Rectification/mistake/effect of words in a Deed and the duty of a lawyer when making changes to drafts exchanged between the parties

 

 Thiess P/L v FLSMIDTH Minerals P/L [2010] QSC 006

 

Rectification – where the Deed has an effect which is not the result of deliberately chosen words

His Honour McMurdo J aptly put the question to be resolved at paragraph [90] after a detailed examination of the dealings between the parties and in particular their lawyers, the drafts and correspondence accompanying the amendments.

[90] The question which arises is what each party actually intended to be the effect of the Side Deed upon Thiess’s rights in relation to the Proceedings. For FFE it is argued that this is an irrelevant inquiry, on the basis that if the parties intended to agree in the words of this instrument, a mistake as to its effect could not be the basis for rectification. The submission cites Tucker v Bennett;6 Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd;7 Issa v Berisha;8 and Re Estate of Nina Spinks.9

[91] I reject that submission. The authorities prior to 1992 were then analysed by Hodgson J in Bush v National Australia Bank Ltd.10 I respectfully adopt his Honour’s analysis of those cases and in particular his reasons for not following the obiter dicta of Higgins J in Bacchus Marsh and Powell J in Issa v Berisha.11 Hodgson J concluded that:

“the preponderance of authority now favours the view that, provided all other requirements of rectification are satisfied, rectification will not be refused merely because the common mistake is as to the legal effect of the words used, rather than as to the actual words used.”

Hodgson cited as authority for that approach, amongst others, the decision of the Full Court of this Court in Winks v WH Heck & Sons Pty Ltd.12

[92] As Hodgson J explained, where the parties intend the instrument to have an effect which is not the result of their deliberately chosen words, there may be two common intentions. The first is to be bound by an instrument with those words. The second is to achieve a certain legal effect by the instrument. It is the second which is relevant to a claim for rectification, at least where that is the “predominant intention”. Hodgson J said:13

“In such cases, it will often be the case that each party will have conflicting intentions as to the document. It may well be the case that each party intends to give effect to the document as it is worded, but also intends to enter into a transaction with a particular legal effect, which is not the true legal effect of the document as worded. The problem is not unlike that in the case of a mistake as to the identity of a person with whom one is making a contract: one may intend to contract with a person with a particular name and description, but also intend to contract with the very person who is present; and in subsequent legal proceedings, a decision may have to be made as to which intention should prevail. So it may also be with this type of rectification, with the additional complication that the intention and mistake must be clearly proved. So one needs to be able to say that, although in a sense the parties intended to be bound by a document which included certain words, nevertheless their intention to achieve a legal effect which was not the true legal effect of those words was somehow predominant over that other intention, and clearly predominant.”

 [93] The argument advanced by FFE has also been rejected by more recent authority: Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd;14 Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd;15 Mander Pty Ltd v Clements16 and Ryledar Pty Ltd v Euphoric Pty Ltd.17 In Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd, adopting the analysis in Spry The Principles of Equitable Remedies, 4th ed (1990), Sheller JA said:18

“In his book The Principles of Equitable Remedies, 4th ed (1990) Dr Spry QC (at 597–598), dealing with the case where the parties were aware of the precise terms of the relevant part of the document but misapprehended their effect, distinguished between two positions. He said (at 597):

“… The first position occurs where the concurrent intention, that is, the intention that the document is desired to effectuate, remains the governing intention. In this event it should not matter that the precise terms of the document have been seen by the parties, and rectification, where otherwise appropriate should be ordered.”

The learned author referred to the judgment of Brightman J and continued (at 597-598):

“… The second position arises where the parties, whatever their previous intention may have been, have ceased to retain that intention as their governing intention and have formed instead an intention to be bound by the precise terms of the document in question, regardless of possible discrepancies between its provisions and prior or other intentions on their part. In this event rectification is not appropriate.”

Maralinga19 was treated as an example of the second position. However Dr Spry went on to advert to another complicating factor. He said that different considerations apply where the relevant mistake does not arise through a lack of conformity between a document and the concurrent intention of the parties, but rather arises through an error underlying that intention itself. Where there is no lack of conformity between the document and the concurrent intention, the basis for rectification does not exist. These principles may justify the decision in Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd. An error of law or other error may have related only to the expected consequences of an agreement and not to what the parties have actually agreed.”

[128] Thus in my conclusion it was Mr Halpin whose state of mind must be considered upon the rectification claim.24 I accept Mr Halpin’s evidence that he believed that the effect of the deeds was to quarantine the Thiess proceedings from this settlement, so that Thiess’s rights against FFE in the Proceedings would be according to the Consultancy Agreement. Undoubtedly he was aware of the references to QBE within the preservation clause. But I accept his explanation for why he understood that to be a reference effectively to both policies. Accordingly, the intention of Thiess, constituted by the intention of Mr Halpin, was that Thiess’s rights in the Proceedings would be not diminished but preserved according to the Consultancy Agreement.

[129] The inherent likelihood that this was Thiess’s intention is indicated especially by these circumstances. The first is that nothing had been put to Thiess by FFE or its solicitors which manifestly suggested some compromise by Thiess of its rights in the Proceedings. Rather, at all times the negotiations and exchanges about legal drafting had been upon the basis that those rights would be preserved. Secondly, there is no realistic possibility that Thiess decided to give some ground in relation to the Proceedings in order to obtain agreement upon some other term which was of commercial significance. At least by 27 May, the essential commercial terms between the parties to the Main Deed and the Side Deed had been agreed. Thirdly, there is no indication that Thiess had legal advice to the effect that only the QBE policy constituted the Project Specific PI Policy under the Consultancy Agreement. Indeed, Thiess had advice to the contrary from Corrs in 2004, to which I have referred. And as I have found, both the solicitors at Corrs involved in this transaction and Thiess’s in-house lawyer had the view that both policies were available for Thiess’s recovery in the Proceedings.

[133] As I have found, when Mr Cameron made the critical change to his draft on 27 May, he did so without specific instructions on this point, namely whether Thiess’s rights should be limited to the QBE policy irrespective of the then position according to the Consultancy Agreement. Mr Cameron was unable to say that he had discussed with his client any possible advantage to it of limiting Thiess’s rights in this way. The impression given by his evidence, particularly that extracted above at [67] is that it was not discussed before the deeds were executed. It is likely that this was not discussed between Mr Cameron and his client because, from the perspective of FFE, as distinct from that of either of its insurers, the point was inconsequential. By cl 44 of the Consultancy Agreement, the liability of FFE to Thiess was only to the extent that FFE was entitled to claim indemnity under the Project Specific Policy and was “subject to the relevant indemnity being paid in accordance with the policy”. Similarly the Side Deed provided that FFE would be considered indemnified, and thereby liable to pay Thiess, only when and to the extent that the amount of the indemnity was received by FFE or paid at its direction. FFE apparently thought that it was exposed to an uninsured potential liability of the excess ($500,000) under the QBE policy. That appears to be incorrect because cl 44 of the Consultancy Agreement limited its liability to the amount paid in accordance with the Policy. The present point is, however, that there was no further excess, in the sense of an uninsured component, under the Liberty policy. So there was no prospect that the maintenance of the position according to the Consultancy Agreement would be to the cost of FFE, as distinct from one or both of its insurers. In particular, if there was a doubt as to whether FFE had duly notified Liberty, that contingency could not have resulted in FFE being left with an uninsured liability to Thiess.

[134] Mr Cameron’s speculation that FFE might have wanted to avoid having to deal with Liberty is divorced from the facts. FFE was dealing with Liberty in relation to the various losses and claims from this project, both under FFE’s own policy with Liberty and under the second layer of the insurance which was specific to this project. And under the Side Deed, Thiess promised to fund and conduct any proceedings against the insurer to recover to secure FFE’s indemnity.

[135] The terms of the Main Deed are relevant here, although it was provided in the Side Deed that to the extent of any inconsistency between the two deeds of 2005, the Side Deed should prevail. Against the Thiess case is the identification of the QBE policy only as the Project Specific PI Policy. However, that term was not given its meaning according to the 2001 agreements but rather it was specially defined in the Main Deed. So although the same term (Project Specific PI Policy) was used, the parties did not thereby agree as to what had been the meaning of that term as it was used in the 2001 agreements. And within the Main Deed, cl 3.2 was in general but unambiguous terms which were that the rights and obligations of Thiess and FFE which were the subject of the Proceedings should be “in no way affected”. Because the Side Deed, if inconsistent with the Main Deed, must prevail, and because its terms are unambiguous, Thiess did not argue that this term of the Main Deed affected the proper construction of the Side Deed. However, cl 3.2 is not irrelevant in considering what was the subjective intention of the parties.

[138] I am fortified in my conclusion as to FFE’s intention by FFE’s failure to call any evidence from any of its employees or directors. The only witness of fact in its case was Mr Cameron. Plainly he was not a decision-maker as to the terms upon which FFE should contract. Overall his evidence supports the case for rectification upon the basis of a common mistake because of what it reveals as to the absence of discussions with or advice to his client on the specific point. No explanation was offered for FFE’s failure to call, for example, Mr Yovich. I infer that the evidence of Mr Yovich or any other relevant employee or officer of FFE would not have assisted FFE’s case,28 and this enables the inference as to FFE’s intention to be more readily drawn.

Duty of a lawyer when making changes to draft Deeds exchanged between the parties

[143] The other case, apart from the claim for rectification, was upon the basis of an alleged contravention of s 52 of the Trade Practices Act by the conduct of FFE, through Mr Cameron, on 27 May 2005. It was alleged that by proffering to Thiess this draft of the preservation clause under cover of Mr Cameron’s email, FFE impliedly represented that:

“(a) it had no motive or intention in re-drafting the clause other than that which it identified in the explanations in the attachment or in the specific statement of its intent quoted in [the email]; and

(b) it did not propose to resile from the pre-existing consensus [that Thiess’ rights in the Proceedings would be preserved].”33

Under this alternative case, Thiess alleged that FFE did intend to make a substantial amendment by this draft of the preservation clause and did intend to limit Thiess’s rights to the QBE policy only. It was alleged that this intention was held by Mr Cameron and Mr Yovich, as to be inferred from FFE’s pleaded traverses of Thiess’s pleaded case for rectification for a common mistake. It was further pleaded by Thiess that it had suffered or was likely to suffer loss or damage by that conduct in contravention of s 52 in that Thiess did not identify the effect of the proposed preservation clause and lost the opportunity of ensuring that, in effect, its rights would be preserved fully according to the 2001 agreements. The relief claimed was an order pursuant to s 87 of the Act that the Side Deed be rectified in the same way.

[144] That claim would have failed at least because it was dependent upon FFE, and in particular Mr Cameron and Mr Yovich, having motives or intentions contrary to what I have found to be the case. On my findings neither FFE (through Mr Yovich or otherwise) nor Mr Cameron meant to diminish rather than preserve Thiess’s rights in relation to the Proceedings.

[145] For the purposes of this claim, and also for an alternative claim for rectification on the basis of a unilateral mistake by Thiess, each side called evidence from an independent solicitor as to the proper practice of solicitors in the process of drafting and re-drafting of such documents. There was also evidence on the subject from Mr Lawson, Ms Beardow and Mr Cameron. Insofar as the independent solicitors were concerned, there was a particular contest as to whether, in circumstances such as these, what is regarded as proper professional practice required a solicitor to identify, by underlining or the like, any changes from that solicitor’s previous draft of a clause. As discussed, part of Thiess’s complaint was that Mr Cameron did not identify the changes to his previous preservation clause. Rather Mr Cameron underlined the whole clause. And his email did not draw attention to the changes within it. On the view of the solicitor called by Thiess, Mr Perrett, a careful and competent solicitor of good repute would direct his or her opponent’s attention specifically to such a change within his previous draft of the clause. On the view of the solicitor called by FFE, Mr Price, that was not required, because a competent solicitor in receipt of Mr Cameron’s email would not rely simply on the covering email but would read its attachment, the draft Side Deed, and that it would be sufficient for him to mark the whole of the proposed clause 8 as Mr Cameron did. Mr Perrett practices principally in Brisbane and Mr Price in Sydney. Their evidence referred to the relevant professional rules in each State. I could see no substantial difference between those rules or in the practice between the States. Each of Mr Perrett and Mr Price was attempting to assess what was reasonably required of Mr Cameron in the circumstances. The limitation upon this exercise, in each case, was that it required certain assumptions to be made as to the circumstances. Understandably it was difficult for each of them to be fully acquainted with the extensive factual context. To reach that point, each would have been required to observe the entirety of this trial and to read all of the exhibits. But in case it should become relevant, I should make some observations as to the extent to which Mr Cameron should have identified the change to his preservation clause.

[146] His change on 27 May was, on any view, a substantial change from the effect of previous drafts. It was a clause which would have a result which was quite different from that which the parties and their solicitors had been discussing and for which drafts had been exchanged. Mr Cameron was proposing a markedly different commercial element to the overall settlement. In these circumstances, Corrs could have expected that Mr Cameron would draw attention to this change. He did not do so within his draft of the Side Deed or within the email. The reason why he did not do so was that he was not conscious of the effect of this change. But for the purposes of s 52, it is unnecessary that there be an intention to mislead or deceive.

6 (1887) 38 Ch D 1.

7 (1919) 26 CLR 410 per Higgins J at 451.

8 [1981] 1 NSWLR 261 per Powell J at 264.

9 Unreported, Supreme Court of New South Wales, 22 August 1990 per Needham J.

10 (1992) 35 NSWLR 390 at 406–407.

11 (1992) 35 NSWLR 390 at 406.

12 [1986] 1 Qd R 226 at 234–235 per Kneipp J, 237 per Thomas J and 243 per Shepherdson J.

13 (1992) 35 NSWLR 390 at 407.  

14 (1995) 41 NSWLR 329.

15 (2001) 3 VR 526.

16 (2005) 30 WAR 46.

17 (2007) 69 NSWLR 603.

18 (1995) 41 NSWLR 329 at 341.

19 Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336.  

28 Jones v Dunkel (1959) 101 CLR 298.  

33 Statement of claim , para 56.  

Brisbane Barrister – David Cormack

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