Citation: Wilson v Fitzsimons [2006] NSWSC 1318
Court: Supreme Court of New South Wales, Equity Division (Commercial List)
Date: 27 November 2006
Judge: Gzell J
Background
An elderly plaintiff lent $600,000 to two defendant solicitors, a husband and wife, on the basis that the loan would be secured by a first mortgage over the defendants' penthouse apartment at Potts Point. The arrangement was initiated by the first defendant, who was also acting as the plaintiff's solicitor in unrelated property transactions. The terms were documented in a letter to the plaintiff's cousin, who introduced the plaintiff to the investment, and the plaintiff agreed to advance funds on those terms.
When the mortgage instrument was proffered to the plaintiff, it had already been signed by both defendants. Rather than identifying the Potts Point penthouse by its correct Torrens title reference, the instrument contained a title identifier for a storage cubicle in Kings Cross, a property of significantly lesser value. The plaintiff assumed the identifier referred to the penthouse. In fact, the penthouse was already mortgaged to the Commonwealth Bank of Australia.
The defendants did not appear at the hearing, having left the country with their whereabouts unknown. The plaintiff sought rectification of the mortgage instrument to substitute the correct Torrens title identifier for the Potts Point penthouse.
Legal Issues
- Whether rectification of a mortgage instrument is available where only one party (the plaintiff) was mistaken, as opposed to a mutual or common mistake
- Whether that unilateral mistake was induced by fraud on the part of the defendants, so as to enliven the court's jurisdiction to rectify
- Whether rectification was barred by the fact that the contract could not be performed as originally agreed, because the penthouse was already encumbered and a first mortgage could not be granted
Decision
Gzell J confirmed that rectification for unilateral mistake is ordinarily difficult to obtain. However, an established exception applies where the non-mistaken party is guilty of fraud. The court found it inconceivable that two solicitors could have accidentally inserted the identifier of a storage cubicle in place of the penthouse. The inference that the substitution was deliberate was, in the court's words, "inexorable."
The court also applied the broader principle from Commissioner for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259: rectification is available where one party intentionally causes the other to be mistaken, even without a positive misrepresentation, so long as false or misleading conduct diverted the other party from discovering the error.
On the impossibility argument, Gzell J declined to treat the prior Commonwealth Bank mortgage as a bar to relief. Drawing on the analysis in Meagher, Gummow and Lehane and the reasoning of Samuels JA in Trawl Industries of Australia Pty Ltd v Effem Pty Ltd (1999) 27 NSWLR 326, his Honour reformulated the relevant principle: rectification is only refused for impossibility of performance where that impossibility would render rectification futile. Here, it would not.
The court reasoned that a mortgage remains a mortgage whether it ranks first or second, and that where unilateral mistake has been induced by fraud, the equitable principle of practical justice supports granting relief even when precise performance of the original obligation is no longer possible. The mortgage instrument was accordingly rectified to substitute the correct Torrens title identifier for the Potts Point penthouse.
Orders Made
- The mortgage instrument was rectified by substituting the Torrens title reference for 13/22 Wylde Street, Potts Point (folio identifier 13/SP63601) in place of the incorrect identifier
- The first and second defendants were ordered to pay the plaintiff's costs of the amended summons (though the court acknowledged this was likely a futile order given the defendants' disappearance)
Key Takeaways
- Rectification for unilateral mistake is available where the non-mistaken party has engaged in fraud, including conduct deliberately designed to divert attention from a mistake, even without a formal misrepresentation (May v Platt [1900] 1 Ch 616; Commissioner for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259).
- The Supreme Court confirmed that the correct principle is not that impossibility of performance automatically bars rectification, but that rectification will be refused only where the impossibility renders the remedy futile.
- Where a contract cannot be performed precisely as agreed due to the fraudulent party's own conduct, the court retains jurisdiction to grant rectification on grounds of practical justice, consistent with the approach endorsed in Alati v Kruger (1955) 94 CLR 216 and Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102.
- A rectified mortgage that ranks second rather than first is not rendered inutile merely because it cannot fulfil the original contractual promise of a first mortgage charge.
- In fraud-induced unilateral mistake cases, courts will draw strong inferences from the nature of the error itself: here, the precise and deliberate insertion of a lesser property's identifier in place of the agreed security supported a finding of fraud without any direct evidence of intent.
Legislation and Cases Referenced
Cases:
- May v Platt [1900] 1 Ch 616
- Commissioner for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259
- Trawl Industries of Australia Pty Ltd v Effem Pty Ltd (1999) 27 NSWLR 326
- Alati v Kruger (1955) 94 CLR 216
- Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102
Secondary Sources:
- Meagher, Gummow and Lehane, Equity Doctrines and Remedies (4th ed, Butterworths LexisNexis, 2002), [26-075] and [26-095]