New South Wales Supreme Court CITATION : Wilson v Fitzsimons [2006] NSWSC 1318 HEARING DATE(S) : 27/11/06 JUDGMENT OF : Gzell J EX TEMPORE JUDGMENT DATE : 11/27/2006 DECISION : Mortgage rectified. CATCHWORDS : EQUITY - Equitable Doctrines and Presumptions - Rectification - Agreement to grant a first mortgage over specified property to secure a loan - Mortgage instrument proffered with Torrens title identifier of other inferior property - Specified property already mortgaged - Whether rectification available for unilateral mistake induced by fraud - Whether rectification barred by inability to perform contract by a grant of a first mortgage May v Platt [1900] 1 Ch 616 Commissioner for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259 CASES CITED : 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 Meagher, Gummow and Lehane's Equity Doctrines and Remedies, 4th ed, Butterworths LexisNexis, Australia, 2002 Robine Enid Wilson - Plaintiff PARTIES : Christopher Ronald Fitzsimons - 1st Defendant Maria Angela Fitzsimons - 2nd Defendant FILE NUMBER(S) : SC 3458/06 COUNSEL : Mr P Beale - Plaintiff SOLICITORS : McGrath Dicembre & Co - Plaintiff IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST GZELL J MONDAY 27 NOVEMBER 2006 3458/06 ROBINE ENID WILSON v CHRISTOPHER RONALD FITZSIMONS & ORS EX TEMPORE JUDGMENT 1 There is before the Court an application for an order for rectification of a mortgage instrument. The proceedings are ex parte because the first and second defendants did not appear. The evidence reveals that they have left the country and their address is unknown. The third to fifth defendants have agreed to execute a deed of priority and they were not represented at the hearing. 2 The plaintiff, Robine Enid Wilson, is an elderly lady who retained the first defendant as her solicitor to attend to the sale of a property and the acquisition of an interest in a retirement village. The first defendant suggested to her cousin, John Boyden, known as Rex, that he was interested in borrowing funds at an attractive rate of interest and would Ms Wilson be interested in advancing funds to him from the surplus upon the settlement of the two transactions. 3 A letter was written by the first defendant to Rex Boyden in the following terms: "1 Security 1st mortgage on 13/22 Wylde Street Potts Point. Current value 2.2 M 2 Borrowers Christopher Ronald Fitzsimons and Maria Angela Fitzsimons of 13/22 Wylde Street Potts Point 3 Principal 550 K 4 Interest 7% pa penalty rate to be 10% for late payment. 5 Term Repayable on call from the lender on 90 days written notice. This gives me time to re-finance it for you. Repayable at any time by the borrower on repayment of the principal sum, interest due to the date of re-payment plus 3 months penalty interest for early repayment. So, if I win the lottery, you've got 3 months interest in hand while you consider an alternative investment. 6 Interest rate is to increase, effective from the date of announcement, by the Reserve Bank of increases in the official interest rate. Interest rate will not fall below the base rate of 7% but if the official rate increases above 7% then the increase applies immediately, but if the rate falls, a decrease applies but in no circumstances will the interest rate will be lower than the 7%." 4 There was a second page to the letter that may have contained additional terms but it has been lost. 5 Mr Boyden showed the letter to Ms Wilson and she agreed to lend the 1st and 2nd defendants $550,000 on the above terms. 6 In a letter to the plaintiff no mention was made of the terms that had been set out in the letter to Mr Boyden but there was enclosed with that letter a mortgage instrument that contained the terms. 7 By the time that document emanated, Ms Wilson had decided to increase the loan by a further $50,000 making it a loan for $600,000. The mortgage instrument specifies the mortgagor as Christopher Ronald Fitzsimons and Maria Angela Fitzsimons. It specifies the mortgagee as Ms Wilson and has an amended sum from $550,000 to $600,000 as the principal. The other terms as to interest are set out in the document. When it was proffered to Ms Wilson, it had already been signed by Mr Fitzsimons and by his wife who was also a solicitor in the same firm as her husband. 8 The address of the mortgaged property as 13/22 Wylde Street, Potts Point was not contained in the mortgage instrument. What was contained was a Torrens Title identifier 292/SP55773. Ms Wilson assumed the Torrens Title identifier to represent the 1st and 2nd defendants' penthouse apartment at 13/22 Wylde Street, Potts Point. That property did not have that Torrens Title identifier. The specified Torrens Title identifier was of a storage cubicle in Kings Cross. The penthouse at 13/22 Wylde Street, Potts Points was already mortgaged to the Commonwealth Bank of Australia. 9 There is a general proposition that rectification for unilateral mistake as distinct from common or mutual mistake is difficult to obtain. See the discussion in Meagher, Gummow and Lehane's Equity Doctrines and Remedies, 4th ed, Butterworths LexisNexis, Australia, 2002 at [26-075]. 10 There are, however, exceptions. A court can decree rectification of a document in the case of unilateral mistake when the party who is not mistaken is guilty of fraud (May v Platt [1900] 1 Ch 616). 11 In Commissioner for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259 at 280, Stuart-Smith LJ, with whom the other members of the Court of Appeal agreed, went further and said that where one party to an agreement intends the other to be mistaken as to its construction and makes false and misleading statements to divert the other party's attention from discovering the mistake so that the other party makes the intended mistake, the agreement may be rectified even though the fraudulent party merely suspects that the other party is mistaken and it cannot be shown that the mistake was induced by misrepresentation. 12 In this case, I have no doubt that the mistake Ms Wilson made in assuming that the Torrens Title identifier was that of the penthouse at 13/22 Wylde Street, Potts Point was induced by fraud. It is not open to inference that either Mr Fitzsimons or his wife as solicitors could have misdescribed the property to be mortgaged by mistake and at the same time have mistakenly identified a property which was unencumbered and of clearly less value than the penthouse. The fact that the description is the correct description of the storage cubicle leads inexorably to the inference that the inclusion of that Torrens Title identifier in the mortgage instrument was made deliberately. 13 There is a difficulty that confronts Ms Wilson in seeking rectification and that is because of the existence of the mortgage to the Commonwealth Bank of Australia. It was impossible to complete the contract between the parties because what was offered was a first mortgage over the penthouse and that could not be given. 14 In the work to which I have already referred at [26-095] the learned authors say: "It is usually said in the textbooks on the subject that rectification will be refused if the contract sought to be rectified is no longer capable of performance. It is a general statement resting on the slender foundation of a dictum by one common law judge in an ancient case and it is not universally true. Where, for example, the contract is no longer capable of performance because one party has terminated it for the other party's repudiation, rectification may still be ordered so that the innocent party may sue for damages for breaches which have occurred before repudiation of the contract as so rectified. The principle should be reformulated as the unremarkable one that where a contract is incapable of performance, rectification will be refused if the impossibility of performance renders rectification inutile. This would conform with the views of Samuels JA expressed in Trawl Industries of Australia Pty Ltd v Effem Pty Ltd (1999) 27 NSWLR 326." 15 In the case of rescission, there is authority for the proposition that practical justice may intervene. In Alati v Kruger (1955) 94 CLR 216 at 223-224, the Court said: "But it is necessary here to apply the doctrines of equity, and equity has always regarded as valid the disaffirmance of a contract induced by fraud even though precise restitutio in integrum is not possible, if the situation is such that, by the exercise of its powers, including the power to take accounts of profits and to direct inquiries as to the allowances proper to be made for deterioration, it can do what is practically just between the parties, and by so doing restore them substantially to the status quo. " 16 A similar view was expressed by the High Court in Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 at 112: "As has been said, the appellant seeks to be relieved completely and unconditionally from all liability under the guarantee, leaving the respondent without either its subsequently supplied goods or any payment for them. If such complete and unconditional relief is to be granted, it must be on some basis other than mere entitlement to a practical restoration of the status quo upon rescission or "disaffirmance" of a contract induced by fraud. The only such basis that comes to mind is equity's general jurisdiction, in setting aside contracts and other dealings on equitable grounds, to ensure the observance of the requirements of good conscience and practical justice." 17 The authors of the work to which I have already referred at [26-075] says that rescission and rectification are entirely different. Nonetheless, Samuels JA in Trawl Industries regarded rectification as still open where a contract had purportedly been terminated for repudiation by both parties. At 346, his Honour said: "In my view there is much substance in Mr Sullivan's argument, put in his written submissions in reply, that the question of which of the parties repudiated its obligations under the contract cannot be determined until it is established whether or not the document they executed accurately contains the agreement they made; so that until the correct form of the agreement is established, the question of repudiation cannot be decided. If that is right, then it follows that it cannot be said that reformation of the contract is "useless". At all events, the position is such that I think that I am justified in assuming that the remedy of rectification remains open…" 18 In the instant circumstances I am of the view that relief by way of rectification should not be barred by the circumstance that it was not possible for the defendants to give a first mortgage over the penthouse. 19 First, a mortgage is still a mortgage whether it be a first or second mortgage. In this case if the Court rectifies the instrument, it will constitute a second mortgage, the Commonwealth Bank of Australia having the first mortgage. 20 Secondly, it seems to me that in circumstances where rectification is being made with respect to unilateral mistake induced by fraud, the Court should act upon that equitable principle of practical justice if precise performance of the original contractual obligation is not possible. 21 In my view, therefore, an order for rectification of the mortgage between the plaintiff and the first and second defendants for an advance of $600,000 to rectify the Torrens Title reference by inserting the title for the property known as 13/22 Wylde Street, Potts Point and more particularly known as folio identifier 13/SP63601 should be made, and I do so. 22 While it is probably a futile exercise, I also order the first and second defendants to pay the plaintiff's costs of the amended summons. ************ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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