Pentagold Investments Pty Limited & v Romanos & Anor

NEW SOUTH WALES COURT OF APPEAL

CITATION: PENTAGOLD INVESTMENTS PTY LIMITED & ANOR v ROMANOS & ANOR [2001] NSWCA 425

FILE NUMBER(S):
40274/01

HEARING DATE(S): 30 October 2001

JUDGMENT DATE: 12/12/2001

PARTIES:
Pentagold Investments Pty Limited and Maroon Bros Investments Pty Limited - Appellants
Joseph John Romanos and Teresa Romanos - Respondents

JUDGMENT OF: Mason P Sheller JA Giles JA

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): 1333/01

LOWER COURT JUDICIAL OFFICER: Windeyer J

COUNSEL:
D F Officer QC/R J Powell - Appellant
B A J Coles QC/D L Warren - Respondents

SOLICITORS:
Patrick A Bolster & Son - Appellants
Gordon Robilliard & Plowman - Respondents

CATCHWORDS:
Equity - contract for sale of land - relief against forfeiture - whether unconscionable conduct on part of vendor to terminate contract

LEGISLATION CITED:
Conveyancing Act 1919

DECISION:
1 Appeal allowed
2 Cross-appeal dismissed
3 Set aside the orders made by Windeyer J on 13 April 2001
4 Make orders 8 and 1 to 6 in the amended summons
5 Dismiss the cross-claim in proceedings 1333/01 with costs
6 The respondents to pay the costs of the proceedings before Windeyer J and of this appeal and the cross-appeal.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40274/01
ED 1333/01

MASON P
SHELLER JA
GILES JA

Wednesday, 12 December 2001

PENTAGOLD INVESTMENTS PTY LTD & ANOR v ROMANOS & ANOR

The appellants contracted to purchase three properties from the respondents. Clause 17 of the contracts provided that a ten per cent deposit was to be paid to the purchaser, as to one-tenth upon exchange of contracts and as to nine-tenths upon approval of the Development Application. Special Condition 19 provided that the purchaser would obtain Council approval for the erection of units on the properties. Clause 2 provided that time is essential in the payment of the deposit. The combined effect of Special Condition 9 and Clause 9 was to ensure that, in the case of a breach of the contract by the purchaser, the vendor was entitled to retain a ten per cent deposit.

Contracts were exchanged on 15 September 1999 and one tenth of the deposit was paid then. The development application was approved on 24 November 2000, and the purchasers received notice of this on 1 December. The trial Judge found that between 1 and 11 December, there were discussions between the parties about release of part of the deposit in order to enable the respondent to purchase another property. On 19 December 2000, without having given any prior notice, the respondents gave notice to the appellants terminating the contracts. On 20 December, the appellants paid the balance of the deposits.

The appellants filed summons seeking declarations for specific performance of the contracts and relief against forfeiture. The trial Judge dismissed the summons, but, pursuant to s55(2A) of the Conveyancing Act 1919 (the Act) ordered the respondents to refund to the purchasers the whole of the deposit. During the course of hearing, the appellants sought to have a letter written by their solicitor admitted into evidence to demonstrate that the failure to pay was the result of inadvertence, and to re-open their case so as to call the solicitor to give evidence on this point. The trial Judge admitted the letter only as proof of the fact that it was written, and refused leave to re-open. The appellants challenged the finding that a claim for relief against forfeiture had not been made out, and the decision on admission of the solicitor's evidence. The respondents cross appealed against the trial Judge's decision in relation to the Conveyancing Act.

Held: per Sheller JA, Mason P agreeing, allowing the appeal:

The trial Judge's interpretation of Clause 17 as requiring the deposit to be paid on the earliest opportunity after the appellants received notice of the development approval was correct.

The trial Judge exercised his discretion appropriately in refusing to allow the appellants to re-open their case.

Relief against forfeiture should have been granted as in all the circumstances it would be unconscionable for the respondents not to complete the contract. Stern v McArthur (1988) 165 CLR 489, Legione v Hateley (1983) 152 CLR 406, applied.

(a) although, on the evidence, no finding could be made that the failure to pay the deposit on time was the result of fraud, mistake, accident or surprise, these categories do not exhaust the circumstances in which relief will be granted.

(b) the purpose of the forfeiture provision was to secure the payment of the deposit, and so once that payment was made, the object of the provision was achieved, and the respondent would suffer no loss if relief against forfeiture was granted.

(c) if the respondents were allowed to terminate the contract, they would receive the benefit of the increase in value of the land over the period since the exchange of contracts. In particular they would receive the benefit from the grant of the development approval, which, as the trial Judge found, the appellants had incurred some expense in order to obtain.

(d) The conduct of the respondents, in continuing to behave as if the contract was on foot, was such as to suggest that time had ceased to be of the essence in relation to the payment of the deposit. In these circumstances, it would be unconscionable for the respondents to be entitled to terminate the contract for the failure to pay the deposit on time without giving prior notice of their intention to do so. Carr v JA Berriman Pty Limited (1953) 89 CLR 327, applied.

Per Giles JA, dissenting, dismissing the appeal, but allowing the cross-appeal:

Since this was not a situation involving a penalty to secure the payment of money, it is necessary to find unconscionable conduct before relief against forfeiture can be granted to the appellant.
(a) On the evidence, the failure to pay the deposits was unexplained. Nor was there any evidence as to the discussions between the parties from early December until 11 December 2000, or as to the amount incurred by the appellant in obtaining development approval.

(b) A number of factors had to be taken into account: that the contract did not call for notice before termination, the purchasers did not give evidence that they were led by events to think that the contract would not be terminated, the purchasers should have realised that they would lose money expended, and the expenditure and increase in value were both unquantified and not shown to have been outside the contemplation of the parties when they entered the contracts.

(c) On the available evidence, a claim for relief against forfeiture based on unconscionable conduct on the part of the respondents could not be made out.
(d) The cross appeal should succeed as no reasons were advanced on which an order could be made under s55(2A) of the Act.

ORDERS

1. Appeal allowed;

2. Cross-appeal dismissed;

3.Set aside the orders made by Windeyer J on 13 April 2001;

4.Make orders 8 and 1 to 6 in the amended summons;

5.Dismiss the cross-claim in proceedings 1333/01 with costs;

6.The respondents to pay the costs of the proceedings before Windeyer J and of this appeal and the cross-appeal.

*****

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40274/01
ED 1333/01

MASON P
SHELLER JA
GILES JA

Wednesday, 12 December 2001

PENTAGOLD INVESTMENTS PTY LTD & ANOR v ROMANOS & ANOR

Judgment

MASON P: I agree with Sheller JA.
SHELLER JA:
Real Estate Contracts
The appellants, Pentagold Investments Pty Limited and Maroon Bros Investments Pty Limited (the purchasers), on 15 September 1999 exchanged contracts to purchase three properties known as 44 Wigram Street, 46 Wigram Street and 48 Wigram Street Harris Park. The vendor and registered proprietor of 44 Wigram Street was the respondent, Joseph John Romanos. The vendor and registered proprietor of 46 and 48 Wigram Street was Teresa Romanos, who died on 23 September 2001. I shall refer to them both as “the vendors”.
On the vendors’ application on 30 October 2001, the first day of hearing of the appeal, the Court made an order appointing the first respondent, Joseph John Romanos, to represent the estate of the late Teresa Romanos for the purpose of the proceedings.

The agreed sale price of 44 and 46 Wigram Street was in each case $750,000 with a deposit of $75,000. The agreed sale price of 48 Wigram Street was $375,000 with a deposit of $37,500. Clause 17 of each of the contracts for sale provided:

“The deposit payable hereunder shall be paid by the Purchaser –
(a) as to one-tenth upon exchange of Contracts; and
(b)as to nine-tenths upon approval of the Development Application.”

Completion was to take place on or before the 365th day from the date of the contract. Special Condition 19 of each contract provided that the purchaser would proceed to obtain the approval of the local Council to the development of the three properties by the erection of twenty-four units plus the heritage house on 48 Wigram Street and would keep the vendor advised as to the progress of same, informing the vendor immediately approval was received. The proviso to Special Condition 19 was:
“Provided however that should such approval not be received within two hundred and seventy (270) days from the date hereof or within such further period as may be mutually agreed upon then the Vendor or the Purchaser may at any time thereafter by notice in writing given to the other party or the other party’s Solicitor rescind this Contract and the provisions of Clause 19 hereof will apply. It is an essential term of this condition that the Purchaser lodge the Development Application within 120 days from today’s date.”

Clause 2 of the contracts provided so far as relevant under the heading “Deposit and other payments before completion” as follows:
“2.1The purchaser must pay the deposit to the depositholder as stakeholder.

9.1 Normally, the purchaser must pay the deposit on the making of this contract, and this time is essential.

9.1 If this contract requires the purchaser to pay any of the deposit by a later time, that time is also essential.

9.1 The purchaser can pay any of the deposit only by unconditionally giving cash or a cheque to the depositholder or to the vendor, vendor’s agent or vendor’s solicitor for sending to the depositholder.

9.1 If any of the deposit is not paid on time or a cheque for any of the deposit is not honoured on presentation, the vendor can terminate but only before the deposit is paid in full.”

“Normally” was defined in Clause 1 as meaning “subject to any other provision of this contract.” By Special Condition 8 the parties agreed that “the deposit moneys herein may be released to the Vendor should the Vendor require same.” Special Condition 9 provided that should the deposit
“paid hereunder be less than ten per cent of the purchase price then in the event of the Purchaser default as stipulated in Clause 9 of this Contract in addition to the other remedies available to the Vendor pursuant to the said Clause the Purchaser will be liable to the Vendor for the full ten per cent deposit.”
Clause 9 of the contract under the heading “Purchaser’s Default” provided:
“If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice and after the termination –

9.1 keep or recover the deposit (to a maximum of 10% of the price);”

Extension of completion time

By separate deeds between the parties dated 1 September 2000 the time for completion was extended to 1 March 2001. Further deposits totalling $31,250 were required to be paid bringing the total preliminary deposits payable under the three contracts to $50,000 and extending the time for development approval to 1 December 2000. The additional sum of $31,250 was paid by the purchasers. On 15 September 1999 the 10 per cent of deposits was paid. On 18 January 2000 the development application was lodged with the Parramatta City Council. On 24 November 2000 the Parramatta City Council approved the development application. On 30 November 2000 the purchasers gave notice that completion was required on 1 March 2001. On 1 December 2000 the purchasers agreed to release $50,000 deposit to the vendors to allow them to bid at an auction for another property on 2 December. At 5 pm on 1 December 2000 the purchasers received notice of the development approval.
Events on and after 1 December 2000
Windeyer J found that between 1 December and 11 December there were discussions about release of part of the deposit or early settlement on one property to enable Joseph Romanos to purchase another property. Mr Romanos was considering properties in Prospect Street and Alice Street Harris Park, but nothing came of these discussions. His Honour said:
“It is not clear whether the plaintiff purchasers understood the vendors were entitled to release of deposit moneys.”
The evidence upon which this finding was based is to be found in the affidavit of Mr Maroon, a director of the purchasers, as follows:
“14.       [This paragraph was admitted only against the first defendant Joseph Romanos]
On 1 December 2000 at around 11 am I met with Joseph Romanos and the selling agent, Mr Joe Michael. Joseph Romanos said:
‘We want to vary the terms of the contract. I want to buy a property in Prospect Street, Harris Park at auction tomorrow. I would like to have the deposit moneys that the agent holds on Wigram Street released to me to use for the deposit on Prospect Street if I am successful at tomorrow’s auction. And then I would like an advance on the settlement moneys on the Wigram Street properties so I can complete the Prospect Street purchase.’
I said:
‘I will discuss it with my partners.’
Later that day I discussed the matter with my partners. We agreed to release the deposit if required but we did not agree to anything else. Exhibit RM9 [sic JM9] is a copy of a fax sent by Allan Bolster to Monica Kanaan at about 5 pm on 1 December 2000.
Joseph Romanos did not buy the Prospect Street property at the auction on 2 December 2000.
…..
16.         Following a discussion with Amer Younis and my other partners we gave Allan Bolster instructions to say that we would agree to settle the purchase of 46 Wigram Street one month early to enable Joseph Romanos to complete the purchase of the Alice Street property and that we would allow Joseph Romanos to remain in it rent free for two weeks after settlement to allow repairs to the Alice Street property to be carried out.
17.         On about 11 December 2000 Joseph Romanos said:
‘The place in Alice Street is too expensive. I am looking for something else.’
I said:
‘Let me know as soon as you find something so we can arrange an early settlement between us’.”
Mr Bolster put on an affidavit of 6 February 2001 in which he said he was the solicitor for the purchasers and had been since prior to the exchange of contracts on 15 September. He deposed as follows:
“2.         From prior to 15 September 1999 until mid December 2000 Monica Kanaan acted as solicitor for the defendants Joseph Romanos and Teresa Romanos in relation to the sale of their properties at 44-48 Wigram Street, Harris Park.
3.            Shortly before 5 December 2000 I received instructions to act for Joseph Romanos as purchaser of a property at Alice Street, Harris Park. I was told that Monica Kanaan was acting for the vendor of the Alice Street property. I was also told [part rejected] and [the remainder of this paragraph was admitted only against the first defendant Joseph Romanos] by Joseph Romanos that the parties to the contracts for the sale of the land at 44-48 Wigram Street had been negotiating with a view to:
(a)completing the sale of 46 Wigram Street at the beginning of February 2001 so that Joseph Romanos could use the funds to complete the purchase of the Alice Street property; and
(b)allowing Joseph Romanos to remain in 46 Wigram Street rent free for 2 weeks after settlement to allow repairs to be carried out to the Alice Street property.
4.            On 5 December 2000 I received from LJ Hooker, Granville, a copy of a contract for the sale of the Alice Street property. The contract had a clause requiring completion within 56 days of exchange but Joseph Romanos had agreed with the vendor to shorten the completion date to 42 days. I re-negotiated with Monica Kaanan an extension of that clause until the beginning of February 2001 and confirmed with Amer Younis that settlement of 46 Wigram Street, Harris Park could take place on 1 February 2001 instead of 1 March 2001.
5.            On about 11 or 12 December 2000 Joseph Romanos telephoned me and said:
‘I am not going to buy the Alice Street property. It is too expensive. I will look for a less expensive property. Monica Kanaan will let you know when I have found one.’
I understood and accepted that I would not be acting in relation to the purchase of another property because in all likelihood Monica Kanaan would not be acting for the vendor of that other property.”
The facsimile of 1 December contained the following message:
“Re Pentagold and Maroon Bros from Romanos
PPTY 44, 46 and 48 Wigram Street Harris Park
Our client instructs that they agreed to a release of the deposit paid of $50,000 to your client for the payment of the deposit and stamp duty on an alternative purchase.
Allan Bolster”
None of this evidence was challenged.
On 19 December 2000 the vendors by their solicitors gave notices to the purchasers terminating each of the three contracts. The following day the purchasers paid the balance of the deposits ($137,500) to the agent. On that day during a conversation between the solicitors for the parties and in answer to a question from the purchasers’ solicitors about the basis for the rescission, the vendors’ solicitor said: “The Development Approval has been granted and your client has failed to pay the balance of the deposit.” At no stage was any demand or request oral or written for payment of the balance of the deposit moneys for the three properties made to the purchasers or their solicitor.
Proceedings in the Equity Division
By summons filed in the Equity Division of the Court the purchasers sought declarations for specific performance of the three contracts. By amendment they also sought an order relieving them against forfeiture under the three agreements and alternatively an order for the repayment of the deposits. By cross-claim each of the vendors sought a declaration that the contracts had been terminated and that the deposit be forfeited. No further pleadings were filed.
The proceedings came before Windeyer J, who, on 12 April 2001, dismissed the purchasers’ summons but pursuant to s55(2A) of the Conveyancing Act 1919 ordered the vendors to refund to the purchasers the whole of the deposit paid under the contracts within seven days. During the course of the hearing the purchasers applied to re-open their case for the purpose of calling Mr Maroon. On 27 March 2001, for reasons his Honour then gave, he refused to give leave to the purchasers to call Mr Maroon.
Appeal and Cross-appeal
The purchasers have appealed against his Honour’s judgment on the following grounds:
“1.His Honour erred in finding that the appellants had not made out a claim for relief against forfeiture of their interest in the land at 44, 46 and 48 Wigram Street Harris Park.
2.His Honour erred in finding that there was no reason put forward for non-payment of the deposit.
3.His Honour erred in rejecting the plaintiffs’ solicitor’s letter of 20 December 2000 (exhibit A, JM13) as evidence of the facts stated therein.
4.His Honour erred in refusing to allow the appellants to call further evidence on 27 March 2001 as to the reasons for non-payment of the deposit.”

The vendors filed a notice of cross-appeal from that part of Windeyer J’s decision that they refund to the purchasers the whole of the deposit paid under the contracts pursuant to s55(2A) of the Conveyancing Act 1919 on the following grounds:
“1.His Honour erred in the exercise of his discretion in ordering the return of the deposit under Section 55(2A) Conveyancing Act 1919 when there was no evidence to show that it would be unjust or inequitable to allow the vendor to retain the deposit.
2.His Honour erred in the exercise of his discretion in ordering the return of the deposit as His Honour failed to express any or sufficient reasons as to why he was exercising his discretion.
3.His Honour ought not to have made an order under Section 55(2A) Conveyancing Act for the return of the deposit unless he was satisfied that not to do so would lead to unjust or inequitable consequences.”
Discussion
The arguments before Windeyer J were (a) that there was no entitlement to terminate as there was no breach; (b) if there was a breach then relief against forfeiture should be granted; and (c) that payment of the deposit and acceptance by the agents amounted to an affirmation of the contracts. Windeyer J observed that no claim of waiver or estoppel was argued. He held that affirmation could not succeed first because it had not been shown that the agents had any authority to affirm and, secondly, because even after termination the vendors would have been entitled to claim the balance of the deposit.
Windeyer J directed himself first to the question of whether there was a breach. His Honour acknowledged that the purchasers could not be expected to know the date of approval until told by Council and could not have been expected to pay on 24 November, the date of approval. The purchasers knew of approval on 1 December at about 5 pm. His Honour observed that an essential time does not ordinarily equate with a reasonable time, but as 1 December was a Friday it seemed to his Honour obvious enough that it could not have been argued there was a breach of contract if payment were not made after 5 pm on that date. He said:
“The purchasers could not necessarily have reasonably been expected to have ensured that funds were available at all times after the possibility of development approval arose. It follows from this that I would have thought that payment on Monday 4 December of the balance of the deposit would have been sufficient compliance with the terms of the contract. I accept that during the negotiations for release of the deposit and earlier settlement no demand was made. However, I do not consider that really bears on the matter. I consider that failure to pay on the first reasonable possible day after notice of approval of the development application was in the hands of the plaintiffs was a breach bringing about the right to terminate.”
The purchasers did not challenge that conclusion in their notice of appeal.
Consistent with his Honour’s conclusion, with which I agree, that “upon” in the context of Special Condition 17 (b) could not sensibly mean “simultaneously with” approval of the development application, it must mean “after”. Thus the condition provides that the deposit shall be paid as to nine-tenths “after approval of the development application”.
In Brien v Dwyer (1978) 141 CLR 378 the High Court dismissed an appeal from a decision of this Court ((1976) 2 NSWLR 415) in which at 424-425 Hutley JA construing the words in the 1972 Real Estate Institute Form Contract for Sale of Land “the Purchaser shall upon the signing of this agreement pay as a deposit to the Vendor’s agent” a sum nominated, said:
“The deposit is an ‘earnest to bind the bargain’: Howe v Smith (1884) 27 ChD 89 at 101, or, as Lord Macnaghten said in Soper v Arnold (1889) 14 App Cas 429 at 435, ‘a guarantee that the purchaser means business’. It cannot so function if payment can be made within a reasonable time after the signing of the contract. No rational vendor would subject himself to the trouble of giving a notice to pay the deposit and the risk of court determination of what is a reasonable time at the very inception of the contract. It must be remembered that on the exchange of contracts the purchaser acquires an equitable interest in the land, and this of itself has a constraining effect upon the vendor. What he can do with his land is materially limited from the moment of exchange.”
In the High Court at 392 Gibbs J remarked, having referred to what Lord Macnaghten said in Soper v Arnold:
“The primary purpose of the deposit would not be served unless the deposit were paid at the very time when the purchaser assumed his obligations under the contract. A vendor is entitled to expect that the purchaser will be ready to show that he means business by paying the deposit no later than the time when the contract is entered into, and a security for due performance is likely to be ineffective if not available at the time when the binding obligations attach. If the vendor were compelled to wait an indefinite time after contracts had been exchanged before becoming entitled to receive the deposit, the purposes of the deposit would be frustrated. These considerations strongly support the view that ‘upon’ in cl 1 does not mean ‘after’, but ‘immediately after’, or, to use the language of R v Humphery ‘upon the occasion of, or at the time of’.”
See also per Barwick CJ at 385 where his Honour pointed out that to construe the clause as meaning within a reasonable time after signature denied to the payment of a deposit, the character of an earnest of performance and raised almost an insoluble question as to what was a reasonable time. I accept that it was essential that the deposit be paid no later than 4 December 2000.
The principal issue in this appeal was whether the circumstances dictated that the purchasers should be relieved from forfeiture of their equitable interest in the three properties. The purchasers’ submissions were based upon the decisions of the High Court in Legione v Hateley (1983) 152 CLR 406 and Stern v McArthur (1988) 165 CLR 489. Legione v Hateley dispelled the view, favoured by the Privy Council in Steedman v Drinkle [1916] AC 275 at 279 and Brickles v Snell [1916] 2 AC 599 at 604-5, that rescission in consequence of breach of an essential term is an absolute bar to relief against forfeiture of the purchasers’ interest. In those cases the Privy Council distinguished what might have been thought to be its earlier contrary decision in Kilmer v British Columbia Orchard Lands Limited [1913] AC 319.
In Legione v Hateley Gibbs CJ and Murphy J said at 429:
“A court of equity will grant specific performance notwithstanding a failure to make a payment within the time specified by the contract if there is nothing to render such an order inequitable. The fact that time for the performance of the stipulated obligation is of the essence of the contract generally makes the grant of specific performance inequitable in such a case. However, if it is just to relieve against the forfeiture which is incurred when the vendor retains payments already made under the contract, it is difficult to see why it should be unjust to relieve the purchaser against the forfeiture of the interest in the property that results in exactly the same circumstances. No doubt where the parties have chosen to make time of the essence of the contract the grant of relief against forfeiture as a preliminary to an order for specific performance will be exceptional. Nevertheless on principle we can see no reason why such an order should not be made if it will not cause injustice but will on the contrary prevent injustice. If relief against the forfeiture is granted, the objection to the grant of specific performance is removed.
In the present case the circumstances revealed by the existing evidence indicate that it would be unjust for the vendors to insist on the forfeiture of the purchasers’ interest in the land. Important among those circumstances is the fact that the purchasers have erected on the land a house of considerable value and if the contract is rescinded the vendors will receive an ill-merited windfall. Further there are the facts that the purchase moneys were tendered only four days after the notice expired, and that the late payment was explained by the terms of the letter from the vendors’ solicitors. The breach by the purchasers was neither wilful nor apparently serious. To enforce the legal rights of the vendors in these circumstances would be to exact a harsh and excessive penalty for a comparatively trivial breach.”
At 447 Mason and Deane JJ said:
“In this case rescission was the consequence of the respondent’s non-compliance with a notice given by the appellants in exercise of the right conferred by condition 5. However, condition 5 does not affect the intrinsic character of rescission – essentially it is a voluntary act done by way of exercise of a legal right bringing about a legal consequence, the termination of the contract. Of course, if relief be granted against the vendor’s voluntary act, the legal consequence flowing from that act – the rescission – is displaced and the purchaser’s equitable interest is either continued or renewed.
Next there is the problem presented by the suggested unavailability of specific performance. Relief against forfeiture of the purchaser’s interest under a contract for sale ordinarily involves an order for specific performance of the contract against the vendor, subject to compensation, that is, to the imposition of such terms as will fairly compensate him for insistence on completion of the contract in the altered circumstances occasioned by the purchaser’s breach. The critical question then is: Should specific performance ever be ordered when the purchaser is in breach of an essential condition? The argument in favour of a negative answer is forceful. If parties expressly or impliedly stipulate that performance of a term is essential to their bargain then it would ordinarily be unjust to the innocent party to require him to complete notwithstanding a breach of that term. Generally speaking equity expects men to carry out their bargains and ‘will not let them buy their way out by uncovenanted payment’ (Shiloh Spinners Ltd v Harding per Lord Wilberforce). Nor will it remake the parties’ contract simply because it transpires that as things have happened one party has made a bad bargain.
But if there be fraud, mistake, accident, surprise or some other element which would make it unconscionable or inequitable to insist on forfeiture of the purchaser’s interest under the contract because he has not performed in strict accordance with its terms there is no injustice to the innocent party in granting relief against forfeiture by means of specific performance with or without compensation.”
The meaning and effect of “surprise” in this context is discussed in the 2nd English edition of Story, Equity Jurisprudence at 157-8. It has no application here.
Stern v McArthur concerned a contract for the purchase of land for a price payable by a deposit and the balance together with interest by monthly instalments over several years. The vendors were entitled to the rents and profits and were to pay the rates up to the date of completion when the purchasers would be entitled to possession. The contract contained a provision that in the event of default by the purchaser the deposit would be forfeited and the vendors could terminate the contract and recover damages suffered on any re-sale. On default in payment of any instalment or interest for a stipulated period the balance of the purchase money then owing with accrued interest became payable. Otherwise than in accordance with the contract terms the purchasers went into possession and to the vendors’ knowledge built a house on the land where they lived until they separated. There followed a default in payment of some instalments and after various demands by the vendors and a notice requiring completion with time of the essence the purchasers did not complete and the contract came to an end.
The vendors in Stern v McArthur began proceedings for possession. By cross-claim the purchasers claimed specific performance of the contract or, alternatively, relief against forfeiture. At trial the vendors’ claim succeeded and the purchasers’ cross-claim was dismissed. The Court of Appeal by a majority allowed an appeal by the purchasers and granted relief against forfeiture and specific performance. The vendors appealed by special leave to the High Court which by a majority, Deane, Dawson and Gaudron JJ, dismissed the appeal.
Deane and Dawson JJ dismissed the appeal on the ground that the provision for determination of the contract was by way of security for the payment of the price and that the contract as it was carried into effect was essentially an arrangement by which the vendors undertook to finance the purchase upon the security of the land and in those circumstances it was unconscionable for the vendors to insist upon their strict contractual rights. Gaudron J dismissed the appeal on the ground that it was unconscionable for the vendors to determine the contract when a decree of specific performance would secure all they had contracted for.
At 521 Deane and Dawson JJ began with a discussion of the nature of the equitable interest a purchaser acquires in the land sold and said at 522 after referring to Kern Corporation Limited v Walter Reid Trading Pty Limited (1987) 163 CLR 164 at 191:
“…..it is not really possible with accuracy to go further than to say that the purchaser acquires an equitable interest in the land sold and to that extent the beneficial interest of the vendor in the land is diminished. The extent of the purchaser’s interest is to be measured by the protection which equity will afford to the purchaser. That is really what is meant when it is said that the purchaser’s interest exists only so long as the contract is specifically enforceable by him. Specific performance in this context does not mean specific performance in the strict or technical sense of requiring the contract to be performed in accordance with its terms. Rather it encompasses all those remedies available to the purchaser in equity to protect the interest which he has acquired under the contract. In appropriate cases it will include other remedies, such as relief by way of injunction, as well as specific performance in the strict sense.”
As their Honours pointed out at 523 the relationship of trustee and beneficial owner will certainly be in existence when the purchase money specified in the contract has been paid, title has been made or accepted and the purchaser is entitled to a conveyance or transfer. At that point the purchaser is entitled in equity in the land and the vendor is a bare trustee. But while there is no unanimity upon when the relationship of trustee and beneficial owner arises their Honours said that does not mean that before that time has arrived the purchaser may not be entitled to a lesser equitable interest than ownership.
At 524 their Honours went on:
“Legione v Hateley identified two kinds of equitable relief against the consequences of the termination of a contract for the sale of land. The first is relief against the retention by the vendor of both the land and any instalments of purchase price (other than a genuine deposit), irrespective of any damage suffered by him. The second is relief against the loss of the purchasers’ equitable interest in the land. Relief of this kind is a necessary step to enable an order for specific performance of the contract to be made. These two categories of relief had not in the past always been kept distinct, both being spoken of as relief against a penalty or a provision in the nature of a penalty. The first – relief against the vendor’s retention of the instalments of purchase money – is in the nature of relief against a penalty because it relieves the purchaser against losing both the land and the payments he has made. Such a consequence could only be by way of punishment upon default. The second – relief against forfeiture of the purchaser’s equitable interest – is not relief against a penalty but is relief against forfeiture of an interest in the land. Whether a court is relieving against penalty or forfeiture may be seen from what it actually does.”
But relief may be granted, not against the forfeiture of the instalments, but against the forfeiture of the estate under a contract which involved the retention of the purchase money; see McDonald v Dennys Lascelles Limited (1933) 48 CLR 457 at 478 per Dixon J, discussing Kilmer v British Columbia Orchard Lands Limited . At 525 Deane and Dawson JJ said:
“The other point of note in Kilmer v British Columbia Orchard Lands Ltd is that the order for specific performance by the vendor was made notwithstanding that the time for payment was of the essence of the contract and the purchaser was in default in making payment.”
However, as Deane and Dawson JJ observed at 526, in Legione v Hateley it was said that it was only in exceptional circumstances that orders for relief against forfeiture and specific performance will be made at the instance of a purchaser who is in breach of an essential term. “The circumstances must be such as to make it plain that it is necessary to intervene to avoid injustice or, what is the same thing, to relieve against unconscionable – or, more accurately, unconscientious – conduct.”
At 526-528 Deane and Dawson JJ, said:
“In considering whether such intervention is justified, great weight will be given to the bargain which the parties have made for themselves. ‘Generally speaking equity expects men to carry out their bargains and ‘will not let them buy their way out by uncovenanted payment’: Shiloh Spinners Ltd v Harding [1973] AC 691 at 723, per Lord Wilberforce. Nor will it remake the parties’ contract simply because it transpires that as things have happened one party has made a bad bargain’ (Legione v Hateley, per Mason and Deane JJ). It is in that sense that it is said that the circumstances must be exceptional to warrant relief in favour of a purchaser who is in breach of an essential term and that there must ordinarily be something such as fraud, mistake, accident or surprise before relief will be granted. These elements do not, however, exhaust the scope of unconscionable or unconscientious behaviour; they are referred to in this context to emphasize that a strong case must be made out to warrant departure from the general approach, which is to hold the parties to their bargain. The general underlying notion is that which has long been identified as 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: [citations omitted] …
One situation in which equity has traditionally granted relief is where provision for forfeiture has been made to secure the payment of money and the party in default seeks relief upon the basis of payment of the amount owing together with the appropriate compensation. In that situation the object of the provision is achieved and it would be unconscientious for the other party to seek to take advantage of the forfeiture. An obvious application of this principle (although it may have emerged separately) is the equity of redemption in the case of a mortgage. There, no proof of fraud, mistake, accident or surprise is required to establish the equity because the very nature of the transaction is such that the court, acting upon conscience, will grant relief: see Turner, Equity of Redemption, Ch II. This distinction was adverted to by Lord Wilberforce in Shiloh Spinners Ltd v Harding, when he identified two heads of jurisdiction to grant relief:
‘First, where it is possible to state that the object of the transaction and of the insertion of the right to forfeit is essentially to secure the payment of money, equity has been willing to relieve on terms that the payment is made with interest, if appropriate, and also costs ….Secondly, there were the heads of fraud, accident, mistake or surprise, always a ground for equity’s intervention, the inclusion of which entailed the exclusion of mere inadvertence and a fortiori of wilful defaults.’
In the case of transactions falling under the first head relief may be granted because conscience requires that there should be no forfeiture. No doubt where the question is, not whether the jurisdiction exists, but whether it should be exercised, having regard to the breach of an essential stipulation with respect to time by the party seeking relief, exceptional circumstances in the form of fraud, accident, mistake or surprise may suffice to justify intervention. But those elements are not the basis of the jurisdiction and the circumstances which will suffice to support its exercise despite the breach of an essential term are not confined. In particular, it is not necessary, in our view, for the party claiming relief to show unconscionable or unconscientious behaviour of an exceptional kind.
The circumstance in the present case which warrants relief being granted is not only that the forfeiture provision was by way of security for the payment of the purchase moneys, but also that the contract as it was carried into effect was essentially an arrangement whereby the appellants undertook to finance the respondents’ purchase upon the security of the land. In other words, there was a close and obvious parallel between it and a purchase with the aid of a mortgage [citations omitted] and the parties acted upon that basis.”

It is to be observed that later in his speech in Shiloh Spinners Ltd v Harding Lord Wilberforce said at 723-4:
“But it is consistent with these principles that we should reaffirm the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result. The word ‘appropriate’ involves consideration of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach.”
In referring to this passage at 539-40 Gaudron J said:
“His Lordship obviously considered that the conduct of the applicant for relief was relevant to his entitlement to the relief sought but did not suggest that the availability of relief was, in the postulated circumstances, conditional upon unconscionable conduct on the part of the person against whom relief is sought.
It may be that a provision enabling rescission is properly to be viewed as having the object of securing a stated result, eg, the payment of money. Or again it may be that the provision operates to effect a consequence disproportionate to the damage caused by the breach giving rise to the right of rescission and is thus to be regarded as in substance a penalty or in the nature of a penalty. In such cases it is the provision itself, and not the conduct of the vendor in exercising the contractual right, which should be disregarded for the purpose of determining the rights which Equity will treat as subsisting. This was the course taken in In re Dagenham (Thames) Dock Co; ex parte Hulse (1873) LR 8 Ch App 1022 and in Kilmer, the question in those case being the characterization of the contractual stipulation rather than the characterization of the vendor’s conduct.
Where relief is sought on the basis that the contractual provision is to be disregarded because it is security for a stated result or is in substance a penalty or in the nature of a penalty it may be that the question whether it bears that character, just as the question whether a contractual stipulation is a penalty, should be determined by reference to the circumstances obtaining at the time of the making of the contract: see Dunlop Pneumatic Tyre Company Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 86-87, O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 153 CLR 359 at 368, 373.
On behalf of the respondents it was contended that a contractual stipulation involving termination of an instalment contract for sale of land is, in essence, security for the payment of the purchase price, and as such (subject to the purchaser not having engaged in disentitling conduct) should not be a bar to the grant of specific performance to a purchaser who has committed a breach giving rise to rescission. For present purposes it is sufficient to state that in my view such a proposition may be true of some instalment contracts of sale, but if that issue is to be determined by reference to circumstances obtaining at the time of the making of the contract it might well not be true of a contract, such as the present, providing that outgoings remain the responsibility of the vendor and requiring the payment of a relatively small deposit and instalments. However, these are matters which need not be pursued, for in my view, the actions of the appellants in bringing cl 15 into operation and insisting on their strict contractual rights as conferred by that clause amounted to unconscionable conduct.”
From these citations these material statements of principle can be derived:
(a)           on principle there is no reason why the grant of relief against forfeiture as preliminary to an order for specific performance should not be made if it will not cause injustice but will on the contrary prevent injustice;
(b)          if there be fraud, mistake, accident, surprise or some other element which would make it unconscionable or inequitable to insist on forfeiture of the purchaser’s interest under the contract because he has not performed in strict accordance with its terms there is no injustice to the innocent party in granting relief against forfeiture by means of specific performance with or without compensation;
(c)          fraud, mistake, accident or surprise do not exhaust the scope of unconscionable or unconscientious behaviour;
(d)          where it is possible to state that the object of the transaction and of the insertion of the right to forfeit is essentially to secure the payment of money fraud, accident, mistake or surprise are not the basis of the jurisdiction and the circumstances which will suffice to support the grant of relief, despite the breach of an essential term, are not confined and it is not necessary for the party claiming relief to show unconscionable or unconscientious behaviour of an exceptional kind;
(e)          the entitlement to relief is not conditional upon unconscionable conduct on the part of the person against whom it is sought;
(f)           the general underlying notion is 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.
It is clear enough in the present case that cl 2, and particularly 2.3 and 2.5, of the contract were provisions designed to secure the payment of money or, put another way, secure a stated result, namely the payment of the deposit. The question is whether relief against the consequent forfeiture is dictated not by questions of unconscionability but by the function of the deposit, the fact that no notice of intended termination was given and the fact that the outstanding deposit was paid on the day after the vendors gave notice terminating. The further question is whether the answer is affected by the purchasers’ conduct. Was the deposit deliberately withheld or was payment overlooked?
The purchasers’ case was based on the assertion that the failure to pay the deposit upon approval of the development application was the result of inadvertence and a good deal of attention was given to whether that was proved.
Before Windeyer J the purchasers relied upon the affidavit of Joseph Maroon and the affidavit of Mr Bolster. I have quoted the relevant parts of these affidavits. Mr Maroon deposed to a conversation with the vendor, Mr Romanos, and the selling agent on 1 December 2000 when Mr Romanos said the vendors wanted to vary the terms of the contract to have the deposit moneys released to them to use for the deposit on another property and an advance on the settlement moneys. After discussion the purchasers agreed to release the deposit and faxed the vendors to that effect. According to Mr Maroon as a result of the conversation on 5 December 2000 with one of the other directors of Pentagold, Amer Younis, the purchasers instructed their solicitor that they would agree to settle the purchase of 46 Wigram Street one month early to enable Mr Romanos to complete the purchase of another property and would allow him to remain in it rent-free for two weeks after settlement to allow repairs to the other property to be carried out. On 11 December 2000 Mr Romanos said that he was looking for something else. Mr Maroon told him to let him know as soon as he found something so that he could arrange an early settlement.
After the notice terminating the contract on 19 December 2000, on 20 December 2000 the balance of the deposits under the contracts were paid bringing the total deposits to $187,500. On that day the purchasers’ solicitors wrote to new solicitors retained by the vendors. The letter of 20 December was admitted only on the basis “that that letter was written but not to prove the facts stated in that letter”. The purchasers’ solicitors wrote as follows:
“You purport to rescind the contracts by way of your letters but have failed to give any explanation to justify the purported rescission.
We presume that the purchasers’ failure to pay the balance of the deposit after the approval of their development application is the basis of the rescission.
The purchasers will pay to the agent this day the balance of the deposit that will be held in trust pending settlement. The vendor has made no prior demand for the balance of the deposit to be paid to the agent. Such demand would have alerted the purchasers to the provision in the contract requiring them to pay the extra amount. The vendor has been in daily contact with the Council and knew of the approval before the purchasers. The purchasers are entitled to wait for the formal letter of approval from the Council which they received on the 4th December, and examine the conditions prior to making the payment required. We are of the view that regardless of any other considerations, that a reasonable time has not elapsed in the circumstances for them to have had made the payment. With respect the vendor is attempting to insert a ‘time of the essence clause’ into the contract where there is none.
We are instructed that on the 1st December your client meet [sic] with Mr Joe Maroon of Maroon Bros Investments and the selling agent to discuss a variation of the terms of the contracts. The vendor at this stage knew that the Development Application had been approved. Your client wanted to purchase a property in Alice St, Harris Park and sought an advance of the settlement monies to complete the Alice St purchase. Mr Maroon agreed in principle to an advance being made. The matter was left in abeyance until your client advised on the progress of his purchase.
The writer received a contract of sale accompanied by a letter from the agent dated the 5th December and subsequently interviewed your client in respect to the purchase of a house at Harris Park. Your client’s former solicitor Ms Kanaan was acting for the vendor and suggested to your client that he instruct me in the matter.
The contract for the property being purchased had a time to complete of 56 days but your client agreed to 42 days, which would have meant that completion would have been required in approx the middle of January 2001. The writer negotiated an extension of the settlement time until the commencement of February and successfully obtained instructions from my client in this matter to settle one of the sales for $750,000.00 on the 1/2/2001, instead of the 1/3/2001, pursuant to the agreement that you hold and to allow your client and his mother to remain in possession for a period of two weeks after settlement rent free to complete repairs on the purchased property. This was a continuance of the agreement reached in principle with Joe Maroon referred to above.
Your client subsequently telephoned approximately a week later being the 11th or 12th December and advised he was not proceeding with the purchase as the property was too expensive and would look for another less expensive property. It was understood between the parties that the arrangement reached in regard to an advance in respect of the previously proposed purchase would need to apply for such subsequent purchase. The writer would not be acting for him on such a purchase as he would return to Ms Kanaan. We were awaiting Ms Kanaan’s advice as to such a purchase when your purported rescission arrived. Your client then was actively negotiating with the purchasers for a variation of the terms of the original contract between the time of the development approval and the time of the purported rescission. He had placed the terms of the contract in a suspended state of re-negotiation but at the same time purports to rescind upon the basis that the purchasers have failed to comply with the terms of the original contract. In our view your client is estopped from rescinding by his own intermeddling in the matter.
We have given the vendors’ solicitor the required notice on the 30/11/2000 that we would settle on the 1/3/2001. Now that the DA has been approved your client knows that the site is worth more money than he has received from the purchasers and he is trying in our clients view to enrich himself at the expense of the purchasers who have spent over twelve months on the DA and $120,000 in obtaining the approval.
Let your client be under no misunderstanding that our client will explore every legal avenue to have the court order your client to complete. We will immediately lodge caveats over the properties and commence action for specific performance if we do not have an immediately retraction of the purported rescission notice.”
The presumed explanation to justify the purported rescission referred to in the second paragraph I have quoted of the letter no doubt followed from a telephone conversation Mr Bolster had with the vendors’ solicitor on 20 December. When asked what was the basis for the rescission the vendors’ solicitor replied: “The development approval has been granted and your client has failed to pay the balance of the deposit.” In his affidavit, Mr Bolster said that at no stage was any demand or request, oral or written, for payment of the balance of the deposit moneys for 44 to 48 Wigram Street made to him. Mr Maroon said that at no stage prior to 20 December when the deposits were paid did either of the vendors or anyone else ask for or demand that the payment of the balance of the deposits under the contract be made.
During address, Mr Powell, who appeared for the purchasers at the trial, and with Mr Officer QC on the appeal, applied to Windeyer J to re-open to call Mr Maroon to give evidence. The application was opposed and the purchasers left the courtroom. Asked what questions he would be proposing to ask, Mr Powell said: “The question would be ‘were you aware in the period from 1 December to 20 December that the contract required the balance of the deposit to be paid upon the approval of the DA?’ “ Windeyer J observed that it would be very easy for them to answer that question “as they have been sitting here”. In his reasons for judgment refusing the purchasers leave to re-open, Windeyer J said:
“1…..The purpose of reopening was to elicit the evidence as to why the balance deposit which was due to be paid on 1 December 2001 was not paid. The intention, or perhaps, hope of counsel, would be that the answer would show that this was through inadvertence through either not knowing or not bringing to mind the special condition of the contract which required the deposit to be paid upon that date, or perhaps in the particular circumstances of the time when council’s approval to the development application was known, on the Monday following that date.
2             There are two matters which would bear against giving the leave even though in modern times leave to reopen is far more readily given than it was in earlier days. The first of these considerations is that Mr Maroon has been sitting in Court throughout the hearing and particularly throughout the addresses by counsel and would therefore be well attuned to the difficulty, if it is a difficulty in the plaintiffs’ case, which counsel for the defendant has referred to. The second point is that when an application for leave to amend the summons to claim relief against forfeiture was allowed, it was allowed on the specific statement of counsel for the plaintiffs that no additional evidence would be called and I think it is fair to say that the action has been conducted precisely on that basis.
3             Although Mr Maroon is a director of the plaintiff companies, whatever answer he gave to the question which counsel for the plaintiffs seeks to ask would not necessarily carry the day or even be admissible in a matter where the plaintiffs are corporations. It could reasonably give rise to some additional inquiries which may be thrown up as a result of the answer and perhaps some answers given in cross-examination.
4             This is an expedited matter which should be completed today. I have come to the conclusion, for the two reasons stated, that leave should not be given.”
Mr Officer conceded that the letter of 20 December 2000 could not be admitted as an exception to the hearsay rule on the basis that it was a business record pursuant to s69 of the Evidence Act 1995, because as its terms reveal it was clearly prepared in contemplation of a proceeding; see s69(3)(a). In any event nowhere in the letter is it said that the non-payment promptly of the final deposit amount before the notice of termination was the result of inadvertence. The most that is said is that a demand would have “alerted the purchasers” to the requirement of the contract. Moreover, no reason was advanced for Mr Maroon’s failure to give evidence about the reasons for the purchasers’ failure to pay the deposit earlier or for giving oral evidence once the letter was admitted only on a limited basis and before the purchasers’ case was closed. The inference was that the purchasers elected not to give any evidence about this matter and then changed their minds during addresses. There is no reason to interfere with his Honour’s exercise of discretion in refusing to permit the purchasers to re-open or to interfere with his decision only to admit the letter on the limited basis that he did.
It follows from this that the reason why the deposit was not paid before the notice of termination is unexplained. The possibility to which Windeyer J adverted that this may have been a deliberate decision is not excluded. Nor I would add is the possibility that it was due to inadvertence.
Mr Coles QC, who appeared for the vendors, emphasised that part of the judgment of Deane and Dawson JJ in Stern v McArthur which required that great weight be given to the bargain which the parties have made for themselves when considering whether intervention by way of relief against forfeiture should be granted. Their Honours pointed out that in that sense it has been said that the circumstances must be exceptional to warrant such relief in favour of a purchaser in breach of an essential term and that there must ordinarily be something such as fraud, mistake, accident or surprise before relief will be granted. There is nothing of that sort in the present case. But their Honours observed that those elements do not exhaust the scope of unconscionable or unconscientious behaviour and speak of a person not being 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.
So far as the cross-appeal is concerned, Windeyer J gave no reasons for ordering the vendors to return the deposit. The absence of reasons is relied upon by the vendors as a ground for asking this Court to intervene and re-consider the matter. Contractually the vendors were entitled to retain the deposit and neither before Windeyer J nor before this Court did the purchasers advance any reason or basis upon which Windeyer J was justified in making an order under s55(2A) of the Conveyancing Act, consistently with his decision that relief against forfeiture should be refused.
Conclusion
In my opinion and in accordance with what was said by Deane and Dawson JJ in Stern v McArthur, since the forfeiture provision was security for the payment of the deposit it is appropriate that there be relief against forfeiture. The object of that provision was achieved once payment of the deposit was made. While equity will only relieve where there can be complete compensation, it will relieve where there is no injury which requires any compensation; Barrow v Isaacs & Son [1891] 1 QB 417 at 420. The vendors would be no worse off if relief against forfeiture was granted than if the contract was completed.

The reasoning for ordering relief against forfeiture is strengthened by the consideration not dissimilar to that referred to in the following passage in the judgment of Deane and Dawson JJ at 529:
“If, however, further justification is required for the exercise of the jurisdiction to grant relief, it is to our minds provided by the circumstance that it is the respondents who had a reasonable expectation of benefiting from any increase in the value of the land with the passage of time. Under the contract the appellants could, in the absence of default, look for no more than the purchase price together with the interest provided. The land has in fact increased considerably in value so that it forms much more than adequate security for the balance of the purchase moneys owing. The forfeiture of the respondents’ interest in the land would truly result in a windfall to the appellants whereas relief against forfeiture would not result in a gain to the respondents properly describable as a windfall. The offer made by the appellants to allow the respondents the value of the improvements is but an attempt – and clearly an inadequate attempt – to make allowance for the unexpected advantage which would be enjoyed by them upon forfeiture.”
The consequence of relief against forfeiture is to allow the purchasers their declaration for specific performance. By that the vendors obtain what they contracted for leaving aside any entitlement they may have for damages. The full deposit was paid by 20 December 2000. To refuse such relief would leave the vendors with land, which no doubt has increased in value and which now has the benefit of the development approval, and with the whole of the deposit. An additional reason why relief should be granted arises out of the circumstances in which the contract was terminated more than a fortnight after the breach by the purchasers of the essential term requiring the deposit to be paid on 4 December, and without any notice to the purchasers at that late point that the vendors proposed to rely on the breach unless the full deposit was paid within a reasonable time.
In Spry Equitable Remedies, 6th ed, at 211 the learned author says:
“Waiver should not be regarded as the sole basis on which a court may hold that time ceases to be of the essence in equity. The governing principle is that time ceases to be of the essence in equity if circumstances arise that render it unjust that it should be so regarded. So, for example, misleading conduct or supervening unfairness or other such considerations will render it inequitable that a purported rescission should be treated as affected in equity.”
In the footnote the author says:
“The decision in Legione v Hateley was rested on equitable estoppel and relief against forfeiture, but a preferable basis for that decision would have been that, in view of the misleading conduct in question, time had ceased to be of the essence in equity in the relevant respect. Similar considerations apply to Stern v McArthur.”
In Union Eagle Limited v Golden Achievement Limited [1997] AC 514 at 521-3 Lord Hoffman in giving the opinion of the Privy Council referred to Legione v Hateley and Stern v McArthur but did not find it necessary to consider them because they provided no help to the purchaser in that case. His Lordship said:
“There is no question of any penalty, or of the vendor being unjustly enriched by improvements made at the purchaser’s expense, or the vendor’s conduct having contributed to the breach, or the transaction being in substance a mortgage. It remains for consideration on some future occasion as to whether the way to deal with the problems which have arisen in such cases is by relaxing the principle in Steedman v Drinkle, as the Australian courts have done, or by development of the law of restitution and estoppel. The present case seems to their Lordships to be one to which the full force of the general rule applies. The fact is that the purchaser was late.”
However, in the present case the date, 4 December, on which Windeyer J found that the deposit should have been paid, had passed without any immediate notice of rescission. In my opinion, the failure of the vendors, after that date had passed, before terminating to give notice that non-payment within a specified reasonable time of the balance of the deposit would lead to termination is another factor which requires that relief be granted. In Carr v J A Berriman Pty Limited (1953) 89 CLR 327 Fullagar J, with whose judgment Dixon CJ, Williams, Webb and Kitto JJ all agreed, said at 348-349:
“If either (a) time is not originally of the essence, or (b) time being originally of the essence, the right to rescind for non-performance on the day is lost by election, the promisee can, generally speaking, only rescind after he has given a notice requiring performance within a specified reasonable time and after non-compliance with that notice: see, eg, Taylor v Brown (1839) 2 Beav. 180; 48 ER 1149; Stickney v Keeble [1915] AC 386; Panoutsos v Raymond Hadley Corporation of New York [1917] 2 KB 473.”
The actions of Mr Romanos succinctly described in the judgment are only consistent with his proceeding on the footing that the contracts were still on foot. Mr Romanos’ statement “we want to vary the terms of the contract” which was not denied, would encourage that perception by Mr Maroon. It is of course true that there is no evidence that at the date of that conversation Mr Romanos was aware that the development application had been granted, though that was stated in the letter which was admitted on a limited basis and has not been denied. But again on 11 December 2000 what Mr Maroon said could only have been said on the basis that the contract was still on foot.
Such a conversation having taken place well after the purchasers’ failure to comply with the essential term for payment on 4 December as a matter of justice requires that relief be granted bearing in mind that if the contract is not performed the vendors will receive a windfall, that the deposit moneys were tendered almost immediately when notice was given and that in any event the provision for forfeiture was no more than a means to secure the payment of the deposit.
Orders
I would propose the following orders:
1. Appeal allowed;
2. Cross-appeal dismissed;
3.Set aside the orders made by Windeyer J on 13 April 2001;
4.Make orders 8 and 1 to 6 in the amended summons;
5.Dismiss the cross-claim in proceedings 1333/01 with costs;
6.The respondents to pay the costs of the proceedings before Windeyer J and of this appeal and the cross-appeal.
GILES JA: I have had the advantage of reading the reasons of Sheller JA in draft. I respectfully come to a different result in the appeal. Since Mason P agrees with his Honour, so that mine is a minority opinion, I will be brief in explaining it.
In my view this was not a situation of relief against forfeiture in the sense of disregarding a provision which is in substance a penalty because to secure the payment of money. I do not regard cl 2 of the contracts as a provision to secure the payment of the deposits. If the deposits were not paid the vendors could terminate the contracts, but essentially the deposits were payments to secure the contracts, not payments required in performance of the contracts.
Accordingly, relief against forfeiture required unconscionable or unconscientious conduct whereby the purchasers should not lose their interest under the contract through the vendors exercising their contractual rights. Fraud, mistake, accident or surprise do not exhaust the nature of the conduct. But whether there was unconscionable or unconscientious conduct must be in the knowledge that, by the agreement of the parties, payment of the deposits was essentially not something required in performance of the contracts but to secure the purchasers’ interests under the contracts.
What, then, was the unconscionable or unconscientious conduct?
As noted by Sheller JA, the letter of 20 December 2000 was not admissible as evidence of the facts therein. For the reasons given by his Honour, no error has been shown in the trial judge’s refusal to permit the purchasers to lead the further evidence from Mr Maroon; additionally to those reasons, a negative answer to the question which counsel proposed to ask would really not have provided an explanation for the failure to pay the deposits when Mr Maroon’s “partners”, also active in the purchases, did not give evidence. The failure to pay the deposits was left unexplained. It might have been due to a mistaken appreciation of the contracts or to inadvertence, or it might have been with knowledge of the contractual requirements and by conscious choice.
In the period from early December 2000 until about 11 December 2000 there must have been discussions between the vendors and the purchasers of willingness to settle early on 46 Wigram Street if Mr Romanos brought Alice Street. Evidence of the discussions was wanting. On about 11 December 2000 the vendors told the purchasers they would be willing to settle early on 46 Wigram Street if Mr Romanos found another property to buy. The contracts were treated as still on foot, but nothing more was conveyed about their susceptibility to termination and very little was conveyed about their future. The trial judge recorded that no claim of waiver or estoppel was argued. The purchasers’ case did not include that the time for payment of the deposits had ceased to be of the essence, and nothing was done by the vendors whereby they lost their rights to terminate (see Champtaloup v Thomas (1976) 2 NSWLR 264).
The purchasers had obtained development approval. There was no evidence of their expenditure in doing so, although the trial judge said that he inferred that the amount “would not have been small”. There was no evidence of the effect of obtaining development approval on the value of the properties, although the trial judge said that he assumed that their value with development approval was greater than the purchase price under the contracts.
The argument for available unconscionable or unconscientious conduct, in these circumstances, was that on 19 December 2000 the vendors exercised the contractual rights which they then had (a) without demanding payment of the deposits or reminding the purchasers that payment was outstanding, and without warning the purchasers that the contractual rights might or would be exercised; (b) having treated the contracts as still on foot in the period from 1 to 11 December 2000, without qualifying what they said by a rider that the contracts were vulnerable to termination; and (c) when the purchasers would lose their expenditure on obtaining development approval and the vendors would gain the increase in value of the properties.
But whether this conduct was unconscionable or unconscientious had to take into account that (i) the contracts did not call for demand, reminder or warning, but left it to the purchasers to attend to payment of the deposits; (ii) the purchasers did not give evidence that they were led by the events in the period from 1 to 11 December 2000 to think that the contracts were not vulnerable to termination; (iii) purchasers attentive to the contracts could not have been unaware that they would lose their expenditure on obtaining development approval and the vendors would gain the increase in value of the properties; and (iv) the expenditure and increase in value were both unquantified, and were not shown to have been outside the contemplation of the parties when they entered into the contracts.
`
These matters made critical mistake on the purchasers’ part and taking advantage of mistake on the vendors’ part. The failure to pay the deposits was left unexplained. There was no evidence that it was because of the purchasers’ misapprehension of their contractual position, let alone that it was because they were misled by the vendors’ conduct in early December 2000. It is the vendors’ conscience that is in question, and for all that appeared when they terminated the contracts the vendors were entitled to believe and did believe that the purchasers were aware of their contractual position and either could not pay or chose not to pay the deposits.
As the trial judge observed, “It may be that with more evidence an entitlement could have been made out but on the evidence presented it was not”. In my opinion unconscionable or unconscientious conduct warranting relief against forfeiture was not made out.
The trial judge nonetheless ordered the return of the deposits pursuant to s 55(2A) of the Conveyancing Act, 1919. He said that he proposed to do so in the course of giving his reasons in relation to relief against forfeiture, and in due course made the order. But he gave no reasons for making the order. In the absence of reasons, his Honour’s exercise of discretion can not stand, and must be re-exercised.
Section 55(2A) permits an order for return of a deposit if the Court thinks fit. The discretion is generally to be exercised to relieve against an unjust and inequitable consequence of forfeiture of a deposit, by the vendor ending up with a profit which in justice and equity he should not have at the purchaser’s expense (Lucas & Tait Pty Ltd v Victoria Securities Ltd (1973) 2 NSWLR 268 at 272; see also Wilson v Kingsgate Mining Industries Pty Ltd (1973) 2 NSWLR 713 at 735). The mere fact that the contract has been terminated and the deposit forfeited is not enough, because it is not unjust and inequitable to give effect to the contract.
If it be assumed that the purchase price under the contracts was the then market value of the properties, the vendors may gain a profit additional to the deposit, namely the increase in value of the properties from obtaining development approval. The increase in value was not established. It may not have been great – the market value of the properties could have significantly reflected development potential. The expenditure in obtaining development approval could have provided a rough basis for a minimum increase in value, but it was not established. The assumption may be false. It is difficult to take account of profit to the vendors additional to the deposit when the evidence was left as it was.
The circumstances of termination do not otherwise bring injustice and inequity in the vendors getting the deposit, together with whatever might be added as the increase in value from obtaining development approval. Without repeating the detail, when the failure to pay the deposits was unexplained injustice to the purchasers and assault on the vendors’ conscience was not shown. I do not think a case for an order for return of the deposits was made out.
Respectfully differing from my brethren, I consider that the appeal should be dismissed and the cross-appeal allowed, with the formal orders which would then flow. In the circumstances, I will not frame the orders.
*****

LAST UPDATED: 12/12/2001

[2001] NSWCA 425

12 December 2001

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