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High Court of Australia |
SLEE v. WARKE [1949] HCA 57; (1949) 86 CLR 271
Contract
High Court of Australia
Rich(1), Dixon(1) and Williams(1) JJ.
CATCHWORDS
Contract - Rectification - Mistake - Mutual - Unilateral - Specific performance - Damages - Declaratory judgment.
HEARING
Melbourne, 1949, October 19-21.DECISION
December 6.2. The defences pleaded to the statement of claim were four in number, but two of these relating to the rule against perpetuities and to uncertainty were not pressed. The other two defences were, shortly stated, that (1) the only agreement between the parties for an option was an oral agreement for an option to be exercised before the expiration of one year from the date of possession but the sale not to be completed until after the expiration of this year, and that the contract for lease and indenture of lease were signed by the plaintiff and defendants in the belief that they embodied this agreement but they do not contain or embody it and were therefore signed under a mutual mistake of fact: (2) shortly after the execution of the indenture of lease the defenants discovered the mistake and informed the plaintiff of the mistake, and that about the same time differences arose about the payment of the sum of 219 pounds 15s. 0d. alleged by the plaintiff to be payable to her in respect of the leased premises, and it was agreed between the solicitors for the parties that the terms of the option in the contract and indenture should be amended so that the option should be exercised not later than the expiration of the first year from the date of possession the sale to be completed forthwith after the expiration of the option and the defendants paid this sum to the plaintiff. (at p274)
3. For some time during the argument of the appeal we were under the impression that Mr. Walker was pressing both these defences, but he finally appeared to abandon them both and to rest on the sole ground that the evidence established that the only option which the appellants were ever prepared to grant was an option the exercise of which was limited to the first year of the lease, and that they executed the contract and indenture in the mistaken belief that these documents contained this option and that they would not have executed either of these documents but for this mistake. He relied on the statement of Sir W. Page Wood V.C. (as Lord Hatherley then was) in Wood v. Scarth [1855] EngR 770; (1855) 2 K & J 33, at p 42 [1855] EngR 770; (69 ER 682, at p 686) "that a person shall not be compelled by this Court specifically to perform an agreement which he never intended to enter into, if he has satisfied the Court that it was not his agreement, is well established". In reply to this ground Mr. Smith for the respondent contended that this is not an appeal from a judgment for specific performance but from a declaration of right, and that the equitable defence of unilateral mistake could only be raised if and when the respondent claims specific performance and the respondent has not elected whether to sue for specific performance or damages if the appellants refuse to perform their contract. On the other hand he admitted, rightly we think, that the defences of mutual mistake and variation of the indenture by subsequent agreement are defences to an action for the declaration claimed, so that if either of these defences should be established the appeal should succeed. (at p275)
4. The negotiations between the parties which ended in the execution of the contract and indenture appear to have commenced in January 1946. The intending lessees were then the respondent and her husband and the intending landlords the appellants. They all went to see Mr. Coy, the solicitor for the appellants, at the end of that month, and his note of the interview states that the tenant has the right to purchase the property freehold for 15,750, pounds such option to be exercised within twelve months. Mr. Cleary, who was instructed to act for the respondent and her husband, made a note to the same effect on 8th February 1946. At the time of the negotiations the hotel was subject to a lease to one Hackwill, which was about to expire on 23rd March 1946. The hotel was in the hands of one Smythe, who died before the hearing, for sale or lease, and the plaintiff and her husband were desirous of purchasing the freehold. But in January they were unable to arrange finance, and it was for this reason that the negotiations which resulted in the contract of 12th March 1946 and indenture of lease of 28th March 1946 were for a lease of the hotel with an option of purchase. The hotel was at the time in need of repair. The outgoing tenant had deposited 500 pounds with the appellants as security for the performance of the covenants in the lease. The appellants were willing that so much of this sum as they were able to retain as damages for breach of these covenants should be paid to the new lessee to be used towards placing the hotel in repair. It was also agreed that the rent of the new lease should be 30 pounds a week for the last two years, but should only be 25 pounds a week for the first year, the new lessee agreeing to expend the difference, i.e., 260 pounds on repairs. If the intended option had been simply an option to purchase the hotel at any time in the first year, its exercise would have operated to merge the two estates in the lessee and thereby determine the lease during the year. But it is clear from the evidence that the appellants, either initially or at some early stage of the negotiations, decided that they would not give the new lessee an option which could be exercised so as to destroy the lease before the end of the first year. They wanted a full year's rent in any event, so that the option, whilst exercisable only during the first year, was not to be completed before the end of that year. It is not clear whether this proviso to the exercise of the option was disclosed to the respondent and her husband before the interview with Coy. From his diary note and that of Cleary it would appear that it was not. It is clear, however, that at the interview with Coy, there was no concluded contract between the parties. They were engaged in the preliminary negotiations and it was intended that Coy should prepare a draft contract which he should submit for approval to Cleary, and that when the solicitors had agreed upon its terms a formal contract should be engrossed and signed by the parties and this should be the commencement of their contractual relations. Coy prepared a draft agreement which was submitted to Cleary and returned by Cleary to Coy with a number of amendments. The draft agreement provided for the exercise of the option at any time after the expiry of one year from the date of possession by the lessees giving three months' notice in writing. It also provided that the purchase price should be 15,750 pounds, but should be subject to the payment in addition of the sum spent on any structural alterations which might have to be made during the term to the hotel premises to comply with certain Victorian statutes. Cleary naturally realized when he received the draft that the option was not an option exercisable during the first year but after expiry of that year and consulted his clients, who instructed him to accept the alteration rather than risk losing the hotel. Cleary made several amendments to the form of the option which made it very plain that it was only exercisable after the expiry of one year because he made it provide that the option should be exercisable after the expiry of one year from the date of possession unless the landlord had already exercised or within seven days thereafter exercised the right of re-entry under the lease. These amendments were accepted by Coy, who wrote to Cleary on 7th March 1946: "We have gone through the draft agreement with our clients and the enclosed engrossment, we think, represents the views of the parties". The engrossment became the contract of 12th March 1946, which was executed by the appellants and the respondent and her husband. There is nothing in the evidence to suggest that the respondent and her husband did not execute the contract and the subsequent indenture of lease otherwise than in the bona-fide belief that the option had been deliberately changed by Coy from an option exercisable during the first year to an option exercisable after the expiry of that year to give effect to the appellant's insistence on receiving one year's rent in any event. It would appear that Coy failed to call the attention of his clients to the manner in which he had endeavoured to give effect to their wishes and that they executed the contract and indenture without reading them, relying on Coy's assurance that they were in the proper form. Coy gave a copy of these documents to his clients and they soon discovered that the option did not give effect to their wishes. On 9th April 1946 Coy wrote to Cleary stating that what was actually agreed to by the parties was that the option had to be exercised within one year but the purchase was not to be given effect to by way of completed sale until the first year of the term of the lease had expired. His Honour found, and we accept his finding, that "it is probable that the defendants at all times believed they were contracting for an option exercisable only in the first year". The appellants were therefore mistaken as to the form of option contained in the contract and indenture. But it was a unilateral mistake not contributed to by the respondent. His Honour accepted Cleary's evidence that when discussing the draft agreement with the respondent's husband, he drew the latter's attention to the word "after" and said this is a change, to which Warke replied: "Yes they are not prepared now to sell unless they also get a year's rent in addition to the purchase money. That is why they have made this change. I think it will suit us alright. I have had so much trouble in getting finance, but we will be better off in a year or so". The mistake was therefore one for which the appellants only had themselves to blame. They placed a blind trust in their solicitor and executed the documents without having them read over. The respondent and her husband at the commencement of the negotiations appear to have had a common intention with the appellants that the option should be exercisable during the first year, but there is no evidence that the common intention ever went further and also included an intention that the option should only operate to determine the lease at the end of the year. When the new form of option was submitted to them in the draft agreement they agreed to accept it with the amendments made by Cleary. Coy accepted these amendments and expressly stated that they were acceptable to his clients. This evidence does not establish, and the appellants do not now contend, that the respondent executed the contract or indenture knowing that the option of purchase was not in the form intended by the appellants. The respondent and her husband did nothing to induce any mistaken belief in the appellants as to its form. (at p277)
5. The decision of Page Wood V.C. in Wood v. Scarth [1855] EngR 770; (1855) 2 K & J 33 (69 ER 682); 110 RR 88 must be read in the light of the facts of the case. His Lordship evidently considered that it would be a hardship on the defendant to compel him specifically to perform the contract. The defendant had in terms offered a lease of his public house for twenty-five years at an annual rent of 65 pounds, but the Vice-Chancellor was satisfied that by mistake he had omitted to say that there was a premium of 500 pounds. His letter stated that he was giving brewers the offer in rotation and it was shown that the offer he had so submitted was expressed in the earlier cases to include the premium of 500 pounds. The error was clearly of an essential character. But the decision has not escaped the criticism of Sir Frederick Pollock. In his Principles of Contract, 11th ed., p. 399, he says that, although the authorities admit the possibility that a mistake to which the vendor did not contribute and which he could not be expected to perceive may in circumstances of special hardship be a bar to specific performance, it is certain that such cases are rare. In a note the learned author said: "Wood v. Scarth [1855] EngR 770; (1855) 2 K & J 33 (69 ER 682); 110 RR 88 is the only authority which appears to have actually decided so much: quaere how far it would now be followed. As it was, the dismissal of the suit was without costs". It will be noticed, by his reference to circumstances of special hardship, Sir Frederick Pollock introduces the element on which we think the decision must be taken to depend but which is absent from the wide general statement of the law which Mr. Walker cites and upon which he rests his case. In his preface to the volume of the Revised Reports which contains the case Sir Frederick Pollock went further in his comments on the decision. It is enough to repeat the following passage (1855) 110 RR, at pp v, vi : - "The case does not seem to have been judicially observed upon, save as to the minor point of the property being adequately described; and one may be permitted to doubt whether it is quite consistent with Tamplin v. James (1879) 15 Ch D 215 , or would be followed at this day. The Lord Justice James, who took part in deciding the last-mentioned case, had been of counsel in Wood v. Scarth [1855] EngR 770; (1855) 2 K & J 33 (69 ER 682); 110 RR 88 , and therefore it is not probable that the Lords Justices had forgotten it". (at p278)
6. Where there is a unilateral mistake on the part of the defendant not contributed to by the plaintiff, the question whether the Court should in the exercise of its discretion make a decree for specific performance or leave the plaintiff to sue for damages must, we think, depend on the circumstances of the particular case. But the general rule governing the exercise of the discretion is, we think, that laid down by James L.J. in Tamplin v. James (1879) 15 Ch D, at p 221 , where he said: "for the most part the cases where a Defendant has escaped on the ground of a mistake not contributed to by the Plaintiff, have been cases where a hardship amounting to injustice would have been inflicted upon him by holding him to his bargain, and it was unreasonable to hold him to it". There are passages to the same effect in the judgment of Cotton L.J. in Preston v. Luck (1884) 27 Ch D 497, at p 506 and in the judgments of this Court in Gall v. Mitchell [1924] HCA 48; (1924) 35 CLR 222 . It would not, in our opinion, be a sufficient hardship or unreasonable to compel the appellants to perform the option contained in the indenture. The price to be paid is the price at which the appellants were throughout prepared to sell the hotel and the only respect in which the wishes of the appellants are not given effect to is that the option is exercisable during the last two years of the lease instead of during the first year. But during these years the appellants were entitled to a rent of 30 pounds per week, that is, to a rent of 5 pounds a week more than the rent of the first year which they considered so valuable that they were not prepared to forego it in any event. If the appellants were required by law to expend moneys to improve the hotel in this period, they were protected because the purchase price was automatically increased to include this expenditure. Time has perhaps brought a change in the value or the expression of value of money but that is not a consideration affecting the question. It is an accident of the times and of lengthy litigation. In these circumstances, although the appellants have proved a unilateral mistake, they have not in our opinion proved that it would be a hardship to compel them specifically to perform the contract, so that in the discretion of the Court that remedy will be refused. (at p279)
7. We have discussed the defence on the basis that this is in substance an action for specific performance although there is only a judgment for a declaration. As we are of opinion that the defence fails in any event it is unnecessary to decide whether it would be a defence to an action for a mere declaration of right. A declaration of right has been transformed into a general discretionary remedy, and it is perhaps better to refrain from discussing the question how far such a mistake may form a ground on which the Court's discretion may be exercised, but as at present advised we are of opinion it would not be more than a ground affecting discretion, because it would not be a defence to an action for damages, and a plaintiff who obtains a mere declaration of right still has the option whether to sue for specific performance or damages. There is no appeal from the form of relief granted to the plaintiff. But we are of opinion that we should call attention to the statement of Viscount Maugham in London Passenger Transport Board v. Moscrop (1942) AC 332, at p 344 that "it has been stated over and over again, and also in this House, that the jurisdiction to give a declaratory judgment should be exercised 'with great care and jealousy' . . . and 'with extreme caution'". The purpose of the present action is not to obtain a construction of a contract which will determine the future rights and obligations of the parties, but to enforce the completion of a sale pursuant to the exercise of an option of purchase, and it does not appear to us to be a case in which a declaration of right should have been made except as incidental to the enforcement of the contract either by way of specific performance or damages. (at p280)
8. As we have said, counsel for the appellants did not in the end press either the defence of mutual mistake or of a subsequent variation of the indenture, but they were argued to some extent and we think that we should express an opinion upon them. It has sometimes been said that the power of the Court to rectify a contract on the ground of mutual mistake is confined to cases where there was an actual concluded contract antecedent to the instrument which is sought to be rectified. The law was so stated by James V.C., as he then was, in MacKenzie v. Coulson (1869) LR 8 Eq 368, at p 375 and by this Court in Australian Gypsum Ltd. & Australian Plaster Co. Ltd. v. Hume Steel Ltd. [1930] HCA 38; (1930) 45 CLR 54 . But in Shipley Urban District Council v. Bradford Corporation (1936) Ch 375 Clauson J., as he then was, held that the statement of James V.C. in MacKenzie v. Coulson (1869) LR 8 Eq 368 did not warrant the suggestion that the jurisdiction of the Court cannot be exercised so as to rectify an instrument which clearly does not give effect in some respect to the concurrent intention of the parties existing at the date of its execution unless a previously existing contract can be proved. The high authorities cited by Clauson J. (1936) Ch, at pp 394, 395 appear to us to show that this is right. The statement of the law in Australian Gypsum Ltd. & Australian Plaster Co. Ltd. v. Hume Steel Ltd. [1930] HCA 38; (1930) 45 CLR 54 , as in MacKenzie v. Coulson (1869) LR 8 Eq 368 , should be read in the light of the facts of that case and confined to cases where the mutual mistake is sought to be established by reference to the terms of a previous contract. The views expressed by Clauson J. were completely adopted by Simonds J., as he then was, in Crane v. Hegeman-Harris Co. Inc. (1939) 1 All ER 662 . His Lordship there gave judgment for the defendant on a counter-claim to rectify a contract in an action brought to enforce an award of an arbitrator (1939) 1 All ER, at p 664 . His Lordship said: "with his" (i.e., Clauson J.'s) "reasoning I wholly concur, and I can add nothing to his authority in the matter, except that I would say that, if it were not so, it would be a strange thing, for the result would be that two parties binding themselves by a mistake to which each had equally contributed, by an instrument which did not express their real intention, would yet be bound by it". There was an appeal (1939) 4 All ER 68 , and the Court of Appeal only dealt specifically with the contention that an action cannot be brought to rectify the contract after an award. The Court of Appeal had no time for this contention and dismissed the appeal without calling on counsel for the respondent. But Sir Wilfrid Greene M.R., as he then was, at the end of his judgment said: "I have thought proper to put in my own language my reasons for saying that this appeal should be dismissed, but I might have been content to say that the judgment of Simonds J., both on law and on fact, is one with which I am in entire agreement" (1939) 4 All ER, at p 72 . It seems to us to be clear that the Court of Appeal must have agreed with Simonds J. that Clauson J. had correctly stated the law in Shipley's Case (1936) Ch 375 , otherwise they should have reversed the judgment on the counterclaim, and we are of opinion that this law should be followed in the Australian Courts. We approach the present case on this basis. But we cite the words of Simonds J.: "let it be clear that it is not sufficient to show that the written instrument does not represent their common intention unless positively also one can show what their common intention was" (1939) 1 All ER, at p 665 . We can find no concurrent intention of the parties existing at the date of the contract of 12th March 1946 that the option was to be an option exercisable at any time during the first year of the lease but only to be completed at the end of that year. At the date of the contract that intention was at most only the intention of the appellants. The respondent never had such an intention. She had at most an intention at an early stage of the negotiations that the option should be an option to be exercised during the first year and immediately completed upon its exercise. But even that intention was not her intention at the date of the contract. Her intention then was in accordance with the contract. (at p281)
9. The defence that the option contained in the indenture was subsequently varied by the agreement of the parties also fails. It appears from the correspondence that the solicitors for both parties thought that a deed could not be varied by a subsequent contract but only by another deed. This was wrong (Halsbury, 2nd ed., vol. 10, p. 232), but we cannot find any evidence of any subsequent contract to vary the deed in consideration of the payment by the appellants to the defendant of the sum of 219 pounds 15s. 0d. or any other consideration. The sum of 219 pounds 15s. 0d. represented the amount out of the deposit of 500 pounds retained by the appellants as damages for breach of Hackwill's covenant to keep the hotel in repair. The respondent throughout the subsequent negotiations always claimed that she was entitled to this sum irrespective of any dispute as to the proper form of the option. She eventually issued a summons in the county court to recover it. It was in consideration of the respondent on payment of the 219 pounds 15s. 0d. agreeing to withdraw the summons and bear her own costs of the summons that the parties approached an agreement for a variation of the option in the indenture. The variation was that the respondent was to have the right to exercise the option in the first year of the lease, completion of the sale to take place immediately on the exercise of the option, but before they reached a complete consensus ad idem the respondent changed her solicitor at the crucial moment and the parties then disagreed on the question whether as the respondent contended the option was to be in addition to or as the appellants contended in substitution for the option contained in the indenture. This disagreement was never resolved, so that no subsequent contract was ever made to vary the option in the indenture. (at p282)
10. For these reasons we are of opinion that the appeal should be dismissed with costs. (at p282)
ORDER
Appeal dismissed with costs.
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