Clancy & v Salienta Pty Ltd

NEW SOUTH WALES COURT OF APPEAL

CITATION: Clancy & Anor v Salienta Pty Ltd & Ors [2000] NSWCA 248

FILE NUMBER(S):
40679/99

HEARING DATE(S): 16 & 17 December 1999

JUDGMENT DATE: 23/10/2000

PARTIES:
Stephen William Clancy - Appellants
Salienta Pty Ltd & Ors - Respondents

JUDGMENT OF: Beazley JA Stein JA Giles JA

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): EQ 2747/98

LOWER COURT JUDICIAL OFFICER: Bryson J

COUNSEL:
T G R Parker & S R Burns (Solr) - Appellants
I G Harrison SC & A J McInerney - Respondents

SOLICITORS:
Greaves Wannan & Williams - Appellants
Hunt & Hunt - Respondents

CATCHWORDS:
Proprietary estoppel
Baumgartner equity
Restitution
Relief against forfeiture

LEGISLATION CITED:
Agricultural Holdings Act 1941 (NSW)
Agricultural Tenancies Act 1990 (NSW)

DECISION:
Appeal upheld in part
Appellant to pay the respondents' costs

JUDGMENT:

THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 40679/99
EQ 2747/98

BEAZLEY JA
STEIN JA
GILES JA

Monday 23 October 2000

Stephen William CLANCY & Anor V SALIENTA PTY LTD & Ors
FACTS
The appellants claimed an equity in or compensation for work done and improvements made to a farming property, ‘Yarrawah’. They based their claim on proprietary estoppel, ‘Baumgartner’ equity, restitution and relief against forfeiture.
The appellants occupied and farmed the property pursuant to licence agreements entered into in 1992 and 1996. The first of these licence agreements contained an option to purchase that was never exercised.
They also entered into two contracts for sale of the property, the first in 1994 which was never performed or only partly performed, and the second in March 1995. The appellants made some payments of interest but did not complete the 1995 contract.
The appellants have carried out substantial improvements to the property, increasing its value two or threefold.
Salienta commenced proceedings for possession and claimed that any agreement between the parties was terminated by the appellants’ failure to make the necessary payments.
The appellants contended that the 1995 contract was not binding and cross-claimed to seek the equitable relief outlined above.
The trial judge held that the contract was binding and rejected any claim for relief based on proprietary estoppel and ‘Baumgartner equity’. His Honour did not deal with the claim based on restitution.
The appellants appeal from that decision.
HELD
(i) per Beazley, Stein and Giles JJA: The appellants had not made out any entitlement to relief based on proprietary estoppel and ‘Baumgartner equity’.
(ii) per Beazley, Stein and Giles JJA: The appellants were not entitled to relief against forfeiture.
(iii) per Stein and Giles JJA (Beazley JA dissenting): The appellants were not entitled to restitutionary relief
ORDERS
(1)Appeal upheld in part;
(2)Vary the orders made by deleting “defendants” from order 4 and substituting “second defendant”.
(3)Otherwise appeal dismissed.

(4) Appellants pay respondents’ costs of the appeal.
*******************

THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 40679/99
EQ 2747/98

BEAZLEY JA
STEIN JA
GILES JA

Monday, 23 October 2000

Stephen William CLANCY & ANOR v SALIENTA PTY LIMITED & ORS
JUDGMENT

BEAZLEY JA: This appeal involves a claim by the appellants for the recognition of an equity in their favour in a farming property called Yarrawah located at Hay in south western New South Wales. The claim is formulated in terms of proprietary estoppel, ‘Baumgartner’ equity, restitution and for relief against forfeiture.
The first appellant (Clancy) is the principal of the second appellant (Rosefarms). The appellants had farmed in the Hay area for many years. It will not always be necessary to distinguish between the appellants for the purposes of these reasons and I will only do so where the issues require it.
The first respondent (Salienta) was the registered proprietor of Yarrawah, which it held on trust for the late Neil Forsyth (Forsyth), a well known Melbourne Queens Counsel. The second to fourth respondents are the executors of Forsyth’s estate.
Forsyth and Clancy met in 1991. In 1992, the parties entered into a licence agreement to occupy and farm Yarrawah and to carry out capital improvements on the property. The appellants were also granted an option to purchase the property. There were subsequent contractual arrangements relating to the sale of the property to which I shall refer in more detail later. By the time Forsyth died in 1997 the appellants had carried out substantial works on the property but no sale had been completed.
The appellants’ claim relates to improvements they made to Yarrawah in the expectation they would acquire the property by purchase. They allege that the circumstances which eventuated in relation to the proposed purchase and the improvements made in the meantime are such that they are entitled to an equity in the property. They claim the equity should be satisfied by the granting of a charge over the property in their favour or by ordering that the property be conveyed to them. They submitted that the amount to be secured by the charge, or the purchase price which should be paid for the conveyance of the property, should be based on either the cost of the improvements carried out by the appellants on Yarrawah or the increase in value of the property resulting from the improvements.
Factual Background
Prior to the appellants occupying and working the property, Yarrawah was dry sheep country comprising some 12,000 acres. By 1997, the appellants’ farming efforts, brought about in part by Clancy’s expertise in the use of technologically advanced farming equipment, resulted in the property being converted into a well irrigated farm, producing various crops including rice, soy beans, wheat, barley, oats and hay. Cattle continued to be grazed on unirrigated portions of the property or during intervals during cropping.
The Legal Arrangements Between the Parties:
The First Licence and Option to Purchase
Initially, the appellants occupied and worked the property pursuant to a licence agreement coupled with an option to purchase. The agreement was contained in a letter from Forsyth dated 27 October 1992. Relevantly, it provided for a licence commencing on 1 November 1992 and ending on 30 June 1996. The licence fee was $1,770 per four weeks (approximately $23,000 per annum), payable in arrears. The appellants paid the monthly licence fee under this agreement.
Under the licence agreement, the appellants were to carry out capital improvements to the property, as agreed between the parties, and having a value of “not less than $1,000 per week multiplied by the term of the licence”.
Clause 12 provided for an option to purchase exercisable at any time before 1 July 1996.
Clause 13 provided for a structured purchase price as follows:
“Purchase Price: The base price will be $1,625,000. It will be increased by:
(a) $1,000 for every week which elapses between 1 November 1992 and the date of settlement of the purchase;
(b) a further $50,000 if the date of settlement is later than 1 November 1994; and a further $50,000 if the date of settlement is later than 1 November 1995; and
(c) any further capital expenditure by the licensor (with the consent of the licensee) between 1 November 1992 and the date of exercise of the option (such as acquisition of further water licences.)”
The effect of the licence agreement was that, regardless of whether the option was exercised, the appellants were required to carry out and Salienta would receive the benefit of improvements, to a total value of $200,000.
12 To enable the appellants to fund the capital improvements, Forsyth organised a loan through another of his companies in the sum of $200,000 (the Headingly loan). The appellants utilised the entirety of these funds almost immediately, completing major irrigation works by March 1993 costing about $200,000. Strictly, that meant the appellants had complied with their obligations under the licence in relation to the capital works programme. Notwithstanding that, the appellants continued to carry out major works and purchases for the property.
1994 Contract for Sale
On 13 December 1994, Forsyth as vendor, entered into a “Contract for Sale of Yarrawah” (the 1994 contract) with Clancy “or nominee approved by vendor” as purchaser. The purchase price was $2,115,556 payable by four instalments. The “subject matter of sale” was stated to be “Property known as Yarrawah plus all incidental water rights, easements, agreements with neighbours and other associated rights”: cl 11. Clause 10 provided that on settlement the vendor would transfer the “issued capital of Salienta” to the purchaser and at that time Salienta’s only asset would be Yarrawah. I will refer to the apparent conflict between clauses in the same form as 10 and 11 later. There was a provision that if Rosefarms was not the purchaser, the purchaser would obtain a release of the option to purchase contained in the 1992 licence agreement from Rosefarms.
On 13 December 1994 Forsyth also extended the Headingly loan. A term of the extension was that if the principal was not repaid in full by 30 June 1997 Forsyth “may rescind [the 1994 Contract] as if default had been made under that Contract”.
15 Apart from possibly the payment of some interest, neither party took any steps under this agreement. No instalments of the purchase price were paid. No transfers were effected.
March 1995 Contract for Sale
In March 1995, the parties entered into another “Contract for the Sale of Yarrawah” (the March 1995 contract). Forsyth and Clancy were named as vendor and purchaser respectively. The purchase price had increased from that payable under the 1994 contract to $2,327,111, payable in four twelve month instalments, the first three of $250,000 and the final payment to be the balance between the instalments paid and the purchase price. Interest in specified amounts was payable on specified dates up to the date of the last payment on 30 June 1999. The “property sold” was again stated to be “Yarrawah”: cl 11, although cl 13 postulated the same transfer of shares in Salienta as was proposed under the 1994 sale agreement, with Salienta’s only asset as at the date of transfer to be Yarrawah. Provision was made for default and rescission. In the case of default of any payment of principal or interest, interest on the unpaid amount accrued at 18 per cent per annum. If the contract was rescinded for default by the purchaser, the vendor was entitled “in any event to 10% of the purchase price as a notional deposit”. Clauses 11 and 13 were in substantially the same terms as cls 11 and 10 respectively of the 1994 contract.
The trial judge explained the intended operation of clauses 11 and 13 as follows:
“The Contract dated March 1995 is quite clear in expressions which establish that Mr Forsyth as beneficial owner was the vendor, the purchaser was Mr Clancy and the subject of sale was the land Yarrawah, together with incidental rights. Clause 13 provided for transfer of the whole of the issued capital of Salienta to the purchaser. On a reading of the whole terms of the document it is clear that Salienta was registered owner of the land and that the transfer of the shares in Salienta was incidental to the main subject matter. It could I suppose have been thought that transfer of control of Salienta while Salienta was still the registered owner was a means of effecting transfer of the land which the parties could adopt; the contract did not provide that they had to adopt those means.”
The 1996 Licence Agreement
The March 1995 contract itself did not give the appellant a right to occupy the land, and the term of the 1992 licence expired on 30 June 1996. In August 1996 the respondents and Rosefarms entered into a further licence by way of Deed. The license fee payable was one dollar. The licence was directly linked to the March 1995 contract in that the right to occupy was specified to commence on 1 March 1995 and the licence was to terminate upon the earlier of the completion of the March 1995 contract, the date of rescission of the March 1995 contract, or the date of notification of breach of either the licence agreement or the March 1995 contract.
Events Post March 1995
The March 1995 contract required that interest in specified sums and on specified dates be paid. The amounts and required dates for payment were:
30 June 1995  $61,635
30 September 1995              $11,635
31 December 1995               $11,635
31 March 1996     $11,635
30 June 1996  $61,635
30 September 1996              $11,635
The amounts actually paid were:
July 1995  $61,635
October 1995  $11,635
January 1996  $11,635
March 1996  $11,635
March 1997  $25,658.57
April 1997  $40,000
September 1997    $11,000
Following the signing of the March 1995 contract, both parties engaged their solicitors to draft formal contracts. Negotiations as to the form of contract were protracted and covered numerous issues, including whether the sale would be structured as a sale of land or as a sale of shares in Salienta, and whether the sale would be a terms contract or by way of mortgage back. This process continued for about two years, but no agreed form of contract was finalised.
In a letter to Clancy from his solicitor written on 26 June 1995, shortly after the March 1995 contract was entered into, the solicitor observed:
(i) that the interest price specified in the contract was “for the first two years, at least, … very attractive”;
(ii) that it would be preferable for Clancy to enter into a usual purchase contract with a mortgage back as “[a]t least, in this way, you would gain the benefit of your labours, during the term of the mortgage, in improving the property and any capital appreciation in its value”;
(iii) that there were significant disadvantages to a purchase on terms contract - in particular, if there was default in payment of the instalments, the payments made were forfeited and the vendor would gain the benefit of any appreciation in value, including the value of any improvements carried out by the purchaser;
(iv) there were disadvantages to Clancy in entering into a contract at a price above fair market value - whether by way of an instalment contract or by way of direct purchase.
Clancy’s solicitor also queried whether the purchase price had been inflated because of the attractive interest rate.
Having referred to these and other issues arising out of the proposed sale in detail, Clancy’s solicitor set out the interest rates he had calculated were payable under the terms of the loan and then stated:
“I can only assume that you have satisfied yourself that this is a ‘good deal’ taking into account the effective rate of interest you are paying with the inflated price. If you have not already done so, you should run the figures past your accountant.”
It appears Clancy communicated with Forsyth sometime after this letter was written, as Forsyth wrote to Clancy on 7 August 1995. It is convenient to reproduce a substantial portion of this letter as it sets out relevant information in relation to the development of the financial arrangements between the parties. The letter stated:
“This letter is written in response to your suggestion that it would be desirable to have a record as to how the purchase price for Yarrawah, of $2,327,111, had been arrived at.
From the inception of the arrangements between us (originally a licence with option) we had agreed that the price would escalate each year according to when you purchased if (sic): see para. 13 of my letter of 27 October 1992.
Early in 1994, when it was apparent that your first substantial rice crop was going to be a success, we began discussing the replacement of the licence/option arrangement with a terms contract of sale. The initial contemplation was that contracts should be exchanged on 1 July 1994 and the balance of the purchase price would be paid on 30 June 1997. On this footing it was agreed that the base price would be $1,888,890 escalated by 4% per annum for the three years, making $2,115,556 in all.
…
The question has been raised whether it would be appropriate for the amount payable by you to be reduced to some extent if the balance of the purchase price was paid early. I agree that would be so. It does not, however, necessarily follow that any such ‘discount’ would automatically extend to the full amount of the 4% or 5% as the case might be. Something would necessarily depend upon the circumstances. Already I perceive two factors that should have some weight. One is that I am liable for capital gains tax in respect of the gain upon a 25% interest in the property, and this crystallises upon a sale. Another matter is that the arrangements between us have been formulated as a package so as to provide you with maximum flexibility, and it would seem appropriate that this factor be recognised in the event of any early repayment. I therefore suggest that we leave the matter to be resolved, if ever the occasion arises, in the same spirit of goodwill and fairness that has prevailed between us in the past; and you may be assured that, if it were necessary, any representatives of mine would approach the matter in the same way.
…
If the sale proceeds upon the basis of a terms contract, and is rescinded upon default, then it would appear to be entirely reasonable in principle that you as purchaser should have the benefit of any growing crop (with an ancillary right to complete the growing …)”
The appellant continued to carry out substantial work on the property. This included water storage works carried out from 1996 to 1998. The appellants’ expert estimated the cost of these works to be in excess of $700,000. Seven hundred acres on the mid south section of Yarrawah were lasered in 1996 at a cost estimated at $182,158. The laser layout of another three hundred acres was undertaken, at a cost estimated at around $58,000 and a further six hundred acres at a cost estimated at $102,000. Recycling and drainage systems, at a cost estimated at approximately $194,000, and infield channels at an estimated cost of approximately $311,000 were constructed and other substantial works were also carried out.
During his lifetime, Forsyth was aware of the nature and extent of the works. He commented on them both orally and in writing from time to time. The oral comments included:
“I am very pleased with the way the property is developing.”
…
“I want you to reap the rewards for all of your efforts on Yarrawah.”
…
“I am pleased with the way you are developing the property into a productive enterprise.”
…
“A permanent river pump is obviously essential to the development of Yarrawah.”
…
“It looks very impressive Steve. It should provide more than adequate water supply.”
…
“Are you happy to keep doing all this work? I know we have a clear agreement in principle about the sale and I don’t expect to receive the value of the improvements which you are carrying out.”
In his letters to Clancy and others covering approximately a three year period, both predating and postdating the March 1995 agreement, Forsyth wrote:
“18.4.94  [to Clancy’s solicitors] I am obtaining a very advantageous price for Yarrawah; the Clancys have provided and will further provide equity in the form of very substantial improvements … there is a high level of trust between us … I am confident that we can negotiate a reasonable solution to any particular problem or unexpected turn of events … I am sending a copy of this letter to Steve. …”
…
“5.10.95  Forsyth encouraged Clancy to plant belts of Tasmanian Blue Gum trees on Yarrawah, which Clancy did. IS THIS A QUOTE??
…
“4.3.96                 [to Forsyth’s solicitors after the adjoining owner had fenced off part of Yarrawah] I am willing to help Steve do what can reasonably be done to reclaim ‘his’ land. …”
…
“10.9.96  [to Edwin Kennon, solicitor for the proposed mortgagee] Steve … has been able to develop the property … Obviously I could not expect to receive the value of all the improvements which he has himself effected.”
…
“28.1.97  [to Clancy] I do very much want you to reap the financial benefits from Yarrawah which your enterprise and industry deserve.”
…
“10.4.97  [to Clancy and his wife] The way in which Yarrawah has been developed has been a great satisfaction to me. … It was a delight to see so much productivity from what was once barren land. I am particularly concerned that both of you should reap the full rewards to which you are entitled for the enormous initiative, perseverance, ingenuity and hard work that you have put into the venture.”
…
“29.5.97  [to Forsyth’s solicitors] Steve never gave me any details of the improvements he was contemplating or had completed. However, I did see them whenever I went up, and it is only fair to say that I implicitly, and perhaps even explicitly, gave him carte blanche.”
…
“3.6.97                 [to Forsyth’s solicitors] I have deleted the reference to giving notice to obtain possession as this is the last thing I would want to do (as I am sure Steve knows very well).”
As a result of the improvements, Rosefarms was able to earn significant income.

His Honour found (and there is no dispute) that the improvements were permanent, transformed the nature of Yarrawah and very greatly enhanced its value. His Honour did not however, accept the appellant’s expert evidence as to the costs of the improvements, or the extent to which it had increased the value of the property had been increased. Rather, his Honour’s finding was:
“I do not regard the evidence as enabling me to make a finding more precise than that the improvements have very greatly enhanced the value of Yarrawah, doubling and perhaps trebling its value, and that the cost of the works has probably exceeded the large advantages which have flowed to Mr Clancy and Rosefarms from occupation.”
The Legal Proceedings
After Forsyth’s death, Salienta commenced proceedings for possession of the property, claiming that the licence, under either the March 1995 contract, the 1996 Licence Agreement or deriving from any other source, was terminated. The right to possession was claimed to have arisen from the appellants’ breach of the March 1995 contract by their failure to make payments of principal and interest after September 1997 or the repudiation of the contract by letter dated 25 August 1997 from Clancy’s solicitor to Forsyth’s solicitor.
The appellants defended the claim for possession by claiming that the March 1995 contract was not, and was never intended to be, a binding contract. They contended it was incomplete and legally uncertain and that, in any event, it was signed in circumstances where it ought to be set aside. Other technical defences to the validity and enforceability of the contract were raised. The appellants also contended that the agreement was for the sale of shares in Salienta, although I have concluded that nothing turns on that. They cross-claimed against the respondents seeking the equitable relief to which I have earlier referred. They acknowledge that if they do not establish their entitlement to relief they cannot otherwise defend the claim for possession.
Was the March 1995 Contract Legally Binding on the Parties?
The appellants contended before the trial judge that the March 1995 contract was not legally binding. They submitted that it should be inferred that this was so because of the later dealings between the parties, especially the protracted negotiations as to the need for, and the form of, a more formal contract. In addition, Clancy asserted in evidence that he did not consider the contract binding “bearing in mind the relationship [he] had with [Forsyth]”.
In his written submissions to this Court, counsel for the appellants contended that the March 1995 contract lacked the essential elements of a valid contract and was not intended by the parties to be legally binding. Counsel also submitted that the respondents’ counsel had, during the course of the trial, expressly conceded that the document was of no legal effect.
The trial judge considered that the fact the appellants had made payments under the March 1995 contract “supports the view that that document was then regarded as effective to create an obligation to pay money, and effective to override the previous arrangements”. He concluded:
“It would have been prudent to enter into a more formal document, and the drafts provided by solicitors illustrate that many subjects had not been addressed with which it is prudent for a contract about such an elaborate matter as the sale of a property of 12,000 acres to deal. … what was under consideration until August1997, through three drafts and much solicitors’ correspondence, was putting an established agreement into a more suitable form; however the established agreement remained a binding contract.”
I agree. The March 1995 agreement had the necessary indicia of a binding contract, even though it was scant on detail. The parties, property and price were clearly specified. It was, on its face, a terms contract. The amount of instalment payments of capital, the amount of interest payments and the respective dates of payment of each were specified. Provision was made regarding default and rescission.
The appellants also contended before the trial judge that the contract was a contract for the sale of shares. I have already referred to the trial judge’s construction of the apparently inconsistent cls 11 and 13. I agree with that construction. It makes business sense and achieves the object of the transaction, namely the transfer of Yarrawah to the appellants.
Proprietary Estoppel
The appellants contend that their claim falls into what might be described as “third category proprietary estoppel” which operates where a party “knows that he is not the owner of the property, but carries out the work on the faith of acquiescence or encouragement by the owner, which leads [the party] to believe that he will receive an interest in the property”. It was submitted that the relevant principle supporting the third category was stated by Lord Kingsdown in Ramsden v Dyson (1866) LR 1 HL 129 at 170:
“If a man, … under an expectation created or encouraged by the landlord, that he shall have a certain interest [in land], takes possession of such land, with the consent of the landlord, and upon the faith of such promise or expectation, with the knowledge of the landlord, and without objection by him, lays out money upon the land, a court of equity will compel the landlord to give effect to such promise or expectation.”
It was submitted that the appellants satisfied these requirements in that:
(i) Rosefarms undertook extensive work and laid out substantial moneys on Yarrawah;
(ii) It did so in the expectation that Yarrawah would come to belong to it; and
(iii) Salienta, through Forsyth, created, encouraged and acquiesced in that expectation.
The trial judge held that there was: :
“… no room for Proprietary Estoppel when all relevant conduct happened in the context of legally binding contracts under which Mr Clancy and his nominee had rights to take title if they complied with the obligations. …”
This passage must be read in context. Earlier, his Honour had stated (jment #79):
“At all times there was before Mr Clancy a document which described in clear detail the terms upon which Mr Forsyth was prepared to sell the property; several different documents from time to time, but the proposal before Mr Clancy was always clearly stated in writing. At no time was it reasonable for Mr Clancy to expect that Mr Forsyth would transfer Yarrawah to Rosefarms at any less price than the price stipulated … but in no way was it ever held out to Mr Clancy that Rosefarms could obtain the property for a lower price than Mr Forsyth currently stipulated in writing, or that he could get benefit from his improvements except by buying the property (except, of course, for what he was earning by his operations on Yarrawah).”
His Honour found however:
“If the facts had been that the Contract dated March 1995 was not legally binding but Mr Clancy wished to complete a transaction to the same effect including its provisions as to price, and Mr Forsyth or his successors had resisted, Mr Clancy and Rosefarms would have had a strong claim for remedies based on Proprietary Estoppel. However the facts are very different.”
His Honour continued:
“From 13 December 1994 onwards and again from June 1995 onwards, the only expectation on which it would be reasonable for Mr Clancy to act in incurring expenditure for improvements, and the only expectation which it could be said was created or contributed to by Mr Forsyth, was an expectation that Rosefarms would own the property and have the benefit of the improvements if the terms in the documents of those dates were carried out, Rosefarms met the obligations expressed in them and did so within the times referred to; all the obligations, including as to the price. This is true whether or not the Contract dated March 1995 was intended to be or was a legally binding contract; I am of the view that it was, but if it were not, it could not reasonably give rise to any expectation which differed from its terms.”
He concluded:
“The only reasonable expectations of advantage to flow from improvements which Mr Clancy could hold related to completing the Contract and taking title under it, and it must then have been obvious that if those things were not done no long-term value would be gained from the improvements. I see no room for the operation of the law relating to Proprietary Estoppel where the rights of parties are established contractually, no matter what acquiescence or encouragement there was.”
His Honour also rejected the availability of equitable relief even if the March 1995 contract was not binding, stating that the purpose of the document, for the purpose of proprietary estoppel:
“…could only be to create expectations according to its terms, including to the term relating to price, a subject of central importance and explicit statement on which Mr Forsyth did not after June 1995 show any flexibility, and was not asked to.”
The appellants contend that his Honour’s finding that the existence of a contract precluded the availability of equitable relief by the application of the principles of proprietary estoppel is wrong as a matter of law.
The principles of proprietary estoppel stated in Ramsden v Dyson have been long established. In Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 (Waltons Stores), Mason CJ and Wilson J stated at 404:
“Under that principle a person whose conduct creates or lends force to an assumption by another that he will obtain an interest in the first person’s land and on the basis of that expectation the other person alters his position or acts to his detriment, may bring into existence an equity in favour of that other person, the nature and extent of the equity depending on the circumstances. And it should be noted that in Crabb, as in Ramsden v Dyson, although equity acted by way of recognising a proprietary interest in the plaintiff, that proprietary interest came into existence as the only appropriate means by which the defendants could be effectively estopped from exercising their existing legal rights.
One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has ‘played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it’: per Dixon J in Grundt; see also Thompson. Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption.”
Mason CJ and Wilson J considered that Crabb v Arun District Council [1976] Ch 179 (Crabb) was consistent with the principles of proprietary estoppel applied in Ramsden v Dyson. Crabb was itself a case of promissory estoppel. Relevantly for present purposes their Honours, in Waltons Stores, considered that it lent assistance to the proposition that promissory estoppel “may … extend to the enforcement of a right not previously in existence where the defendant has encouraged in the plaintiff the belief that [the right] will be granted and has acquiesced in action taken by the plaintiff in that belief”. (Emphasis added).
In The Commonwealth v Verwayen (1990) 170 CLR 394 (Verwayen), Mason CJ said at 413:
“… it should be accepted that there is but one doctrine of estoppel, which provides that a court of common law or equity may do what is required, but not more, to prevent a person who has relied upon an assumption as to a present, past or future state of affairs (including a legal state of affairs), which assumption the party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness. A central element of that doctrine is that there must be a proportionality between the remedy and the detriment which is its purpose to avoid.”
See also Brennan J at 431-2.
It is well accepted that in order to found proprietary estoppel it is not essential that the representor should have been guilty of unconscionable conduct in permitting the representee to assume he could act as he did. It is enough if in all the circumstances it is unconscionable for the representor to go back on the assumption which he permitted the representee to make: see Lim v Ang [1992] 1 WLR 113; Verwayen per Deane J.
Heydon and Loughlan in their Cases and Materials on Equity and Trusts 1997 (5th Ed) say at 394-395:
“Until Waltons Stores … the law appeared to be a collocation of two lines of cases. The first, typified by Dillwyn v Llewellyn (1862) 4 De GF & J 517; [1861-73] All ER Rep 384, related to expenditure on the representor’s property encouraged by some representation of benefit. The second line related to expenditure with passive acquiesence by the ‘representor’; Lord Kingsdown’s summary of the principle in Ramsden v Dyson … is usually cited, though that case was not on its facts an application of the rule … Cases of acquiescence with knowledge will be harder to prove than active encouragement, and will often be less reprehensible. In cases of acquiescence with knowledge there will be no liability unless the improver has made a mistake about his legal rights (Willmott v Barber (1880) 15 Ch D 96 at 105 per Fry J), while in cases like Dillwyn v Llewellyn the representee cannot be said to have made a mistake, except in the sense that was ‘mistaken’ to rely on the representor’s statements of intention.”
In Beaton v McDivitt (1987) 13 NSWLR 162 McHugh JA observed that the jurisprudential basis of cases such as Dillwyn v Llewellyn is that “[e]quity will not allow a person to insist upon his strict rights when it is unconscionable to do so” and referred to the foundation of the principle as formulated by Ungoed-Thomas J in Ward v Kirkland [1967] Ch 194 at 235 that “it would be unconscionable in the circumstances for a legal owner to fully exercise his rights”: see also Kitto J in Olsson v Dyson (1969) 120 CLR 365 at 379. In Finn, Essays in Equity, 1985 at 73 the principle was characterised (more appropriately according to McHugh JA in Beaton v McDevitt) as an “insistence upon rights” being unconscionable in certain circumstances.
Counsel for the appellants submitted that his clients were entitled to appropriate relief under these principles because there was “an interest which was promised [by Forsyth] or understood [by the appellants as having been promised]”. He contended that in cases of proprietary estoppel, the Court’s initial and primary focus is on whether there is “the promise of an interest followed by the doing of the work which generates the equity”. The mechanism whereby the interest was to be conveyed to the promisee was, on this submission, subsidiary or secondary. It was apparent from the submission that the mechanism of the conveyance had its primary relevance in the nature and extent of the relief which ought to be granted.
Counsel relied on Cameron v Murdoch (1986) 63 ALR 575 and Lim v Ang.
Cameron v Murdoch involved, relevantly, an interest in a large farming property owned in partnership with other family members. The plaintiff had farmed and improved the property over a long period of time. Late in the dealings between the parties the plaintiff was granted a lease of the land with an option to purchase. The option was held to be invalid.
The trial judge found that representations had been made to the plaintiff (as reported in ((1986) 63 ALR 575 at 595):
“that he would in some way be enabled to acquire the … lands and that he acted and abstained from acting upon that footing ie he improved the lands and did not establish himself and family on other lands and that his estate and his beneficiaries thereof would suffer a detriment if the estate is not allowed to purchase the lands at a discount.”
On appeal to the Privy Council it was accepted by the respondents that the plaintiff had an interest in the land. The matter which remained in issue on the appeal was how that equity was appropriately satisfied. The Committee held at 596:
“This is not a case in which it was possible for Brinsden J to quantify the discount on any precise mathematical basis. The 1975 leases are no doubt evidence of the best terms which Alex could then obtain from Dougald by agreement. It does not, however, follow from this that the terms agreed were sufficiently favourable to Alex to satisfy the equity which he had in those lands. … Brinsden J was right to look at all the relevant circumstances in the round and to arrive at a figure for the discount which, in the light of those circumstances, appeared to him to be fair and just.”
It was submitted that that principle should be applied to the present case, so that, although the March 1995 agreement “might be evidence of the best terms which Mr Clancy could obtain from Mr Forsyth by agreement, … it doesn’t follow that it defines the scope of the equity arising from his occupation of the property”.
The statement in Cameron v Murdoch set out above was made in the context of the equity, arising by application of the principle of proprietary estoppel, having been established. The statement was directed to the appropriate relief necessary to satisfy the equity so established. Here the appellants have to first establish they have an equity which needs to be satisfied. Relevant to the determination of that question is the existence of a valid contract which the appellants repudiated.
The appellant’s reliance on Lim v Ang can be disposed of briefly. The case involved contracts which were held to be invalid. I have agreed with the trial judge that the 1995 contract was valid.
In Cadorange Pty Limited v Tanga Holdings Pty Limited (1990) 20 NSWLR 26 the plaintiff, a company in a group, was held entitled to an equitable lien over a property which it had improved in the expectation that its contract to purchase the land from another company in the group would be completed. The vendor company went into liquidation before completion.
In the course of his judgment Young J said at 35:
“it must be a rare case in which the court can impose a liability where there was no request or adoption, and where, had the person benefited had any say in the matter, he or she might very well have rejected the offer of benefit.
I accept this statement, although obiter, as being correct. As it applies to the present case, the evidence is clear that Forsyth never had it in contemplation that he would be required to grant an interest in the land to the appellants. Rather, the position was the converse. Although Forsyth knew about the work being carried out by the appellants and, it appears, encouraged it, and he was concerned that the appellants got the benefit of it, it is clear that that concern, expressed within the framework of the parties being in a contractual relationship, was that if the appellants did not comply with the contractual obligation to purchase Yarrawah they would lose the value of their work on and improvements to the property. A number of letters from Forsyth made this conclusion inevitable.
In my opinion therefore, the appellants have not made out any necessary representation or acquiescence sufficient to ground a proprietary estoppel.
Even if I am wrong and there was sufficient acquiescence or encouragement or adequate representation to otherwise ground an estoppel the appellants are immediately confronted by the principle that a party will not be granted relief under the principles of proprietary estoppel whilst the party is in default: see Vindin v Vindin [1982] 1 NSWLR 618; Beaton v McDivitt (1987) 13 NSWLR 162 per Kirby P at 172 and Mahoney JA at 178.
Here the appellants failed to complete the contract and continue to fail to do so. In my opinion they have not made out their case for relief under the principles of proprietary estoppel.
The ‘Baumgartner’ Equity

The appellants claim alternatively that they are entitled to equitable relief on the basis of the principles stated by the High Court in Baumgartner v Baumgartner (Baumgartner) (1987) 164 CLR 137. In that case, Mason CJ, Wilson and Deane JJ at 148 referred to:
“the general equitable principle which restores to a party contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them.”
Their Honours also referred to the earlier statement of Deane J (with whom Mason J agreed) in Muschinski v Dodds (1985) 160 CLR 583 at 620 that:
“… the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do.”
The appellants contended that the circumstances of the present case satisfy the principle. In particular, they assert that:
(i) there was a joint endeavour for the development of Yarrawah and its purchase by Rosefarms;
(ii) the joint endeavour failed; and
(iii) it was never intended that Salienta would retain the benefit of the developments (other than the $200,000 in improvements that Rosefarms was required to undertake under the 1992 licence).
In my opinion, the relationship between Clancy and Forsyth and the work carried out by the appellants on Yarrawah cannot be characterised as a joint enterprise or endeavour of the type referred to in Baumgartner or Muschinski v Dodds. Rather, the relationship between the parties was always based in contract. Admittedly, a strong bond of friendship developed between Clancy and Forsyth. But the underlying basis of the relationship always remained in contract and the appellants failed to comply with or fulfil their contractual obligations.
In my opinion, the essential bases necessary for the application of the Baumgartner principle have not been made out.
Relief Against Forfeiture
The appellants also argued they were entitled to relief against forfeiture, both in respect of the interest payments and in respect of the improvements they carried out. The claim based on relief against forfeiture had not been made before the trial judge, but was argued before this Court.
This claim can be dealt with briefly as the availability of such relief depends upon whether there is a provision for forfeiture in the contract. Here, there was no such provision (except in relation to a deemed deposit of ten percent, in respect of which there is no issue). Accordingly, there is no basis for the grant of relief under this head.
Restitution
The appellants submitted they were entitled to relief on restitutionary principles whether or not the March 1995 contract was a binding agreement between the parties. They submitted that if the March 1995 contract was of no legal effect, it was an “ineffective contract” (to use the characterisation of Mason & Carter, Restitution Law in Australia (1995) (Mason & Carter)) and Rosefarms was entitled to reasonable remuneration for carrying out the improvements: Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221. Alternatively, if the March 1995 contract was of legal effect but “had accordingly been validly terminated”, Rosefarms would still be entitled to compensation to the extent to which its improvements had enhanced the value of the land: Lexane Pty Ltd v Highfern Pty Ltd (Lexane) [1985] 1 Qd R 446 at 455-456; Stern v McArthur (1988) 165 CLR 489 at 509. I have reached the conclusion that the contract was of legal effect and had been validly terminated. Accordingly, it is the alternative basis of claimed entitlement which is relevant.
It is convenient, for the purposes of providing context to the principles upon which the appellant relies to understand the rights of the parties to a contract which goes off due to the default of one of them. Leaving aside the position of the deposit, where there is no forfeiture provision in the contract the law requires the vendor to repay any instalments paid by the purchaser if, upon its proper construction, the instalments are part payment of the purchase price. Dixon J, in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 explained the operation of this rule at 478:
“It is now beyond question that instalments already paid may be recovered by a defaulting purchaser when the vendor elects to discharge the contract: Mayson v Clouet ([1924] AC 980).”
His Honour at 479 referred to this right as being “legal not equitable … [arising] out of the nature of the contract itself”.
Earlier at 478-479 his Honour explained the manner in which the rights of the purchaser and vendor are adjusted as follows:
…where there is no express agreement excluding the implication made at law, by which the instalments become repayable upon the discharge of the obligation to convey and the purchaser has a legal right to the return of the purchase money already paid which makes it needless to resort to equity and submit to equity as a condition of obtaining relief, the vendor appears to be unable to deduct from the amount of the instalments the amount of his loss occasioned by the purchaser’s abandonment of the contract. A vendor may, of course, counter-claim for damages in the action in which the purchaser seeks to recover the instalments.”
Starke J at 470 also characterised as the right to recover instalments of the purchase price where there was no forfeiture provision as a legal right but added:
“…and, if it be not a legal remedy, still the equitable remedy is clear and well established”.
In Williams on Vendor and Purchaser, 3rd Ed, the authors state at 1012 that if a vendor elects to rescind due to a purchaser’s breach “he is entitled to take active proceedings in equity to assert his right and to secure entire restitution”. They cite Makreth v Marlar 1 Cox 259 as authority for the proposition that a party with a right to rescind may sue in equity to enforce that right “but must make entire restitution” (fn page 1012).
The basis upon which part payments of the purchase price were recoverable was also considered by McPherson J in Lexane at 454-455:
“The fundamental principle applicable to a vendor who rescinds for breach after receiving payment, wholly or in part, on account of the price is that ‘he cannot have the land and its value too’: Laird v Pim (1841) 7 M & W 474, 478 … per Parke B. Hence money so paid by the purchaser is recoverable from the vendor. At law it is recoverable as money had and received upon a total failure of consideration where the consideration for which it was paid is the conveyance or transfer that has not taken place: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, 477-8, per Dixon J; in equity it is recoverable by proceedings for restitution: … see also 48 CLR 457, 470, per Starke J.
…
“With [the] exception [of the deposit] money paid on account of the purchase price is repayable if the sale goes off. That includes not only instalments of price (other than deposit) but also interest thereon paid pending completion: McDonald v Dennys Lascelles Ltd (supra); Berry v Mahoney [1933] VLR 314, 317, 323… However, interest in arrears at the date of rescission is regarded as an element in the vendor’s damages for breach: Real Estate Securities Ltd v Kew Gold Links Estate Pty Ltd.”
There is no issue here as to the recovery of instalment payments as the appellants made none, despite the contractual requirement to do so. The question at issue is restricted to whether the appellants are entitled to relief in respect of the improvements which they affected to the property during their period of occupation. It should be noted that on the appeal, the recoverability of interest payments was not argued, although that had been an issue at trial.
Relief in Respect of Improvements
I have already referred to McPherson J’s statement in Lexane as to the principles relating to the adjustment of the rights between the parties upon discharge of a contract for sale. In relation to improvements his Honour stated at 455:
“In addition, the purchaser is entitled to restitution in respect of permanent improvements made to the land while in his possession to be measured by the extent to which the value of that land has been enhanced: Sandeman v Wilson (supra); Real Estate Securities Ltd v Kew Golf Links Estate Pty Ltd … ; cf however, Rawson v Hobbs. …”
In Stern v McArthur (1988) 165 CLR 489 at 509, Brennan J (obiter) said:
“Before Waddell J. the vendors accepted that, if successful, they were bound to allow the purchasers the value of the improvements they had made and they accept that, if successful in this Court, the up-to-date value of those improvements must be allowed. The vendors’ acceptance of that obligation reflects a purchaser’s entitlement in equity to compensation for the permanent improvements he has made with the vendor’s consent while the purchaser was in possession if the vendor should rescind the contract for sale: see Lexane … [at 455] and cases there cited. I respectfully agree with McPherson J. that the measure of that compensation is ‘the extent to which the value of that land has been enhanced’.”
There are a number of cases where a defaulting purchaser has been compensated for the value of improvements, or where the availability of such a claim has been recognised, although, the basis upon which relief has been granted has not always been articulated.
In Sandeman v Wilson [1880] 1 NSWR Eq 1 the parties had entered into an instalment contract for the purchase of land and livestock. The purchasers paid the first instalment and went into possession and dealt with the property, selling stock and so on. The second instalment payment was not made and the vendors retook possession of the land and resold it. There was no forfeiture provision relating either to instalment payments or improvements which might have been carried out on the land. The purchasers sought the repayment of the instalment paid together with monies representing the value of improvements they erected on the land. It was held that the vendors had demonstrated that they intended “to keep the purchase money and the property as well. Such a course of proceeding could not be allowed if there was any mode by which the Court of Equity could interfere”. The court declared that after appropriate adjustments, the purchasers were entitled to the return of the first instalment of purchase price, “and also the value of all permanent improvements erected by [the purchasers]… whilst in possession”.
In Real Estate Securities Ltd v Kew Golf Links Estate Pty Ltd [1935] VLR 114 the plaintiff had entered into an instalment contract to purchase land. The contract provided that upon breach, the deposit and instalments paid were to be forfeited to the vendors. The purchaser paid some instalments and made certain improvements to the land. There was no provision in the contract in relation to the improvements should the contract go off. The purchasers sought relief against forfeiture. The vendors counter-claimed for damages for breach. In granting to the purchasers relief against forfeiture in respect of the instalments paid, Lowe J recognised the distinction in McDonald v Dennys Lascelles in respect of a defaulting purchaser’s right at law to be repaid instalments and the entitlement to relief against forfeiture. In formulating the relief including that relating to the vendor’s claim for damages, he stated at 123-124:
“No point has been made by the parties that an occupation rent should be charged against the plaintiff, since it is conceded that that item is balanced by the interest on outstanding moneys provided for in the contract…There are then broadly, two matters to be brought into account - on the plaintiff’s side the amount which it has paid and which the defendants claim to forfeit; and on the other, the damages which the defendants have sustained by the loss of their contract, …. In ascertaining the defendants’ damage, improvements made by the plaintiff which increased the value of the land repossessed by the defendants at the time of [acceptance of the plaintiff’s breach] should be taken into account.” (emphasis added).
In PC Developments Pty Ltd v Revell (1991) 22 NSWLR 615, the Court was dealing with a claim to recover the value of improvements to land in circumstances where there was a clause forfeiting the right to the value, or cost, of improvements. Clarke JA (at 648) was of the opinion that, provided that such a clause was penal in nature, the same principles would apply in the case of a clause forfeiting instalments of purchase money. In an obiter comment at 648, his Honour accepted as correct the proposition put to the Court in argument that:
“In the absence of any contractual provision [as to forfeiture] the vendor would be bound, upon the termination of the contract, to compensate the purchaser for the permanent improvements made on the land”
In accepting the correctness of this proposition his Honour relied upon the statement of Brennan J in Stern v McArthur at 519:
“When a vendor rescinds in exercise of his general law rights, it is not unconscionable for him to take the benefit of the forfeiture which is thereby effected: there is no penalty, for the vendor is bound to refund what the purchaser has paid (other than a genuine deposit) and he is obliged to compensate the purchaser for the permanent improvements made on the land with the vendor’s consent to the extent that the value of the land is thereby enhanced. True it is that the vendor is entitled to recover his beneficial interest in the land and, if there be any natural increase in the value of the land, he takes the benefit of the increase. But that benefit goes with the land, whether the ownership of the land passes absolutely to the purchaser or reverts to the vendor. I respectfully agree with Mahoney JA who, in his dissenting judgment, said that there is ‘no inequity in such an increase in the value of the land accruing to the vendor rather than to a defaulting purchaser. And this, I think, does not depend on whether the purchaser’s rights in land contracted to be purchased is measured by whether specific performance or some other form of relief be seen as appropriate or at what time it is so seen’.” (emphasis added)
Mason & Carter recognise that a claim may be available to a defaulting purchaser for the value of improvements made to the land. Having discussed the principles relating to restitutionary claims to recover reasonable remuneration (paras 1154 ff), they state at para 1170:
“A restitutionary claim analogous to reasonable remuneration may arise through equitable principles. Where a contract for the sale of land is discharged, restitution may be claimed in respect of permanent improvements made to the land while the purchaser was in possession with the consent of the vendor, as a matter to be dealt with by way of adjustment on discharge.”
The authors refer amongst other decisions to Real Estate Securities Ltd at 123-4; Lexane at 455; Stern v McArthur at 509.
The respondents assert that none of these statements provide a basis for the appellants to claim relief. In particular they submit that the obiter statement of Brennan J in Stern v McArthur at 509 and the statement of McPherson J in Lexane are properly characterised within a line of legal authority which deals with relief from forfeiture of part payments. They further submit that in any event, those decisions are distinguishable, as each contained a clause akin to a forfeiture clause and the court will be loath to permit reliance on such a clause where the defaulting purchaser’s conduct has not been egregious. Here, it was submitted, the appellants had bluntly refused to perform their obligations, and thus should not be entitled to relief.
I do not consider that the respondents have made good either of these submissions. Admittedly, McPherson J does not, in the passage at 455 cited above, expressly draw a distinction between the entitlement to recover the value of improvements where there was a forfeiture provision relating to improvements and the situation where there was no forfeiture provision. It is possible that his Honour’s reference to an “entitle[ment] to restitution” relates back to his earlier reference to the equitable entitlement to relief against forfeiture, which he characterises as restitutionary in nature. However, in Lexane itself, the contract did not contain a forfeiture clause in relation to the value of improvements. Further, the authorities upon which his Honour relied were not forfeiture cases. Accordingly, I consider that a proper reading of this passage from his Honour’s judgment is that a purchaser who, with a vendor’s consent, improves property is entitled to restitutionary relief upon discharge of the contract, regardless whether the discharge is caused by default on the purchaser’s part. This reading of the passage in McPhersons J’s judgment is consistent with Brennan J’s statement at 519 (set out above). Brennan J clearly draws a distinction between the nature of the relief available where there is a forfeiture clause and where there is not. It is also consistent with the rationale which underlies the principles governing the entitlements of parties to a contract which goes off due to the default of one of the parties: see Laird v Pimm; Williams on Vendor and Purchaser.
The appellant’s conduct cannot be categorised as egregious, nor did they bluntly refuse to perform. There were nearly two years of negotiation before they accepted their inability to find the financial resources to complete.
The respondents further submitted that in any event, relief on restitutionary grounds was precluded by the principle in Sumpter v Hedges [1898] 1 QB 673. That case related to a claim by a party in breach as on a quantum meruit in respect of work done and material supplied under a lump sum contract. It was held that a party in breach was not entitled to restitutionary relief as the obligation to pay had not arisen, and, as Chitty LJ noted, there was “… no evidence from which the inference can be drawn that he entered into a fresh contract to pay for the work done by the plaintiff”. The rule in Sumpter v Hedges has been criticised and there are suggestions it was wrongly decided (see Mason & Carter at para 1160) but in any event, it does not apply to the claim here. This case involves a claim in respect of improvements carried out outside the contract. In Sumpter v Hedges the claim was in respect of work done under the contract.
In my opinion, the appellants were entitled to relief based on the restitutionary principles discussed in Lexane, Stern v McArthur and PC Developments Pty Limited v Revell.
Relief
The appellants accept that if they are not entitled to equitable proprietary relief, the respondents will have been entitled to possession of Yarrawah since 26 October 19998 and that his Honour’s order for a writ of possession should not be disturbed. This is correct, and the appellants’ success, on my judgment, on restitutionary grounds does not alter that. They submit however that in grating relief, his Honour made two errors: first in ordering mesne profits against Clancy personally and secondly in ordering an inquiry as to damages.
As to the first of these submissions, I agree. Clancy was and is not personally in possession and there was no basis for making an order against him.
I do not agree however that his Honour erred in directing that there be an inquiry. That is the usual order in the case of a claim for damages for mesne profits. Further, although the appellants called extensive evidence as to the cost of improvements, that is not the basis upon which they are entitled to relief. The general approach in relation to allowances for improvements has been to value the claim by reference to the enhancement of the value of the land: see Real Estate Securities Ltd at 123-4; Lexane at 455; McArthur at 509; P C Developments at 648. In Rawson v Hobbs (1961) 107 CLR 466 Dixon CJ at 485 held that where the purchaser is not in default the cost of improvements will be the appropriate measure. However, that case was a forfeiture case and does not apply here. In accordance with the principles discussed above, the inquiry should be limited to improvements carried out prior to termination.

In P C Developments Pty Ltd v Revell the purchaser was initially successful in obtaining what was described as relief against forfeiture although not able to complete the contract, but that was because it was agreed that, if entitled to relief against forfeiture of his interest, he “should in effect be placed in the same position as if he had completed the contract” (at 632) or should have compensation for damages in lieu of a decree for specific performance (at 641). This case does not stand as authority for relief against forfeiture by payment of compensation as distinct from reinstating the purchaser’s right to purchase and decreeing specific performance. Nor does the description of the conceded entitlement in Stern v McArthur at first instance (Waddell J, 2 November 1984, unreported) as “relief against forfeiture of the value added to the land by the house …”.
Why, then, may a purchaser in some circumstances have an entitlement to be compensated in respect of permanent improvements to the land?
The entitlement is described as an entitlement as a condition or term of equitable relief in Rossiter, Penalties and Forfeiture, pp 184-5, with the observation that the common thread running through the cases is that the purchaser has sought equitable relief. The description probably comes from Rawson v Hobbs, where the purchaser did not seek equitable relief but seems to have been given it as if there should have been rescission ab initio; from the other cases, the postulated common thread is incorrect. In any event, the question remains: why may the purchaser get a condition or term of equitable relief in the shape of an order that the vendor pay compensation for improvements?
The entitlement is described as “a matter to be dealt with by way of adjustment on discharge” in Mason and Carter, Restitution Law in Australia, para 1170 (referred to also as restitutionary relief and a substantial restitution requirement at paras 1438 and 1439). The language of equitable adjustment was also used in Sunstar Fruit Pty Ltd v Cosmo to describe Lexane Pty Ltd v Highfern Pty Ltd and Sandeman v Wilson. Still the question remains: why may there be adjustment on discharge, or restitution?
It seems to me that, if Salienta is to pay to Rosefarms the increased value of Yarrawah attributable to the improvements, it must be either on the basis of what was described by Deane and Dawson JJ in Stern v McArthur (at 526-7) as the notion underlying much of equity’s traditional jurisdiction to grant relief against unconscientious conduct, namely that a person should not be permitted to use or insist upon his legal rights to take advantage of another’s special vulnerability or misadventure for the unjust enrichment of himself, or by adoption of principles of unjust enrichment. The former notion was described by Mason and Deane JJ in Legione v Hateley (at 444) as “the fundamental principle according to which equity acts, namely that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct”. In terms of unconscionability, the basis must be that there may be relief if it would be unconscionable in all the circumstances for Salienta to retain the benefit of the improvements without compensating Rosefarms for its expenditure. If principles of unjust enrichment be applied, it must be found that Salienta’s enrichment by having the benefit of the improvements is in the circumstances at the expense of Rosefarms and unjust. Rejecting the appellants’ stance, in cases such as the present the purchaser does not have an automatic entitlement to recover from the vendor the amount expended or the increase in the value of the land, and may receive only such relief as equity may afford in order to prevent unconscionability or as may be necessary to avoid unjust enrichment.
The postulated basis of equitable relief on the ground of unconscionability goes beyond relief against forfeiture of an interest in the land, in that the purchaser obtains relief although unable or unwilling to complete the purchase. It takes up the basis of relief by way of proprietary estoppel recognised in Waltons Stores (Interstate) Pty Ltd v Maher, the element of unconscionability both attracting the jurisdiction of a court of equity and shaping the remedy to which Brennan J referred (at 419), but with a sufficient remedy an order for payment of equitable compensation. This is effectively what was done in T M Burke Estates Pty Ltd v P J Constructions (Vic) Pty Ltd (in Liq), and Nepean District Tennis Association Inc v Penrith City Council (1988) 66 LGRA 440. In the latter case the club resurfaced tennis courts held under licence from the council in anticipation, encouraged by the council, of a long term lease. It was held that, in the absence of an assurance that a lease would be granted, the proprietary relief of a lease would not be granted. But it was said that relief could be given against a party who would have been unjustly enriched by contributions made, or improvements made to his land, having regard to the expectations of the parties at the time, citing Morris v Morris (1982) 1 NSWLR 61, Muschinski v Dodds and Baumgartner v Baumgartner, and that because it would be unconscionable for the council “to accept the full benefit of the expenditure without some compensation or notice” (at 448) it should pay to the club a depreciated value of the resurfacing work less an allowance for a market rental to the date the council obtained possession.
In England a general principle that equity will restrain the enforcement of legal rights when it would be unconscionable to insist on them has been thought unacceptable, see Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana at 700; Union Eagle Ltd v Golden Achievement Ltd (1997) AC 514 at 519. In Australia the High Court has given unconscionability in this respect a more significant role in the grant of equitable relief, while still cautioning that a strong case must be made out to warrant departure from holding parties to their bargain and that unconscionability should not bring judicially idiosyncratic notions of fairness. But there is no need in principle, once unconscionability warranting equitable relief has been found, for the remedy to be proprietary, even by creation of a lien. In circumstances such as the present the principles invoked for proprietary estoppel can readily enough be applied, but with the remedy not being proprietary, and it may be noted that in Ramsden v Dyson Lord Kingsdown contemplated relief “either in the form of a specific interest in the land, or in the shape of compensation for the expenditure …”.
In Nepean District Tennis Association Inc v Penrith City Council there was also reference to unjust enrichment, and the claim in Sunstar Fruit Pty Ltd v Cosmo was put forward as an unjust enrichment claim. In Union Eagle Ltd v Golden Achievement Ltd a possible greater role of “the law of restitution and estoppel” was foreshadowed (at 520), but the principles of unjust enrichment, although recognised, are not yet embedded in Australia as themselves grounds for relief. They were not the subject of submissions in the appeal.
In deciding whether, assuming that there may be an entitlement on one of these bases, on the facts in this case Salienta is to pay to Rosefarms the increased value of Yarrawah attributable to the improvements, the relevant considerations are not necessarily the same as those arising in relation to equitable relief pursuant to proprietary estoppel. At least in relation to unconscionability there is substantial common ground, although arguably the fact of a contract between the parties has different significance where the purchaser’s claim is founded on the failure of the contract. It must not be forgotten that the appellants claimed the increased value of Yarrawah attributable to the improvements over the whole period of the relationship, from 1992 onwards, and did not limit their claim to the improvements during the currency of the March 1995 contract. For the first two years or so there was no contract of sale, but an option to purchase. For about three months there was the 1994 contract for sale: although it seems that its enforceability was in dispute at the trial, I see no reason to regard it as any less binding and enforceable than the March 1995 contract. The option to purchase was not exercised, and the 1994 contract for sale should be taken to have been consensually rescinded. The appellants can not be in any better position in relation to the improvements prior to March 1995 than in relation to the improvements made during the currency of the March 1995 contract.
I do not think repetition of the earlier material in these reasons is necessary. There is no doubt that Mr Forsyth, and through him Salienta, knew of the improvements, and acquiesced in and encouraged the making of the improvements in the manner earlier referred to. But in the circumstances I have described I do not think there would be unconscionability in Salienta having the benefits of the improvements without compensatory payment for the increased value of Yarrawah attributable to the improvements. Nor in my view would there be unjust enrichment.
Mesne Profits
The appellants’ submissions did not go beyond stating the bases outlined earlier in these reasons. The respondents made no submissions on the subject. It was a matter for the trial judge whether, in the way the hearing had proceeded, it was appropriate to direct an inquiry into Salienta’s damages by way of mesne profits. No reason has been shown to interfere with the course his Honour took. Under the 1996 licence agreement the right of occupancy was conferred on Rosefarms, and nothing was put to us to indicate that Mr Clancy was in possession of Yarrawah instead of or together with Rosefarms. The order for payment of mean profits should have been against Rosefarms alone.
The Result
Save that Mr Clancy does not have to pay the damages by way of mesne profits, the appellants have failed in the appeal. I do not think that their partial success, which may well only have corrected a slip on the part of the trial judge, or should temper the order for costs otherwise appropriate, or should affect the trial judge’s orders as to costs.
I propose the following orders -
(1)Appeal upheld in part;
(2)Vary the orders made by deleting “defendants” from order 4 and substituting “second defendant”.
(3)Otherwise appeal dismissed.
(4)Appellants pay respondents’ costs of the appeal.
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LAST UPDATED: 25/10/2000

[2000] NSWCA 248

23 October 2000

Key Legal Topics

Areas of Law

Contract Law

Equity & Trusts

Property Law

Legal Concepts

Restitution

Charge

Costs

Appeal