Legal contracts can be altered if the wording is wrong

28-November-2017 Property By Mel Collins

The sale and purchase of any property often represents a milestone in a person’s life. As such, we know how important it is to make sure all of the finer details in a conveyancing contract are correct and agreed upon by both parties.

Occasionally, a contract’s wording can be at odds with the intention of the buyer and seller and this may require rectification by an experienced contract lawyer. Rectification is a legal remedy that can correct a written contract to reflect the terms that the parties originally intended to be bound by.

The legal test for rectification has three parts:

1. Intention – both parties must be able to demonstrate that they held a common intention until the time that the written document was executed.

When will rectification not be granted based on the intention at the time of signing?

  • If either party changed their intention prior to signing the document.
  • If the plaintiff (the person seeking the remedy of rectification) signed the document with complaint or objection, knowing that the document contained a provision other than what he/she intended.

2. Mistake – In the past, there needed to be a common mistake with the words used in the contract, not the effect of the words used. However, there is a growing body of case law suggesting that rectification will be granted when there is a common mistake by both parties regarding the effect of the words.

When will rectification not be granted based on a mistake?

  • If the mistake was not common to both parties.
  • If one party knew that the document was different from the intention of the parties and executed the document regardless of this.

3. If the remedy of rectification was applied would it correct the mistake of the parties? If the document was rectified in the manner being requested by the parties, then it must be shown that the amended document would be in line with the intention of the parties.

Case of the missing GST

The recent case of SAMM Property Holdings Pty Ltd v Shayne Properties Pty Ltd [2016] NSWSC 362 decided in April 2016 in the Supreme Court concerned the sale of an industrial property at Wetherill Park in Sydney. It provided the following insight into rectification:

“Rectification is available where there is ‘clear and convincing proof’ that by reason of the common mistake of the parties, the document they have signed does not ‘embody the final intention of the parties’.”

The case also outlined the requirement that the common intention of the parties was held at the time of the contract being entered into.

Facts of the Case:

  • The case sought to rectify a contract so that the purchase price of $3.325 million was treated as PLUS GST, as stated by the vendor, as opposed to the purchase price being treated as INCLUSIVE of GST, as argued by the purchaser.
  • The stakes were high considering that the purchaser could be required to pay an additional $332,500 for GST.
  • The property was sold at auction and the evidence presented on behalf of the vendor was by the auctioneer, who said that it was his usual practice to look at the front page of the contract and that if, as was the case in this contract, the GST taxable supply box had been marked “yes” and if, as in this case, the property was vacant, he would announce at the auction:
    – “The sale today will be deemed a taxable supply, therefore GST will be payable, payable by you the purchasers, your bids today are exclusive of GST and GST will be in addition to the knockdown price of today’s auction.”
    – The evidence given on behalf of the purchaser was that they understood the auctioneer’s announcement to mean that there would be no variation to the contract, which indicated that the price included GST.

Outcome of the Case:

  • The Court determined that it could not reconcile the differences between the vendor and the purchaser recollections. The court relied upon the evidence given by the auctioneer in his email, which was that “No GST was added to this figure [$3.325 million] as the sale was deemed to be a taxable supply and GST was to be paid at settlement.”
  • As such, the Court found that: “The common intention of the parties was that the sale price would be $3.325 million plus GST.” This meant that the contract needed to be rectified and the purchaser was required to pay the additional figure of $332,500 in GST.

Streeterlaw is keen to ensure its clients never enter into a contract that is unclear or with unintended clauses. If you find yourself in circumstances where you believe a contract you have entered into is incorrect, please speak with one our property specialists who will be able to assess the facts of your situation and provide you with personalised legal advice. Call us on 02 8197 0105 or email us at advice@streeterlaw.com.au and we’ll get back to you as soon as possible.

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