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Supreme Court 26 May 1999

Tanzone v Westpac

[1999] NSWSC 478

Other
EQUITY RECTIFICATION COMMON MISTAKE UNILATERAL MISTAKE NO UNCONSCIONABLE CONDUCT BY PLAINTIFF REAL PROPERTY

Citation: Tanzone v Westpac [1999] NSWSC 478; reported at [2000] 9 BPR 17,287
Court: Supreme Court of New South Wales, Equity Division
Date: 26 May 1999
Judge: Windeyer J

Background

Westpac Banking Corporation sold its branch premises in Lithgow in 1984 under a sale-and-leaseback arrangement. The lease, registered in 1985, contained a rent review clause requiring rent to increase at each review date to the greater of a compound 8% formula or a CPI-linked formula. The rent review mechanism as executed in the lease was, according to Westpac, not what the original parties had actually intended, and Westpac contended the clause contained a mistake.

The original lessors assigned their interest, and in November 1993 Tanzone Pty Ltd purchased the premises at auction for $1,770,000. The property was sold expressly subject to the registered lease, a copy of which was attached to the contract. Prior to the auction, Westpac's private banking arm had provided finance to a prospective bidder and, in that process, had internally identified and flagged the alleged drafting mistake in the rent review clause. That knowledge, however, was not communicated to Tanzone.

Tanzone subsequently sought to recover rent calculated according to the lease terms as registered. Westpac cross-claimed, seeking rectification of the rent review clause on grounds of common mistake, relief under the Trade Practices Act 1974 (Cth) on grounds of unconscionable conduct, and related relief. Tanzone was not a party to the original lease.

  • Whether the lease rent review clause could be rectified for common mistake, where the party seeking rectification (Westpac) was the original lessee but the lessor's interest had passed to a third-party purchaser (Tanzone) who was not party to the original transaction.
  • Whether a right to rectification constitutes a "mere equity" capable of binding a purchaser of Torrens title land.
  • Whether indefeasibility of title under the Real Property Act 1900 (NSW) protects a registered proprietor against a "mere equity" such as a right to rectification.
  • Whether Tanzone's knowledge of Westpac's internal awareness of the alleged mistake could ground a claim of unconscionable conduct under Part IVA of the Trade Practices Act 1974 (Cth), specifically s 51AA.
  • Whether a personal equity (rights in personam) exception to indefeasibility applied on the facts.
  • Whether Westpac had affirmed the lease or was otherwise barred from equitable relief.

Decision

Rectification for common mistake was refused. Windeyer J held that, even accepting in principle that a right to rectification is a "mere equity" capable of binding a purchaser of Old System land who takes with notice, the position is more protective for a registered proprietor of Torrens title land. The indefeasibility provisions of the Real Property Act 1900 shield a registered proprietor from interests that are not registered, and a mere equity does not attract the same protection as a full equitable interest. On the facts, Tanzone was a registered proprietor who had purchased without any actual knowledge of Westpac's asserted right to rectification. The court found that Tanzone did not know of the mistake in the way required to be fixed with the equity, and so rectification could not be ordered against it.

Unilateral mistake was also rejected as a basis for rectification. Tanzone was not a party to the original lease and had engaged in no unconscionable conduct. The court emphasised that a purchaser taking with knowledge of facts is not, without more, acting unconscionably simply because those facts might have given rise to a claim between the original parties.

Unconscionable conduct under the Trade Practices Act was dismissed. Westpac argued that Tanzone had engaged in unconscionable conduct within s 51AA by acquiring the property knowing of the alleged mistake and then seeking to enforce the lease on its face. The court rejected this, finding that Tanzone was not shown to have known of Westpac's internal knowledge of the alleged mistake at the time of purchase, and that no sufficient unconscionability had been established. The court observed that a purchaser at auction obtaining value from information the other side does not know does not thereby act unconscionably.

The rights in personam exception to indefeasibility was considered and rejected on the facts. The court noted that indefeasibility does not extinguish personal claims in appropriate cases, but found no conduct by Tanzone that would generate a personal equity in Westpac's favour.

Orders Made

  • Tanzone's claim for rent (calculated on the lease terms as registered) was upheld.
  • The caveat lodged by Westpac was ordered to be removed.
  • Westpac's cross-claim for rectification and other relief was dismissed.
  • Westpac was ordered to pay the costs of the proceedings, including those of the submitting cross-defendants on a submitting basis.

Key Takeaways

  • A right to rectification of a registered lease is a "mere equity" and does not carry the same standing as a full equitable interest; the Supreme Court held that the indefeasibility provisions of the Real Property Act 1900 protect a registered proprietor of Torrens title land against such a mere equity.
  • Knowledge of an unregistered interest or defect in a registered instrument does not, without more, constitute fraud sufficient to defeat indefeasibility under the Torrens system.
  • Rectification against a third-party purchaser who was not a party to the original instrument requires that purchaser to be fixed with actual knowledge of the equity; awareness by a related entity of an internal flag about a possible mistake, not communicated to the purchaser, was insufficient on these facts.
  • Under s 51AA of the Trade Practices Act 1974, purchasing land at auction with knowledge that may not be shared by the vendor does not automatically constitute unconscionable conduct; the court found no unconscionability where Tanzone had not been shown to know of the specific mistake Westpac alleged.
  • The rights in personam exception to Torrens indefeasibility remained available in principle, but required conduct by the registered proprietor generating the personal equity, which was not established on the facts here.

Legislation and Cases Referenced

Legislation
- Real Property Act 1900 (NSW)
- Conveyancing Act 1919 (NSW), s 117
- Trade Practices Act 1974 (Cth), Part IVA, ss 51AA and 87(1)
- Transfer of Land Act 1958 (Vic)

Cases
- Bahr v Nicolay (No 2) (1988) 164 CLR 604
- Breskvar v Wall (1971) 126 CLR 376
- Frazer v Walker [1967] 1 AC 569
- Fitzgerald v Masters (1956) 95 CLR 420
- Taylor v Johnson (1983) 151 CLR 422
- Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32
- Grgic v ANZ Banking Group Ltd (1994) 33 NSWLR 202
- Secured Income Real Estate (Australia) Ltd v Martins Investments Pty Ltd (1979) 144 CLR 596
- Commonwealth v Verwayen (1990) 170 CLR 394
- Mills v Stokman (1967) 116 CLR 61
- Phillips v Phillips (1861) 4 De G F & J 208
- Cave v Cave (1880) 15 Ch D 639
- NSW Medical Defence Union v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740
- Watson v Phipps (1985) 60 ALJR 1
- Tutt v Doyle (1992) 42 NSWLR 10
- Terceiro v First Mitmac Pty Ltd (1997) 8 BPR 15,733
- Oertel v Hordern (1902) 2 SR(NSW)(Eq) 37
- Munro v Stuart (1924) 41 SR(NSW) 203