Can a typo cost you millions?

In short, yes.

Computers, workflows, practice management systems and greater access to precedents with boilerplate clauses has no doubt, in the majority, created greater efficiency and fewer errors in producing documents and enabled parties to gauge what is industry standard in their contractual dealings and terms.

However, with the ever-increasing reliance on computers and precedents, there is also the unfortunate negative aspect of blindly relying on precedents or systems to get things correct. Time and time again we see documents that are used regularly by clients and practitioners that have typographical errors in them – for example:

1. “The [landlord] must pay the rent to the [tenant]”. Pretty sure the landlord would not be happy to pay the tenant’s rent.
2. “The parties are to make an adjustment of the purchase price to satisfy the outstanding [rats] at settlement.” Hmm…. whilst the rats may be outstanding, one would think they meant “rates”.
3. “Interest on your home loan is calculated at [35]% per annum for the 300 [year] term of the loan.” When they meant it to be 3.5% per annum for a 300 month term.
4. “This contract is subject and conditional upon the preconditions of Clause [9.32] being satisfied in full.” However, there is no Clause 9.32 because a preceding sub-paragraph was deleted and the formatting went awry.

In contract, you start with interpreting the contract literally. As you can see from the above examples this could cause some adverse, unfair or absurd outcomes. You would usually have the party who wants to get out of the contract or obligation open their argument with “Well, that is what the contract says, so, tough luck.”

Can I fix it, if the other side won’t agree to it? 

The literal interpretation of a clause and contract is only the starting point for the Courts at law and equity. There are various common law and equitable (mistake, non est factum, misrepresentation, misleading and deceptive conduct, proprietary estoppel, rectification, etc.) and legislative avenues which can be used to set aside and, in some circumstances, re-write certain “unfair contract terms” (Australian Consumer Law) or limit a clause (National Credit Code prohibits interest greater than 48%).

Obviously, you do not want to be relying on such avenues and the ideal thing is to get the contract correct in the first place. However, all is not lost if you made an error, the Court could provide relief by rectifying the error.

Rectification

Justice Leeming in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) [2019] NSWCA 11 provided an excellent summary of “rectification by construction” and “rectification in equity”.

At common law the court has an inherent power “if the error is clear, and it is also clear what a reasonable person would have understood the parties to have meant, then the mistake may be corrected as a matter of construction.” However, two conditions are necessary in order to correct the contractual language in this manner:

1. that the literal meaning of the contractual words is an absurdity; and
2. that it is self‐evident what the objective intention is to be taken to have been.

If you cannot clearly satisfy these two conditions then you may be able to rely on the “rectification in equity”.

Justice Leeming conveyed that “In Australia, a contract may be rectified in equity where it is shown that there was at the time the document was executed, a common intention which, through a common mistake, was not reflected in the document.”

However, in order to be afforded relief via equity, a high standard of proof must be achieved to show a common intention. This high standard of proof requirement is to allay concerns that equity may undermine the integrity of written agreements.

The rectification doctrines at law and in equity may appear similar but remain conceptually distinct and there are some very large obstacles in terms of which one you can rely upon (e.g. limitation on certain courts to issue equitable relief, admissibility of evidence in equity but nor at common law, etc.)

Conclusion

So, make sure you do not blindly rely upon your precedents and cut and paste away, or think “near enough is good enough”. If they are wrong, then you may have an avenue to rectify the error.

However, the following case is a reminder of where, even the most trivial of mistakes can cost you millions.

In a decision of the NSW Supreme Court (OneSteel Manufacturing Pty Ltd v Alleasing Pty Ltd), Alleasing was the owner of mining equipment (worth over $23M) and leased such items to OneSteel. Alleasing registered its interest as owner on the PPS Register by using the ABN of OneSteel (11 digits) as opposed to the ACN of OneSteel (9 digits). Unfortunately, the PPS Act provided that a PPS registration over a company should use the ACN identifier on the PPS register.

OneSteel then went into liquidation and the liquidator successfully argued that PPS registration was defective and that the $23M+ of equipment owned by Alleasing then vested in the liquidation of OneSteel. A perfect example of where 2 digits can cost you millions – so, make sure you pay attention to the detail, for sometimes, errors cannot be fixed.

Queries

For further information please contact the author, or any member of our Corporate & Commercial team.

Disclaimer

This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.