CATCHWORDS CONTRACT - bankruptcy notice - allegation of compounding - whether concluded agreement - rectification. MISTAKE - rectification - evidence of subsequent events - unilateral mistake - knowledge of mistake. Re: Kenneth Peter Taylor & Ors. National Westminster Finance Australia Limited QLD BN1546 of 1985 PINCUS J. BRISBANE 7 May 1986 IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) QLD BN1546 of 1985 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: KENNETH PETER TAYLOR, ROBIN ANNETTE TAYLOR, PETER SVEND HENNINGS and KAY HENNINGS Applicants NATIONAL WESTMINSTER FINANCE AUSTRALIA LIMITED Respondent MINUTES OF ORDER JUDGE MAKING ORDER: PINCUS J. DATE OF ORDER: 7 May 1986 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. It be declared that an agreement was made on 17 October 1985 between the applicants and the respondent by which the judgment debt of 28 February 1985 was to be extinguished in consideration of payments totalling $10,000. 2. The bankruptcy notice issued against the applicants on 5 August 1985 he struck out. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISTON ) QLD BN1546 of 1985 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: KENNETH PETER TAYLOR, ROBIN ANNETTE TAYLOR, PETER SVEND HENNINGS and KAY HENNINGS Applicants NATIONAL WESTMINSTER FINANCE AUSTRALIA LIMITED Respondent PINCUS J. 7 May 1986 REASONS FOR JUDGMENT The applicants are judgment debtors who seek a declaration that they compounded to the satisfaction of the judgment creditor, the respondent. The judgment was obtained on 28 February 1983 in a sum of $1,046,971.42. A bankruptcy notice was issued on 5 August 1985 and the time for compliance with it was extended first to 25 October 1985 and then to 6 December 1985. According to the applicants' case, the compounding mentioned occurred during the first extension. Before coming to the details, in outline the case for the applicants is that they made a written offer under which the judgment debt was to be extinguished, in consideration of the making of payments totalling $10,000, and that was accepted by Mr. B.W. Gould on behalf of the respondent judgment creditor. The case for the judgment creditor is principally that, if any agreement was made, it should be rectified. Two of the four judgment debtors (applicants), Messrs. Taylor and Hennings, met Mr. Gould, an officer of the respondent, at his office on 8 October 1985 and had a long discussion with him. At that time there was, as I have mentioned, a judgment for a sum in excess of $1 million in favour of the respondent which had, by accretion of interest, grown substantially since it was entered in February 1983. The only security the respondent had in respect of the debt was a second mortgage no. G111477 ona house property. That had been given in 1980 to secure a loan which had been paid out long before the alleged agreement for compounding, but I deduce from a memorandum in evidence (exhibit 6) that Mr. Gould was of the view that the mortaage was so drawn as to remain available for security in respect of debts other than that in relation to which it was, as a commercial matter, given. Indeed, it would be surprising if 1t were not so drawn. The contention of the mortgagors, however, according to the statement of claim in action no. 3945 of 1985 in the Supreme Court of Queensland, was that if the bill of mortgage secured the judgment debt I have mentioned, then that was contrary to dealings between the parties which had taken place at the time of execution of the mortgage. It is clear that I am not concerned with attempts to determine the relative strengths of the cases of the parties in the action 3945 of 1985 in the Supreme Court of Queensland. Indeed, not enough information was placed before me to enable me to do so. I find, however, relying again on exhibit 6, that the respondent was confident that 1t would succeed, in the event of a contest, in establishing its entitlement to have recourse to the mortgage as security for the judgment debt. The parties do not dispute that the question of the mortage G111477 was discussed at the meeting on 8 October 1985. The primary purpose of the meeting was to reach some settlement as to the debtors' obligaions and 1t was ultimately proposed that the applicants would pay $10,000 by anstalments, to avoid bankruptcy. No final agreement was come to at the meeting, but Mr. Gould asked Messrs. Taylor and Hennings to set out in writing what their proposal was. The same afternoon, according to Mr. Gould's account, Mr. Taylor telephoned and said that he had discussed the position with Mrs. Taylor and also Mrs. Hennings and that "they would come down next day with a letter together with $500 cash in good faith to allow me to gain approval to accept the offer". The next day, Mr. and Mrs. Hennings came to Mr. Gould's office with a document signed by all four applicants. It contained a promise to pay the respondent $10,000 by instalments, starting with immediate payment of §500. It made it perfectly clear that in exchange the respondent was to signa deed of release applicable to every claim the respondent had against the applicants. It is important to note that the contemplation of the document dated 9 October 1985 that all claims were to be released was quite unambiguously set out and not, go to speak, buried in the fine print. Not only was there the promise to sign a deed of release just mentioned, but on the second page of the document, which listed the obligations to be released, there were specifically mentioned the judgment (identifying it by its date) and the mortgage discussed above (as to which the identification was slightly inaccurate, but nevertheless clear enough). The list concluded: "Any other claims not listed in this list which Lombard has against us now, or might have against us in the future." It 1s not easy to accept that anyone reading it would have been likely to derive the impression that it was intended to leave unaffected any obligation due to the respondent by the applicants. Mr. Gould, according to Mr. and Mrs. Hennings, who delivered the document to him, appeared to read it before he signed a copy, as having received it. I accept their evidence in this regard. Were it not for the terms of exhibit 6, a memorandum dictated by Mr. Gould on 10 October, I would have had some doubt whether Mr. Gould really misunderstood the effect of the document of 9 October just discussed. He claimed, at one stage, that he did not read the document but paid attention only to the part of it which dealt with payment of the $10,000. I think his recollection about that is incorrect and that he did read it, but omitted to notice what it plainly stated, namely that it contemplated a discharge of all obligations, including those under mortgage G111477. Having received the document, Mr. Gould solicited authority from his superiors to make an agreement with the applicants. The authority he sought, however, was in quite different terms from those set out in the applicants' document. The memorandum, exhibit 6, sought authority to accept an offer alleged to have come from "Messrs. Taylor and Hennings". The offer was stated to include a provision: "That they co-operate with the auction of the house property, kerbside value $130,000 with a First Mortgage of approximately $40,000. We believe we would be able to nett approximately $70,000 from this source. They will co-operate by vacating the property voluntarily; by ceasing all action in the Courts at present, and in fact keeping the property mowed and in good order." It is an irresistible inference that when the memorandum of 10 October 1985 was written, Mr. Gould did not have the written proposal by him. Not only does the latter not contain the provisions just quoted; the memorandum does not even set out the parties correctly, nor the terms of the proposed payment of the $10,000. JI infer that for some reason Mr. Gould treated the written document as of no importance. On 17 October 1985 Mrs. Hennings answered a telepone call from Mr. Gould, who asked to speak to her husband. On being told that he was unavailable, Mr. Gould told Mrs. Hennings that the terms of settlement had been accepted and asked "could we send $1,500 to him". That was the sum to be paid on signing of the deed of release, as provided for in the offer. Mr. Gould contested Mrs. Hennings' version of that conversation, but IT am quite satisfied that what he said was intended to, and did, convey to Mrs. Hennings the information that the written proposal of 9 October was accepted. It should be mentioned that the offer was not expressed as one, but was drawn as a record of an agreement already concluded. It is common ground, however, that no agreement had been concluded on the matters mentioned 1n the document when it was delivered to the respondent. It was treated by the respondent as an offer and, as I have found, accepted by him on behalf of the respondent. Counsel for the respondent argued, as an alternative to the claim for rectification, that there was no agreement. He put this chiefly on the basis that Messrs. Taylor and Hennings intended that the $10,000, or the promise to pay the $10,000, should entirely discharge their obligations, whereas Mr. Gould intended that it should not, but that the respondent should retain its rights under the mortgage. I accept counsel's submission as to what Mr. Gould's intention was. His difficulty, however, is that prima facie the intention of the parties 1s to be derived from the writing, although the document executed by all the applicants and dated 9 October was apparently not taken seriously in the office of the respondent. It was put forward by the applicants, at the invitation of Mr. Gould, as defining precisely what it was they were prepared to do and what they desired in exchange. It was, as I have found, orally accepted by Mr. Gould on behalf of the respondent. Subject to a point to be discussed, it appears impossible to hold that there was no agreement. The only possible escape from the conclusion just mentioned is the view that the parties reached agreement orally with respect to the mortgage at the meeting on 8 October 1985 and that the document of 9 October was to constitute an agreement collateral to the first, oral, agreement. The essential foundation of this is a finding that the parties reached agreement on the mortgage at the meeting. The versions given in evidence on that issue were substantially opposed; no doubt it was because of the likelihood that reliance on oral bargainings would lead to difficulty that Mr. Gould asked for a written proposal, and the applicants supplied one. The principal witness for the applicants on this point, Mr. Taylor, seemed to me candid enough, but I thought Mr. Gould was, if anything, a more impressive witness. But I have found it unnecessary to reach a conclusion as to what was said about the mortgage at the meeting, because it seems clear that it is not open to me to hold that there was a collateral agreement. Firstly, although there was some faint suggestion that Messrs. Taylor and Hennings acted as agents for their wives at the meeting of 8 October, they clearly did not: Mr. Gould admitted that, after the meeting of 8 October, he was told by Mr. Taylor that the position had been discussed with Mesdames Taylor and Hennings and that a letter would accordingly be brought next day with $500 cash. There is no possible basis for a finding that anything said at the meeting by Mr. Taylor bound, for example, Mrs. Hennings. Secondly, the writing which the applicants executed is inconsistent with the existence of any such collateral agreement; as TI have pointed out, it expressly contemplates a discharge of the mortgage and, of course, the debt which the mortgage, according to the respondent, secured. Therefore, I find there was an agreement constituted by the executed document of 9 October and its oral acceptance. The principal argument of counsel for the respondent was, as I have said, that the agreement was affected by either bilateral or unilateral mistake and should be rectified. No argument was addressed to the point whether an agreement recorded in a document executed by one side only is capable of rectification; I see no reason why it should not be. Counsel for the respondent raised no question of lack of authority, presumably because it was thought that Mr. Gould had at least ostensible authority to accept the terms proposed. Counsel for the respondent also, on instructions, waived any objection to the agreement based on lack of consideration; that point was therefore not litigated. Some reliance was placed, as evidencing the parties' intentions, upon the events which followed the making of the agreement 1n question. Each side had its solicitor prepare a formal document said to embody the true agreement. I was referred to authority that in a rectification case subsequent acts can afford no evidence as to what the true agreement was: Winks v. W.H. Heck & Sons Pty. Ltd. (unreported, Queensland Full Court, 26th November, 1985). It is unnecessary to reach a conclusion on that point, however, since the subsequent events did not in my opinion throw light upon the central issues, except in one respect, viz. as supporting the contention that the respondent accepted the written offer by mistake. The draft submitted on behalf of the respondent is consistent with that view of the facts and it appears to me that it may be relied on by the respondent accordingly. I am satisfied that Mr. Gould's acceptance of the written offer was mistaken, in the sense mentioned above. There is no evidence, and indeed no suggestion was made, that anything which was done by or on behalf of the applicants contributed to his mistake. In particular, and I think very properly, Mr. O'Grady for the respondent disclaimed any allegation of sharp practice. The contention based on bilateral mistake is soon disposed of. There is no evidence, or basis for inference, that any of the applicants were mistaken as to the effect of the document to which the respondent agreed. Whatever Mr. Taylor may have thought was the expectation of Mr. Gould at the conclusion of the meeting of 8 October, it is impossible to hold that Mr. Taylor thought the document said anything other than what it did; still less is there any basis for thinking that the other applicants were mistaken. 10. In the end, then, the case for the respondent stands or falls onthe basis of unilateral mistake. There is room for dispute as to the precise limits of the relevant doctrine, but it is at least clear that the respondent must be able to show that the applicants knew of its mistake: Riverlate Properties Ltd. v. Paul (1975) Ch. 133 at 140, 141, Thomas Bates and Son Ltd. v. Wyndham's (Lingerie) Ltd. (1981) 1W.L.R. 505. See also Taylor v. Johnson (1983) 151 C.L.R. 422 at 432. As Mr. Muir, for the applicants, pointed out, 1t was not even suggested to any of the applicants that they had knowledge of a mistake on the part of the respondent. There is no foundation in the evidence fora finding that they did. There is reason to think that Mr. Taylor,if not the other applicants, must have been both surprised and pleased at the respondent's acceptance of the written proposal, but 1t appears improbable that any of the applicants thought that acceptance was based, as is the respondent's case, upon a misapprehension of the effect of the document. Mr. and Mrs. Hennings, as I have found, observed Mr. Gould appear to read the document and they had no reason to think that he was unaware of its effect; nor would any of the other applicants have assumed that, having kept the document for over a week before acceptance, the respondent had failed to divine its effect. The only other defence raised by the respondent which it is necessary to mention is the suggestion, rather faintly urged, to the effect that the acceptance was "subject to contract". It is clear from the terms of the document that a formal deed of release was to be prepared and that circumstance was, perhaps, a reason for the mistake which occurred; Mr. Gould may have thought ll. he need not trouble himself much about the terms of the document, because he took it that the respondent's solicitor would approve the final version. I hold that the document was intended to operate as a contract complete in itself and effective immediately on acceptance by the respondent of its terms. There was no intention that the deed of release which it mentions was to contain any further or different terms. It is necessary to mention an aspect of the way in which the case was litigated. The contention that the written document should be rectified emerged only during the course of the hearing; no pleadings have been delivered, nor did the respondent's material mention a case of mistake. Counsel for the applicants complained, and I think justly, that he had incurred some disadvantage by not being apprised at an earlier stage of the nature of the respondent's contention. However, I permitted the respondent's counsel to argue the case for rectification on the basis that he indicated orally, clearly enough, both the points he was taking and those he was abandoning. The only remaining question requiring consideration is the nature of the relief sought. The substantial issue was whether there was an agreement made in the terms of the document dated 9 October 1985 under which in exchange for the applicants' promises, the respondent agreed, inter alia, not to proceed with bankruptcy proceedings in respect of the judgment mentioned above. It appears to me that the appropriate course is to make a declaration on that point in favour of the applicants and strike 12. the bankruptcy notice out and that, subject to any contention which may be put forward by the parties, is what I propose to do. t certify that this and the // preceding pages ara a true copy of the reasons for judgment herein of His Honour Mr, Justice Pincus prof tyeno Associate Dated 7 Moog , /986