Medsara Pty Limited v Sande & Ors [2005] NSWCA 40 (15 March 2005)

CITATION: Medsara Pty Limited v Sande & Ors [2005] NSWCA 40

FILE NUMBER(S):

40283/04

HEARING DATE(S): 01/03/05

JUDGMENT DATE: 15/03/2005

PARTIES:

Medsara Pty Limited (Appellant)

Joseph & Diane Sande

Andrew Terides

Esther El-Hage

Tony Dbias

Shane Hugh Mills

James & Sara Moreland (Respondents)

JUDGMENT OF: Handley JA Ipp JA Young CJ in Eq

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): SC 4098/03

LOWER COURT JUDICIAL OFFICER: Burchett AJ

COUNSEL:

D F Jackson QC/G Curtin (Appellant)

B Walker SC/M B Evans (Respondents)

SOLICITORS:

Kemp Strang (Appellant)

Mallesons Stephen Jacques (Respondents)

CATCHWORDS:

CONTRACT - Unilateral mistake - Unconscionable conduct in knowingly taking advantage of another party's mistake - Rectification.

COSTS - Indemnity basis - More than unconscionable conduct must be established.

EVIDENCE - Credibility of witnesses - Failure to testify - Rule in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 applies. ND

LEGISLATION CITED:

DECISION:

(1) The appeal is upheld to the extent that the trial judge's order that Medsara pay the Vendors' indemnity costs be set aside and, in lieu thereof, there be an order that Medsara pay the Vendors' costs of the trial (2) The appeal is otherwise dismissed (3) Medsara to pay 90% of the Vendors' costs of the appeal.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40283/04

SC 4098/03

HANDLEY JA

IPP JA

YOUNG CJ in Eq

Tuesday 15 March 2005

MEDSARA PTY LIMITED v SANDE & ORS

Judgment

1 HANDLEY JA: I agree with Ipp JA.

2 IPP JA:

The claim for rectification and the findings of the trial judge

3 This appeal involves six separate but mutually inter-dependent sets of contracts for put and call options relating to six adjoining lots of land. These sets of contracts effected “delayed sales” of the properties in question by the six respondents (“the Vendors”) to the appellant, Medsara Pty Limited. Before Burchett AJ the Vendors claimed rectification and specific performance of the contracts as rectified, together with an inquiry as to damages. They also claimed indemnity costs.

4 The claim for rectification was based on the doctrine in Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 (at 432 to 433). In Tutt v Doyle (1997) 42 NSWLR 10 this Court applied Taylor v Johnson to a claim for rectification. Meagher JA (with whom Brownie AJA agreed) said (at 12 to 13):

“[T]he real question involved in the case emerges: is it unconscionable for one party knowingly to take advantage of another party’s mistake? An affirmative answer seems to me to flow from the High Court’s decision in Taylor v Johnson ...”

See also Liebler v Air New Zealand Limited (No 2) [1999] 1 VR 1.

5 The trial judge applied these principles and there is no suggestion that he erred in this respect.

6 The contracts were drawn by the Vendors’ solicitor, Ms Bond. On appeal Medsara accepted that, in preparing the contracts, Ms Bond made two errors which resulted in the period from the entering into of the contracts to the completion date being extended by a period of 12 months longer than the Vendors’ actually intended.

7 The Vendors claimed an order rectifying the contracts so as to reflect their true intention with regard to the completion date. They asserted before the trial judge that, at the time each contract was entered into, Medsara was aware of Ms Bond’s errors and remained silent knowing that she and the Vendors were under the misapprehension that the contracts recorded the completion date intended by them. The Vendors asserted that, in the circumstances, it was unconscionable for Medsara to take advantage of their mistake and Medsara should be precluded from relying on the contracts in resisting the claim for rectification.

8 The trial judge found in the Vendors’ favour. He ordered that the contracts be rectified and the contracts, as rectified, be specifically performed. He made a declaratory order that the completion date in respect of each of the contracts be 8 December 2003 (13 months after 8 November 2002 - the date on which the contracts were exchanged), and ordered that Medsara pay the Vendors their costs on an indemnity basis.

9 The trial judge held that Mr Milad Raad (a principal of a substantial group of development companies of which Medsara was one) knew, at the time the contracts were exchanged, that Ms Bond had made an error when specifying the completion date. His Honour found that Mr Raad had “acted unconscionably in proceeding to effect exchange of the contractual documents without drawing attention to the mistakes and intentionally in such a manner as to minimise the likelihood of their becoming apparent”.

10 Medsara challenges these and other factual findings made by the trial judge.

The negotiations with Radray and Hawden

11 In order to appreciate the way the argument on appeal was put by Medsara, it is necessary to set out the more important facts leading up to and including the exchange of the contracts.

12 The six Vendors owned, between them, eight adjoining lots of land on which houses were erected, being nos 82, 82A, 84, 86, 88, 90, 92 and 94 James Ruse Drive, Rosehill. They instructed Mr G Davis, an experienced real estate agent, to find a buyer for the eight properties as one composite site.

13 In September 2002 Mr Davis received an offer from a development company, Radray Constructions Pty Limited. Raymond Raad, the brother of Milad Raad, was the principal of Radray. To avoid confusion I shall, in these reasons, refer to Mr Raymond Raad as “Raymond” and Mr Milad Raad as “Milad”. No disrespect is intended to either.

14 Radray’s offer was subject to a letter of consent to the submission of a development application and was for $5.75m with a 5% deposit. The settlement period was 18 months. On 2 October 2002 Raymond increased Radray’s offer to $6m.

15 The Vendors told Mr Davis that a delay of 18 months in settlement was not acceptable to them. He negotiated with Raymond in an attempt to reduce this period. On 7 October 2002 Raymond told him that he would go to 15 months, this being the shortest period to which he would agree.

16 On 17 October 2002 the Vendors and Raymond (on behalf of Radray) came to an agreement in principle in regard to the eight properties. The properties, nevertheless, remained on the market and contracts were not exchanged.

17 On 29 October 2002 the Vendors received an offer from a different party known as the Hawden Property Group (“Hawden”) represented by a Mr Turner. Mr Turner informed Mr Davis:

“We are prepared to offer $6.5m, but we want a put and call option with a 5% deposit of which 1% would be released immediately. The total contract period would be 13 months.”

18 The trial judge explained:

“As applied to the situation involved in this case, what was contemplated [by a ‘put and call option’] was the grant by each of the proposed vendors to the developer of an option (the call option) on agreed terms, to be exercised by a specified date, to buy each of their properties; and, in order to protect them against the risk that the developer might withdraw from the transaction by simply failing to exercise his option, the grant at the same time by the developer of an option (the put option) to each of the proposed vendors, exercisable within a specified period if the call option was not exercised, to require the developer to buy at the agreed price and upon the agreed terms.”

19 Hawden supplied Mr Davis with a draft offer. Further discussions ensued between Mr Turner and Mr Davis and they eventually agreed that a 2% deposit should be released to the Vendors on the entering into of the option agreements. They also agreed that nos 96 to 100 James Ruse Drive would not be included in the sale, and that the offer price would be reduced on a pro-rata basis.

20 Mr Davis explained the amended proposal to each of the Vendors. He pointed out that Hawden was offering more money than Radray and a shorter settlement period of 13 months, made up of a put and call option of 10 months followed by a three-month settlement period. He explained that Hawden would pay a deposit of 5%, with 2% to be released immediately and the remaining 3% upon the exercise of the option. The Vendors instructed Mr Davis to proceed with the Hawden proposal if Radray would not match it.

21 Raymond informed Mr Davis that he could not match the Hawden offer.

22 Milad saw his brother, Raymond, most mornings at their father’s house. In October 2002 Raymond told Milad that he was buying several properties at 82 to 94 James Ruse Drive and he had negotiated on a price of $4,440,000. He told Milad that he had not exchanged contracts yet, but had agreed to buy the properties for $4,440,000 with a 5% deposit and a 15 months settlement period. He explained that he had initially offered a period of 18 months for settlement but the Vendors had rejected that proposal.

23 On 29 October 2002 Mr Davis prepared a “Sales Advice”, based on the Hawden offer, for the Vendors and their solicitor, Ms Bond. The Sales Advice specified the term of the option as “10 months” and settlement as “3 months after exercise of option” (that is, an overall period from date of contract to completion of 13 months). The Sales Advice set out the individual prices for the six properties. The aggregate of these prices was $4.915m - significantly more than Radray’s offer, once allowance is made for the fact that nos 96 to 100 James Ruse Drive were now excluded from the sale.

24 On 1 November 2002 Mr Davis was informed that Gallwey Pty Limited, a company in the Hawden Property Group, would actually make the purchase on Hawden’s behalf. On that day, Mr Davis received option fees totalling $98,300 by way of cheques drawn by Gallwey.

25 On 2 November 2002 Raymond told Milad that he would not proceed with his attempt to purchase the properties at 82 to 94 James Ruse Drive as the Vendors wanted more money than he was prepared to pay. Milad then asked whether Raymond would mind if he, Milad, had “a go at it”. Raymond consented and gave Milad Mr Davis’s telephone number.

Milad Raad has “a go”

26 Discussions between Mr Davis and Milad ensued but, at first, nothing materialised.

27 The put and call option contracts were due to be exchanged between Ms Bond and Hawden’s solicitor, Ms Luchetti, on 7 November 2002. On that day, prior to the intended exchange, Mr Davis received two telephone calls from or on behalf of two of the Vendors during which he was informed that the two Vendors had been approached by a Mr Wheadon, who knew about the transaction and who was offering an extra $20,000 to each owner. Unbeknown to Mr Davis and the Vendors, Mr Wheadon was a real estate agent acting on behalf of Milad.

28 Mr Davis discussed the matter with each of the Vendors. He told them that he did not know anything about Mr Wheadon and that it was very risky to lose a known buyer. He recommended not losing Hawden. The Vendors, at that stage, accepted his advice.

29 On 7 November 2002 a telephone conversation took place between Mr Davis and Milad. What was said in this conversation is in dispute and the judge’s findings in regard to it were crucial to his ultimate decision in favour of the Vendors.

30 Mr Davis’s version of the conversation was that, on that date, Milad telephoned him and asked him what he would have to do to buy the James Ruse Drive site. Mr Davis told Milad that the Vendors were “just about to exchange with another party”; nevertheless, he was obliged to put to the Vendors any offer that Milad might make but he would have to be sure that Milad could proceed with a worthwhile offer before he, Mr Davis, would jeopardise the sale that was already in the offing. According to Mr Davis, the following was then said:

Milad Raad: “I understand from Raymond that you have been offered a put and call option for 13 months at $6.5m. I have the contracts from Raymond – I will offer you $20,000 more per owner and exchange immediately.”

Davis: “I need you to be very clear about the terms. We are selling only nos 82 to 94 at this stage, 2% is to be paid and released immediately on entering the option. On exchange of the sale contract, which is in a maximum of 10 months, you must pay and release a further 3%, settlement is 3 months after exchange of the sale contract. The put and call option is not subject to development consent. You have no choice about proceeding. The vendors have a right to call the option at 10 months.”

Milad Raad: “Okay then I agree. I have the money available. I can handle the matter directly with your solicitor if the vendors agree.”

31 Mr Davis testified that during this conversation he went through, “in pedantic detail”, the terms that would be necessary to persuade the Vendors to enter into an agreement with Milad as he did not “want to mess up the existing sale to Hawden because of any confusion”.

32 Milad, on the other hand, gave a fundamentally different version of their telephone conversation. Before setting out Milad’s version, it is necessary to refer to some events that, according to him, transpired before the call was made.

33 According to Milad, he spoke to Mr Davis on 2 November 2002 and told Mr Davis that he was aware of the proposed deal with Raymond. He said to Mr Davis:

“I understand that he was paying $4,440,000 for the properties on a 15 month contract and a 5% deposit.”

Mr Davis confirmed that that was the case. He told Milad to look at the contracts with Radray and then to come back to him.

34 Milad received the Radray contracts on 4 November and examined them. He noticed that the date for completion was 15 months after exchange of the option contracts, that the total aggregate price of all the contracts was $4,440,000, and that a 5% deposit was payable on exchange of contracts.

35 On 5 November 2002 Milad telephoned Mr Davis who told him that he would have to pay $4,925,000. According to Milad, he replied:

“If I’m going to pay an increased amount, I want better settlement terms than Ray was getting.”

Mr Davis said that he would talk to the Vendors about that.

36 On 6 November 2002 Milad telephoned Mr Davis and told him that he was prepared to pay the $4,925,000. Mr Davis replied that the properties had been sold.

37 On the morning of 7 November 2002 Milad received a telephone call from Mr Wheadon who told him that the properties had not been sold. Milad told Mr Wheadon to tell the Vendors that he was prepared to offer an additional $20,000 per property. Mr Wheadon then informed him that one of the Vendors, Mrs El-Hage, was prepared to accept an extra $20,000.

38 According to Milad, the conversation that he had with Mr Davis on 7 November 2002 was as follows:

Davis: “The vendors have been approached by another buyer who is prepared to pay an extra $20,000 per property for a total price of $5,065,000. Are you prepared to pay that? I had another buyer but he is not prepared to pay that much. If you are prepared to pay that amount on a 13-month option, I think I can get the property for you.”

Milad Raad: “Yes I am.”

Davis: “Okay I’ll see what I can do with the vendors.”

According to Milad, shortly after this conversation Mr Davis telephoned again and told him that his offer had been accepted.

39 The trial judge accepted Mr Davis’s version of the telephone conversation and rejected that of Milad.

40 On the same day that this crucial telephone conversation occurred (7 November 2002), Mr Wheadon wrote a letter to Ms Bond’s firm, which enjoyed the trading name “Dynamic Lawyers”. The letter was in the following terms:

“I confirm my advice that I am interested in purchasing these properties and I have spoken to a number of the vendors and I have offered them an extra $20,000 each to sell their properties to me.

I understand that they have another buyer at a lower price and I understand that they are apprehensive that I may not perform and in that regard I am prepared to exchange contracts with you by 5.00 pm today.

Please obtain your clients’ instructions in relation to my offer as I am a genuine buyer and I have funds available to honour my commitment to exchange today.

Your clients only stand to benefit by my offer as I am setting a very strict time limit to exchange and if I do not perform they will not prejudice their position with the other buyer.”

41 After the conversation he had had with Milad on 7 November 2002, Mr Davis spoke to each of the Vendors about Milad’s offer. All except Mr Dbias agreed to accept Milad’s offer. Mr Dbias wanted more money. Eventually, in order to obtain the agreement of Mr Dbias, Mr Davis agreed to reduce his commission and Milad added another $20,000 to his offer.

42 Mr Davis telephoned Mr Turner of Hawden who declined to enter into a bidding war. He was not prepared to make a new offer.

43 According to Mr Davis, he then telephoned Milad and the following was said:

Davis: “Congratulations, you’ve got the properties. The price for each property will be: no 82-84 - $1,660,000, no 86 - $595,000, no 88 - $595,000, no 90 - $855,000, no 92 - $785,000, no 94 - $595,000. That’s with a 10 month put and call option not subject to any performance criteria, the deposit is 2% the further 3% on exercise of the option and the final 95% 3 months thereafter. What name will you be buying the property in?”

Milad: “I will handle that directly with the vendors’ solicitor.”

44 According to Mr Davis, at no time did Milad, or anyone else on his behalf, attempt to negotiate terms different to those he, Mr Davis, explained to Milad in the first telephone conversation of 7 November 2002 or in the second conversation on that date.

45 Milad accepted that Mr Davis telephoned him a second time on 7 November 2002 but, according to Milad, all that Mr Davis said was words to the following effect:

“You’ve got the property.”

The trial judge believed Mr Davis on this issue.

Attempts to confirm agreement with Milad

46 On 7 November 2002 Ms Bond was expecting Ms Luchetti to call at her office so as to effect the exchange of the put and call options with Gallwey (the Hawden company). Ms Luchetti was late and, before she arrived, Ms Bond received a telephone from Wheadon. Wheadon told her that he had offered her clients $20,000 more and he put Mrs El-Hage on the telephone. Mrs El-Hage was very excited and told Ms Bond to stop the exchange of contracts as the Vendors would each receive $20,000 more. At about 11.00 am Ms Luchetti arrived at Ms Bond’s office and informed her that Gallwey had decided not to go ahead.

47 Ms Bond testified that at about 8.40 am on 8 November 2002 she received a telephone call from Mr Neil Kerz, an employed solicitor in the office of Milad S Raad and Associates (Milad was a solicitor who, in effect, acted only for his own development companies). Mr Kerz informed her that his client would be buying the properties and said: “We just want to be sure of the terms”. Ms Bond replied (according to her):

“The terms are a 10 month option and 3 months to completion.”

She confirmed the price of each transaction. She did so by looking at the Gallwey contracts and adding $20,000 in each case to the sale price. Mr Kerz said that exchange must take place by 12 noon. Ms Bond replied that that was impossible but she would do her best.

48 Mr Kerz’s evidence on this issue was that, at about 9.00 am on 8 November 2002, Milad told him that he, Milad, was buying the properties in James Ruse Drive. Milad said:

“The deal is that we must exchange by 12 o’clock today, because they have another buyer waiting to exchange. We are paying $5,065,000 with a 13 months option.”

Milad told Mr Kerz that the solicitors for the Vendors were Dynamic Lawyers.

49 Mr Kerz testified that he had a number of telephone conversations that morning with Ms Bond but nothing was said to him to the effect that the terms of the contracts involved “a 10 month option and 3 months to completion”.

50 The trial judge preferred Ms Bond’s version to that of Mr Kerz.

51 On 8 November 2002 a letter was sent by Milad S Raad and Associates to Dynamic Lawyers, confirming that the total price was $5,065,000 and stating:

“We are instructed that the sales are to be formulated as both put and call options, for a period of 13 months.

On our instructions the options are to be exchanged by 12 noon today. Our client’s offer has been substantially increased over its earlier offer on that basis.”

The trial judge remarked:

“Although the ‘total price’ mentioned in the letter is $20,000 less than the total of the figures confirmed by Mr Davis to [Milad] ($5.085m), no difficulty seems to have arisen in that respect; the difference simply reflected the last minute adjustment as a result of Mr Dbias seeking somewhat more than he was originally to receive. It was the higher figure that was finally agreed.”

Ms Bond prepares the documents

52 An agreement in principle having been arrived at between the Vendors and Milad, it was Ms Bond’s task to prepare the put and call option contracts. Her computer software failed, however, and she was unable to prepare the documents on 8 November in her usual way. The trial judge explained what followed:

“With the consent of Ms Luchetti, an attempt was made to solve the problem by the utilisation of the forms Ms Luchetti had prepared in respect of Gallwey, with appropriate changes. This appears to have compounded the problems because, at a late stage in the arrangements for the Gallwey transaction, Gallwey had proposed, not a change in the total period to settlement, but a change in the length of the put and call options from 10 months to 12 months, with a compensating reduction of the time for settlement, to be specified in the contract to come into existence upon the exercise of either option, from 3 months to 1 month. ... Ms Luchetti had actually made the change in her documents, which Ms Bond came to utilise for the purposes of the later transaction, and that Ms Bond did not appreciate this fact. As a result, when Ms Bond attempted to overcome her software problem by producing documents that utilised Ms Luchetti’s documents, but did so hastily and under considerable pressure, amongst numerous other errors of less importance, two vital errors occurred. Instead of the put and call options specifying a term of 10 months, they specified a term of 52 weeks. This, of course, had been intended by Ms Luchetti, although it was neither intended by Ms Bond nor was it the figure that had been given by both Mr Davis and Mr Turner [the person acting on behalf of Hawden], on 29 and 30 October respectively, when confirming the Hawden agreement in writing, nor was it the figure that had been given by either Mr Davis or Ms Bond in their respective conversations with Mr Raad and Mr Kerz, nor did it correspond to the period specified in Mr Kerz’s letter, however that letter should be understood. Much more seriously, the error was then compounded, in all the contracts produced by the computer except one, by the specification of 13 months as the contractual period to completion. Thus the total effect if the agreement was to be concluded without amendment would be to tie the properties up for 25 months before payment of the purchase price would be due. No specific period of extension beyond the 13 months (10 months option period plus 3 months to settlement, or 12 months option period plus 1 month to settlement) contemplated in respect of the Gallwey transaction had ever been suggested in respect of the transaction with [Medsara] according to any witness.”

53 It was common ground during the appeal that neither Ms Bond nor any of the Vendors intended to enter into a contract with Medsara whereby the period from the contract date to the date of completion would be capable of being more than 13 months. The effect of Ms Bond’s error, however, was to extend the potential completion date by a further 12 months to a potential 25 months. This was fundamentally different to what was intended by the Vendors.

54 The trial judge inferred that, by reason of the pressure Ms Bond was under in attempting to bring about an exchange of contracts by noon on 8 November 2002 (or indeed by any time on that day), “she simply did not check the documents as they were produced in anything like an effective manner”. This finding was not challenged.

55 In order to effect the intended exchange of counterparts, one set of contractual documents was picked up by Milad S Raad and Associates from Ms Bond’s office. The trial judge found:

“It was obvious to Mr Kerz and Mr Raad that various details had to be filled in, and that there were defects in the documents. Mr Kerz drew Mr Raad’s attention to the specification, in one of them, of a period to settlement of 13 months on top of an option period, not of either 10 months or 13 months, but of 12 months.”

56 The trial judge noted that Mr Kerz testified that he “assumed” that this very long period to settlement had been negotiated by Milad. Milad, when his attention was drawn to the term, asked only “are they [the contracts] all the same?”. Mr Kerz checked them and told Milad that they were all the same.

57 His Honour pointed out that, in fact, the contracts were not all the same. In the case of the El-Hage contracts, the figure “3” and not “13” had been specified as the number of months to settlement. There are two possible reasons for this mistake. One is that, when Ms Bond was keying in the details necessary to complete the contract forms, she typed only “3” and not “13”. The other is that there was some error on the part of the computer in this regard.

58 According to Mr Kerz, when he saw the El-Hage contracts he noticed that a stroke in black ink had been placed in front of the figure “3” without that alteration being initialled. Thus, the document specified 13 months, not three months. Ms Bond denied that she had inserted the ink stroke. Mr Kerz and Milad denied that they had done so.

59 Medsara argued that Ms Bond effected the alteration in her office while the Vendors argued that Mr Kerz or Milad must have done so at Medsara’s office.

60 At trial, Medsara attempted to establish, through the evidence of a forensic documents examiner, Ms Novotny, that the alterations were probably made before the El-Hage contract left Ms Bond’s office. The trial judge, however, found that Ms Novotny’s evidence was “quite inconclusive”. His Honour referred expressly to an answer by Ms Novotny in cross-examination when she agreed (subject to certain conditions) that her view did not “exclude the possibility of the one being done later” and said:

“In my opinion, the question has to be answered upon the direct evidence, conflicting as it is, of Ms Bond on the one side and Messrs Raad and Kerz on the other, and upon a consideration of the inherent probabilities of the situation.”

The “question” to which his Honour was referring was whether the El-Hage contracts had been altered by the insertion of the “1” in Ms Bond’s office or in the offices of Medsara.

61 His Honour answered the question as follows:

“Turning to the matter of the alteration of the contract in respect of Mrs El-Hage, I think in the context of the whole situation there is strong reason to infer that the alteration was made by Mr Raad, or on his instructions. It is admitted that when the period of 13 months to settlement was drawn to his attention, he asked whether all the contracts were the same. I do not believe Mr Kerz’s evidence that he told Mr Raad all the contracts were the same. The question having been asked, and an experienced solicitor having looked at the documents in order to answer it, the overwhelming probability is that Mr Raad was then shown Mrs El-Hage’s contract. In this particular respect, it stuck out from the others like the proverbial sore thumb. I think the evidence from [Medsara] on this issue was false, and that I may draw the inference which I have stated.”

62 The inference to which his Honour had previously referred was that, prior to the exchange of contracts, Milad perceived that the Vendors had made a mistake in the proposed contracts in relation to the completion date and that Milad intended to take advantage of that mistake.

The exchange of documents and the aftermath

63 At 5.30 pm on 8 November 2002 Mr Kerz came to Ms Bond’s office and they effected an exchange of the contracts. The trial judge noted:

“Ms Bond had still not noticed the incorrect statements of the length of the options and the period for completion of the contracts. Nor did Mr Kerz say anything at all to draw her attention to those figures, which totalled 25 months.”

64 His Honour said:

“This exchange involved all contracts save for that relating to Mr Dbias whose contract had not been executed.”

And observed further:

“Mr Raad effected the exchange of the remaining option agreement, again without making any mention to Ms Bond of the discrepancy between a 12 months option period specified in the documents, which he said he had noticed, and what he had previously been notified which, even on his case, was the different figure 13 months; and without drawing Ms Bond’s attention to the 13 months specified as the period after exchange of contracts and until completion, which, on his own case, had never previously been mentioned.”

65 On 5 June 2003 Ms Bond was prompted by a note in her diary to get ready for the exercise of the options. She expected that this would take place on 8 September 2003. She then noticed the error in respect of the completion date (that is, the potential 25 months period) and the alteration in Mrs El-Hage’s contract. She communicated immediately with both Mr Kerz and Mr Davis. Mr Davis described her as being in a “high state of panic”. Ms Bond sought to obtain Mr Kerz’s agreement to an appropriate amendment of the contract on the basis of mistake. Eventually, on 11 June 2003, she formally requested rectification. On 16 June 2003 she was told that there was no basis for a claim for rectification.

The credibility of Ms Bond

66 Mr Jackson QC, who together with Mr Curtin appeared for Medsara, challenged the trial judge’s credibility findings in preferring Mr Davis’s testimony to that of Milad and in preferring Ms Bond’s testimony to that of Mr Kerz. It is convenient, firstly, to consider the argument advanced by Mr Jackson in relation to the conflict between Ms Bond and Mr Kerz.

67 The most important credibility issue involving Ms Bond and Mr Kerz is as to the conversation between them on 8 November 2002 when Ms Bond, according to her, told Mr Kerz that the terms of the contracts were “a 10 month option and 3 months to completion”. The importance of Ms Bond’s version of this conversation is that it reinforces Mr Davis’s evidence to the effect that Mr Kerz (and Medsara) knew that the Vendors intended the option contracts to record that there was to be a 13-month period between exchange and completion. It also supports the Vendors’ case that Medsara was aware of the error made by Ms Bond in preparing the contracts and was aware that the contracts did not reflect the Vendors’ true intention as to the completion date.

68 The question whether Ms Bond, in her office, inserted the “1” in the El-Hage contract (to turn the “3” into “13”) or Mr Kerz or Mr Milad Raad did so at Medsara’s office is very much a subsidiary issue. It involves largely a credibility contest between Ms Bond, on the one hand, and Mr Kerz and Milad, on the other.

69 It was submitted on Medsara’s behalf that the trial judge, in describing Ms Novotny’s expert evidence as “inconclusive”, erred and, in any event, his Honour did not undertake a proper examination of her expert testimony.

70 I am unable to discern from Ms Novotny’s expert report and her oral evidence that she expressed a view to the effect (or in support of the proposition) that it was more likely than not that the “1” was inserted at Ms Bond’s office and not at Medsara’s office. Ms Novotny’s report is technical, and, in parts, I found it difficult to follow. Nevertheless, I have done my best to understand it and I am not persuaded that the trial judge erred in regard to his treatment of Ms Novotny’s evidence.

71 Mr Jackson then turned to a piece of evidence given by Ms Bond to which the trial judge did not refer but which, Mr Jackson submitted, cast an adverse light over all of her evidence. The evidence in question concerned a file note made by Ms Bond of her conversation of 8 November 2002 with Mr Kerz.

72 In an affidavit made by Ms Bond and filed at the trial she stated:

“Annexed hereto and marked ‘D’ is a copy of a file note I wrote during the telephone conversation recording that conversation. The file note states the following:

‘Sande & others, 8/11/02 Telephone from Neil regarding deal/sale. I told Neil the deal is total 13 months and that the option must be called upon within 10 months from the date of the put and call option and completion in 3 months after exchange of contracts. He said I would confirm in writing. He said my client offered $20,000 more for each property to your client if they stop the sale to any developer. I said Marilyn from Luchetti was waiting in my office for exchange for her client yesterday, but if my clients instruct me to exchange with your client I will do so.”

73 The transcription in Ms Bond’s affidavit of the file note was not accurate. The last sentence of the actual file note reads:

“I said Marilyn from Luchetti is waiting in my office for exchange for her client, but if my clients instruct me to exchange with your client I will do so.”

Moreover, the word “yesterday” (which appears in Ms Bond’s affidavit) is not in the original file note.

74 The importance of these discrepancies stems from the fact that on 8 November 2002 (the date of the file note) Ms Luchetti was not in Ms Bond’s office, but she was there on 7 November 2002.

75 Thus, the transcribed version in the affidavit is consistent with the file note being written on 8 November 2002 during the telephone call alleged by Ms Bond (because it refers to the fact that Ms Luchetti was waiting in Ms Bond’s office yesterday). On the other hand, the original file note is inconsistent with it having been written on 8 November 2002. That is because, although dated 8 November 2002, it states, “Marilyn from Luchetti is waiting in my office for exchange for her client”. The wording used in the original file note suggests that it was written on 7 November 2002. If the file note was written on 7 November 2002, Ms Bond’s testimony that she had the telephone conversation with Mr Kerz on 8 November 2002, in the terms she alleges, becomes highly suspect. It would also create grounds for believing that her affidavit evidence about the file note was deliberately fabricated.

76 Ms Bond’s evidence must be assessed against the background that she only learnt to speak English in about 1991 and her first language was Arabic. Nevertheless, I do not think that difficulties in language can explain the discrepancies to which I have referred.

77 In cross-examination Ms Bond was asked whether the file note of 8 November 2002 of the conversation with Mr Kerz was “written at a different time to 8 November”. She replied:

“No all my handwritten notes are done straight away, but printed ones no. Afterwards, sometimes the typed ones, I deal with them just after 5 minutes or 2 minutes or something like that, but those handwritten straightaway after.”

Later, she agreed that the file note was not contemporaneous with the conversation she had with Mr Kerz on 8 November 2002.

78 In my opinion, these discrepancies in the file note and the way in which Ms Bond, in her affidavit, sought to take advantage of the transcribed note cast serious doubts on her credibility as a whole. The trial judge made no mention of these discrepancies in his judgment. The discrepancies are so important that - it must be inferred - had the judge taken them into account, he would have made express reference to them. His Honour’s omission to do so leads to the inference that, in error, he did not take them into account.

79 The trial judge also considered that the probabilities supported the finding that the El-Hage contract was altered in the Mesdara office. With respect to His Honour, I consider that this view is open to question.

80 Mr Kerz testified that he checked to see whether all the copies of the contracts were the same but he did not notice the alteration to the figure “3”. The trial judge said in this regard:

“It is hard to imagine that an experienced conveyancing solicitor, asked to check six documents for such a purpose, would be at all likely to make such a glaring mistake.”

81 In my view, however, Mr Kerz may well have missed the fact that the figure “3” and not “13” had been inserted. Amongst the many documents that had to be looked at on the day in question, the alteration – had it been made by Ms Bond - would not necessarily have stood out.

82 Further, Ms Bond testified that it was her express intention to key in “13” on the computer and not “3”. The impression given by her on this aspect is that her computer was giving difficulty at the time and it may well have been a malfunctioning computer that resulted in the “3” appearing and not the figure “13”. Ms Bond had noticed a number of omissions in other items that had to be completed on page one of the contract, and attempted to remedy them. In the circumstances, it seems to me not unlikely that Ms Bond noticed the error with regard to the “3” and then, because she was so harassed, manually inserted the “1” with a black pen. She may not have remembered at the time she gave evidence, but that is not to the point.

83 Irrespective of my view as to the probabilities on this issue, I accept Mr Jackson’s submission that, in the light of the trial judge’s apparent omission to take account of the anomalies in Ms Bond’s evidence regarding the telephone conversation of 8 November 2002 and the file note allegedly of the same date, his Honour’s preference for Ms Bond’s evidence to that of Mr Kerz cannot stand.

The credibility dispute between Mr Davis and Mr Milad Raad

84 The consequence of the view to which I have come concerning the trial judge’s acceptance of the evidence of Ms Bond is that the result of the appeal turns on the challenge to the trial judge’s preference of the evidence of Mr Davis over that of Milad. In determining this issue, no regard can be had to Ms Bond’s testimony as to her telephone conversation with Mr Kerz on 8 November 2002, and it cannot be assumed that either Milad or Mr Kerz altered the El-Hage contract documents.

85 Moreover, in assessing whether the trial judge’s findings based on his acceptance of Mr Davis and rejection of Milad should stand, due allowance must be made for the weight his Honour attached, in making these findings, to his (erroneous, in my respectful view) conclusion that there was “strong reason to infer” that the alterations to the El-Hage contract documents were made by Milad or on his instruction. The influence of this conclusion on his Honour’s ultimate findings in regard to Medsara’s knowledge of the Vendors’ error and its unconscionable conduct is, however, significantly discounted by the matters set out in the next paragraph.

86 Firstly, from the judgment as a whole I infer that his Honour’s conclusion that Milad made the alterations, or instructed another (probably Mr Kerz) to do so, was based largely on matters involving the credibility of Mr Davis and Milad that, save for the finding that the alteration was not made at Ms Bond’s office, were independent of the credibility of Ms Bond. Secondly, the identity of the person who inserted the “1” next to the “3” is irrelevant to whether, at the time the contracts were exchanged, Milad knew, from what Mr Davis had told him, that the contracts contained an error as to the completion date. Thirdly, the judge did not draw any inference against Milad merely because he found that Milad had made or authorised the alteration.

87 The trial judge believed Mr Davis’s version of the two telephone conversations of 7 November 2002 both on grounds of demeanour and probability.

88 As to demeanour, His Honour said:

“I formed the opinion that [Mr Davis] was a man of very considerable competence who would be very likely to have done what he said he did. There was certainly nothing in his demeanour to suggest that he should not be believed, and much to suggest that he should.”

89 The judge observed that Mr Davis was an extremely experienced real estate agent with particular expertise in putting together multiple sales for development. Mr Davis testified that he had been “pedantic” in conveying to Milad, in a clear way, the terms on which the Vendors would be prepared to enter into contracts with Milad’s company. His Honour said in this regard:

“Nothing in the cross-examination of him led me to doubt that he was indeed cautious about getting into the position of the dog in Aesop’s fable who lost the bone he had when grabbing for a bigger one.”

90 These are powerful grounds on which to found a decision as to credibility; they are not easy to assail.

91 I turn now to the probabilities. A combination of factors weighed heavily with the trial judge. The amount involved in the transaction was not insignificant, being nearly $5 million. The property market was rising. As the trial judge pointed out, “there was a vast difference between a contract for the sale of a property for $5m to be settled within 13 months and one for the same amount to be settled in 25 months”. Milad accepted that, commercially, the completion date was “essential from the point of view of both of the vendor and the purchaser”. To Mr Davis’s knowledge, prior to his discussion with Milad on 7 November 2002, the completion date had been a matter of great importance to the Vendors (the Vendors had previously indicated to Mr Davis their unhappiness with the completion dates in the earlier offers). Mr Davis had told Raymond that a delay of 18 months in settlement was not acceptable. This led to an agreement in principle with Radray involving a period from exchange of contracts to settlement of 15 months. Hawden’s subsequent proposal (no doubt intended to better Radray’s offer) involved a reduction in that period to 13 months. The completion date must have been at the forefront of Mr Davis’s mind.

92 It is against this background that Milad, on Medsara’s behalf, was proposing to improve on the existing offer merely by increasing the price for each vendor by $20,000.

93 I agree with the trial judge that, in these circumstances, it would be highly improbable for Mr Davis, who (as his Honour observed) was “an experienced agent specialising in transactions of this very kind”, to say nothing to Milad about the completion dates that the Vendors would require or about the terms of the Hawden offer. Such an omission on the part of Mr Davis would, subjectively, be quite out of character. Objectively speaking, it is highly unlikely that an experienced and competent agent would fail to ascertain and make certain that, apart from an increase in price of a relatively small amount, all other terms of the new offer would be the same.

94 I would add that Milad knew, when he spoke to Mr Davis on 7 November 2002, that he had to improve on an offer some other party had made and that that other party was then ready to exchange contracts. The only bargaining tool he advanced to “overtake that purchaser” (to use his phrase) was an increased price of $20,000 per vendor. Nevertheless, he said that he did not know and did not inquire from Mr Davis about the other terms on which the other potential purchaser was offering to buy the properties. Milad accepted in cross-examination that, on his version, the proposal put to him by Mr Davis did not address one of the fundamental terms in relation to the whole deal.

95 I agree with the trial judge that Milad’s version is improbable. The probabilities, when taken as a whole, militate strongly in favour of his Honour’s findings.

96 I now turn to the specific points made by Medsara in support of the proposition that his Honour’s credibility finding concerning Mr Davis was flawed.

97 Mr Jackson made the general observation that the judge did not analyse the evidence by reference to the position of a developer who wished to acquire the land. He submitted that his Honour treated the developer, Medsara, “as if he were in no hurry to buy, even though the Vendors had demonstrated that they were very keen on selling”. I do not accept this submission. It is apparent from evidentiary material to which his Honour referred that he knew that Medsara had an interest in completing the exchange as quickly as possible, and I see no sign in his reasons that he omitted to take this into account.

98 Mr Jackson drew attention to the fact that the options, as Milad admitted in cross-examination, were used as a device for deferring the payment of stamp duty. The judge noted that, although the contracts utilised the device, they “limited its useful effect to less than half of the very long period to settlement that was available”. His Honour remarked:

“From the point of view of the purchaser, this compelled him to pay over half a million dollars a year earlier than he needed to; and from the point of view of the vendors, they were depriving themselves of the bargaining lever for a higher price of offering an additional year’s deferral of the half million dollars payment.”

And commented:

“[I]it seems very unlikely that the experienced persons involved would ever have contemplated put and call options for a period so inconsistent with the purpose of the device.”

99 Mr Jackson submitted that his Honour drew the wrong inference in regard to the stamp duty implications of the options. He submitted that the simple answer to his Honour’s proposition was that Medsara wanted to arrange for binding contracts to be agreed as soon as possible. Other parties were interested in them and there was a strong incentive for Medsara to accept the terms offered to it without trying to negotiate a better deal.

100 I am not persuaded, however, that his Honour was wrong in the inference he drew. There is a strong sense about the evidence of Milad ensuring that nothing should be said that might alert the Vendors to the mistake that had been made. Milad’s version of the telephone conversation he had with Mr Davis on 7 November 2002 [is capable of being understood in this way. Milad testified that in this conversation Mr Davis told him that if he was prepared to pay $5,065,000 for the properties “on a 13 month option” Mr Davis could get the properties for him. According to Milad, there was then no discussion about the period from the entering into of the contracts to the settlement date. In cross-examination he was asked why he did not raise the question of the settlement date with Mr Davis. He said:

“... I didn’t want to complicate the issue. I was getting my foot in the door. I didn’t want to go back and say: I wanted X, Y and Z.”

101 In any event, even if his Honour was not entitled to draw the inference that he did from the failure of Medsara, on its version, to take advantage of the stamp duty point, I do not think that that has a material effect on his Honour’s finding. The inference in question was merely used by his Honour to reinforce the conclusion to which he had already come.

102 Mr Jackson then turned to another observation of his Honour, namely:

“Another feature of the situation, as represented by [Milad] is the surprising fact that Mr Davis had not attempted to make any use of the long total period to settlement of 25 months as a bargaining counter in an effort to extract a higher price. That an offer should have been sought from a developer in ignorance of such a carrot, and then simply accepted, must have seemed very strange indeed.”

Mr Jackson pointed out that the offer in relation to the 25 months came about at a time after Mr Davis’s involvement. The 25 months arose from the documents, not from anything that Mr Davis could have known about. While that is indeed the case, the fact is that Mr Davis’s omission to attempt to use the long total period to settlement as a bargaining factor is another matter that should have alerted Milad to the fact that a mistake was being made. In my view, it is in this sense that his Honour made the observation in question.

103 Milad said that he was pleasantly surprised (and later agreed that he was “amazed”) when he observed that the draft contract attached to the option had a settlement period of 13 months. He said that he did not believe that a mistake had been made. Mr Jackson submitted that the fact that Milad was “pleasantly surprised” was not in itself surprising. Mr Jackson pointed out that there were six sets of vendors, all of whom had to agree, and they could not be compelled to complete before the agreed date. Moreover, “whatever might be the result of considerations of economic equivalence”, Medsara was paying more in dollar terms than the two previous potential purchasers. He submitted that his Honour wrongly found that these circumstances supported the inference that Milad knew the Vendors had made a mistake.

104 I am not persuaded by Medsara’s argument in this regard. The degree by which the completion date was extended beyond the Radray agreement (leaving aside whether Milad knew of the terms of the Hawden offer) was extraordinary and had no connection with any discussion or anything else that had gone before. It had come, as it were, out of the blue. The increase of $20,000 in the price for each vendor was said to be an “extra”. But it was hardly an extra when regard is had to the loss of interest to the Vendors represented by the additional 13-month settlement period they would have to wait for their money.

105 In these circumstances, I do not think the judge erred in finding that Milad’s reaction to the terms of the draft contracts supported the inference that he knew that the settlement date set out was the result of a mistake on the part of the Vendors.

106 Mr Jackson submitted that the trial judge had misread Wheadon’s letter of 7 November 2002. He focussed on the paragraph, “your clients only stand to benefit by my offer as I am setting a very strict time limit to exchange and if I do not perform they will not prejudice their position with the other buyer”. Mr Jackson submitted that that paragraph merely recognised the possibility that there might not be an exchange of contracts by 5.00 pm that day. He submitted: “The whole letter is framed in terms of offer.”

107 The trial judge said in this regard:

“[T]he proposition [that] the vendors could ‘only stand to benefit’ by the new offer of a mere $20,000 per property above the price already agreed at a number of millions could only [be] true if other terms were not varied adversely to the vendors.”

Mr Jackson submitted that his Honour’s reference to the other terms of the contract was taken out of context.

108 I am not persuaded by this argument. In the context of the transaction as a whole, Milad must have known that the representation that the Vendors “only stand to benefit” by Medsara’s offer would be understood by the Vendors as relating, not only to what would happen if Medsara did not perform in time in relation to the exchange of contracts, but to what would happen if Medsara did perform in time and did exchange contracts. This view of the letter is supported by the use of the word “extra” in the first paragraph of this letter. The “extra” $20,000 that Medsara was offering was the incentive offered to the Vendors to enter into an agreement with Medsara rather than Hawden. For that $20,000 to be, in truth, an “extra”, the other terms of the contract would have to be the same as those in the Hawden offer.

109 Next, Mr Jackson referred to Milad’s letter of 8 November 2002. The trial judge said in regard to this letter:

“There is a degree of ambiguity about the language, but, in the context of the marketing of a number of properties at a price of over $5 million (a transaction in respect of which all witnesses agreed time for completion was of the utmost importance), I think the most natural way to understand the relevant sentence is that the sales were to be effected, using put and call options, within a period of 13 months. It would simply not be consistent with a business-like approach to state one part of the vital provision as to time, the term of the option, while leaving the other part, the time for settlement, up in the air. Particularly so in the context of the replacement of a done deal that was ready for exchange, in which precise times were specified, by a new deal in which the only change expressed was a relatively small increase in price.”

110 Mr Jackson submitted that the word “sales” in the letter was not used in a technical sense and there was no reason why the letter should not be dealt with according to its terms, namely, that the sales were to be formulated as put and call options for a period of 13 months. That is, nothing in the letter applied to the settlement date.

111 Again, in the context of the circumstances as a whole, and particularly in the light of the prior offers that had been made, I am not persuaded that his Honour erred. Even if Milad did not know (as he asserted) of the terms of the Hawden contract (which, in my view, is unlikely), he knew that Raymond had offered to complete in 15 months and this had not been acceptable to the Vendors. Against that background, to construe the letter as containing an offer of $20,000 extra per vendor on the basis that the option period was 13 months, and agreement had still to be reached as to the completion period, would accord it a meaning resulting in an offer that, to the parties’ knowledge, had no prospect of being accepted. This was not Milad’s intention.

112 Written submissions were filed on Medsara’s behalf to the effect that Mr Davis had not been truthful in relation to his disclosure to each vendor as to the different agreements that were made in regard to each in relation to the purchase price. The trial judge described this as a peripheral issue and in my view he was entitled to take that view.

113 Medsara made other submissions that went to Mr Davis’s accuracy of recollection. These were matters essentially for the judge. We were not referred to any material that shows that his Honour erred.

114 The judge drew an inference under the rule in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 because Raymond was available to give evidence but was not called by Medsara. Medsara argued that in so doing his Honour erred.

115 According to Mr Davis, in the conversation of 7 November 2003, Milad said to him that he understood from Raymond that the Vendors had been “offered a put and call and option for 13 months at $6.5m”. Milad denied that he had said this to Mr Davis. Raymond could have given evidence as to whether he did or did not tell Milad that the Vendors had been offered a put and call option for 13 months at $6.5m. In my opinion, the judge was justified in finding that the rule in Jones v Dunkel applied.

116 As I have stated, the probabilities strongly favour the findings made by the trial judge in regard to the conflict between Mr Davis and Milad. I do not think that the error made in regard to Ms Bond is of such an order that it affects those findings in a material way.

117 In my opinion, the appeal against the principal orders made by his Honour should be dismissed.

118 I now turn to the order made by his Honour that Medsara pay the Vendors’ costs on an indemnity basis.

119 There was no suggestion that his Honour did not apply the correct principles in this regard. His Honour examined whether there was “some relevant delinquency” on the part of Medsara (see Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 (at 89) per Gaudron and Gummow JJ).

120 In coming to the conclusion that there was such a delinquency, his Honour took into account his finding that the “1” had been inserted in the El-Hage contract at Medsara’s offices and not by Ms Bond. I have concluded that his Honour erred in this respect. Having made that finding, it follows inevitably, in my view, that his Honour exercised his discretion in regard to costs on an incorrect basis. In my view, deceit on the part of Milad and Mr Kerz has not been established, although I accept that they acted unconscionably in the sense described in Taylor v Johnson and Tutt v Doyle.

121 The relevant principle is that expressed by Giles JA in Harrison v Schipp [2001] NSWCA 13 at [136]:

“The unconscionable conduct or breach of fiduciary duty leads to compensatory or other relief and costs on a normal basis, and more must be established for a special order as to costs.”

122 Applying that principle, I would not award indemnity costs but award the Vendors costs on the usual basis.

123 I therefore propose the following orders:

(a) The appeal is upheld to the extent that the trial judge’s order that Medsara pay the Vendors’ indemnity costs be set aside and, in lieu thereof, there be an order that Medsara pay the Vendors’ costs of the trial.

(b) The appeal is otherwise dismissed.

(c) Medsara to pay 90% of the Vendors’ costs of the appeal.

124 YOUNG CJ in Eq: I agree with Ipp JA.

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LAST UPDATED: 15/03/2005