Rectification

C88 was incorporated for the purpose of developing residential units and PIA was a real estate agent. The parties entered into a sole agency agreement under which:

• PIA would act as a selling agent for certain residential units that C88 had developed.
• C88 would pay PIA a commission for these sales.
• PIA could lodge caveats over the units in the event C88 failed to pay its commission.
• Clause 1.1(g) confined the meaning of 'Commission' to commission payable to PIA for sales made after entering the sole agency agreement. This meant that any outstanding money owed to PIA for its work before entering it could not be secured under these protections in case of default by C88.

Before entering into the sole agency agreement, the parties entered other agency agreements in relation to the same residential development. As a result, C88 also owed PIA a substantial number of additional commission payments for earlier sales.

At first instance, PIA sought rectification of this clause, on the basis that the parties had a common intention that the sole agency agreement would secure all amounts then and thereafter owed by C88 to PIA. Relevantly:

• PIA's sole director, Mr Wang, gave evidence of conversations with a director of C88, Mr Fayad, which PIA submitted demonstrated the parties' common intention that the sole agency agreement would secure all commissions owed by C88 to PIA.
• C88 did not call any witnesses involved in its management before its liquidation, including Mr Fayad, to give evidence about their understanding of clause 1.1(g).

The primary judge accepted Mr Wang's evidence as credible, but nevertheless denied relief in the nature of rectification, on the basis that PIA had not provided clear evidence it had a common understanding with the managers of C88 of clause 1.1(g) .

On appeal, the court relevantly considered:

1. whether PIA had discharged its onus to provide clear and compelling evidence that both parties subjectively intended clause 1.1(g) to secure all money owed by C88 to PIA; and
2. whether C88's failure to call any witnesses to give evidence on the rectification issue gave rise to a Jones v Dunkel inference, such that any evidence that Mr Fayad or C88's management may have given would not have assisted C88's position in relation to the common intention of clause 1.1(g).

The court considered whether the appellant had provided satisfactory evidence of its asserted common intention as to the meaning of a clause in an agreement that governed the commissions payable from the appellant, The Property Investors Alliance (PIA), to the respondent, C88 Project Pty Ltd. The court also considered the application of Jones v Dunkel to rectification suits.

The majority of the court (Justice Kirk and Acting Justice Griffiths, Justice White in dissent on this issue) dismissed the appeal in so far as it related to the rectification claim, although the appeal was upheld on other grounds.

The majority was not satisfied that PIA had discharged its heavy onus of providing clear and convincing evidence of the existence of the asserted common intention.

Justice Kirk and Acting Justice Griffiths emphasised that a party seeking rectification of a contract must provide clear and compelling evidence of:

• the substance and the detail of a common intention between the parties; and
• how the contract departs from that common intention.

The majority confirmed that clear and convincing proof of the parties’ common intention must include not only objective material, but also evidence of the parties’ subjective intention and understanding, referring to Ryledar Pty Ltd v Euphoric [2007] NSWCA 65 at [182], [185] to [186].

In the present case, the court considered that nothing in the conversations the subject of Mr Wang's evidence indicated that Mr Fayad agreed and intended that the sole agency agreement would secure the commission and interest that C88 had failed to pay for past sales. Simply because Mr Wang’s evidence regarding the terms used in the relevant conversations was accepted by the primary judge does not mean that those terms, when considered in light of all the relevant surrounding circumstances, constituted clear and convincing proof of the alleged common intention.

The majority confirmed that Jones v Dunkel inferences may be available in rectification suits, although the rule does not permit the court to bridge gaps in a party's evidence. The Jones v Dunkel principle permits it to draw an inference that evidence not called by a party would not have assisted the party. The rule does not permit the court to infer that the uncalled evidence would have been positively damaging to that case.

In finding that PIA failed to discharge its onus of establishing the asserted common intention, the majority observed that any inference that the evidence of Mr Fayad’s or C88's former managers would not have assisted C88 could not make up for that absence of evidence.

In dissent, Justice White considered that rectification would be available in circumstances where the parties' intention to achieve a legal effect is 'clearly predominant' over their intention to give effect to the contract as it is worded. Having regard to the lengthy commercial relationship between the C88 and PIA, his Honour considered that it was fair to infer that the managers of C88 shared the intention with Mr Wang that clause 1.1(g) include the commission payable for prior sales.

Finally, Justice White considered that a Jones v Dunkel inference adverse to C88 was available from the evidence led by PIA, and that C88's failure to call any witnesses on this point strengthened the inference that the parties shared the common intention asserted by PIA.