• Any

CATCHWORDS

Appeal - Function of appellate court - Findings of fact by judge sittingwithout jury - Inferences of fact - Statement by judgethat he was notassisted by demeanour of witnesses and had to determine matter on balance ofprobabilities.

HEARING

DECISION

2. In November 1975, Ann and Peter Taylor began proceedings in the EquityDivision of the Supreme Court of New South Wales for specificperformance ofthe contract of sale. Mrs. Johnson, for her part, instituted counterproceedings against them and Mr. Taylor seekingrectification of the optionagreement and contract of sale or, alternatively, an order setting aside thecontract of sale. The proceedingswere heard by Powell J. who found that thecontract of sale was binding in its terms and ordered specific performance ofit. HisHonour found that Mrs. Johnson had, in fact, mistakenly believed thatthe consideration specified in both option and contract was$15,000 per acrebut also found that Mr. Taylor was unaware of her mistake. Mrs. Johnsonappealed against that decision to the NewSouth Wales Court of Appeal whichunanimously upheld her appeal and set aside the contract of sale. The membersof the Court of Appealeach reached the conclusion that Mr. Taylor believedthat Mrs. Johnson was probably mistaken as to what the option and the contractstipulated as the price. Mr. Taylor and Ann and Peter Taylor now appeal tothis Court from that decision of the Court of Appeal.It has not beensuggested that Ann and Peter Taylor are in any stronger position than theirfather would have been if he had beenthe purchaser under the contract. (atp426)

3. The first question in the appeal is whether the New South Wales Court ofAppeal was, in the circumstances, entitled to substituteits own conclusionsas to the knowledge, state of mind and motivation of Mr. Taylor for those ofthe trial judge. The answer to thatquestion depends upon the meaning to begiven to a comment of the trial judge that, subject to one presentlyimmaterial qualification,"there was nothing in the demeanour of any of thewitnesses which would lead one to conclude that any of them was doing otherthanendeavouring, to the best of his or her ability and recollection, to tellthe truth" and that, in the result, he was "left to determinethe matter uponthe balance of the probabilities". In the view we take, the members of theCourt of Appeal were correct in acceptinghis Honour's comments as beingintended to convey that, in a position where he had derived no significantassistance from observingand hearing the witnesses give their evidence, hehad resolved the matter by analysis of the evidence before him. That being so,we consider that the members of the Court of Appeal were correct in taking theapproach that, subject to giving due weight to theconclusions of the learnedtrial judge, they were entitled to determine the matter for themselves. (atp426)

4. To no small extent, the issues between the parties on the argument in thisCourt are issues of fact. The judgments of the membersof the Court of Appealfully set forth the objective facts and we refrain from repeating them. Insome respects, we differ from theCourt of Appeal in our views on particularmatters or as to the importance which we would attach to particular events orconsiderations.One example is that the Court of Appeal took the view that, atthe time Mr. Taylor obtained the option over the subject land, hehad in mindthe effect which a proposed road diversion would have on a proposal that landwhich he already owned on the Windsor Roadwould be rezoned whereas it seemsto us that at that time he already knew that the application for rezoningaffecting that land hadbeen rejected. Another example is that the view wastaken in the Court of Appeal that the reason which Mr. Taylor gave to Mrs.Johnsonfor seeking an option, namely that he wished to show it to the WindsorMunicipal Council, was false whereas it seems to us that,while Mr. Taylor'smain purpose for seeking the option was to bind Mrs. Johnson to sell the landto him or his nominee at the stipulatedprice, he may well have wished to havethe option available to show to officers of the Council if it became necessaryto establishhis standing to make the representations which he made a few dayslater asking the Council to exercise its influence to procure arezoning ofthe area in which the subject land was situated. A third, and possibly moreimportant, example is that, on our approachto the overall facts, we wouldtend to pay slightly more attention to the state of mind of Mrs. Johnson andher husband, Mr. Johnson,than the members of the Court of Appeal appeared todo. It is not, however, necessary that we dwell upon any such differences ofdetail or emphasis or that we set out the detailed reasons which have led usto the conclusions of fact which we have ultimatelyreached. It suffices, forthe purpose of the appeal, that we identify a number of inferences which weconsider are plainly to bedrawn from the evidence. (at p427)

5. In our view, a general inference which flows from the evidence is that Mr.Taylor and Mrs. Johnson each believed that the otherwas acting under amistake or misapprehension, either as to price or value, in agreeing to a saleat the purchase price which heor she believed the other had accepted. It isthis belief of mistake or misapprehension on the part of the other thatexplains boththe conduct of Mr. Taylor in procuring the execution of theoption in the circumstances in which it was procured and the alacrityof Mrs.Johnson in agreeing to requests by Mr. Taylor for an option and for a right ofway. It also explains the extraordinary conductof Mr. Taylor, on one side,and Mr. and Mrs. Johnson, on the other, in refraining from again mentioningthe purchase price afterwhat Reynolds J.A. in the Court of Appeal called the"idle curiosity" conversation. We also consider that the evidence leads to aninference that Mr. Taylor, by refraining from again mentioning price and bythe manner in which he procured the execution by Mrs.Johnson of the option,deliberately set out to ensure that Mrs. Johnson was not disabused of themistake or misapprehension underwhich he believed her to be acting. (at p428)

6. In the Court of Appeal, the essential question was seen by their Honoursas being whether Mr. Taylor knew or believed or wasaware of facts that wouldlead any reasonable man to believe that Mrs. Johnson, at the time she executedthe option and at the timeshe executed the contract, was under a mistakeabout what the relevant document actually said about the price. Their Honours,afterdetailed consideration of the facts, each reached the conclusion thatMr. Taylor believed that Mrs. Johnson was probably under sucha mistake. Forour part, we find it unnecessary to go beyond the inferences set out in thepreceding paragraph of this judgment.(at p428)

7. The judgments of Blackburn and Hannen JJ. in Smith v. Hughes (1871) LR 6QB 597, at pp 607, 609 provide support for the propositionthat a contract isvoid if one party to the contract enters into it under a serious mistake as tothe content or existence of a fundamentalterm and the other party hasknowledge of that mistake. That approach accorded with what has been calledthe "subjective theory"of the nature of the assent necessary to constitute avalid contract (but cf. Holland, Elements of Jurisprudence, 12th ed. (1916),pp. 264- 265). The "subjective theory", it will be recalled, was advanced by,among others, Mr. T. Cyprian Williams in his Vendorand Purchaser, 4th ed.(1936), p. 748, n. (m), and is that the true consent of the parties isessential to a valid contract. Thecontrary view, namely that described as the"objective theory", was asserted by, among others, Holmes J. in The Common Law(1881),Lecture IX, and is that the law is concerned, not with the realintentions of the parties, but with the outward manifestations ofthoseintentions. In practice, as between the contracting parties, there is littledifference in the result of the application ofthe two competing theoriessince allied with any assertion of the "subjective theory" is acceptance ofone manifestation of the doctrineof estoppel which would ordinarily operateto preclude one who had so conducted himself that a reasonable man wouldbelieve thathe was assenting to the terms of a proposed contract, fromleading evidence as to what his real intentions were. (at p428)

8. As a matter of legal technique there is a significant difference betweenthe two theories. This is best illustrated by settingout the consequenceswhich flow from the application of each theory to a case in which a contractis successfully impeached on theground of unilateral mistake. According tothe subjective theory, there is no binding contract either at common law or inequity,equity following the common law in this respect. Of course in decidingwhether the contract is void ab initio for the unilateralmistake, regard willbe had to the doctrine of estoppel in order to determine whether effect shouldbe given to the claim that therehas been unilateral mistake. On the otherhand, according to the objective theory, there is a contract which, inconformity whichthe common law, continues to be binding, unless and until itis avoided in accordance with equitable principles which take as theirfoundation a contract valid at common law but transform it so that it becomesvoidable. The important distinction between the twoapproaches is that,according to the subjective theory, the contract is void ab initio, whereasaccording to the objective theory,it is voidable only. (at p429)

9. While the sounds of conflict have not been completely stilled, the cleartrend in decided cases and academic writings has beento leave the objectivetheory in command of the field. It is unnecessary to examine the reasons forthis. A convenient statementof them can be found in Williston on Contracts,3rd ed. (1970), vol. 13, s. 1537. In the United Kingdom, the decisive turningpointleading to the near eclipse of the subjective theory was probably thespeech of Lord Atkin in Bell v. Lever Brothers Ltd.[1931]UKHL 2; (1932)AC 161, at pp217-227 . In due course, Denning L.J., basing himself on Lord Atkin's speech,formulated a more generalpropositionthan Lord Atkin's comments would, onanalysis, warrant (see Lord Atkin's example of a case where "unilateralmistakeby the sellerof goods will prevent a contract from arising" (1932)AC, at pp 217-218 . In Solle v. Butcher (1950) 1 KB 671, at p691 , DenningL.J. said:

". . . once a contract has been made, that is to say, once the parties,whatever their inmost states of mind, have to all outwardappearances agreedwith sufficient certainty in the same terms on the same subject matter, thenthe contract is good unless and untilit is set aside for failure of somecondition on which the existence of the contract depends, or for fraud, oron some equitableground."

His Lordship then went on to say:

"Neither party can rely on his own mistake to say it was a nullity fromthe beginning, no matter that it was a mistake whichto his mind wasfundamental, and no matter that the other party knew that he was under amistake."

While the mistake in Solle v. Butcher was a mistake of fact which affected theoperation of a formal written contract, it is plainthat the above remarks ofDenning L.J. were intended to extend to a mistake as to the existence orcontent of an actual term of sucha contract. (at p430)

10. In McRae v. Commonwealth Disposals Commission[1951] HCA 79; (1951) 84 CLR 377, at pp407-408 and in Svanosio v. McNamara[1956]HCA 55; (1956) 96 CLR 186,at pp 195-196 , whichwere cases involving formal written contracts, Dixon C.J. and Fullagar J.referredwithapproval to the remarksof Denning L.J. In Svanosio, theirHonours quoted those remarks and continued (1956) 96 CLR, at p 196:

"'Mistake' might, of course, afford a ground on which equity would refusespecific performance of a contract, and there may becases of 'mistake' inwhich it would be so inequitable that a party should be held to his contractthat equity would set it aside.No rule can be laid down a priori as to suchcases: see an article by Professor R. A. Blackburn in Res Judicatae (1955),vol. 7,p. 43. But we would agree with Professor Shatwell (1955) 33 Can BR,at pp 186, 187 that it is difficult to conceive any circumstancesin whichequity could properly give relief by setting aside the contract unless therehas been fraud or misrepresentation or a conditioncan be found expressed orimplied in the contract."

Denning L.J., in Solle v. Butcher, had likewise expressed the view that, inthe absence of fraud or misrepresentation, resort mustbe had to equity toescape from the terms of the contract on the ground of unilateral mistake. (atp430)

11. McRae and Svanosio, like Solle v. Butcher, were not cases involving amistake as to the existence or content of an actual termof the writtencontract. There is, however, nothing in the joint judgments of Dixon C.J. andFullagar J. which would exclude sucha case from their acceptance of thegeneral proposition that neither party to a contract "can rely on his ownmistake to say it wasa nullity from the beginning, no matter that it was amistake which to his mind was fundamental, and no matter that the other partyknew that he was under a mistake" (1950) 1 KB 671, at p 691 . Whether thatproposition should properly be accepted as applying inthe case of an informalcontract or in the case where there is a mistake as to the identity of theother party are questions whichcan be left to another day. It would seem thatit does not apply in a case where the mistake is as to the nature of thecontract.For the present, but not without hesitation (see, e.g., Robert A.Munro & Co. v. Meyer (1930) 2 KB 312, at pp 333-334 ; ChittyonContracts,24th ed. (1977) vol. 1, par. 337; Joscelyne v. Nissen (1970) 2 QB 86, at pp95-97 , we are prepared to accept it asapplicableto a case, such as thepresent, where the mistake is as to the existence or content of an actual termin a formal writtencontract.It therefore becomes necessary to consider thescope of the basis upon which relief in equity is available from thecontractualconsequencesof unilateral mistake. Dixon C.J. and Fullagar J.referred, in the above passage from their judgment in Svanosio, toadifficultyin conceiving circumstances in which equity could properly giverelief by setting aside the contract unless there hadbeen fraudormisrepresentation or a condition could be found expressed or implied in thecontract. Presumably, their Honours werereferringto "fraud" in the wideequitable sense which includes unconscionable dealing. If they were not, we donot share the difficultytowhich they referred. To the contrary, it seems tous that the reported cases, including Solle v. Butcher itself, readily provideconcrete examples of such circumstances. (at p431)

12. In Torrance v. Bolton (1872) LR 8 Ch App 118, at p 124 , James L.J. (withwhom Mellish L.J. agreed) explained the basis uponwhich a contract for salewas set aside in a case of unilateral mistake as being the ordinaryjurisdiction of equity "to deal with"any instrument or other transaction "inwhich the Court is of opinion that it is unconscientious for a person to availhimself ofthe legal advantage which he has obtained". Special circumstanceswill ordinarily need to be shown before it would be unconscientiousfor oneparty to a written contract to enforce it against another party who was undera mistake as to its terms or its subject matter.In Solle v. Butcher (1950) 1KB, at p 692 Denning L.J. gave, as examples of such special circumstances, thecase where the mistakeof the one party has been induced by a materialmisrepresentation of the other and the case where "one party, knowing that theotheris mistaken about the terms of an offer, or the identity of the personby whom it is made, lets him remain under his delusion andconcludes acontract on the mistaken terms instead of pointing out the mistake". InRiverlate Properties Ltd. v. Paul (1975) Ch 133,at p 145 , the English Courtof Appeal accepted that a conveyance which included a building, due to amistake on the part of oneparty which was known to the other party, could berescinded, though rectification in that situation appeared to be a preferableremedy. (See also, as to rectification for unilateral mistake, Thomas Bates &Son Ltd. v. Wyndham's (Lingerie) Ltd.[1980] EWCACiv 3; (1981) 1 WLR505, at pp 514-516;[1980] EWCA Civ 3; (1981)1 All ER 1077, at pp 1085-1086 ) (at p431)

13. In the United States and Canada, the rule that relief from contractualobligations on the ground of unilateral mistake willbe granted whereenforcement of the contract would be unconscionable is well established.Indeed, in those jurisdictions the ruleis expressed to apply to allcontracts, formal and informal, when one party knows or ought to know that theother party is mistaken(see, e.g., McMaster University v. WilcharConstruction Ltd. (1971) 22 DLR (3d) 9, at pp 22 et seq ; Stepps InvestmentsLtd. v. SecurityCapital Corp. Ltd. (1976) 73 DLR (3d) 351, at pp 362-364 ;Corbin on Contracts (1960), vol. 3, s. 608, p. 671; Williston, s. 1573).Ithas been said that the rule applies when one party knows that the other partyis, or might well be, mistaken (Stepps (1976) 73DLR (3d), at p 359 ). Thesame result ensues when one party causes the other party's mistake (Corbin, s.610, p. 692; Coleman v.Holecek[1976] USCA10 158; (1976) 542 F (2d) 532, at pp 535-536 ). And itmatters not that the mistake is, or may be, due to negligence or want of careonthe part of the party who is mistaken when the other party has notmaterially changed his position and third party rights arenotin question (DePaola v. City of New York (1977) 394 NYS (2d) 525, at pp 527-528 ). ProfessorCorbin (s. 610, p. 692) summarizedthe United States position as follows:

"There is practically universal agreement that, if the material mistake ofone party was caused by the other, either purposelyor innocently, or wasknown to him, or was of such character and accompanied by such circumstancesthat he had reason to know ofit, the mistaken party has a right torescission." (at p432)

14. The particular proposition of law which we see as appropriate andadequate for disposing of the present appeal may be narrowlystated. It isthat a party who has entered into a written contract under a serious mistakeabout its contents in relation to a fundamentalterm will be entitled inequity to an order rescinding the contract if the other party is aware thatcircumstances exist which indicatethat the first party is entering thecontract under some serious mistake or misapprehension about either thecontent or subject matterof that term and deliberately sets out to ensurethat the first party does not become aware of the existence of his mistake ormisapprehension.What we have said is sufficient to demonstrate the broadbasis of support which the authorities provide for that proposition. Moreover,and perhaps more importantly, it is a principle which is best calculated to dojustice between the parties to a contract in the situationwhich itcontemplates. In such a situation it is unfair that the mistaken party shouldbe held to the written contract by the otherparty whose lack of preciseknowledge of the first party's actual mistake proceeds from wilful ignorancebecause, knowing or havingreason to know that there is some mistake ormisapprehension, he engages deliberately in a course of conduct which isdesigned toinhibit discovery of it. Our comment can, for present purposes, belimited in its application to the case where the second partyhas notmaterially altered his position and the rights of strangers have notintervened. (at p433)

15. Applying the above-mentioned principle to the present case, it isapparent that the appeal must fail. It is now common groundbetween theparties that, at the time she signed both option and contract, Mrs. Johnsonmistakenly believed that the relevant documentstipulated that the purchaseprice was $15,000 per acre whereas the stipulated purchase price was $15,000in total. The stipulationas to price was plainly a fundamental term of thecontract (see Webster v. Cecil[1861] EngR 751; (1861) 30 Beav 62 (54 ER 812) ; Garrard v.Frankel[1862] EngR 371; (1862) 30 Beav 445 (54 ER 961) ; Hartog v. Colin & Shields (1939) 3All ER 566 ). As we have already indicated, we are of theviewthat the properinference to be drawn from the evidence is that, both at the time when Mrs.Johnson executed the option andat thetime when she executed the contract,Mr. Taylor believed that she was under some serious mistake or misapprehensionabouteitherthe terms (the price) or the subject matter (its value) of therelevant transaction. The avoidance of mention of the purchasepriceafter the"idle curiosity" conversation and the circumstances in which Mr. Taylorprocured the execution of the option, includinghis wrong statement that hedid not have a copy of the option which he could make available to Mrs.Johnson, lead, in our view, plainlyto the inference that he deliberately setout to ensure that Mrs. Johnson did not become aware that she was beinginduced to grantthe option and, subsequently, to enter into the contract bysome material mistake or misapprehension as to its terms or subject matter.(at p433)

16. It should be mentioned that it was not suggested on behalf of theappellants that, in the event they failed on the appeal, theorder of theCourt of Appeal should be varied by allowing the purchasers under the contractan option to have the contract rectifiedto stipulate a price of $15,000 peracre. (at p433)

17. The appeal should be dismissed with costs. (at p433)

DAWSON J. This appeal is brought against a judgment of the Court of Appeal ofthe Supreme Court of New South Wales setting aside ordersmade by the judge atfirst instance for the specific performance of a contract for the sale of landby the respondent to the appellants.The Court of Appeal set aside thecontract of sale. (at p434)

2. The land which the respondent, Mrs. Johnson, contracted to sell to thesecond and third appellants comprised two lots numbered3 and 4 on a plan ofsubdivision of land on the outskirts of Windsor in New South Wales. A halfinterest in the land had been leftto Mrs. Johnson in 1965 by a friend, theother half interest being left to the friend's brother. Mrs. Johnson hadbought out thebrother at auction and had then subdivided the land into tenallotments, each comprising approximately five acres. The land is, andhasbeen since 1973, zoned "non-urban 1B" under the Windsor Planning Scheme, savefor a small part at the rear which abuts on tothe land zoned as industrialand which is itself zoned "industrial 1A". Under the non-urban zoning, theland can only be used forgeneral agricultural purposes. Mrs. Johnson had by1969 sold at a considerable profit all of the allotments except for lots 1, 3and 4 and lot 10, which was apparently created to accommodate proposals forroad widening or realignment. Late in 1972, Mrs. Johnsonplaced lots 3 and 4on the market. For a time they did not sell, but after some negotiationsbetween Mrs. Johnson's husband and thefirst appellant, Mr. Taylor, on 27March 1975, Mrs. Johnson signed a form of agreement granting an option toTaylor or his nomineeto purchase lots 3 and 4 for the sum of $15,000, theoption being exercisable on or before 16 April 1975. The option was exercisedby Taylor on 14 April 1975 and Mrs. Johnson signed a contract of sale inaccordance with the option, the purchasers nominated byTaylor being thesecond and third appellants, who were his adult daughter and son respectively.Contracts were exchanged on about8 May 1975. On 20 May 1975, Mrs. Johnson'ssolicitors telephoned Taylor's solicitors saying that the option and thecontract hadbeen incorrectly drawn to show a purchase price of $15,000,whereas the agreed sale price was $15,000 per acre. This telephoneconversationwas confirmed by Mrs. Johnson's solicitors in a letter thefollowing day asking that the contract of sale be amended or a fresh contractsubstituted. In a letter from his solicitors dated 26 May 1975, Taylor deniedthat there was ever an agreement for a sale at $15,000per acre and reliedupon the option and the contract for sale as exchanged. Proceedings werecommenced, on the one hand by the secondand third appellants against therespondent, claiming specific performance of the contract or, alternatively,damages and, on theother hand, by the respondent against all threeappellants, claiming rectification of the option agreement and the contractor, alternatively,an order that the contract be set aside. There were alsoproceedings by the respondent against the second and third appellants seekingthe removal of a caveat which had been lodged by them. The claim forrectification was not pursued. (at p435)

3. All proceedings were heard together by the trial judge sitting alone. Thebasis upon which the respondent, Mrs. Johnson, puther case was that at alltimes she had intended to sell the land for $15,000 per acre and that thisintention was made known to thefirst appellant, Taylor, through her husbandwho negotiated the sale with him. Since the two allotments contained a littleover tenacres, the price for which Mrs. Johnson said she intended to sellthem was not $15,000 but in excess of $150,000. She said that shedid not readeither the option agreement or the contract before she signed them and thatshe signed them in the belief that the purchaseprice shown was not $15,000,but $15,000 per acre. The reason given by her for not reading the optionagreement was that she didnot have with her the appropriate glasses. Herhusband, who was present but also said he did not read the option agreement,gavea similar reason for not having done so. (at p435)

4. Taylor, on the other hand, said that the only purchase price mentioned inthe negotiations between Johnson and him was $15,000and this was the pricewhich he agreed to pay. He said that the option agreement, which was drawn byhim and signed in his presence,was read or apparently read by Mrs. Johnsonand her husband and set out the agreed price. The contract of sale wasprepared by Mrs.Johnson's solicitors in accordance with the option agreement.(at p435)

5. The trial judge found that Johnson had conveyed an offer of $15,000 peracre but that Taylor believed that the full price was$15,000. He found thatwhen the option agreement was handed to them to read, neither Johnson nor Mrs.Johnson in fact read it andthat when Mrs. Johnson signed the contract she didso not having read it or not having read it carefully and in the belief thatitprovided for a purchase price of $15,000 per acre. It was, as the trialjudge held, a case in which each party was mutually mistakenas to the other'sintention, although any mistake as to the contents of the option agreement wasunilateral, being only on the partof Mrs. Johnson. (at p435)

6. The Court of Appeal rejected the finding of the trial judge that at thetime the option agreement was signed Taylor believedthat the land was beingoffered for sale at a full price of $15,000. There can be no doubt that hisHonour so found, because he specificallyfound that Taylor had such a beliefat the time the offer was conveyed to him and it was common ground that pricewas never thereaftermentioned in the negotiations. Rejecting this findingmeant rejecting evidence, significantly that of Taylor, which had beenacceptedby the trial judge. The Court of Appeal not having had the advantageof seeing and hearing the witnesses give their evidence, itwas an unusualstep for them to take in a case involving a dispute as to facts which couldonly be resolved by believing or disbelievingthe evidence of some or other ofthe witnesses in whole or in part. It was a step which could hardly besupported were it not fora remark made by the trial judge in the course ofhis judgment. His Honour said:

"Save that, on one occasion . . . I felt obliged to point out to MrJohnson that apparent inconsistencies in his evidence mightlead to theimpression that he was less careful than he might be in giving his evidence,there was nothing in the demeanour of anyof the witnesses which would leadone to conclude that any of them was doing other than endeavouring, to thebest of his or her abilityand recollection, to tell the truth. I am thusleft to determine the matter upon the balance of the probabilities."

The Court of Appeal took the view that:

"This statement frees this court from one of the inhibitions placed onan appellate tribunal in respect of findings offact and we are able toevaluate evidence in the light of probabilities and unquestioned facts andto draw inferences or declineto do so without the fear and reservation thatseeing and hearing the witnesses would have produced a different answer."(at p436)

7. But this is to carry what was said by the trial judge too far. Hisconclusion that there was nothing in the demeanour of anyof the witnesseswhich would lead him to conclude that any of them was doing other thanendeavouring, to the best of his or her abilityand recollection, to tell thetruth does not, as the Court of Appeal appeared to have decided, mean that thedemeanour of the witnesseswas therefore irrelevant in determining the factsupon the balance of probabilities. The fact that no evidence could be rejectedupon the ground that the witness was apparently untruthful meant that factualissues could not be determined by reference to demeanouron its own. This canonly have been what the trial judge had in mind when he said he was left todetermine the matter on the balanceof probabilities. It did not follow thatit was then permissible to construct a version of events which wasinconsistent with theevidence given by the witnesses on one side, involvingthe conclusion that one party was not telling the truth and that the otherwas, without taking into account the apparently truthful demeanour of thewitnesses on both sides. The fact that all the witnesseswere apparentlytruthful did not, as it were, cancel demeanour on both sides out or reduce itto an irrelevance in the determinationof issues of fact, particularly wherethere was a possible version of the facts, such as that found by the trialjudge, which wasconsistent with the finding that all witnesses wereapparently truthful. The trial judge, in saying what he did, was indicatingthathe was unable to decide the case by rejecting the evidence of a witnessor witnesses. That did not mean that the truthful demeanourof the witnesseswas not then to be taken into account in reaching a conclusion on the balanceof probabilities. Even having regardto what was said by the trial judge, inmy view it was entirely inconsistent with accepted principle for the Court ofAppeal to haveconcluded, as in effect it did, that one of the parties wasuntrustworthy in his dealings and untruthful in his evidence, withouthavingseen or heard him and without regard to the fact that the trial judge foundthat he gave the appearance of a truthful witness.That finding of the trialjudge was entitled to weight and it is apparent that the Court of Appeal gaveit none. (at p437)

8. What it did was to construct a version of events for itself from theevidence which it regarded as the more probable entirelywithout regard to,indeed inconsistently with, the finding of the trial judge as to the demeanourof the witnesses, particularlyTaylor. In order to appreciate this it isnecessary to refer to some of the evidence in more detail. (at p437)

9. The respondent, Mrs. Johnson, is a woman in her sixties who, together withher husband, had a farming background. Although theirformal education waslimited, they were found by the trial judge to lack neither intelligence norbusiness experience. In particular,the manner in which Mrs. Johnson, with thehelp of her husband, had dealt profitably with the land at Windsor, of whichthe lotsin question were part, demonstrated in the view of the trial judgethat she was quite an acute woman who was not unacquainted withdealings inreal property, matters of finance and the use of the services of a solicitor.It is of relevance to note that the demeanourof Mrs. Johnson was clearlysomething which greatly assisted the trial judge in concluding, as he did,that she was a woman of somecapability in business matters. This alone shouldhave made it apparent that the trial judge did not reach his conclusions ontheprobabilities without regard to the demeanour of the parties. (at p437)

10. The first appellant, Taylor, is a businessman in his late fifties orearly sixties. He had for some years conducted a producemerchant's businesswith a branch at Windsor and subsequently established and took over theconduct, through several companies anda partnership, of the business ofHawkesbury Valley Motors, which involved the sale and servicing of motorvehicles. The premisesupon which the business was conducted were in the maincommercial centre of Windsor and had become inadequate for the developmentofthe business. About the end of 1972, through one or other of the companiesassociated with Hawkesbury Valley Motors, he had purchaseda block of landabout 1,000 yards to the west of, and closer to Windsor than, lots 3 and 4 inthe Johnson subdivision. This landwas lot 174, presumably on another plan ofsubdivision, and was also zoned as non-urban. An amendment to the planningscheme, whichwould have converted non-urban land to industrial land and wouldhave allowed this land to be used for the purposes of the business,wasproposed by the Windsor Municipal Council but was rejected by the StatePlanning Authority in 1973 or 1974. Another proposalwas submitted by theCouncil to convert non-urban land to industrial land in 1974. This proposaldid not include lot 174 but it didinclude lots 3 and 4 on the Johnson plan ofsubdivision. This proposal was also ultimately rejected but the fate of theproposalwas unknown at the time the option agreement and contract of sale inrespect of lots 3 and 4 were executed. (at p438)

11. There was also a main road deviation which had been proposed by theDepartment of Main Roads which would have bisected lot 174.This may or maynot have been known to Taylor at the time the option agreement was executed in1975. (at p438)

12. The total market value of lots 3 and 4 at the time the option agreementwas signed in 1975 was, according to one valuer calledas a witness, $50,000and, according to another, $57,500. One of the valuers gave evidence that hadthe land been zoned to enablea "motor orientated" business to be carried onupon it, the market value would have been $195,000. (at p438)

13. It was against this background that the Court of Appeal reached a numberof conclusions adverse to the appellants which, itheld, justified it insubstituting its own findings for the findings of the trial judge. (at p438)

14. The Court of Appeal rejected the evidence of Taylor and found that heknew at all times that Johnson intented to offer his wife'sland for sale at aprice of $15,000 per acre rather than a full price of $15,000. Of course, thestate of Taylor's mind at the timethe option agreement was signed and at thetime contracts were exchanged was crucial. The Court of Appeal reached itsconclusionby an elaborate analysis of the evidence and by constructing aversion of events which involved Taylor not only in fraudulent courseofconduct in relation to the acquisition of the land from the Johnsons, but alsoin prevarication in the negotiations which tookplace and subsequently in thewitness box. In short, the Court of Appeal took the view that Taylor, despitehis assertions to thecontrary, had a particular interest in acquiring land inthe vicinity of lots 3 and 4. This, it was said, was because he wished toacquire a site for his business on the outskirts of Windsor, the existing sitein the heart of the commercial area having becomeunsuitable for its needs.Lot 174 was zoned non-urban and attempts to have it rezoned to allow it to beused for the purposes ofthe business had been unsuccessful. Moreover, so theCourt of Appeal found, the proposed deviation of Windsor Road so as to bisectthat lot was known to Taylor at the time he was negotiating to purchase landfrom Mrs. Johnson and, apart from the zoning, renderedthat site unsuitable asa place to relocate the business. There was, however, the second applicationfor rezoning which covered Mrs.Johnson's land which would, if successful,have made that land suitable for the relocation of Hawkesbury Valley Motors.Accordingto the Court of Appeal, Taylor believed that the outcome of thatapplication was likely to be successful. The Court of Appeal foundthat thereason given by Taylor to the Johnsons for wanting an option was specious. Hehad told the Johnsons that he wanted it todemonstrate his interest in theland to the local Council. The Court of Appeal concluded that even after Mrs.Johnson signed theoption agreement, Taylor did not believe that she intendedto sell the land for $15,000 and that this belief extended to the timeatwhich the contracts were exchanged. For this reason, so the Court of Appealconcluded, Taylor did not give the Johnsons a copyof the option agreement sothat the mistake could be concealed from them for as long as possible and forthe same reason had a documentconstituting the exercise of the optiondelivered by the Johnsons to their solicitor in a sealed envelope. (at p439)

15. The findings of the Court of Appeal carried with them the clearimplication that Taylor was dishonest in his dealings with theJohnsons and ingiving evidence before the trial judge. The trial judge on the other hand hadnot been prepared to find that Tayloracted dishonestly in negotiating for theacquisition of the Johnsons' land or in giving evidence before him.Accordingly, as I havesaid, the trial judge held that at all relevant timesTaylor believed that the full price of the land was $15,000. (at p439)

16. It is, I think, hardly possible that the trial judge in determining whichcomplexion to place upon the evidence failed to haveregard to the honestdemeanour of Taylor. His conclusions indicate that he did. The events whichthe Court of Appeal regarded asdemonstrating dishonesty did not necessarilylead to that conclusion. Moreover, that conclusion leaves unsatisfactorilyexplainedcircumstances which point in the opposite direction. (at p440)

17. The fact that the price of $15,000 for the land was clearly set out inthe option agreement and that both Mr. and Mrs. Johnsonwere given fullopportunity to read that agreement before signing it is inconsistent with anytrickery on the part of Taylor. Hecould hardly have anticipated that theJohnsons would be unable to read the document without their glasses and cannothave knownat the time that Mrs. Johnson, at least, did not read it. (at p440)

18. It does not necessarily follow that the need of Hawkesbury Valley Motorsfor another site for its business meant that Taylorwas anxious at therelevant time to acquire land from the Johnsons. He gave evidence that thebusiness was experiencing liquidityproblems and there was nothing to point tothe contrary. Moreover, the land was ultimately acquired not by Taylor himselfor thepartnership or companies associated with the business, but by Taylor'sadult children. It was not an inescapable conclusion thatTaylor was aware ofthe true value of the Johnsons' land. His business was motor cars, not dealingin land, and the acquisition ofland nearly two years previously would havebeen no sure guide to value. Cleary, $15,000 appeared at the time, as Taylorconceded,to be a bargain price but, as events turned out, it was a great dealcloser to the true value of the land than the quite inflatedvalue placed uponit by the Johnsons. It was not such a price as pointed necessarily to amistake on the part of the Johnsons, particularlyto a person not expert inthe valuation of land. The fact that price was not mentioned by Taylor or theJohnsons after an initialconversation is not surprising. If each thought thathe or she had secured an advantageous price it would be unlikely that pricewould be raised again. It may have been that Taylor thought it necessary tohave an option to demonstrate to the local Council hisinterest in lots 3 and4; he was, shortly after the option agreement was signed, in touch with theCouncil about the future of theland. The fact that Taylor did not give theJohnsons a copy of the option and placed the exercise of the option in asealed envelopecarried no inevitably unfavourable implications. On any viewof the evidence the Johnsons appeared to have read the option agreementbeforesigning it and, in any event, its contents could hardly be kept secret for anylength of time. The document exercising theoption contained no reference toprice and it would have made no difference whether the Johnsons had read it ornot. (at p440)

19. The circumstances regarded by the Court of Appeal as leading to theconclusion that, to use their term, Taylor dissembled ingiving his evidencemay be regarded as pointing in the other direction. Had he been constructing astory it would have been moreconvincing to have expressed strong interest inthe acquisition of Mrs. Johnsons's land for the purposes of the business atthe cheapestavailable price. Even if Taylor were anxious to acquire the land,that would not have compelled any conclusion upon the crucial issue,namely,Taylor's belief as to the price of the land at the time the option agreementwas signed. Nevertheless it would have beenmore understandable and lesslikely to arouse criticism than the evidence which he did give. (at p441)

20. Indeed none of the circumstances relied upon by the Court of Appealcompelled any conclusion upon that crucial issue. The factthat the trialjudge believed Taylor's evidence upon the matter makes it clear beyondquestion, in my view, that he accepted himas a credible witness. OnceTaylor's credibility was accepted, then that of itself dictated the complexionto be placed upon anyequivocal circumstances surrounding the signing of theoption agreement. No doubt it is possible, as the Court of Appeal did, toreach a conclusion adverse to Taylor by placing an interpretation upon thesurrounding circumstances without otherwise determiningwhether Taylor was acredible witness. But that is not what the trial judge did. He believed Taylorupon the crucial issue and didso having formed the view that, having seen andheard him, there was nothing which would indicate that he was an untruthfulwitness.The Court of Appeal reached its conclusion in disregard of the factthat the trial judge believed the evidence of Taylor as to hisstate of mindat the time the option agreement was signed and in so doing took, in my view,an impermissible course. As was saidby Lord Atkin in Powell v. StreathamManor Nursing Home (1935) AC 243, at p 255 :

"In cases which turn on the conflicting testimony of witnesses and thebelief to be reposed in them an appellate Court can neverrecapture theinitial advantage of the judge who saw and believed." (at p441)

21. The manner in which an appellate court is to deal with facts found by ajudge sitting alone at first instance was recently dealtwith by this Court inWarren v. Coombes[1979] HCA 9; (1979) 142 CLR 531 where the authorities are reviewed. Themajority (GibbsA.C.J., Jacobsand Murphy JJ.) said (1979) 142 CLR, atp 551 :

"Shortly expressed, the established principles are, we think, that ingeneral an appellate court is in as good a position asthe trial judge todecide on the proper inference to be drawn from facts which are undisputedor which, having been disputed, areestablished by the findings of the trialjudge. In deciding what is the proper inference to be drawn, the appellatecourt will giverespect and weight to the conclusion of the trial judge,but, once having reached its own conclusion, will not shrink from givingeffect to it."

And they said (1979) 142 CLR, at p 552 :

"The duty of the appellate court is to decide the case - the facts aswell as the law - for itself. In so doing it mustrecognize the advantagesenjoyed by the judge who conducted the trial. But if the judges of appealconsider that in the circumstancesthe trial judge was in no better positionto decide the particular question than they are themselves, or if, aftergiving full weightto his decision, they consider that it was wrong, theymust discharge their duty and give effect to their own judgment."

There is nothing in these passages to warrant the course taken by theCourt of Appeal. The finding of the Court of Appealon the state ofTaylor's mind at the time he signed the option agreement, which was thebasis upon which the appeal to theCourt of Appeal was upheld, was not amatter of inference from undisputed facts. It was not a matter ofinference from facts established by the findings of the trial judge.Indeed, the findings of the trial judge were for the most part to thecontraryof those of the Court of Appeal. The Court of Appeal gave norecognition to the advantages enjoyed by the trial judge inreaching hisconclusion that Taylor was a credible witness. The circumstances in whichan appellate court is unimpeded by the findings of a judge sitting aloneat first instance in making its own findings of fact are succinctly setout by Isaacs J.in Webb v. Bloch[1928] HCA 50; (1928) 41 CLR 331 . In that case, inwhich the plaintiff sued in this Court for damagesfor libel, the FullCourt, on appeal,reversed the decision of Starke J. sitting without ajury and imputed malice to the defendants.But thatwas a case, as IsaacsJ. (1928) 41 CLR, at pp 359-360 pointed out, in which:

"Nothing turns on credibility, on demeanour of witnesses, or any otheradvantage possessed by the learned trial judge. Thereare no disputedevidentiary facts: the only questions of fact for determination are to bearrived at solely by inferences equallyopen to the appeal Court as to theprimary tribunal." (at p442)

22. This is a very different case. The credibility of the witnesses, moreimportantly the appellant Taylor, was significant. Notonly was it appropriatethat the circumstances in which the relevant transaction took place should bedetermined having regard tothe demeanour, albeit entirely truthful demeanour,of all the witnesses, including Taylor, but it was also appropriate that anyinferencesto be drawn from those circumstances should be similarlydetermined. There is nothing to indicate that the trial judge took any othercourse. Upon one approach, as the Court of Appeal demonstrated, it waspossible to construct a version of the facts which renderedthe appellantTaylor guilty of at least sharp practice, if not fraudulent conduct, in takingadvantage of an innocent mistake onthe part of the Johnsons. But this versionwas not possible if Taylor was to be believed in the essential aspects of hisevidence.And he was believed in these matters by the trial judge who saw andheard him give evidence. It is not possible, to my mind, consistentlywithestablished principle, for the Court of Appeal to have rejected the view ofthe trial judge when it had neither seen nor heardthe witnesses. No doubtthere may be rare cases where an appellate court will be justified inrejecting facts found by a trial judgewhere credibility is involved. But insuch cases it would need to be demonstrable that the trial judge's belief ofthe relevant witnessescould not be well founded. This is not such a case. (atp443)

23. Accepting, as I think the Court of Appeal ought to have done, the findingof the trial judge that Taylor's belief at the timethe option agreement wassigned and, a fortiori, at the time the contracts were exchanged, was that itwas the intention of the Johnsonsto sell the two lots in question for thefull price of $15,000, there is little room for debate as to the legalconsequences whichfollow. The Johnsons having intended to sell the land for$15,000 per acre, as the trial judge also found, the case was indeed oneofmutual mistake in the sense that each of the parties to the bargain mistookthe intention of the other. That did not prevent theformation of a contract.The option and the sale being in writing, there was sufficient evidence ofagreement. In a case with notdissimilar features, Goldsborough, Mort & Co.Ltd. v. Quinn[1910] HCA 20; (1910) 10 CLR 674, at pp 695-696 , Isaacs J. expressedtheproper approachas follows:

"Therefore the respondent's mistake, however he understood the terms heoutwardly approved, and assuming the mistake to bebona fide, must have beendue to his own want of care or reflection, in other words to his ownnegligence, and he is not to be allowedto impeach it to the prejudice ofthe other contracting party simply because he did mistake it. In such a casehis mind must be judgedby the external manifestation, which he put forwardas the true index of his mental condition, and on the faith of which theotherparty acted to their own detriment, and to the benefit of therespondent."

See also Slee v. Warke[1949] HCA 57; (1949) 86 CLR 271 . (at p444)

24. Moreover, in the case of a written agreement, the parties are bound bythe words which they have used, and, if there is a dispute,whateverinterpretation may ultimately be given to them by a court notwithstanding anybelief the parties may themselves have heldas to their meaning. See Stewartv. Kennedy (1890) 15 App Cas 108, at p 123 , per Lord Watson. The necessityfor certainty in commercialdealings requires such an approach. Nor willequity intervene to enable rescission of a contract involving a mistakenintention byone party unknown to the other except in circumstances involvingunconscionable dealing by that other. Mistake is not of itself aground forthe rescission of a contract. The Court of Appeal in Riverlate Properties Ltd.v. Paul (1975) Ch 133, at p 140 answeredits own questions in the negativewhen it asked:

"Is the lessor entitled to rescission of the lease on the mere groundthat it made a serious mistake in the drafting ofthe lease which it putforward and subsequently executed, when (a) the lessee did not share themistake, (b) the lessee didnot know that the document did not give effectto the lessor's intention, and (c) the mistake of the lessor was in no wayattributableto anything said or done by the lessee?" (at p444)

25. Fraud, misrepresentation or, perhaps, sharp practice falling short ofactual fraud (see Riverlate Properties Ltd. v. Paul) willsuffice as a basisfor rescission in the eyes of equity but, given the finding of the trial judgein this case, there is nothingin the conduct of the appellant Taylor uponwhich such relief could be supported. (at p444)

26. It was submitted on behalf of the respondent that where each of theparties to an alleged agreement is mistaken as to the other'sintention, therecan be no consensus and no contract, subject to one or other of the partiesbeing estopped from denying the existenceof a contract. Such an approachseems to involve the notion of unanimity of mind being ascertainable as anabsolute rather than asa conclusion to be drawn from what the parties saidand did. Nevertheless, there are echoes of that notion in some of the cases.In Smith v. Hughes (1871) 6 QB 597, at p 607 , Blackburn J. said:

"I apprehend that if one of the parties intends to make a contract on oneset of terms, and the other intends to make a contracton another set ofterms, or, as it is sometimes expressed, if the parties are not ad idem,there is no contract, unless the circumstancesare such as to preclude oneof the parties from denying that he has agreed to the terms of the other.The rule of law is that statedin Freeman v. Cooke[1848] EngR 687; (1848) 2 Ex 654, at p 663[1848] EngR 687; (154 ER 652, at p 656); 18 LJ (Ex), at p 119 . If, whatever a man's realintentionmay be, he so conducts himself that a reasonableman would believethat he was assenting to the terms proposed by the other party,and thatother party upon that belief enters intothe contract with him, the man thusconducting himself would be equally bound asif he had intended to agree tothe other party'sterms."

The passage referred to in Freeman v. Cooke[1848] EngR 687; (1848) 2 Ex 654, at p 663 (154 ER652, at p 656) , is from the judgment of Parke B. whosays:

" . . . and if whatever a man's real intention may be, he so conductshimself that a reasonable man would take the representationto be true, andbelieve that it was meant that he should act upon it, and did act upon it astrue, the party making the representationwould be equally precluded fromcontesting its truth . . . "

In Williams on Vendor and Purchaser, 2nd ed. (1910), vol. 1, p. 750, and insubsequent editions, the view is expressed that:

" . . . the rule requiring true consent of the parties to a contract ismodified by the operation of the general rule of lawthat every man is takento intend the natural and reasonable consequences of his own overt acts,including his spoken or writtenwords; he is estopped from showing that whathe really intended was something different from what a man of ordinaryintelligencewould naturally and reasonably infer from those acts or words."

See also Lee v. Ah Gee[1920] VicLawRp 58; (1920) VLR 278 . (at p445)

27. Recognition is, however, given by Williams (see note (i)) to the contraryview that the law has no concern at all with the realintention of the partiesto a contract, but can only regard the intention which they have outwardlymanifested. The latter view findsclear expression in the cases (seeGoldsbrough, Mort & Co. Ltd. v. Quinn[1910] HCA 20; (1910) 10 CLR 674 ), and has aparticularapplication wherethere is a signed agreement, for, as Mellish L.J.points out in Parkerv. South Eastern Railway Co. (1877) 2 CPD416, at p 421 :

"In an ordinary case, where an action is brought on a written agreementwhich is signed by the defendant, the agreement is provedby proving hissignature, and, in the absence of fraud, it is wholly immaterial that he hasnot read the agreement and does not knowits contents."

See also L'Estrange v. F. Graucob Ltd. (1934) 2 KB 394 ; Life Insurance Co. ofAustralia Ltd. v. Phillips[1925] HCA 18; (1925)36 CLR 60, at pp76 et seq . (at p446)

28. It appears that the view propounded by Williams has failed to gainacceptance but it is unnecessary in this case to pursue thatquestion becauseeven upon the hypothesis that the law requires true consent for the formationof a contract, it is accepted thatif a party seeking to rely upon a mistakehas so conducted himself that it is a reasonable conclusion that he has boundhimself contractuallyin a particular manner, he is estopped from showing thathis intention was otherwise. In this case, accepting that Taylor believedatthe time the option agreement was signed and the parts of the contract of salewere exchanged that Mrs. Johnson intended to sellthe land for $15,000, therewas no fraud, no misrepresentation and no sharp practice on his part. Moreoverthe only reasonable conclusionto be drawn from Mrs. Johnson's signature ofthe option agreement, which was unambiguously expressed and which sheapparently read,was, as the trial judge found, that she intended to be boundby its terms and by the terms of the contract of sale which she subsequentlysigned. (at p446)

29. Nor does it appear that this is a case in which specific performance ofthe contract ought to be refused. In order to justifythe refusal therespondent would, upon general principles, have to show some hardshipamounting to injustice so that it would beunreasonable to hold her to thecontract. See Tamplin v. James (1880) 15 Ch D 215 ; Preston v. Luck (1884) 27Ch D 497 1 Goldsbrough,Mort & Co. Ltd. v. Quinn[1910] HCA 20; (1910) 10 CLR 674 ; Gall v.Mitchell[1924] HCA 48; (1924) 35 CLR 222 ; Slee v. Warke[1949] HCA 57; (1949) 86 CLR 271 ; Fragomeni v.Fogliani (1968) 42 ALJR 263 . But the land which was the subject of thecontracthad no specialvalue to the respondent; it was itsworth in moneywhich was of importance to her and having regard to her liabilityin damagesifspecific performance were refused,it could hardly be said to beunreasonable that she should be ordered to performthe contract.In so far asthere is any indicationof the present value of the land, it appears that itis not anything like thevalue which therespondent placed upon it at the timeshe entered into the contract and may be less, having regard to its unalteredzoning, thanthe valuation placed upon it in evidenceduring the case. (atp446)

30. For these reasons I would allow the appeal. (at p446)

ORDER