Where the terms of a contract result in uncertainty and unexpected consequences to one party, and a party asserts that there was a common intention as to the meaning and effect of such terms, a court may order rectification of the contract in order to give effect to the common intention of the parties. However, such orders are not easily obtained, and there is a high burden of proof on an applicant show clear evidence of such common intention.
Casenote
In DP 971 Richmond Pty Ltd v Xerri [2026] NSWCA 89, the Appellant developer entered into a deed of option to purchase a property from the Respondent. The deed provided for a reduction in the purchase price if a development approval for the property resulted in a portion of the property being subject to a potential transport corridor under planning legislation.
The developer sought rectification of the deed on the basis that the parties held a common intention that the purchase price would be reduced to the extent the corridor “adversely affected the use of the Property for residential subdivision”.
In rejecting the appeal, the court found that there was no clear and convincing evidence to support the existence of the common intention articulated either at first instance or on appeal.
The mere fact of the Respondents’ knowledge of the Appellant’s concern regarding the corridor and the sparse evidence relied upon to support the alleged common intentions were insufficient, especially in circumstances where solicitors were closely involved in the drafting of the clause sought to be rectified.
Factors against common intention
Several factors considered by the court led to a refusal to grant rectification:
- The Appellant’s failure to call its solicitor as a witness to give evidence of the instructions provided and the discussions with opposing legal representatives as to the terms,
- the Appellant’s inconsistent articulation of the common intention, (the appellant asserted a different common intention at trial and on appeal),
- the uncommercial consequences of the proposed rectification (a significant price difference) and
- the fact that the Appellant knew of the Respondents’ different interpretation of the deed before exercising the option
These factors militated against the existence of the common intentions contended for by the Appellant.
In the circumstances was highly improbable that the parties shared a common intention that the operation of the development approval obtained in respect of the development application would be the criterion determining the purchase price.
It would be highly surprising that any lawyer could mistakenly understand that the language which was used had the legal effect of either formulation of the common intention. The evidence did not suggest that the parties intended the default price of the property to be the reduced price reflecting the existence of the corridor, which was what both formulations of the common intention contemplated.
While both formulations contemplated that the development application would resolve the issue of whether TfNSW concurred to development in the corridor, the deed did not require the Appellant to lodge a development application in respect of the land subject to the corridor and there was in any event no reason to think that even a development application directed specifically to development on this land would resolve the question of the concurrence.
The court cited with approval the trial judge when he observed:
“the party seeking rectification bears a heavy onus requiring “clear and convincing” proof, and that it must be “demonstrated with clarity that the parties had a sufficiently precise intention that the Court can determine both the substance and the detail of the precise variation to be made to the wording of the instrument”
Here, it was problematic that the solicitors were not called to give evidence at the trial.
The court reaffirmed the well known observations of Campbell JA in Franklins Pty Ltd v Metcash Trading Ltd when he said:
“To conclude that the parties have misrecorded their common intention in that sort of situation involves the solicitors on both sides of the transaction having each failed to grasp and express the intention of his or her own client. In other words, each of the solicitors has been mistaken, and, furthermore, mistaken in the same way. There is a measure of inherent unlikelihood in such an event happening. If the words of which rectification are sought are clear in meaning on their face, that unlikelihood is compounded — one would not ordinarily expect two lawyers, each professional dealers in language, to make the same mistake about the meaning of words that are clear on their face. However, we know that sometimes even experienced solicitors take or are given inadequate instructions, or misunderstand their instructions, and in consequence misrecord their client’s intention, so these matters are no more than reasons for caution in making the factual findings upon which a rectification order is based.”
Reminder-careful drafting
The decision is a reminder to parties of the importance of carefully drafting the terms of an agreement to record their common intentions, especially where the decision of a third party may affect the outcome of a significant issue (such as purchase price).
If you have any queries in regard to these matters, please contact Michael Sing at Rostron Carlyle to discuss any issues.
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