New South Wales Supreme Court CITATION : Kyabram Property Investments Pty Ltd & Anor v Murray [2005] NSWSC 1202 HEARING DATE(S) : 23 and 24 November 2005 JUDGMENT DATE : 24 November 2005 JURISDICTION : Equity Division JUDGMENT OF : Palmer J DECISION : Rectification ordered CATCHWORDS : CONTRACT – MORTGAGE – RECTIFICATION – When common intention of parties miscarried in terms of document executed. Conveyancing Act 1919 (NSW) – s.88K LEGISLATION CITED : Real Property Act 1900 (NSW) - Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 CASES CITED : - Leda Holdings Pty Ltd v Oraka Pty Ltd [1999] FCA 444 - Pukallus v Cameron (1982) 180 CLR 447 Kyabram Property Investments Pty Ltd – First Plaintiff PARTIES : Banksia Securities Ltd – Second Plaintiff Wendy Jill Murray - Defendant FILE NUMBER(S) : SC 5219/05 D.R. Conti SC, P.G. Bolster – Plaintiffs COUNSEL : J.R. Wilson SC – Defendant Kell Moore – Plaintiffs SOLICITORS : McKells – Defendant LOWER COURT JURISDICTION : 1 The Plaintiffs are the first and second mortgagees respectively under mortgages given by the Defendant in July 1997. The Plaintiffs seek rectification of the mortgages so as to include the titles to certain land owned by the Defendant which the Plaintiffs say were not included in the mortgages by mistake. The Defendant denies that there was any operative mistake justifying rectification. 2 There is no dispute as to the essential facts. 3 By a contract dated 10 November 1993, the Defendant acquired from companies controlled by her parents a property at Breeza near Gunnedah. There were twenty-four separate lots comprised in the sale, forming one large parcel of land. The title to twenty-one of the lots, representing by far the major part of the land sold, was under the Real Property Act 1900 (NSW) and title to three small lots was Old System land. The property is described in the contract as having a total area of approximately 733 hectares. The description of the area of the property varies slightly in various documents which are relevant in the case but it is clear enough that the total area of the property which was the subject of the sale is slightly more than 730 hectares, which is the area of the twenty-four lots under both Real Property Act title and Old System title. 4 Part of the property transferred under the contract was the right to a bore licence number BL 130617. That licence conferred the right to extract water to supply the land the subject of the contract. The bore was situated on one of the small portions of the land under Old System title. 5 The property the subject of the contract had formerly been owned by a company called Boala Pty Ltd. After the Defendant completed the purchase of the property from her parents' companies pursuant to the contract in November 1993, she and her husband registered the business name "Boala Station". The Defendant says in evidence that she intended that name to describe the property which she had acquired under the November 1993 contract, that is, the Real Property Act land and the Old System title land. 6 In October 1994, the Defendant wished to borrow money from the National Australia Bank on the security of Boala . By a letter to her solicitors dated 4 October 1994, she instructed them to send, "my 'Boala' title deeds" to the National Australia Bank. In compliance with that instruction, on 7 October 1994 the Defendant's solicitors sent to the National Australia Bank the documents of title relating to all of the lots which the Defendant had purchased under the November 1993 contract, that is, the certificates of title for the Real Property Act land and the Deeds of Conveyance of the Old System title land. The National Australia Bank prepared a mortgage. For some reason, which is not explained, the mortgage referred only to the Real Property Act land. 7 In 1997, the Defendant wished to borrow further funds for the acquisition of another property. She instructed finance brokers to seek finance. 8 On 30 May 1997 the finance brokers wrote to the Plaintiffs seeking a loan of $2M. The security offered was over two properties. One was to be a registered mortgage over the new property to be purchased. The other security was described thus, "1st registered mortgage over 'Boala'" and then followed this statement: "Bob & Wendy Murray are the son-in-law and daughter of Ross Duddy (brother of Eric Duddy) and currently operate a dryland farm on Breeza Plains called 'Boala' which was formerly part of 'Breeza Station'. They acquired the property some 3 years ago and until they started improving the property they had no debt on it. They have since borrowed $150,000 from the NAB to cover the cost of improvements to date which include a 1.3 megalitres a day bore and improving the farming country which totals some 1,200 acres. The property has a 1,500 megalitre property entitlement and an irrigation proposal is currently before the DWLC to develop 200 Hectares using this water." (Emphasis added.) The bore referred to is the bore on the Old System land. 9 Later in the letter, the security is described thus: "730ha (1803 acre) farming property located on the Breeza Plains. 1200 acres of Black soil farming & 250 acres of lightly timbered grazing country. 1,500 megalitre groundwater property entitlement & 13 megalitre a day bore output in place . Property has only been in current owners possession for 3 years and budgets attached reflect the ongoing development of the property. There is no home on the property but there are good site and water & power available. Bore License No. 90 BL 130617 ." (Emphasis added.) Again, the bore referred to is the bore located on the Old System land. The letter concludes by enclosing, "copies of title for Boala" . 10 Whatever documents were included with the letter under this heading have not been located. The Defendant has said that she herself did not provide title particulars for Boala to the finance brokers or to the Plaintiffs. She assumes that these particulars were taken from the National Australia Bank whose mortgage was to be discharged by the new loan. This explanation is very possibly correct because the mortgages of Boala prepared by the Plaintiffs, like the mortgage prepared by the National Australia Bank, comprise only the land under the Real Property Act ; they do not include the Old System land on which was located the licensed bore. 11 The Plaintiffs commissioned a valuer to provide a valuation of the mortgage security proffered by the Defendant over Boala . The valuer was apparently provided with particulars of title only to the Real Property Act land. However, in his valuation he valued the whole of the property which the Defendant had acquired under the November 1993 contract and which she had called Boala . He refers to the property by its name Boala and he says that its area is about 730 hectares. That area would include all of the Old System land. Further, and very importantly, he refers in his valuation to the licensed bore as being part of the security. As I have said, the bore is located on the Old System land. There can be no doubt that the security represented as Boala , as valued by the Plaintiffs' valuer, included the Old System land. 12 The Plaintiffs approved the Defendant's mortgage application. Letters of offer of mortgage finance were sent by the Plaintiffs to the Defendant on 3 June 1997. The letters, in referring to the security, included only the titles to the Real Property Act land. The Defendant accepted the offers of finance in terms. Mortgages were prepared. As I have noted, the mortgaged land comprised only the land under the Real Property Act . 13 The Defendant has defaulted under the mortgages and the Plaintiffs, as mortgagees in possession, have entered into a contract for the sale of Boala to a third party. As a result of a recent investigation of title, it has been discovered that the Plaintiffs' mortgages over Boala do not include the Old System land. Hence, the Plaintiffs seek rectification for the mortgages. Alternatively, they apply for an order under s.88K of the Conveyancing Act 1919 (NSW), granting the First Plaintiff an easement for vehicular and water access through that part of the Old System land which contains the licensed bore in order that the proprietor of the land to which the First Plaintiff now has title may have access to that bore. 14 In order to show entitlement to rectification of a contract, a plaintiff must prove to the Court's satisfaction a concurrent intention of the contracting parties existing at the time that the contract is executed, as to a term which would have been embodied in the contract if the parties had not made a mistake in expressing their intention: see, for example, Pukallus v Cameron (1982) 180 CLR 447 at 456. 15 Was there a concurrent intention of the Plaintiffs and the Defendant existing at the time that the Plaintiffs' offers of finance were accepted and at the time that the mortgages were executed that the mortgages would be taken over the whole of the property known as Boala , that is, 730 hectares, more or less, including the Old System land on which the bore is located? 16 The Defendant, who has given her evidence carefully and frankly, says that at the time she executed the mortgages and accepted the offers of finance, she intended that the mortgages be given over the same land as she had acquired from her parents' companies under the 1993 contract, that is, 730 hectares of land comprising both the Real Property Act land and the Old System land. 17 Mr Bishop, who was the lending manager of the Plaintiffs at the time of the transaction, says that he decided to recommend approval of the Defendant's loan application contained in the finance broker's letter of 30 May 1997 on the basis that the security offered over Boala was a mortgage over 730 hectares of land, including entitlement to the licensed bore referred to in the 30 May letter. That evidence was not challenged. 18 Mr Wilson SC, who appears for the Defendant, very frankly concedes that if the parties to the mortgages had been asked at the time of their execution, "does the mortgage cover all of the titles to the property known as Boala ", the answer would have been "yes". But, Mr Wilson says, that does not prove the Plaintiffs' entitlement to rectification of the mortgages. 19 The fact is, Mr Wilson says, that the question whether the mortgages included the titles to all of the property known as Boala did not enter the parties' minds. It follows therefore, he says, that their common intention was that mortgages be executed over those titles which were actually set out in the letters of offer provided by the Plaintiffs and actually described in the mortgages which were executed. To rectify the mortgages, as the Plaintiffs seek, Mr Wilson submits would be to make a contract for the parties which they had not agreed upon for themselves. 20 I am unable to accept this submission. It is clear from the terms of the letters of 30 May 1997 and from the Defendant's evidence in cross examination that the Defendant intended to offer as security to the Plaintiffs a property described as Boala which comprised 730 hectares, more or less, and which included on it a licensed bore. It is also clear from the valuation of that security procured by the Plaintiffs that they intended to take as security a property comprising 730 hectares, more or less, which included on it a licensed bore. That common intention of the parties miscarried through no fault of either of them. The mortgages covered a property which was less than 730 hectares and did not have on it a licensed bore. 21 In my opinion this is a clear case in which a mistake has been made in expressing a common intention of contracting parties as to the terms of their agreement. 22 The mistake can be expressed in very clear terms, viz. a failure to include in the mortgages the references to the land under Old System title. Rectification of the Plaintiffs' mortgages must be ordered so as to include in the security conferred thereby the Old System land forming part of Boala . 23 Because of the conclusion to which I have come, there is no need for me to consider the Plaintiffs' alternative application for the grant of an easement under s.88K of the Conveyancing Act . As to costs 24 Earlier today I delivered judgment in this matter and directed the Plaintiffs to bring in Short Minutes of Order. The Plaintiffs have done so. There is no dispute about the terms of the Short Minutes of Order, save that the Plaintiffs claim indemnity costs and the Defendant disputes that such an order should be made. 25 The Plaintiffs claim an entitlement to indemnity costs as a matter of contract. Their mortgages contain a clause, Clause 14, which provides in effect that the mortgagor will pay: "… all monies paid or expenditure incurred by the Mortgagee for or in connection with the mortgaged premises or this Mortgage or any security collateral hereto or with their preparation or completion or on account of any default whatsoever hereunder or under any security collateral hereto or incidental to the exercise of any right power authority or remedy conferred on the Mortgagee under or by virtue of this or any collateral security and the same shall be a charge upon the mortgaged premises and be deemed moneys hereby secured and bear interest accordingly and the expression costs shall mean and include Solicitor and own client's costs as well as party and party costs and cost of and incidental to the preparation execution stamping and enforcement of this Mortgage and any Guarantee of this Mortgage." 26 It is not in dispute that the costs incurred by the Plaintiffs in prosecuting these proceedings are costs of enforcing their rights under the various mortgages as I have found them to be on rectification. There is ample authority for the proposition that the Court, while always retaining its discretion as to costs, will usually exercise its discretion in accordance with an express contractual provision as to costs such as appears in this particular mortgage: see, for example, Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 which has been noted and approved in various authorities in this country: see, for example, Leda Holdings Pty Ltd v Oraka Pty Ltd [1999] FCA 444. 27 Mr Wilson submits that these proceedings were really occasioned through no default on the part of the Defendant, a mistake having been made essentially in the Plaintiffs' camp in the formulation of the security described in the mortgage documents. Mr Wilson says there is nothing on the part of the Defendant in the conduct of these proceedings which should merit otherwise the imposition of an indemnity costs order. 28 The mortgages provide that the Defendant is to bear the costs of enforcing the mortgage securities on a full indemnity basis. There is nothing in the circumstances of this case which would persuade me to exercise the Court's discretion contrary to the contractual obligation of the Defendant. The Plaintiffs were not alone responsible for the mistake and were justified in bringing these proceedings, as my reasons for judgment show. The Defendant has failed in resisting the orders for rectification. The Plaintiffs are contractually entitled to an indemnity costs order. They have expressly pleaded that contractual entitlement and have expressly sought the relief claimed so that no element of surprise is involved in this consideration. 29 For those reasons, I think that the appropriate order to which the Plaintiffs are entitled is that the Defendant pays the costs of these proceedings on an indemnity basis. Accordingly I will make orders in accordance with the Short Minutes of Order initialled by me, dated today and placed with the papers. ~ oOo ~ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.