 9 June 1980. On 18 June 1980 the Federal Aviation Administration in the United States issued an export certificate of airworthiness containing a description of the aircraft as "used aircraft". The engines and propellers are shown as having a "total time" of 264.1 hours or thereabouts. It was not suggested on behalf of the plaintiff at the hearing before me that the aircraft was in fact new in the sense required by the Commissioner of Taxation for the purpose of the investment allowance. I am prepared to conclude for the purposes of the application that the aircraft was not new in this sense.

11. I am also prepared to conclude for the purpose of the application as follows: that it was known to the plaintiff as well as to Marquise that it was fundamental to the financial viability of the project that the Commissioner of Taxation recognise the lease agreement as attracting the investment allowance and that for the allowance to be made it was necessary that the Commissioner of Taxation accept the aircraft as new.

12. A number of submissions were then made on behalf of Marquise.

13. It was submitted firstly that the plaintiff should not be permitted to enforce the lease agreement because of its misrepresentation that the aircraft was new. I do not think that it is open on the material before me for the conclusion to be drawn that there was any representation of any kind on the part of the plaintiff or any of its officers or any conduct on its behalf which can be shown to have acted as an inducement to any of the members of the Marquise partnership to enter into the lease agreement. It was submitted that the plaintiff had allowed Schutt Aviation to act as its agent and that misrepresentation as to the state of the aircraft had been made to the plaintiff by Schutt Aviation on the plaintiff's behalf. Whilst it may be that there was misrepresentation on the part of Schutt Aviation, I do not think that the evidence permits of a conclusion that Schutt Aviation was acting as the agent of the plaintiff for the purpose of such misrepresentation. Schutt Aviation was in a position similar to that of a commission agent and received financial recompense from the plaintiff for business referred to the plaintiff, but there is no evidence that the plaintiff authorised Schutt Aviation to act on its behalf for any purpose to which the making of any representation about the nature of the aircraft was incidental. To put it another way, there is no evidence that the ostensible authority of Schutt Aviation included the authority to make representations as to whether or not the aircraft was new. Statements made by the Schutt Aviation people are not admissible in themselves to prove that an agency existed: see Fraser Henleins Pty. Ltd. v. Cody [1945] HCA 49; (1945) 70 CLR 100 and cases cited in Walplan Pty. Ltd. v. Wallace (unreported), Full Court of the Federal Court of Australia, 19 December 1985.

14. The further and alternative submission was then put that Marquise was entitled to rely upon a common mistake of the parties relating to the state of the aircraft. In particular, there was reliance upon the judgment of Denning LJ as he then was in Solle v. Butcher (1950) 1KB 671 at p 693. Again it is unnecessary for the purpose of an application such as this to subject that much discussed judgment to close analysis. The crucial passage in it is as follows:

"A contract is also liable in equity to be set
aside if the parties were under a common
misapprehension either as to facts or as to their
relative and respective rights, provided that the
misapprehension was fundamental and that the party
seeking to set aside was not himself at fault."

15. This passage, and the general attitude of Lord Denning in this area, has not been without its critics. See for instance the trenchant remarks of Mr. R.P. Meagher QC and co-authors in Equity Doctrines and Remedies (2nd ed.) paras. 1412-1426. One hesitates before entering this controversial area of jurisprudence. The learned authors state that the uncertainties surrounding the whole topic of common mistake at law have been largely dispelled by the judgment of Dixon and Fullagar JJ. in McRae v. Commonwealth Disposals Commission [1950] HCA 12; (1951) 84 CLR 377 which "settles the position for Australia". In that judgment, delivered before Solle v. Butcher had received the scrutiny which it has since attracted, their Honours after referring to some remarks of Denning LJ. on whether a mistake renders a contract void, go on to say at p.408:

"But, even if this be not wholly and strictly
correct, yet at least it must be true to say that
a party cannot rely on mutual mistake where the
mistake consists of a belief which is, on the one
hand, entertained by him without any reasonable
ground, and, on the other hand, deliberately
induced by him in the mind of the other party."

16. Further at p.409 their Honours say:

"It is not a case in which the parties can be seen
to have proceeded on the basis of a common
assumption of fact so as to justify the conclusion
that the correctness of the assumption was
intended by both parties to be a condition
precedent to the creation of contractual
obligations."

17. Nowhere in the joint judgment is there express or, arguably, implied disapproval of the passage of Denning LJ. at p 693. Moreover, Solle v. Butcher was referred to without disapproval in the joint judgment of Mason ACJ, Murphy and Deane JJ. in Taylor v. Johnson [1983] HCA 5; (1983) 45 ALR 265. Despite the distaste of the textwriters for the later High Court decision, it is, in my view, arguable in Australia at the present time that a party to a contract is entitled to rescission if both parties were mistaken as to a fundamental matter, and if "the party seeking to set it aside was not himself at fault". I am of the opinion that the mistake as to the condition of the aircraft was a mistake which went to a fundamental matter of fact concerning the contract and that there was an absence of fault on the part of the Marquise partnership. Or that those propositions are at least arguable. For those reasons, in my view, there is a substantial question of law to be tried and to be tried in the light of the facts as they are eventually found to exist. For those reasons I am of the view that the first defendants, who have been named in the summonses, should be given leave to defend.

18. In deference to the arguments put on behalf of Marquise, I shall briefly mention the remaining submissions.

19. Counsel sought to rely further upon a passage in Taylor v. Johnson (at p 272) in the following terms:

" . . . . a party who has entered into a written
contract under a serious mistake about its
contents in relation to a fundamental term will be
entitled in equity to an order rescinding the
contract if the other party is aware that
circumstances exist which indicate that the first
party is entering the contract under some serious
mistake or mis-apprehension of either the content
or the subject matter of the term and deliberately
sets out to ensure that the first party does not
become aware of the existence of his mistake or
misapprehension."

20. As I have already indicated, the material before me does not support a finding of fact which will enable this principle to operate. The situation just referred to in Taylor v. Johnson is one in which what has occurred is what has sometimes been described as "unilateral mistake", that is, where one party is labouring under a delusion as to a supposed state of facts when the other party knows both that he is so labouring and that the supposition is false. In the present case there is no evidence that the plaintiff knew at any material time that the aircraft was not new.

21. Lastly, the defendants relied upon a principle mentioned by Spencer Bower and Turner, Actionable Misrepresentation (3rd. ed.) para. 89 in which it is said that the law recognises "a necessity to speak of unusual features in well known types of transaction". Authority is cited to the effect that the mere entering into a transaction of a well known business type, without revealing matters which would be considered unusual and abnormal in such transaction, amounts to a representation that there are no such matters and therefore (if it be proved that in fact such matters did exist and the transaction was not of the regular and normal description which from the representor's silence the representee was entitled to expect) a false representation. However, it is unnecessary to consider this submission further because, in my view, it cannot be said that in the present case the plaintiff knew at any relevant time that the aircraft was other than a new aircraft. It would seem that the duty to speak out about unusual features does not arise if the unusual feature is unknown.

22. It remains to deal with the application for summary judgment against the thirdnamed defendant. The guarantee upon which the plaintiff sues is dated 20 March 1981 and contains a reference in a schedule to the "transaction and/or agreement" which gives rise to the obligation of the principal debtor. That transaction and/or agreement is more particularly described as "lease agreement in respect of one new Mitsubishi MU-2B-60 Turbo-prop aircraft, serial No. 71 between the customer and Australian Guarantee Corporation Limited entered into or intended to be entered into on the date hereof". It was submitted on behalf of the guarantor that the use of the word "new", incorporated as it is in the written guarantee itself, enables the guarantor to rely upon a term in the contract of guarantee that the lease agreement giving rise to the principal debt was in respect of a new aircraft. Accordingly, the guarantor is entitled to plead a breach by the creditor of its obligation to deliver a new aircraft. Furthermore, it is, in my view, arguable that the use of the term "new" in the guarantee document is a mis-representation on the part of the plaintiff to the guarantor, giving the guarantor a right to rescind. The affidavit of Mr. Peter Lawrence Black, sworn 26 November 1985 was not challenged. Mr. Black is a solicitor acting on behalf of the guarantor, John Barry Collier, and he deposes that the guarantor was induced to enter into the guarantee in reliance upon a misrepresentation that the lease agreement provided for the lease of a new aircraft. The modern view is that the right to rescind is not lost if the representation becomes a term of the contract: Academy of Health and Fitness Pty. Ltd. v. Power (1973) VR 254.

23. The plaintiff's claim for summary judgment against the various defendants named in the three summonses will be dismissed and those defendants are given liberty to defend the plaintiff's action.

24. I shall give directions as to the further conduct of the case unless the parties convince me that I should not.

25. I order the costs of the summonses to be reserved to the hearing of the action.