McLachlan v Sydney Trains

1. [1]

   Before the Court is a claim for specific performance. The plaintiff alleges that he has accepted an offer from his former employer to settle his workers’ compensation claim. He seeks an order compelling the execution by the employer of a formal settlement agreement.

2. [2]

   The plaintiff, Timothy Edward McLachlan, was employed by the defendant, Sydney Trains (“ST”), from 1995 to 2018. He worked as a train driver. His workers’ compensation claim concerns post-traumatic stress disorder (“PTSD”) as a result of experiences he had in the course of his work.

Issues for determination

1. [3]

   Mr McLachlan’s claim is based on an offer of settlement made by ST’s solicitors in the course of correspondence in January 2020. His contention is that his solicitors accepted that offer and the Court should decree specific performance, requiring ST to execute a formal settlement agreement.

2. [4]

   ST has two defences. First, ST contends that the offer was never accepted. Secondly, ST alleges that the offer was based on a mistake of which Mr McLachlan’s solicitors were aware or ought to have been aware. If, contrary to ST’s first contention, there was a valid contract at law between the parties, ST by cross-claim seeks to be relieved from that contract in equity.

Statutory context and chronology of key events

1. [5]

   Claims for statutory compensation in New South Wales are governed mainly by the Workers Compensation Act 1987 (NSW) (“WCA”) and the Workplace Injury Management and Workers Compensation Act 1998 (NSW) (“WIM”). Under the scheme, the extent to which a person is entitled to compensation or damages is dependent on their degree of permanent impairment or “whole person impairment” (“WPI”).

2. [6]

   WCA, s 66(1) establishes an entitlement to lump sum compensation for permanent impairment. The amount of compensation is calculated using the formulas in s 66(2) and directly corresponds with the degree of WPI. Only one claim for lump sum compensation under the WCA can be made for any particular injury: see s 66(1A).

3. [7]

   The critical threshold for compensation in claims involving psychiatric injuries is 15% WPI. No compensation is payable if the degree of impairment does not reach that threshold: see WCA, s 65A(3).

4. [8]

   Permanent impairment is assessed by independent medical assessors who are registered with the State Insurance Regulatory Authority (“SIRA”). It is calculated in accordance with the Workers Compensation Guidelines prescribed by SIRA (“the Guidelines”).

5. [9]

   For injuries that develop gradually over time, s 15 of the WCA provides for when a claimant will be deemed to have been injured. Where a worker such as Mr McLachlan develops PTSD as a result of exposure to a series of gruesome or challenging events, the condition is treated as a disease of gradual onset for the purposes of s 15. Each event is considered a separate injury or insult to the psyche and contributes separately to the damage. This means that where a worker develops the condition and, after the deemed date of injury, is exposed to further events which worsen the condition, that worsening of the condition is a further separate injury for which the worker may obtain further compensation.

6. [10]

   The WCA provides for the agreed resolution of s 66 claims by what is described as a “complying agreement.” Relevantly, s 66A provides:

7. [11]

   Clause 8.2 of the Guidelines relevantly provides:

8. [12]

   If an agreed settlement cannot be reached, WIM, s 288 provides that any party may refer the dispute for determination by the Workers Compensation Commission (“WCC”). This is initiated by lodging an Application to Resolve a Dispute (“ARD”).

9. [13]

   In addition to claims for lump sum compensation under s 66, an injured worker may also make a claim for common law damages under Part 5 of the WCA. The only damages that may be awarded are damages for past and future economic loss: see s 151G. No damages may be awarded unless the injury results in a degree of permanent impairment that is at least 15%: see s 151H.

10. [14]

    During the course of his work Mr McLachlan was exposed to a number of gruesome and challenging scenes, including suicides. He began experiencing symptoms of PTSD in 2014. He was admitted to several hospitals and regularly sought psychiatric and psychological treatment. ST does not dispute that he suffers from PTSD, although there is a dispute about how severe it is.

11. [15]

    Mr McLachlan’s employment with ST ceased in 2018. In 2019 Mr McLachlan retained Zacharia Gabriel of NSW Compensation Lawyers (“NSWCL”) to act for him. In September 2019 Mr Gabriel arranged for the plaintiff to be examined by a consultant forensic psychiatrist, Dr Thomas Oldtree Clark, for the purposes of providing a medico-legal report.

12. [16]

    In his report, Dr Clark assessed the plaintiff’s psychiatric injuries as giving rise to 18% WPI. On 1 October Mr Gabriel lodged a claim for lump sum compensation under s 66 of the WCA on Mr McLachlan’s behalf.

13. [17]

    ST is a self-insured employer for the purposes of the workers’ compensation scheme. ST retained Turks Legal to respond to the plaintiff’s claim. Graham White and Jayden Krieg were the solicitors with carriage of the matter. They were instructed by Simon Denkha and Pramod Bhandari. Mr Denkha is an advisor at Transport NSW who manages claims on behalf of ST. Mr Bhandari is the workers’ compensation team manager at Transport NSW.

14. [18]

    The evidence before me (and, it seems, the evidence available to those who were dealing with the claim at the time) did not identify exactly when Mr McLachlan’s employment as a train driver actually ceased. I will say more about this below, but for now it is sufficient to note that Mr Gabriel was working on a deemed date of injury of 1 July 2018, whereas Turks’ date was 6 September 2018.

15. [19]

    In October 2019 Turks arranged for the plaintiff to be assessed by a consultant psychiatrist, Dr Tanveer Ahmed. In his report, Dr Ahmed calculated the plaintiff’s psychiatric injuries as giving rise to 15% WPI. Turks served the report of Dr Ahmed on Mr Gabriel on 20 December.

16. [20]

    On 13 January 2020, after reading the report of Dr Ahmed, Mr Gabriel sent an email to Turks asking if ST would make an offer of lump sum compensation under s 66 of the WCA in accordance with Dr Ahmed’s 15% figure. Turks responded with such an offer on 17 January. Mr Gabriel then obtained instructions from Mr McLachlan to accept. On 24 January he sent a completed complying agreement, executed by Mr McLachlan, back to Turks.

17. [21]

    Dr Ahmed’s report contained an error. His assessment of the plaintiff’s WPI, properly calculated, had been 8%. Turks told Mr Gabriel about this on 31 January, but he took the position that it was too late and the offer had already been accepted.

18. [22]

    On 3 February Turks obtained a supplementary report from Dr Ahmed which corrected the miscalculation. Transport NSW issued a notice under s 78 of the WIM relying on the supplementary report to deny the plaintiff’s claim. These proceedings were commenced on Mr McLachlan’s behalf on 20 March.

19. [23]

    On an 8% WPI Mr McLachlan of course has no entitlement to compensation at all. On a 15% WPI his entitlement would be $36,230. That is a small amount to be the subject of a contested specific performance hearing in this Court. Mr McLachlan’s advisors may be assuming that if ST can be bound to the settlement it will not be able to dispute, for the purpose of common law proceedings, that Mr McLachlan has 15% WPI. I was informed that a common law claim exceeding 15% WPI could be worth “hundreds of thousands”.

20. [24]

    If Mr McLachlan’s advisors have made this assumption, it appears to be incorrect: see J C Equipment Hire Pty Limited v The Registrar of the Workers Compensation Commission of NSW (2008) 70 NSWLR 704 at 718-722. Given the conclusion I have reached, however, there is no need to say anything more about the effect of the relief sought in the proceedings.

Summary and analysis of evidence

1. [25]

   In this section of the judgment I deal with the factual aspects of the evidence which require detailed analysis. I first summarise the documentary evidence, including the two medico-legal reports, the settlement correspondence and the complying agreement. I then identify the witnesses who were called and summarise their evidence before giving my conclusions on the areas of factual dispute.

2. [26]

   PIRS assessment: Under the Guidelines (see [8] above), impairment arising from psychiatric injuries is assessed using the Permanent Impairment Rating Scale (“PIRS”). The PIRS contains six categories, each of which evaluates an area of functional impairment:

   1. (1)

      self-care and personal hygiene;

   2. (2)

      social and recreational activities;

   3. (3)

      travel;

   4. (4)

      social functioning (relationships);

   5. (5)

      concentration, persistence and pace; and

   6. (6)

      employability.

3. [27]

   The method for calculating a person’s WPI under the PIRS is described in the Guidelines as follows:

4. [28]

   The median class score and the aggregate score are then converted to a percentage WPI using the following table:

5. [29]

   As can be seen from the table, to reach the 15% WPI threshold, an injured worker would need a median class score of at least 3 and an aggregate score of at least 15.

6. [30]

   Report of Dr Clark: Dr Clark diagnosed Mr McLachlan as suffering from chronic PTSD derived from his work for ST. Dr Clark also conducted a WPI assessment using the PIRS. He summarised his findings in the table reproduced below:

7. [31]

   Under the Guidelines, when calculating WPI an assessor may make an adjustment for the effects of prescribed treatment. Noting that Mr McLachlan had been prescribed psychotropic medication, and was consulting with a psychiatrist and psychologist, Dr Clark made an adjustment of 1%. This brought Mr McLachlan’s total WPI to 18%.

8. [32]

   Report of Dr Tanveer Ahmed: Dr Ahmed also diagnosed Mr McLachlan with PTSD and conducted a WPI assessment using the PIRS. He summarised his findings in the table reproduced below:

9. [33]

   On Dr Ahmed’s assessment, the class scores as listed in ascending order were 2, 2, 2, 2, 3, 4. The average of the two middle scores was 2. On an aggregate score of 15, this resulted in a WPI of 8% (see the table at [28] above). Instead, Dr Ahmed listed only five class scores: 2, 2, 2, 3, 4. Averaging the third and fourth numbers produced 2.5, rounded up to 3 according to the PIRS guidelines. With a class score of 3 instead of 2, the aggregate score of 15 produced a WPI of 15%.

10. [34]

    Settlement correspondence and complying agreement: Starting on 13 January 2020, the following email exchange took place between Mr Gabriel and Turks:

11. [35]

    On 17 January at 2:44pm, Mr Krieg responded by email:

12. [36]

    There was no documentary evidence recording or describing the instructions from Transport NSW to make this offer. It appears that the instructions were given orally to Mr White and passed on by him to Mr Krieg. I refer further to Mr White’s evidence about this below.

13. [37]

    Mr Gabriel obtained instructions to accept the offer. He drafted a complying agreement on 20 January, which was executed by Mr McLachlan on 23 January. The terms of the complying agreement recorded the deemed date of injury as 1 July 2018.

14. [38]

    On 24 January Mr Gabriel sent a letter to Turks:

15. [39]

    On 31 January the following email exchange took place between Mr Krieg and Mr Gabriel:

16. [40]

    There were two witnesses called to give evidence at the hearing. Mr Gabriel was called for the plaintiff and Mr White for the defendant. Both witnesses were cross-examined.

17. [41]

    In his affidavit, Mr Gabriel explained that he first looked at the report of Dr Ahmed on 13 January 2020, after the Christmas break. He said that upon review, he noted that the plaintiff’s WPI was recorded as 15%, but he did not take any particular notice of how Dr Ahmed came to that assessment. Nor did he undertake his own calculations to satisfy himself of its accuracy.

18. [42]

    Mr Gabriel was cross-examined extensively on this point. He was asked first whether he was familiar with the Guidelines. He said that he was, but only to a limited extent. He did, however, accept that he was familiar with the six PIRS categories and the assessment of WPI.

19. [43]

    Mr Gabriel was then asked generally whether, when he received medico-legal reports, he looked at how assessors approached the calculation of WPI. Mr Gabriel’s answer was, in effect, that this was not his usual practice. The following exchange took place:

20. [44]

    Mr Gabriel was then asked specifically about Dr Ahmed’s report and the table reproduced at [32] above:

21. [45]

    Mr Gabriel was then asked about his professional responsibilities to his client:

22. [46]

    Mr Gabriel was also cross-examined about the deemed date of Mr McLachlan’s injury. He explained that when he initially consulted with Mr McLachlan, he was instructed that his last date of employment with ST was 1 July 2018. As a result, Mr Gabriel recorded 1 July 2018 as the deemed date of injury on NSWCL’s internal systems.

23. [47]

    Counsel for ST referred Mr Gabriel to his letter dated 1 October 2019 which initiated the s 66 claim. In the letter, Mr Gabriel recorded the nominated date of injury as being 6 September 2018. He said that while he had taken that date from the insurer’s letterhead, he did not necessarily agree with it. He acknowledged that there was no record of the defendant having ever accepted 1 July 2018 as the deemed date of injury.

24. [48]

    Mr Gabriel was then asked whether he noticed that ST’s offer of 17 January was made on the basis that the deemed date of injury was 6 September 2018. He said that he did not pay any particular attention to the nomination of that date.

25. [49]

    In his affidavit, Mr White explained that he arranged for Mr McLachlan to be examined by Dr Ahmed for two purposes. The first was to seek Dr Ahmed’s opinion as to whether certain treatment claimed by the plaintiff was reasonable and necessary. The second was to conduct a WPI assessment for the plaintiff’s claim for lump sum compensation.

26. [50]

    Mr White said that it was his usual practice to review medical reports when he received them, but that he did not, when reviewing Dr Ahmed’s report, check the calculation of the median class score. Like Mr Gabriel, he said that he just accepted Dr Ahmed’s conclusion of 15% WPI. He said that at the time, he was more concerned about the treatment dispute than he was about the WPI assessment.

27. [51]

    Mr White stated that after he received the report of Dr Ahmed, he discussed it with Mr Denkha. His recollection was that he only provided advice to Mr Denkha about the claim for treatment, not the WPI assessment.

28. [52]

    Mr White also said that he had a conversation with Mr Denkha on or around 17 January 2020 about Mr Gabriel’s request for an offer. Mr White did not give a detailed version of the conversation, but made it clear that it was Mr Denkha who instructed him to make an offer of 15% WPI to settle the claim.

29. [53]

    Counsel for Mr McLachlan contended that ST had failed to prove that the offer was a mistake. Neither Mr Denkha nor Mr Bhandari was called to give evidence at the hearing. Counsel submitted that an adverse inference should be drawn in accordance with the principle in Jones v Dunkel (1959) 101 CLR 298. Counsel did not dispute that Turks had been mistaken. Counsel argued however that, in the absence of any evidence from those giving instructions, a mistake made by the Turks should not be imputed to ST.

30. [54]

    I do not accept these submissions. Properly understood, the report was to the effect that ST was not liable for compensation at all. It is not credible that those giving instructions on behalf of ST were aware that the 15% WPI calculation was wrong but instructed Mr White to make an offer on that basis anyway. The very fact that an offer was made suggests that they did think that 15% WPI represented Dr Ahmed’s opinion. I decline to draw the inference sought. I am satisfied that the offer was made in error.

31. [55]

    I now turn to Mr Gabriel’s state of mind. The case was on the cusp; even a very slight reduction in Dr Clark’s aggregate score would see Mr McLachlan’s WPI fall below the 15% threshold. Especially in such a case, Mr McLachlan was entitled to expect that his solicitor would consider the opposing doctor’s assessment carefully. What was Mr McLachlan paying for if not for that?

32. [56]

    The text of Dr Ahmed’s report was markedly less favourable to Mr McLachlan than Dr Clark’s. It might be thought that reading it would naturally have caused an experienced practitioner to wonder why the calculated WPI was so close. The calculation error was clearly discernible on the face of the report and would have been revealed even by a cursory check.

33. [57]

    I did not understand Mr Gabriel to dispute this. He candidly accepted in cross-examination that he should, in the proper discharge of his duties to his client, have detected the error. The question is whether I should believe him when he said that he did not in fact do so.

34. [58]

    The obviousness of the error, and Mr Gabriel’s speed in soliciting an offer based on the report, give rise to a circumstantial case. But having seen Mr Gabriel give evidence, I accept what he said. Unfortunate as it may be, I found it credible that he looked only at the ultimate number and did not even look at the rest of the report. Indeed counsel for ST only faintly put that Mr Gabriel should not be believed.

35. [59]

    In reaching my conclusion, I am influenced by the fact that neither the solicitors at Turks, nor the claims managers at NSW Transport, who equally should have noticed the error, did not do so. In the circumstances, I accept that in moving quickly to solicit an offer and in pressing for an urgent response Mr Gabriel was only acting efficiently in the conduct of the claim.

Acceptance of ST’s offer

1. [60]

   The contention is that Turks’ email of 17 January 2020 was an offer to settle Mr McLachlan’s claim on the basis of 15% WPI, and that the offer was accepted by Mr Gabriel in his letter of 24 January enclosing the signed version of the complying agreement. The immediate difficulty with this contention is that the 17 January email referred to the offer being made on the basis of a deemed injury date of 6 September 2018, whereas the complying agreement provided that the relevant date would be 1 July 2018. The debate between the parties revolved around this issue.

2. [61]

   Counsel for Mr McLachlan pointed out that the inclusion of the 6 September date in Turks’ email of 17 January was not the result of any specific instructions from ST. Counsel also submitted that 6 September was an unrealistic date because Mr McLachlan was in hospital at the time. In any event the precise date was not important. The real subject matter of the agreement was the 15% WPI.

3. [62]

   Counsel argued that I should apply the decision of Burchett AJ in Zreika v QBE Workers Compensation [2005] NSWSC 573. That case also concerned an informal settlement offer made on behalf of the respondents in a workers’ compensation claim (although under an earlier statutory regime). It was argued for the respondents (the defendants in the proceedings in this Court) that the purported acceptance of the offer did not give rise to a contract, because of the need to bring various other documents into existence to give effect to the settlement, including a deed of release.

4. [63]

   His Honour rejected this argument. He was satisfied that offers which used the language of “all-up settlement” were commonly made between practitioners in the area. An offer in such terms would (at [9]):

5. [64]

   I do not accept counsel’s premise. Whether or not specific instructions were obtained to include the date is irrelevant. The test for the formation of a contract is an objective one, based on the communications between the parties. Nor, in my opinion, does it matter whether or not the injury date was something which had to be specified in the offer in order to achieve contractual certainty. The 6 September date was in fact a term of the offer and Mr McLachlan’s case cannot succeed unless he accepted it.

6. [65]

   In any event the Guidelines required the date to be specified in the complying agreement (see [11] above). Even if they had not done so, I accept counsel for ST’s submission (which reflected the evidence of Mr White) that the difference between the two dates was significant from ST’s point of view. The offer date gave a lesser scope than the complying agreement date for Mr McLachlan to make a further claim arising out of his PTSD. Whether he actually contemplated making such a claim is beside the point.

7. [66]

   For these reasons, it is not open to the Court to order by way of specific performance that ST execute the complying agreement signed by Mr McLachlan on 23 January. That agreement does not reflect the precise terms of the offer made by ST.

8. [67]

   When this emerged in final submissions as a possible obstacle, counsel relied on an alternative prayer for relief. If I was not prepared to decree execution of the complying agreement signed by Mr McLachlan, I could treat the covering letter of 24 January as an acceptance of ST’s offer and decree execution of a fresh complying agreement which reflected the terms of that offer. That fresh agreement would specify the date of injury as 6 September 2018 and otherwise contain all of the particulars in the agreement executed by Mr McLachlan. In doing so I would, counsel submitted, be following the same general approach as Burchett AJ followed in Zreika.

9. [68]

   I accept that the Court could in a proper case order the execution of a complying agreement in such a form. That would be an instance of specific performance in the strict sense: see J C Williamson Ltd v Lukey (1931) 45 CLR 282 at 297. The question is whether there is a sufficient contractual foundation for doing so.

10. [69]

    In Zreika, the settlement agreement was oral. The employer’s representative made an offer on an “all-up settlement” basis. The worker’s representative accepted. The employer’s representative stated that the matter had settled and the insurer would send the documents in due course.

11. [70]

    The present case is different. The offer and putative acceptance took place by correspondence, and the acceptance was never confirmed by ST. Mr Gabriel’s letter of 24 January did not in terms accept the offer in Turks’ email of 17 January. It simply enclosed the complying agreement, as signed by Mr McLachlan, and asked for that to be countersigned and returned by way of “settlement”.

12. [71]

    In my view the fact remains in this case that the terms of the offer and terms of the “acceptance” did not coincide. The effect of the “acceptance” was to reject the offer of 17 January and put back a counter-offer of settlement in accordance with the complying agreement signed by Mr McLachlan: Carter, J W, Contract Law in Australia (7th ed, 2018, LexisNexis Butterworths) at [3-19]. That counter-offer was never accepted by ST.

13. [72]

    This makes it unnecessary to consider whether Mr Gabriel’s letter of 24 January enclosing the complying agreement, contemplating as it did the execution of a formal contractual document, was of binding effect before execution of that document: see Masters v Cameron (1954) 91 CLR 353 at 360-361.

Mistake

1. [73]

   Given my conclusion that there was no binding contract to settle the claim, the question of relief against mistake does not strictly speaking arise. But for completeness I propose to consider the arguments presented to me on this point.

2. [74]

   On my findings, there was a clear mistake in making the offer of 17 January. This was a mistake about the WPI score resulting from Dr Ahmed’s examination of Mr McLachlan. The error was apparent on the face of Dr Ahmed’s report. However, I have found it was not known to ST, and I am not satisfied that Mr Gabriel was aware of it.

3. [75]

   In order to understand the cases on which counsel relied it is necessary first to refer to the High Court decision in Harvey v Phillips (1956) 95 CLR 235. In that case the High Court discussed the principles which apply to the enforcement of compromises affected by mistake.

4. [76]

   The plaintiff, Mrs Harvey, was offered a settlement at the hearing of her case. Her lawyers and supporters placed her under a great deal of pressure to accept. Eventually she told her counsel that she would do so. Counsel communicated this to the defendant’s representatives and orders were made accordingly. Mrs Harvey then changed her mind.

5. [77]

   The High Court concluded that there was no power to set aside the compromise or intercept the formal entry of judgment. The Court emphasised that Mrs Harvey had, however reluctantly, given instructions to accept the offer. The Court distinguished the facts from three categories of case (at 242-243, citations omitted):

6. [78]

   The Court then set out the rationale, quoting from Lord Atkin in the House of Lords and then continuing in their own words (at 243):

7. [79]

   The Court then continued (at 243-244):

8. [80]

   The second sentence is often quoted on its own, without the context provided by the first one. That context is important. It shows that the rule stated in the second sentence is not absolute. In particular, the analysis which precedes the first sentence recognises that at least one exception is clearly established, namely where a compromise is made by mistake by counsel having ostensible, but not actual, authority. In such a case the court is indeed entitled to set the compromise aside in circumstances which would be insufficient to set aside a simple contract.

9. [81]

   One of the circumstances in which a simple contract may be set aside to which Harvey v Phillips refers is mistake. The relevant equitable doctrine, as it applies to unilateral mistake, was considered by the High Court in Taylor v Johnson (1983) 151 CLR 422. Counsel for ST relied on that case.

10. [82]

    In Taylor v Johnson the owner of 10 acres of land offered to sell it for $15,000, rather than $15,000 per acre as she intended. The offer was quickly accepted. This Court made an order for rescission. The appeal was dismissed. The High Court adopted the following proposition to dispose of the case (at 432):

11. [83]

    Taylor v Johnson was referred to by Finlay J in the later case of Lewis v Combell Constructions Pty Ltd (1989) 18 NSWLR 528. Like this case, that case concerned an attempt to enforce a settlement on the terms of an offer which had been mistaken.

12. [84]

    The circumstances of the offer were unusual. The proceedings came before a Deputy Registrar for an issues and listings conference. Both the plaintiff and the defendant were represented by junior solicitors. In a conference room outside the court the solicitors exchanged offers. The plaintiff’s offer was $227,000. The defendant’s counter-offer was $90,000, which the plaintiff’s solicitor immediately rejected.

13. [85]

    The solicitors then went into the courtroom. The Registrar provided them with forms on which to write any settlement offers they wished to make. The defendant’s solicitor did not take this up. The plaintiff’s solicitor did. She completed two copies of the form, giving one to the Registrar and the other to the defendant’s solicitor.

14. [86]

    On the form the plaintiff’s solicitor wrote a settlement figure of $127,000. This was a mistake; she had intended to write $227,000 which was the amount of the offer which she had initially made on the plaintiff’s behalf.

15. [87]

    The solicitor for the defendant did not look at the form and simply put it into his file. Later, the solicitor with carriage of the matter, a Mr de Greenlaw, found the offer on the file. Within a matter of days he sent a letter to the plaintiff’s solicitors purporting to accept the offer of $127,000. They replied that it was a mistake but Mr de Greenlaw ignored them. An application was made on behalf of the defendant to have judgment entered in the plaintiff’s favour in the sum of $127,000 and the proceedings disposed of. That application was refused.

16. [88]

    The plaintiff before Finlay J contended that the defendant’s representatives had been fully aware of the mistake and had taken advantage of it. Reliance was placed on Taylor v Johnson. But Mr de Greenlaw denied that he had realised that the $127,000 was a mistake and his Honour was not prepared to disbelieve him. Accordingly his Honour concluded that the Taylor v Johnson claim failed on the facts.

17. [89]

    The plaintiff’s alternative contention was based on what were described as “special rules for the compromise of litigation”. His Honour referred to various authorities, including Neale v Gordon Lennox [1902] AC 465 (a decision relied on in the passage from Lord Atkin quoted by the High Court in Harvey v Phillips). Finlay J said of the case (at 536E):

18. [90]

    After reference to further authority Finlay J concluded (at 538E):

19. [91]

    Counsel for ST put his claim based on mistake in two ways. The first was based on a passage from the decision of the Court of Appeal in Roach v B&W Steel Pty Ltd (1991) 23 NSWLR 110.

20. [92]

    That case concerned the application of a District Court rule which permitted the Court to set aside a judgment or order if it was given or made “irregularly, illegally or against good faith” (now embodied in the Uniform Civil Procedure Rules 2005 (NSW), r 36.15). The plaintiff commenced proceedings on a personal injury claim which was statute barred, making an application to the Court by notice of motion to extend the hearing date. The application was opposed; it came before the Court several times and was adjourned. Then it was listed and, by mistake, the defendant’s representatives did not appear. Counsel for the plaintiff (who was unaware of the history) proceeded ex parte and obtained an extension order. The order was later set aside on the ground that it had been made “against good faith”.

21. [93]

    The plaintiff appealed against the setting aside of the extension order. It was argued that there had been no misconduct or dishonourable conduct in obtaining the order. But the Court of Appeal treated the previous dealings over the motion as equivalent to a representation that it would be dealt with on a contested basis and said (23 NSWLR at 113G-114B):

22. [94]

    Before me, counsel submitted that in this passage the Court of Appeal laid it down that the Taylor v Johnson principle applies wherever one party makes a “material mistake” and the other party “knows or ought to know” of the mistake. On my findings, ST’s mistake would seem to have been “material”, and Mr Gabriel ought to have known of it.

23. [95]

    With great respect, I question whether the passage relied upon by counsel accurately lays down the law applicable in this case. As we have seen, Finlay J did not decide Lewis by applying Taylor v Johnson. In fact he expressly stated that Taylor v Johnson did not apply on the facts before him.

24. [96]

    Furthermore, it is true that in Taylor v Johnson the High Court referred (151 CLR at 432) to United States and Canadian authority granting equitable relief where the defendant “ought to” have known of the mistake. But the dispositive proposition adopted by the High Court does not require that the defendant “ought to know” of the plaintiff’s mistake and nothing more; the defendant must be “aware of” the mistake and deliberately set out to ensure that the plaintiff does not discover it. As the Court explained at 433, that may mean that the equity applies where the defendant lacks “precise knowledge” of the “actual mistake” of the plaintiff because of “wilful ignorance”, but only if that defendant deliberately tries to prevent the plaintiff from finding out.

25. [97]

    The High Court’s proposition also requires that the mistake be one about the “contents” of the contract, “in relation to a fundamental term” of it. That may include the “subject matter” of the term, but goes no further. Again the reference to United States and Canadian authority included a wider formulation of “material” mistake. But the High Court did not adopt that wider formulation as part of its decision.

26. [98]

    If the Court of Appeal’s statement of principle is binding as a matter of ratio, then I would be obliged to follow it despite these reservations. As White J (as his Honour then was) demonstrated in New Cap Reinsurance Corporation Ltd v A E Grant [2008] NSWSC 1015 at [71], that would be so even if I thought what the Court of Appeal said to be demonstrably contrary to High Court authority.

27. [99]

    But I question whether the passage I have quoted is binding as a matter of ratio, so far as it applies to the equitable principles governing rescission for mistake. As already noted, Roach was a decision on the interpretation of the term “against good faith” in a rule of court. The case did not directly concern the scope of equitable doctrine. Furthermore, the Court concluded that even if the entry of judgment had not been “against good faith”, it was “irregular” for the purpose of the rule: see 23 NSWLR 110 at 114-115.

28. [100]

    For these reasons, if I had to reach a final decision in this question I would be inclined not to apply the passage from Roach in its terms. Instead I would go back to Taylor v Johnson itself.

29. [101]

    On my findings, the High Court’s dispositive proposition from Taylor v Johnson does not apply to this case. Although Mr Gabriel should have been aware of the mistake, in fact he was not; he was himself labouring under the same mistake.

30. [102]

    What of the alternative ground on which Lewis was decided? That case fell squarely within category (3) from Harvey v Phillips. The mistake was a mistake by the plaintiff’s solicitor. She never had authority from her client to offer $127,000. With respect, Finlay J was clearly justified by High Court authority in refusing to give effect to the settlement.

31. [103]

    If the same discretion were available in the present case, there would be every reason to exercise it in ST’s favour. There would be no prejudice to Mr McLachlan. He would be free to continue to pursue his claim on its merits. All he would have lost would have been the opportunity to benefit from a mistake by ST which his own solicitor should have detected.

32. [104]

    But the facts of this case are not the same as those in Lewis. On the evidence, the mistake was not a mistake by Turks in giving effect to ST’s instructions. The figure came from ST, which was labouring under the same mistake. Turks had actual, not merely ostensible, authority to make the mistaken offer. The case does not fall within category (3) from Harvey v Phillips.

33. [105]

    Thus, it seems to me, neither of the submissions advanced by counsel for ST has been made out as a matter of clear and binding authority. But that is not necessarily the end of the matter.

34. [106]

    As already noted, in Taylor v Johnson the High Court adopted a proposition framed by reference to the facts in order to dispose of the case. The Court left for later decision whether to extend the equitable doctrine to “material” mistakes, or mistakes of which the defendant “ought to have known” but was not in fact aware.

35. [107]

    A further potential basis for equitable intervention left open in Taylor v Johnson would be common mistake. On my findings, both parties in this case were labouring under the same mistake about Dr Ahmed’s opinion. In England the proposition that equity allows rescission for common mistake has been rejected, but its status in Australia remains subject to debate: see Heydon, J D, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths) at [14-080].

36. [108]

    It is also possible that there are exceptions to the general rules about equitable intervention in compromises which extend beyond cases in Harvey v Phillips category (3). One unsolved mystery about the High Court judgment is whether there is also an exception for cases in category (2), and if so what its scope is. The category appears broader than category (3). But the judgment does not refer to any authority which would illustrate the relevant principle. It is also unclear whether category (1) extends beyond category (3).

37. [109]

    The learned authors of Meagher, Gummow & Lehane’s Equity Doctrines and Remedies state at [14-090] that, in addition to the principles which apply generally to unilateral (or common) mistake:

38. [110]

    It is not clear why equity should have developed a special jurisdiction to review compromises for mistake on grounds which differ from those which apply to other classes of contract. Harvey v Phillips and other cases to which it refers were concerned with compromises effected through lawyers in the course of court proceedings. It may be that the special jurisdiction depends in some way upon the special professional obligations of lawyers acting in curial proceedings. On any view a detailed review of authority would have been required to be confident that the “ancient and shadowy” jurisdiction was available in the circumstances of this case.

39. [111]

    The penumbral questions around Taylor v Johnson and Harvey v Phillips were not adverted to by counsel for either party. As I have indicated, it is not in the end necessary to decide the mistake issue. I therefore do not need to discuss the doctrinal uncertainties any further.

Conclusions and orders

1. [112]

   I have concluded that:

   1. (1)

      no contract arose out of the communications between the parties’ solicitors in January 2020;

   2. (2)

      it is not necessary to decide whether ST is entitled to relief against the consequence of mistake in making the offer of 17 January.

2. [113]

   Mr McLachlan’s claim fails and must be dismissed. ST’s cross-claim does not arise and should be dismissed for that reason.

3. [114]

   Mr McLachlan has been unsuccessful in the proceedings. I see no reason why costs should not follow the event. I propose to order that Mr McLachlan pay ST’s costs of the proceedings, including the costs of the cross-claim. Any application for any different order by either party can be made in accordance with the Rules.

4. [115]

   The orders of the Court are:

   1. (1)

      Dismiss the plaintiff’s claim.

   2. (2)

      Dismiss the defendant’s cross-claim.

   3. (3)

      Order that the plaintiff pay the defendant’s costs of the proceedings, including the costs of the cross-claim.