Stern v McArthur

[1988] HCA 51

HIGH COURT OF AUSTRALIA

Mason C.J., Brennan, Deane, Dawson and Gaudron JJ.

STERN v. McARTHUR

(1988) 165 CLR 489

11 October 1988

Vendor and Purchaser

Vendor and Purchaser—Contract of sale—Instalments contract—Purchaser entitled to possession on completion—Possession taken before completion with vendor's consent—Default in payment of instalments—Determination of contract—Forfeiture—Relief—Specific performance—Relevance—Unconscionable conduct—Appreciation in value of land.

Decisions

MASON C.J. This is an appeal from an order of the New South Wales Court of Appeal (Hope and Priestley JJ.A., with Mahoney J.A. dissenting) allowing an appeal from Waddell J. in the Supreme Court of New South Wales who had dismissed the respondents' action for relief against forfeiture and specific performance of a contract for the sale of land at Cranebrook under which the respondents, Mr McArthur and Mr Bates (formerly known as Mr McArthur), were purchasers. By the contract, which was dated 3 November 1969, the appellants, Mr and Mr Stern, agreed to sell and the respondents agreed to buy the land for the sum of $5,250. The contract provided for the payment of $250 as a deposit on the signing of the contract and for the payment of the balance of the purchase price, together with interest thereon at the rate of 8.5 per cent per annum calculated on annual rests, to be paid by regular monthly instalments of not less than $50 on the third day of each month. The respondents were entitled to pay the balance of the purchase price at any time before the due date for payment and they were entitled to pay additional instalments in any year. If the regular monthly payments had been paid without the making of any additional payments, the purchase price would have been paid in full sometime in 1983.

2. The contract was in the standard form approved by the Law Society of New South Wales and the Real Estate Institute of New South Wales. Clause 9 provided that the appellants should be entitled to the rents and profits and should pay all rates, taxes and outgoings up to and including the date of completion. By cl.12 the appellants agreed to give possession to the respondents on completion. Clause 15 provided that in the event of default by the respondents the deposit would be forfeited and that the appellants would be entitled to terminate the contract and to sue for breach of contract or to resell the property and to recover the deficiency (if any) arising on resale together with expenses as liquidated damages provided that the proceedings should be commenced within twelve months of termination of the contract. By cl.18(a) on default in payment of any instalment of the purchase price or interest for four weeks "the balance of the purchase price then owing with accrued interest shall immediately without notice to (the respondent) become due and payable".

3. Despite cl.9 the respondents entered into possession, to the knowledge of the appellants, and built a house on the land. The respondents began to live in the house in January 1973. Mr McArthur paid the rates until March 1977. In the beginning of 1975 the respondents separated and thereafter Mrs Bates lived in the house, Mr McArthur having departed to live elsewhere. He continued to pay the instalments regularly until March 1977 when he ceased to do so.

4. Mrs Bates was unaware that he had ceased to pay instalments. When she saw him in or about March 1978 he told her that he had missed a couple of payments. She then made a payment of $150 which she believed would bring the payment of instalments up to date. She requested Mr McQueeney, the appellants' solicitor, to ascertain and to communicate to her the payout figure and the amount of any arrears.

5. After making the next payment on 5 May 1978 Mrs Bates received a letter dated 11 May 1978 from Mr McQueeney stating that $200 only had been paid since November 1976 and demanding payment or arrangements for the payment of "the full amount" within seven days. In fact an amount in excess of $200 had been paid since November 1976. Whether the reference to "the full amount" related to the amount of the arrears or the remaining balance of the purchase price together with interest thereon was not made clear. Mrs Bates asked Mr McQueeney what the full amount was but he did not know. Thereafter she paid $50 per month into the appellants' bank account on or about the third day of each month up to and including June 1981.

6. Mrs Bates received another letter from Mr McQueeney dated 4 July 1978 stating that Mr Stern had instructed him to advise her that she had seven full days in which to arrange alternative finance and that otherwise he had no alternative but to take action for the recovery of the land and all moneys owing under the contract. At the suggestion of her solicitor, Mr Wilson, she went to see Mr Stern in August 1978 with a view to ascertaining the payout figure. He stated that the payout figure was $3,940.17 and that the last payment had been made on 30 June 1978. In a letter dated 29 August 1978 Mr McQueeney confirmed the correctness of this payout figure as the amount owing up to 1 November 1978. The letter stated that Mrs Bates would be credited with any payments made after 30 June 1978.

7. In her evidence Mrs Bates stated that she was aware at this time that she and Mr McArthur were in arrears, that the appellants were calling for the full amount owing under the contract and that she hoped to be able to arrange finance to pay the full amount owing within a couple of months. However, her attempts to find a lender and subsequently to find a buyer for the property were unsuccessful. So far as Mr McArthur is concerned, there is no direct evidence that he was told by anyone before his one and only meeting with Mr Stern sometime in 1979 that the appellants were relying on their rights under cl.18(a).

8. In January 1979 a notice to complete signed by Mr McQueeney was served on each of the respondents. The notice dated 17 January 1979 required the respondents to complete the purchase within twenty-one days of the date of the notice and made time the essence of the contract in all respects. Subsequently the appellants gave the respondents a notice of termination dated 26 February 1979. It recited the earlier notice and the failure of the respondents to comply with it. The notice of termination went on to state that the contract was at an end and that pursuant to cl.15 of the contract the deposit was forfeited and that the vendors would proceed to resell the land and hold the respondents responsible for any deficiency in price. In March 1979 the appellants' solicitors wrote to the respondents' solicitor stating that the appellants were prepared to allow the respondents to receive the benefit of any improvements they may have erected on the property and that all other increases in the value of the land and otherwise were to be for the benefit of the appellants. In May 1979 Mr McArthur deposited $2,500 in the vendors' bank account. According to Waddell J., this amount was enough to discharge whatever was then owing under the contract. At a later date Mr Stern sought to refund $600 to the respondents but his cheque for that amount was not banked by the respondents. Subsequently on 9 February 1981 the appellants' solicitors sent a cheque for $1,100 to the respondents' solicitor but the cheque was not banked. The same fate befell a cheque for $150 sent by the appellants' solicitors on 14 May 1981.

9. In September 1979 the appellants commenced an action against the respondents for an order for possession of the land. After a very long delay an amended statement of claim was filed on 17 July 1981. The delay may well have been caused by Mr Stern's illness. The amended statement of claim claimed, in addition to an order for possession, declarations that the contract had been validly terminated, that the deposit had been forfeited and orders requiring the respondents to withdraw the caveat that they had entered against the title to the land. The respondents defended the statement of claim. On 4 August 1981 a more comprehensive defence and a cross-claim were filed. By the cross-claim the respondents sought specific performance of the contract and, in the alternative, relief against forfeiture.

10. Some issues which arose for consideration before Waddell J. and the Court of Appeal are no longer relevant to the appeal as it was conducted in this Court. For present purposes it is sufficient to say that his Honour held that the respondents were not entitled to relief against forfeiture and to state his reasons for reaching this conclusion. His Honour noted that at the trial the appellants had again stated that they would allow the respondents the value added to the property by the improvements. He noted that the appellants did not seek to forfeit any moneys paid under the contract other than the deposit. He reviewed the evidence relating to the improvements. According to that evidence, materials for the building of the house cost about $6,000. The labour was supplied by Mr McArthur and friends in the building industry who assisted him in return for, or in anticipation of, assistance by him. The improved value of the property at 31 January 1979 was $34,000. At 26 September 1984 it was $89,000, the value of the land being said to be about $72,000 and the improvements $17,000. His Honour found that, when subdivided, the value of the land would be approximately $115,000-$120,000.

11. After discussing the judgments of this Court in Legione v. Hateley (1983) 152 CLR 406, especially the questions identified by Mason and Deane JJ. at p 449, his Honour based his rejection of the case for relief against forfeiture on findings which may be shortly stated. The first finding was that the appellants did not contribute to the respondents' breach, except that Mr Stern was somewhat careless in keeping an eye on whether payments were being made and did not notice that they had fallen into arrear. Secondly, the respondents' breach was neither trivial nor slight because it involved a failure to pay instalments for one year. Although it was not wilful, it was not inadvertent so far as Mr McArthur was concerned. He failed to ensure that the payments were made and gave no proper explanation for this failure. Thirdly, the damage which the appellants suffered as a result of the breach was not considerable in that all the appellants lost was the use of the money outstanding which was not large. Fourthly, if the forfeiture were to stand the appellants would gain the increase in land value of the property which is something which the respondents would have gained had they complied with the contract. The respondents would lose that increase in value because of their failure to comply with the contract. Finally, his Honour adverted to the question whether specific performance with compensation would be an adequate safeguard for the appellants, but did not answer the question. Apart from making these findings his Honour went on to make the point that there was no unconscientious or unconscionable conduct on the part of the appellants in insisting that the termination of the contract should stand. Moreover, his Honour considered that if relief against forfeiture were to be granted in the instant case, it would constitute a first step in establishing a general rule that a vendor, who had acted reasonably and patiently and in all respects properly before giving a notice to complete and terminate the contract for a failure of the purchaser to comply with it, is liable to lose the benefit of having done so as a consequence of the purchaser obtaining relief against forfeiture on the footing that the land the subject of the sale has increased substantially in value.

12. Priestley J.A. (with whom Hope J.A. agreed), after referring to the judgment of Gibbs C.J. and Murphy J. in Legione, at pp 425-429, concluded that it was equitable to grant relief against forfeiture on the ground that:
"... in the events that occurred, after the de
facto variation of the contract brought about by the McArthurs going into possession, building and paying rates, the object of the transaction from the point of view of Mr and Mr Stern seems to me to have become essentially to secure the payment of money." His Honour continued:

"In substance it had become very similar to a transaction of mortgage; the McArthurs had at the least a contingent equitable estate in the land (see eg Raynor v. Preston 18 Ch D 1 and Chang v. Registrar of Title (1976) 137 CLR 177 at 184), they owed money under the contract and Mr and Mr Stern's legal rights under the contract and as registered proprietors of the land gave them security for payment of the unpaid balance of the purchase price."

His Honour was not saying that the contract was in substance one of mortgage from its inception but rather that it became so subsequently. His Honour noted that the contract was on foot until February 1979, that default had not been of concern to the appellants until sometime in 1978 and that the delay between that time and the giving of notice of termination was due to Mrs Bates unavailing attempt to borrow money to pay off the balance of the purchase price.

13. However, Priestley J.A. went on to hold that, even if it was necessary to find a basis in unconscionable conduct to support relief against forfeiture, "it would be unreasonable and unconscionable in the circumstances to permit (the appellant) to shut (the respondent) out from ownership of land ..." His Honour considered that, in the light of the history, the appellants conduct created, or contributed to, the impression that the respondents' breaches were not fundamental and that they sank to the level of comparatively minor breaches. His Honour thought that specific performance with compensation would adequately protect the appellants and concluded by saying that he did not think that the grant of relief would have the general consequence comprehended by Waddell J.

14. On the other hand, Mahoney J.A. was of the opinion that unconscionable conduct on the part of the appellants was not made out. He pointed out that the circumstances in which the respondents effected the improvements upon the land had not been "significantly investigated" and that the dispute did not concern the respondents' loss of the value of their improvements because the appellants had indicated their willingness to allow a sum to cover improvements. In his view there would be incongruity in a decision which, in order to protect the respondents from the loss of the net value of their improvements, conferred on them as defaulting purchasers the windfall rise in the value of the land.

15. In this Court the appellants' case is that relief against forfeiture will not be granted in the absence of unconscionable or unconscientious conduct on the part of the party against whom the relief is sought and that the evidence does not demonstrate any such conduct on the part of the appellants. The respondents contest each of these propositions. Indeed, they assert, relying on American authority, that an instalment contract for the sale of real estate is in essence a security for the payment of the money. And, in the alternative, they advance the less sweeping proposition accepted by Priestley J.A. in the Court of Appeal, namely that in the circumstances of this case, as a result of the conduct of the parties under the contract, it had become a security for the payment of money.

16. It is convenient to examine first the respondents' broad submission. It seems that in some, but certainly not all, jurisdictions in the United States the retention by the vendor of legal title under an instalment contract is regarded essentially as security for the payment by the purchaser of the purchase price, the provision for cancellation and forfeiture upon default by the purchaser in payment of the purchase price being a further assurance that the purchaser will perform his part of the bargain. This view proceeds on the footing that the real object sought to be attained by the vendor's retention of legal title and the inclusion of the forfeiture provisions is the performance by the purchaser of his promise to pay. Thus, the penalty of forfeiture is designed as a mere security and relief will be granted on the basis that the vendor will obtain the benefit of his bargain if he receives his money and damages: see, for example, the discussion in Jenkins v. Wise (1978) 574 P 2d 1337, at p 1341. There the court said that, absent gross negligence and bad faith on the part of the purchaser, relief will be granted and specific performance ordered when the vendor can be adequately compensated. At the same time the court asserted that "a key factor" in the court's determination is "whether forfeiture would be harsh and unreasonable under the circumstances": Jenkins v. Wise, at p 1341 (footnote omitted). A significant element underlying the approach adopted in such cases as Jenkins v. Wise was that the purchaser was entitled to possession and required to pay taxes and keep the property in repair under the contract. His position is therefore more readily equated to that of an owner and thus to a mortgagor. Indeed, the instalment contract is sometimes described as "a mortgage substitute": see Nelson and Whitman, Real Estate Finance Law, 2nd ed. (1985), paras 3.26-3.27. This description signifies that in some jurisdictions the instalment contract has been employed in order to avoid restraints on foreclosure by mortgagees. Under the standard form of contract in the present case the vendors were entitled to possession and rents and profits until completion but were liable for rates, taxes and outgoings.

17. There is nothing novel in the proposition that the jurisdiction to relieve against forfeiture of property extends to cases where the object of the transaction and the insertion of the right to forfeit is to secure the payment of money. In Shiloh Spinners v. Harding (1973) AC 691 Lord Wilberforce observed, at pp 723-724, that in appropriate and limited cases the court will 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 by the terms of a court order and where the forfeiture provision is added by way of security for the achievement of that result. The primary object of the transaction is the payment of money, the provision for forfeiture being additional security for the attainment of that object. Forfeiture pursuant to this provision is a preliminary condition of the exercise of the jurisdiction, just as a forfeiture in the nature of a penalty is such a condition. Once the existence of the preliminary condition is satisfied it is for the court to determine whether the circumstances of the case are appropriate for the grant of relief. The critical question then is: what standard does the court apply in deciding whether the circumstances are appropriate for the grant of relief?

18. Historically Australian courts, like their English counterparts, did not perceive an analogy between instalment contracts and mortgages. Indeed, until Legione broke the ice, our courts, following the decisions of the Privy Council in Steedman v. Drinkle (1916) 1 AC 275 and Brickles v. Snell (1916) 2 AC 599, had refused to relieve against forfeiture of the purchaser's interest under a contract for the sale of real estate where the party against whom relief was sought had validly rescinded the contract: Real Estate Securities Ltd v. Kew Golf Links Estate Pty Ltd (1935) VLR 114, at p 119; but cf. McDonald v. Dennys Lascelles Ltd (1933) 48 CLR 457, at p 478. The courts relieved against forfeiture under mortgages because borrowers entered into mortgages under the pressure of financial need and it was just and equitable to relieve them from strict compliance with their obligations if the object of the transaction, the repayment of the loan and interest, could be secured by other means. With other contracts it was different. Pacta sunt servanda. Equity would relieve against forfeiture of instalments, as distinct from the deposit (unless the deposit was excessive), but it would not relieve against forfeiture of the purchaser's interest under the contract. The Privy Council so held in Steedman and Brickles, despite earlier authority to the contrary: see In re Dagenham (Thames) Dock Co., Ex parte Hulse (1873) LR 8 Ch App 1022; Kilmer v. British Columbia Orchard Lands, Ltd (1913) AC 319. Equity's refusal to grant such relief before Legione must be ascribed to the compelling force of pacta sunt servanda and to the perception that it would be unfair to deprive the vendor of the effect of rescission and consequential forfeiture of the purchaser's interest under the contract of sale when the parties had expressly stipulated for that result. Generally speaking, equity expects parties to carry out their bargains and "will not let them buy their way out by uncovenanted payment": Shiloh Spinners, at p 723.

19. But, as Legione was to demonstrate, equity will relieve against an unconscionable exercise of legal rights. If the vendor's insistence on rescission and forfeiture of the purchaser's interest under the contract is, in the circumstances of the case, unconscionable, there can be no unfairness in depriving the vendor of the benefit of rescission with the forfeiture of the purchaser's interest entailed by rescission. That was the message conveyed by Legione. It was a message which confirmed the long-standing principle that, granted the existence of the preliminary condition for the exercise of the jurisdiction to relieve against forfeiture, the actual exercise of the jurisdiction depends upon the existence of circumstances which make it unconscionable for the vendor to insist on rescission and forfeiture of the purchaser's interest: see the joint judgment of Mason and Deane JJ. in Legione, at pp 447-448. We stated (at p 449) that "it is only in exceptional circumstances that specific performance will be granted at the instance of a purchaser who is in breach of an essential condition". In this way we sought to balance the interest of the defendant in holding the plaintiff to the actual terms of a bargain freely made and the interest of the plaintiff in invoking an equitable jurisdiction to relieve against the consequences flowing from an over-rigorous insistence on the enforcement of the terms of the bargain.

20. Despite the suggestion to the contrary made in the judgment of Priestley J.A. in the Court of Appeal I do not read the joint judgment of Gibbs C.J. and Murphy J. in Legione as denying these propositions. Their Honours quoted the passage from the speech of Lord Wilberforce in Shiloh Spinners in which he spoke of the head of jurisdiction to relieve against a forfeiture where the right to forfeit is essentially to secure the payment of money, the payment of money being the object of the transaction. Having asserted that the preliminary condition to the existence of jurisdiction was satisfied, their Honours proceeded to consider whether the jurisdiction should be exercised in case of breach where time was of the essence of the contract. They observed (at p 429):

"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."

They went on to say (at p 429):

"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."

And later their Honours concluded (at p 429) that "(t)o enforce the legal rights of the vendors in these circumstances would be to exact a harsh and excessive penalty for a comparatively trivial breach."

21. Subsequently in Ciavarella v. Balmer (1983) 153 CLR 438, which was mentioned by Waddell J. but not by the Court of Appeal, this Court (Gibbs C.J., Mason, Wilson, Deane and Dawson JJ.) unanimously accepted that the jurisdiction would be exercised in exceptional circumstances only. There the Court concluded (at p 454) that "the case stands outside the area of exceptional circumstances in which, in accordance with Legione v. Hateley, relief against forfeiture of the purchaser's estate will be granted after a rescission, which in all other respects is valid, of a contract for sale". Earlier the Court had pointed (at pp 453-454) to the absence of any evidence of unconscionable conduct on the part of the vendor and in this respect contrasted the case with Legione where there was such conduct on the part of the vendor.

22. Ciavarella, following hard on the heels of Legione, established (a) that only in exceptional circumstances will the court relieve against forfeiture of the purchaser's interest in land under a contract for sale which has been validly rescinded by the vendor for breach of a term which is an essential condition and (b) that in order to make out exceptional circumstances the purchaser must show conduct amounting to unconscionable conduct on the part of the vendor. This approach to the exercise of the jurisdiction is quite opposed to the notion that lies at the heart of the respondents' broad submission that, as the object of an instalment contract, in conjunction with a forfeiture provision, is to secure the payment of money, if specific performance with compensation will adequately protect the vendor then relief should be granted. If this were all that mattered, the Court in Legione and Ciavarella would not have asserted that relief would only be granted in exceptional circumstances. And it would have been unnecessary for the Court in Legione to have considered, as it did (at pp 429, 449), whether the breach was wilful and serious or trivial and inadvertent.

23. Furthermore, to accept the respondents' submission and extend relief against forfeiture to instances in which no exceptional circumstances are established would be to eviscerate unconscionability of its meaning. The doctrine is a limited one that operates only where the vendor has, by his conduct, caused or contributed to a situation in which it would be unconscionable on the vendor's part to insist on the forfeiture of the purchaser's interest. Priestley J.A. thought that "it would be unreasonable and unconscionable ...to permit (the vendors) to shut (the purchasers) out from ownership" (my emphasis), and consequently allowed relief against forfeiture. But, contrary to his Honour's view, the jurisdiction to grant relief against forfeiture does not authorize a court to reshape contractual relations into a form the court thinks more reasonable or fair where subsequent events have rendered one side's situation more favourable.

24. The respondents' second submission seizes on the fact that they entered into possession and built on the land with the acquiesence of the appellants and that the respondents thereafter paid the rates. They submit that there was a "de facto" variation of the contract in this respect, no doubt with a view to providing a firmer foundation for the proposition that from that time onwards the object of the transaction was merely to secure payment of the purchase price to the appellants. However, the evidence does not indicate that the contract, in particular cll.9 and 15, was varied in any material respect. The evidence indicates acquiesence by the appellants in entry into possession by the respondents and in the making by the respondents of improvements to the land, subject to their payment of the rates thereafter, but that is all. There is nothing to indicate that what occurred between the parties when the respondents entered into possession transformed or altered in any relevant way the respondents' equitable interest under the contract of sale. It remained exactly as it had been before without being transformed into a new or higher form of ownership.

25. In the ultimate analysis therefore the fate of the appeal turns on the question whether the appellants' insistence on maintaining their rescission and forfeiture of the respondents' interest in the land amounts, in the circumstances of the case, to unconscionable conduct. The relevant circumstances include the offer of the appellants to compensate the respondents for the value of the improvements which they effected to the land. The contest therefore concerns the question: who should have the benefit of the windfall increase in the value of the land?

26. This was not a case, like Legione, where the conduct of the vendors led to the breach of the contract by the purchasers. The appellants' conduct did not induce or contribute to the respondents' failure to pay the monthly instalment in April 1977. And the failure to pay instalments persisted for eleven months or thereabouts. However, the appellants' conduct appears to have contributed to the extent of the breach. In that time Mr Stern did not draw the attention of the respondents or either of them to the non-payment of instalments, Mrs Bates being unaware that Mr McArthur had ceased to make the payments.

27. It is a reasonable inference that Mrs Bates would have seen to the payment of instalments and arrears had she been informed of the position at an earlier time. In fact she took the initiative in alerting the appellants' solicitor to the situation when she did become aware of it and endeavoured to ascertain precisely what was the amount in arrears. She did not succeed in ascertaining this figure and ultimately she was confronted in August 1978 with a demand for the full amount owing under the contract. The point is that, although the respondents' breach of conduct was not trivial, it occurred in circumstances in which the appellants' lack of concern about non-payment of instalments played a part in what occurred. If the appellants had given notice of non-payment of the instalment falling due in April 1977, there is some basis for thinking that the default would have been speedily remedied and future payments made promptly.

28. However, the respondents' breach of contract brought into operation cl.18(a) with the result that the balance of the purchase price with accrued interest then became immediately due and owing. That was in April 1977. It was not until July 1978 that the appellants insisted on payment of the amount owing under cl.18(a). Thereafter a further period of six months ensued before the appellants caused a notice to complete to be served on the respondents, allowing twenty-one days for completion and making time of the essence. In that period Mrs Bates attempted unsuccessfully to find a lender and subsequently a buyer.

29. As the appellants have offered to give the respondents the benefit of the value of the improvements, I am unable to identify any aspect of the appellants' conduct which can accurately be described as unconscionable. They effectively allowed the respondents sufficient time within which to raise the amount needed to complete the purchase price so that there is nothing oppressive or harsh in their insistence on their legal rights in the circumstances of the case. By no stretch of the imagination can the circumstances be described as "exceptional". It is simply a case in which the vendors have exercised their legal rights under a contract for sale after giving the purchasers ample time within which to find the balance due and allowing the respondents the benefit of the value of their improvements. The situation in which the respondents are now placed is due to their own default. To grant relief against forfeiture on the basis of unconscionability on the appellants' part would be to drain unconscionability of any meaning. I therefore agree with Mahoney J.A. that the appeal to the Court of Appeal should have been dismissed.

30. I would allow the appeal to this Court and set aside the orders made by the Court of Appeal.

BRENNAN J. The appellants as vendors and the respondents as purchasers entered into a contract for the sale of a parcel of land on 3 November 1969. The contract provided for the payment of $250 deposit upon the signing of the contract and for the payment of the balance of the purchase price, namely $5000, together with interest at 8.5 per centum per annum by monthly instalments of not less than $50. There was no occasion to specify a date for completion. The purchasers undertook to tender an appropriate assurance for execution by the vendor within 14 days after payment of the final instalment: cl.18(b). Payment of the price was therefore to be made before completion. Although the vendors were not obliged to give the purchasers possession before completion (cl.12) and were entitled in the meantime to the rents and profits (cl.9), the contract made provision for the eventuality that the purchasers might be let into possession before completion. Clause 17 provided (inter alia) -

If, before transfer of title, the Purchaser is given the benefit of possession of the property then, until transfer of title (i) he shall not let or part with possession of the property or make any structural alteration or addition to the same

(ii) he shall (a) ... (b) ... (c) punctually pay all rates and taxes on the property ...

(d) ..."

2. In fact the respondent purchasers, Mr and Mrs McArthur, were let into possession in 1972. They cleared the land, put up some fencing and erected a dwelling. In January 1973 they went to live together in that dwelling. In January 1975 they separated. Mrs McArthur (now Mrs Bates) stayed on and Mr McArthur continued to pay the instalments and rates. These outgoings were paid until March 1977 when default was first made in the payment of instalments. Mr McArthur did not then know of the default. The default brought cl.18(a) into operation: "Where the balance of the purchase price is
payable by instalments before transfer of title

(a) default by the Purchaser in payment of any instalment of the purchase price or interest hereunder shall continue for four weeks the balance of the purchase price then owing with accrued interest shall immediately without notice to the Purchaser become due and payable."

Although the primary rule is that the purchase price is not payable by the purchasers until completion (McDonald v. Denny Lascelles Ltd. (1933) 48 CLR 457, at pp 475-476), cl.18(a) makes a different provision. Clause 18 differs from the clause considered in Ciavarella v. Balmer (1983) 153 CLR 438, at pp 442-443, but it has the same effect. The balance of the purchase price became due and payable four weeks after the default in payment of an instalment in March 1977.

3. Clause 15 conferred on the vendors a right to terminate the contract upon the occurrence of any breach of contract by the purchasers. It provided:

" If the Purchaser defaults in the observance or performance of any obligation imposed on him under or by virtue of this Agreement, the deposit paid by him hereunder, except so much of it as exceeds 10% of the purchase price, shall be forfeited to the Vendor, who shall be entitled to terminate this Agreement and thereafter either to sue the Purchaser for breach of contract or to resell the property as owner and the deficiency (if any) arising on such resale and all expenses of and incidental to such resale or attempted resale and the Purchaser's default shall be recoverable by the vendor from the purchaser as liquidated damages provided that proceedings for the recovery thereof be commenced within 12 months of the termination of this Agreement. The vendor may retain any money paid by the purchaser on account of the purchase other than the deposit money forfeited under this clause as security for any deficiency arising on a resale or for any damages or compensation (including any allowance by way of occupation fee or for rents or profits from a purchaser who has been in possession of the property or in receipt of the rents or profits thereof) awarded to him for the purchaser's default provided that proceedings for the recovery of such damages or compensation be commenced within 12 months of the termination of this Agreement."

4. The vendors did not terminate the contract either for default in the payment of an instalment in March 1977 or for default in the payment of the balance of the purchase price when it became due four weeks later, though a year passed before any further payment was made. When Mr McArthur discovered that a default had occurred, she paid $150 in April 1978 and asked the vendors' solicitor, Mr McQueeney, to advise whether there were other arrears then owing and what was the amount then required to pay the whole of the purchase price. Her queries went unanswered for a time. She paid a further instalment at the beginning of May 1978 by depositing $50 to the credit of the vendors' account with their bank. Later in that month, she received a letter of demand requiring immediate payment of "the full amount due and owing". An offer by Mrs McArthur to pay the total arrears of monthly instalments was rejected. The vendors wanted payment of the whole of the balance purchase price. After some further correspondence of no present moment, 78 had been calculated at $3940.17 against which any payments made after 30 June 1978 would be credited. Mrs McArthur had continued to pay the monthly instalments of $50 as they fell due. Indeed, she continued to deposit sums to the credit of the vendors' account until June 1981. When Mrs McArthur was told the amount required to complete the purchase, she took some ineffectual steps towards completion. She arranged to borrow funds to complete the purchase but the arrangement was abandoned because of some difficulty between herself and Mr McArthur. She attempted to resell the property but no resale was effected.

5. On or shortly after 17 January 1979, Mr McQueeney on behalf of the vendors served a notice to complete the contract within 21 days. It was not completed. On 26 February 1979, he served a notice of termination of the contract, by which the purchasers were notified that they would
" forfeit the deposit to the Vendors who will
proceed to re-sell the subject lands and ... will
hold you responsible and liable for any deficiency in price as well as for all costs, charges and expenses occasioned by such re-sale." Mrs McArthur's solicitor immediately wrote to Mr McQueeney asserting that a resale by Mrs McArthur was imminent and that Mrs McArthur would obtain a personal loan, if necessary, to pay out the amount due to the vendors. It seems that the solicitors for the respective parties must have had some further conversations on the matter, but Mr McQueeney wrote on 28 March 1979:

The situation is still as contained in my last letter, that is, if your clients are prepared to introduce my clients to their Purchasers, my clients are prepared to allow your clients to receive the benefit of any improvements that they may have erected upon the property. However, all other increases in the value of the land and otherwise are to the benefit of my clients. It is noted that no further correspondence will be entered into in this matter. Unless I receive your confirmation within 48 hours hereof, my clients will proceed to the sale of the property to another purchaser."

In May 1979 Mr McArthur deposited $2500 to the credit of the vendors' account with their bank. Mr Stern did not notice this deposit for some time probably due to an illness which befell him. On 13 May 1981 he drew a cheque for $2500 in intended refund of the amount deposited in May 1979, and handed it to his solicitor. His solicitor failed to send it on. After March 1979, other refund cheques were sent on but they were not presented by the purchasers' solicitor.

6. In September 1979 the vendors commenced an action in the Supreme Court of New South Wales. By their amended statement of claim they sought, inter alia, a declaration that they had validly terminated the contract and an order for possession of the land. By an amended defence and cross claim the defendants sought, inter alia, a declaration that the vendors' notice of termination was ineffectual either to determine the contract or "to forfeit the equitable interest of the (purchasers) in the said land" and a decree of specific performance. Waddell J. found that "the contract was effectively terminated on or shortly after 26 February 1979". He held that the vendors' conduct had not contributed to the purchasers' breach, that the breach involved a failure to pay instalments for one year, that the breach was not slight nor was it inadvertent so far as Mr McArthur was concerned. He found that the vendors had not suffered a large loss by the breach but they would gain the considerable increase in land value if the purchasers lost their interest in the land; conversely, the purchasers would lose the increase in land value if they were denied relief. The purchasers were willing to submit to payment of compensation for their breach as a condition of a decree of specific performance. His Honour gave judgment for the vendors. On appeal, the Court of Appeal set aside the substantive orders of Waddell J., declared that the purchasers should be relieved against the forfeiture of their estate and interest in the land and decreed that the contract for sale be specifically performed and put into execution. 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 of sale: see Lexane Pty. Ltd. v. Highfern Pty. Ltd. (1985) 1 QdR 446, at p 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".

7. In the courts below and in argument in this Court, the question whether the purchasers should be relieved from forfeiture of their interest in the land has been thought to turn on a true understanding of the principles canvassed in the two majority judgments in Legione v. Hateley (1983) 152 CLR 406. By reference to what was said in that case, the purchasers sought to show that they were entitled to relief against forfeiture of their estate in the land; the vendors sought to show the contrary. The issue was seen to be whether the present case fell within an area which the judgment in Ciavarella v. Balmer, at p 454, described as an

" area of exceptional circumstances in which, in accordance with; Legione v. Hateley, relief against forfeiture of the purchaser's estate will be granted after a rescission, which in all other respects is valid, of a contract for sale."

As all the majority Justices in Legione joined in this conspectus of the decision, it can be accepted that the means by which equity protects a purchaser's estate in land in a Legione case and relieves against its forfeiture is by denying validity to the vendor's act of rescission. In principle, that must be so. Though the jurisdiction to relieve may be confined to cases where the party in breach had a proprietary interest which equity would enforce by a decree of, or in the nature of, specific performance, the proprietary interest ceases to exist once the contract is validly rescinded. Then, the sometime contract ceases to support the purchaser's equitable estate and there is no contract susceptible of specific enforcement. But if the validity of the act of rescission is denied in equity, the contract is kept on foot: it supports the purchaser's estate in the land and its specific performance can be decreed. A right to rescind arises when a purchaser repudiates the contract or otherwise commits a breach going to the root of the contract or does not observe an essential condition. Such a right to rescind in future arises under the general law: see McDonald v. Dennys Lascelles Ltd., at p 477. Another right to rescind may arise from a different source: it may be conferred by contract if the parties have stipulated for such a right on the occurrence of an event and the event occurs. In that case, the right to rescind arises by operation of the contract itself. Legione was a case in which the purchaser failed to observe a stipulation as to time which the parties had agreed to be an essential term of the contract. It was therefore a case where equity intervened in the exercise of a right arising under the general law, as Mason and Deane JJ. noted at pp 445-446.

8. Prior to the Judicature Act 1873 (Imp.) an innocent party's common law right to rescind by reason of the other party's failure to comply with a stipulation as to time would be accepted by equity in some circumstances but denied in others: see Louinder v. Leis (1982) 149 CLR 509, at pp 524-525, 532; Holland v. Wiltshire (1954) 90 CLR 409, at p 418. Then the rule of the common law as to time was statutorily brought into conformity with the rules of equity - in New South Wales, by s.13 of the Conveyancing Act 1919. The effect of the statutory assimilation was to restrict rescission for failure to observe a time stipulation to those cases where equity would regard time as being of the essence. The statute did not change the circumstances in which equity would leave the parties to their common law rights. As Kitto J. pointed out in Holland v. Wiltshire, at pp 418-419, a stipulation as to time which the common law would regard as being of the essence of the contract ceases to be of the essence-

" only in cases which are appropriate for the granting of equitable remedies by way of relief against the loss by a party of his contractual rights by reason of a failure on his part to perform the contract in precise accordance with its provisions as to time. This is so because only in such cases do the rules of equity treat as not of the essence of the contract time stipulations which are of the essence according to the traditional view of the common law: Stickney v. Keeble (1915) AC 386))."

Prior to Legione, a promisee would have been entitled to rescind a contract for a promisor's breach of a time stipulation if, but only if, equity would regard timely performance as essential. If time was of the essence, the promisee was entitled to rescind; if not, he was not entitled to rescind: see Carr v. J.A. Berriman Pty. Ltd. (1953) 89 CLR 327, at pp 348-349.

9. The significance of Legione is that the parties' agreement that time should be of the essence no longer necessarily entitles a vendor to rescind for a purchaser's failure to observe the time stipulation. Equity's jurisdiction has been held to extend to the relief of a purchaser against forfeiture of his estate in land despite the vendor's purported rescission for breach of a time stipulation which the parties had agreed to be essential. My dissent in Legione testifies to my difficulties in accepting that proposition but I am bound by the majority view and I must seek to apply it.

10. Strictly speaking, Legione has no immediate application to the present case. In Legione the parties had agreed that time should be of the essence; here the contract expresses no date for completion. However, a notice to complete was served and the case has been conducted on the footing that time was thereby made of the essence so that the vendors became entitled to rescind the contract subject to the jurisdiction to relieve against forfeiture which Legione asserted. Therefore it is material to examine the grounds on which, in cases to which Legione directly applies, relief against forfeiture may be granted. In examining the grounds on which equity will grant relief, it is material to note that a purchaser under a contract of sale has an equitable estate in the land and that equity protects that estate in appropriate circumstances by relieving against the purchaser's loss of contractual rights. But that is merely to identify the steps by which a court of equity relieves a purchaser of loss of his estate; it is not to identify the circumstances which will move equity to take those steps. The equitable estate of the purchaser is commensurate with the relief which equity will grant to protect it, but it begs the question to assert that the estate may survive the purported rescission of the contract on which it depends. The question is: on what grounds will equity deny the validity of the rescission and thereby relieve against forfeiture of the purchaser's estate?

11. In Legione Gibbs C.J. and Murphy J. (at p 424) cited the speech of Lord Wilberforce in Shiloh Spinners Ltd. v. Harding (1973) AC 691, at p 722, setting out two heads of the jurisdiction to relieve against forfeiture of property:

" '... 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 (Peachy v. Duke of Somerset ((1721) 1 Stra 447 (93 ER 626)) and cases there cited). ... Secondly, there were the heads of fraud, entailed the exclusion of mere inadvertence and a fortiori of wilful defaults.'"

12. Their Honours said (at p 425) that "it is difficult to see any reason why the power of courts of equity to relieve against forfeiture should not be available in a case such as the present". To an objection that equity will not grant relief where the purchaser's interest is lost consequent on discharge of the contract, their Honours responded (at p 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."

Their Honours did not seek to define the concepts of justice of injustice which are central to this passage.

13. Mason and Deane JJ., though adopting "an expansive view of the equitable jurisdiction to relieve against forfeiture", found (at p 444) that view to be conformable
" to 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 - see Story, Commentaries on Equity Jurisprudence, 12th ed (1877), vol.2, par 1316." Acknowledging that it is ordinarily unjust to decree specific performance against an innocent party at the suit of a party who has breached an essential term of their contract, their Honours observed (at p 447) that-

" 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."

Mason and Deane JJ. held that relief was available to protect a purchaser's estate of the vendor has been guilty of unconscionable conduct in rescinding the contract of sale, though they acknowledged that "(i)t is impossible to define or describe exclusively all the situations which may give rise to unconscionable conduct on the part of a vendor in rescinding a contract for sale" (at p 449). Once it is accepted that it may be unconscionable to rescind for breach of an essential term as to time, the essentiality of the term is merely a factor in evaluating the conduct of the vendor in seeking to rescind. Other factors must also be weighed. The "subsidiary questions" which Mason and Deane JJ. articulated (at p 449) to assist in the exercise of the jurisdiction reflect the heads of jurisdiction to which Lord Wilberforce referred in Shiloh Spinners.

14. The two judgments do not express the relevant principles in the same terms. The passage from the judgment of Gibbs C.J. and Murphy J. in Legione cited above may suggest that the jurisdiction to relieve against forfeiture of a purchaser's estate depends on broad notions of where justice lies between vendor and purchaser. But such an approach is not sufficiently specific to guide the court in answering the relevant question, namely, whether an act of rescission which the rules of law and equity alike would ordinarily regard as valid should be denied validity. The only warrant for equity's intervention to restrain the exercise of rights which equity and law recognize is that the exercise is unconscionable. That approach is not inconsistent with what Gibbs C.J. and Murphy J. said and it is explicit in the judgment of Mason and Deane JJ. It is, in my opinion, the only legitimate warrant for equity's intervention.

15. Although the categories of unconscionable conduct are not closed, the concept of unconscionability is not a charter for judicial reformation of contracts "for the Chancery mends no man's bargain": Maynard v. Moseley (1676) 3 Swans 651, at p 655 (36 ER 1009, at p 1011). The courts have not sought a power to destroy the rights and obligations which the parties to a contract create. If unconscionability were regarded as synonymous with the judge's sense of what is fair between the parties, the beneficial administration of the broad principles of equity would degenerate into an idiosyncratic intervention in conveyancing transactions. It is worth recalling what Lord Radcliffe said in Campbell Discount Co. Ltd. v. Bridge (1962) AC 600, at p 626:

'Unconscionable' must not be taken to be a panacea for adjusting any contract between competent persons when it shows a rough edge to one side or the other, and equity lawyers are, I notice, sometimes both surprised and discomfited by the plenitude of jurisdiction, and the imprecision of rules that are attributed to 'equity' by their more enthusiastic colleagues. Since the courts of equity never undertook to serve as a general adjuster of men's bargains, it was inevitable that they should in course of time evolve definite rules as to the circumstances in which, and the conditions under which, relief would be given, and I do not think that it would be at all an easy task, and I am not certain that it would be a desirable achievement to try to reconcile all the rules under some simple general formula. Even such masters of equity as Lord Eldon and Sir George Jessel, it must be remembered, were highly sceptical of the court's duty to apply the epithet 'unconscionable' or its consequences to contracts made between persons of full age in circumstances that did not fall within the familiar categories of fraud, surprise, accident, etc., even though such contracts involved the payment of a larger sum of money on breach of an obligation to pay a smaller sum".

And in Muschinski v. Dodds (1985) 160 CLR 583, at p 616, Deane J. recalls that "undefined notions of 'justice' and what was 'fair' had given way in the law of equity to the rule of ordered principle which is of the essence of any coherent system of rational law".

16. There are some familiar categories of unconscionability referred to by Lord Wilberforce in Shiloh Spinners. The first, which he discussed at pp 722-723, relates to a stipulation providing for forfeiture which is inserted in the contract to secure the primary object of the contract: see cl.15 in the present case. The usual purpose of such a stipulation is to furnish the sanction of forfeiture for breaches of covenant even though the breaches be minor. If the purpose of such a stipulation in a contract of sale is to secure performance of the purchaser's covenants and if relief can be granted to the purchaser on terms which compensate the vendor for any loss he has sustained by reason of the breach which enlivened the vendor's right to rescind, a clause which authorizes the vendor to take back the beneficial ownership of the land may be seen as exacting a penalty against which equity will relieve in accordance with the principle stated by Lord Macclesfield in Peachy v. Duke of Somerset (1721) 1 Stra 447, at p 453 (93 ER 626, at p 630):

" The true ground of relief against penalties is from the original intent of the case, where the penalty is designed only to secure money, and the Court gives him all that he expected or desired".

This principle relates to the jurisdiction which is exercised when a vendor relies not on his general law right of rescission but on a contractual right. We need not be detained to consider the scope of that principle in this case. It was not suggested in Legione that a clause which makes time of the essence is a clause which is inserted as security for the performance of the purchaser's obligations and which may attract relief on the ground stated by Lord Macclesfield. No doubt cl.15 is such a stipulation and it is true that the notice of termination served on the purchasers echoed the terms of that clause. But the purchasers' breach, on which the vendors are constrained to rely, is not a mere late payment of an instalment or a late payment of the balance of the purchase price due under the contract. A late payment enlivens cl.15 but that is not the breach to which the vendors are restricted in supporting their rescission of the contract. The material breach consists in the failure of the purchasers to pay the balance of the purchase price at any time prior to the service of the notice of termination on 27 February 1979 although the balance had become due in or about April 1977 and had been demanded by the vendors in May 1978, and although a notice to complete had been served on or shortly after 17 January 1979 requiring completion within 21 days. The rescission on which the purchasers are entitled to take their stand is not a termination under a contractual stipulation but a rescission under the general law for such a delay in payment of the balance of the purchase price as amounted to repudiation of the contract. Priestley J.A. thought that the present case fell readily into the head of jurisdiction which arises from Peachy v. Duke of Somerset but I respectfully disagree. That head may have been invoked if the vendors had been constrained to rely on cl.15 but it has no application when the vendor exercises a general law right to rescind: it applies only to a contractual stipulation which is inserted in order to secure the payment of money. In a later passage in his judgment, his Honour treats a vendor's general law right to rescind as no more than a security for the payment of the purchase price, seemingly by analogy with a mortgagee's right to foreclose. Unless the analogy be valid - and, as will appear, it is not - it would be erroneous to treat a vendor's general law right to rescind as a mere security for the payment of the price: it is a right which arises by reason of the purchaser's repudiation of the contract under which the price is payable or his commission of a breach going to the root of the contract or his failure to observe an essential term. The purpose of the general law right to rescind is not to secure performance of a contract but to secure its termination.

17. Presently it will be necessary to consider whether it is right to regard the purchasers as having repudiated the contract but, for the moment, in order to examine further categories of unconscionability, let it be assumed that the purchasers did repudiate the contract - at least in the sense that their failure to complete within the time limited by the notice to complete prima facie entitled the vendors to rescind.

18. We come next to the traditional grounds of fraud, accident, mistake or surprise. In Ciavarella v. Balmer, one of the grounds on which the Court distinguished Legione appears to relate to this ground. Their Honours said (at p 453):

Moreover, in Legione v. Hateley the material in evidence strongly indicated unconscionable conduct on the part of the vendor in seeking to insist on the rescission of the contract in circumstances where the statement of the vendor's solicitors had helped lull the purchaser into a belief that the vendor would accept completion provided it took place within a few days and where the consequence of rescission was that the vendor would reap the benefit of the very valuable improvements which the purchaser had effected to the property."

In the present case, it is conceded that the vendor's conduct contributed in no way to the failure of the purchasers to pay the balance of the purchase price within the time limited by the notice to complete. Further, that failure was not occasioned by accident, mistake or surprise. The failure to pay the balance of the purchase price was of long standing and had continued despite the vendors' continuing demands for payment of the balance since May 1978.

19. On the assumption that the purchasers repudiated the contract, the specific categories of relief to which Lord Wilberforce referred in Shiloh Spinners can be put aside and we come to a suggested category of unconscionability which appears (if I understand the argument correctly) when a vendor under an instalment contract, having let the purchaser into possession, rescinds for breach of the purchaser's obligation to pay the price and retakes the whole beneficial interest in the land he had agreed to sell, enjoying the windfall of any increase in its value. The true position of such a vendor, it is submitted, is analogous to the position of an unpaid mortgagee. It is said that equity, regarding the vendor's right to rescind as a mere security for the payment of the price, will grant relief against forfeiture on terms that the purchaser shall pay the price and compensate the vendor for any loss which late payment has occasioned. The argument depends on the proposition that such an unpaid vendor whose purchaser is in default is in practically the same position as an unpaid mortgagee whose mortgagor is in default.

20. The analogy between a contract of sale and a mortgage was mentioned by Kitto J. in Haque v. Haque (No.2) (1965) 114 CLR 98, a case in which unpaid purchase price was classified as movable property for the purposes of the private international law of succession. His Honour said, at pp 124-125:

" (The vendor) was not a mere trustee for the purchaser, but his position was something between that of a mere trustee and a mortgagee. He could exercise for his own benefit such rights with regard to the land as were consistent with the contractual rights of the purchaser until payment of the purchase money in full, and until that event he had a lien or charge for the unpaid purchase money: see Lysaght v. Edwards ((1876) 2 ChD 499, at p 506). Sir George Jessel M.R. (ibid) would have described him as being in a position analogous to (though not identical with) that of a mortgagee, one point of similarity being that if the contract should be validly cancelled for nonpayment of the purchase money the land would become his absolute property."

And at p 129:

" The analogy of a contract of sale with a mortgage is not a complete analogy, but the points of similarity are the very points which are important for our present purpose. The problem, as in the case of a mortgage, is to decide whether the land or the debt should be considered the principal thing. It seems to me that a system of law which views the rights and interests of a vendor of land as they were viewed in Lysaght v. Edwards must, of logical necessity, accept the answer that the debt is the principal thing."

21. However, the analogy of a contract of sale with a mortgage is not complete and it is the distinction between them which is critical. The mortgagee must accept the mortgage debt at any time prior to foreclosure, or even later if the foreclosure is reopened, and he cannot acquire the beneficial estate of an owner unless an order for foreclosure is made: Campbell v. Holyland (1877) 7 ChD 166. A mortgagee of old system land cannot foreclose the mortgagor's equity of redemption by his own act Re Farnol Eades Irvine &Co., Limited (1915) 1 Ch 22, at p 24) and the procedure for foreclosure of a mortgage of land under the Real Property Act 1900 (N.S.W.) also precludes the mortgagee from acquiring ownership of the land by his own act: see ss.61 and 62. By contrast, a vendor who has a general law right to rescind may, by his own act and without any order of the Court, take back the beneficial ownership of the property. It is the vendor's general law right to rescind which distinguishes his position from that of the mortgagee. Some may think it desirable to eliminate the distinction and to assimilate the position of an unpaid vendor to the position of an unpaid mortgagee. But that is not the present law, and the present law is what parties have relied on in entering into conveyancing transactions. If equity's enthusiasm for the protection of the defaulting purchaser were to eliminate the distinction between contracts of sale and mortgages, it would no longer be true to describe the circumstances in which relief might be given in accordance with; Legione as "exceptional": relief would be given as readily to a defaulting purchaser as to a defaulting mortgagee. If the distinction were eliminated, any attempt by a vendor to rescind for breach of a condition would be nugatory and specific performance would be decreed at the suit of a defaulting purchaser moulded to reflect its correspondence with a redemption action. It would be otiose to look for conduct which enlivened equity's jurisdiction to relieve in cases of fraud, mistake, surprise or accident: the threatened loss of the purchaser's estate would be sufficient to attract equity's protection. A new maxim of equity would be born: "once a purchaser, always a purchaser" and against that maxim no stipulation that time should be of the essence would prevail.

22. On the other hand, if the distinction between the general law right of a vendor to rescind and a mortgagee's right to foreclose on default is preserved, there is no material analogy between a contract of sale and a mortgage. The conduct of a vendor who has a right to rescind and thereby to retake the full beneficial ownership of land and who exercises that right cannot be judged as though he were a mortgagee who had no such right. Without more, an exercise of such a right is not unconscionable even though the consequence is the forfeiture of the purchaser's estate. 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 J.A. 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 right 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".

23. The purchasers submit that, even if there be a material difference between a mortgage and a contract of sale in the ordinary case, the facts of the present case show that there was a variation of the contract of sale - or at least conduct consistent with a variation of the contract of sale - whereby the parties virtually assumed the relationship of mortgagor and mortgagee. The purchasers were let into possession, they treated the land as their own by improving it and building a dwelling upon it with the vendors' consent and they (or one of them) remained on the land for six years before service of the notice of termination. These circumstances fall far short from showing that the parties were virtually in the relationship of mortgagor and mortgagee. The contract contemplated that the purchasers might be let into possession before completion (see cl.17) and the only part of that clause binding on the purchasers which was waived was the part prohibiting the making of structural alterations or additions. The vendors cannot be regarded as having bargained away their general law rights of rescission by waiving compliance with a clause which is for their benefit. If it were otherwise, no vendor could safely allow a purchaser any use of the land pending completion of an instalment contract.

24. In the present case, subject to a misgiving I shall mention, there is nothing in the vendors' conduct which equity would regard as unconscionable in their rescission of the contract for the purchasers' failure to pay the balance of the purchase price within the time limited by the notice to complete. The misgiving relates to the time which the vendors allowed the purchasers in their notice to complete. Prior to the service of the notice to complete, time was not of the essence of the contract. The purchasers were in breach of their obligation to pay the balance of the purchase price when it fell due but at law as well as in equity the failure to pay within a reasonable time was no more than a breach of an inessential term. In any event, the parties were proceeding on the clear understanding that the contract was still on foot. Mrs McArthur had been in possession for six years, she was paying instalments regularly and they were being accepted, the property had been improved greatly by the purchasers, a comparatively small amount of the current value of the property remained outstanding as purchase price and Mrs McArthur was willing to complete as soon as she could. I confess to some doubt whether, in all the circumstances, the time limited by the notice to complete was reasonable. If the time allowed for completion was unreasonable, there was no foundation for rescission and there was no forfeiture of the purchasers' estate. However, no objection to the shortness of the time allowed has been taken at any stage of the proceedings. The case has been conducted throughout on the footing that relief against forfeiture was needed to avoid the consequences of a valid rescission. The rescission based on failure to pay within the time limited by the notice to complete was valid because the notice to complete had the effect described in Ciavarella v. Balmer, at p 446:

" the effect of a valid notice to complete, once the purchaser fails to comply, is to establish the existence of an essential breach, the breach which preceded the giving of the notice being non-essential. The function of the notice is to fix a reasonable time for completion so that non-compliance with its requirements evidences a fundamental breach or renunciation (see; Louinder v. Leis (149 CLR, at pp 519-520,523-524, 532-537). The effect of the notice is not to convert a non-essential term into an essential term. In this respect what is important for present purposes is that the notice requires completion of the contract, notwithstanding that the object of the party issuing the notice is to place himself in a position in which he can terminate the contract in the event of non-compliance with the requirements of the notice, should he choose so to do."

And in Louinder v. Leis, Mason J. said (at p 526):

" Unreasonable delay in complying with the stipulation in substance amounting to a repudiation is essential to justify rescission. It is to this end that, following breach, the innocent party gives notice fixing a reasonable time for performance of the relevant contractual obligation. The result of non-compliance with the notice is that the party in default is guilty of unreasonable delay in complying with a non-essential time stipulation. The unreasonable delay amounts to a repudiation and this justifies rescission."

See also p 536 and Holland v. Wiltshire, at p 420. As the case was conducted on the footing that service of the notice of termination was effective to rescind the contract for breach of the purchasers' obligation to complete within the time limited by the notice to complete, the purchasers' claim for relief is without merit: ex hypothesi, they must have been guilty of unreasonable delay amounting to repudiation.

25. If the purchasers were guilty of unreasonable delay in the face of the vendors' demand for completion, it would be unjust to order specific performance against the vendors: cf. Holland v. Wiltshire, at p 419. The so-called "windfall" of the natural increment in land value properly belongs to the vendors though they are bound to compensate the purchasers for the value of the improvements they have made. It is not necessary now to consider the adjustments to be made in respect of an occupation rent and the payments of instalments: cf. Rawson v. Hobbs (1961) 107 CLR 466, at pp 484-485.

26. I would allow the appeal, set aside the judgment of the Court of Appeal and remit the matter to the Supreme Court to make an order for possession in favour of the appellants on terms to be settled by the Supreme Court.

DEANE AND DAWSON JJ.: It has been said in a variety of ways that a vendor under a valid contract for the sale of land holds the land as trustee for the purchaser. He is, however, a trustee only in a qualified sense and the qualifications are such as to rob the proposition of much of its significance or, for some purposes, its validity. The vendor must make title before there can be any alteration in the equitable ownership of the land, although the alteration may then relate back to the date of the contract. Even so the vendor retains a substantial interest in the property until the whole of the purchase money is paid. He is entitled, subject to the contract, to possession and to the rents and profits in addition to a lien on the land as security for any amount outstanding. Any right to equitable ownership on the part of the purchaser is contingent only, being subject to the payment of the purchase money and being said to exist only so long as the contract remains specifically enforceable at his suit. In Rayner v. Preston (1881) 18 ChD 1, at p 11, considerations such as these led Brett L.J. to remark:

"Therefore, I venture to say that I doubt whether it is a true description of the relation between the parties to say that from the time of the making of the contract, or at any time, one is ever trustee for the other. They are only parties to a contract of sale and purchase of which a Court of Equity will under certain circumstances decree a specific performance."

2. As Deane J. pointed out in Kern Corporation Ltd. v. Walter Reid Trading Pty. Ltd (1987) 163 CLR 164, at p 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 of 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 Sir Frederick Jordan put it: "Specific performance in this sense means not merely specific performance in the primary sense of the enforcing of an executory contract by compelling the execution of an assurance to complete it, but also the protection by injunction or otherwise of rights acquired under a contract which defines the rights of the parties": Jordan, "Chapters on Equity in New South Wales", Select Legal Papers, 6th ed. (1947), p 52, n.(e). See also Legione v. Hateley (1983) 152 CLR 406, per Mason and Deane JJ. at p 446; Tailby v. Official Receiver (1888) 13 AC 523, per Lord Macnaghten at pp 547-549; Redman v. Permanent Trustee Co. of New South Wales Ltd. (1916) 22 CLR 84, per Isaac J. at p 96; Hoysted v. Federal Commissioner of Taxation (1920) 27 CLR 400, per Isaac J. at p 423; Pakenham Upper Fruit Co. Ltd. v. Crosby (1924) 35 CLR 386, per Isaacs and Rich JJ. at pp 398-399.

3. To put the matter in this way is to say little more than that the equitable interest of a purchaser under a contract for the sale of land is that which equity recognizes and protects. See Hewett v. Court (1983) 149 CLR 639, per Deane J. at pp 665-666. 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 to the land and the vendor is a bare trustee: see McWilliam v. McWilliams Wines Pty. Ltd (1964) 114 CLR 656, per McTiernan and Taylor JJ. at p 660. Otherwise there is no unanimity upon when the relationship of trustee and beneficial owner arises: see Chang v. Registrar of Titles (1976) 137 CLR 177, per Mason J. at p 184. But that does not mean that before that time has arrived the purchaser may not be entitled to a lesser equitable interest than ownership.

4. It seems that when the purchaser under a contract for the sale of land which is executory on both sides is described as the equitable owner of the land, that expression is used with somewhat less precision than in other contexts. For example, in Brown v. Heffer (1967) 116 CLR 344, it was said that the purchaser under two contracts for the sale of land was not the equitable owner because he was unable to obtain specific performance of the contract. In that case the Court was required to determine whether a specific devise of land was adeemed by the contracts which were entered into by the testator with respect to the land after the date of the will. The transfer of the land in each case was dependent upon the consent of the Minister being obtained. At the time of the death of the testator no consent had been obtained. For ademption to have occurred it was necessary that the land should in the eyes of equity have been converted at the time of death into other property. It was held (at pp 349-350) that there was no notional conversion of the land into money because immediately before the testator's death, a court of equity would not, by reason of the lack of the Minister's consent, have ordered specific performance by him of his obligation under the contracts to transfer the land. Entitlement to specific performance in the strict sense was necessary before the purchaser could be regarded as the owner in equity for the purpose of ademption. But that did not mean that, even if that remedy was unavailable, the purchaser could not have an interest under either contract which equity would protect regardless of whether he could, in a manner of speaking, be called the equitable owner. In appropriate circumstances equity would have directed that proper steps be taken to obtain the Minister's consent and, consent having been obtained, that the land be transferred to the purchaser. If in those or comparable circumstances there are those who would describe the relationship between the vendor and purchaser as that of trustee and beneficial owner in some qualified sense, it does not alter the substance of the matter.

5. 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 purchaser's 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.

6. In Kilmer v. British Columbia Orchard Lands Ltd (1913) AC 319, the Privy Council, following In re Dagenham (Thames) Dock Co., Ex parte Hulse (1873) LR 8 Ch App 1022, spoke in terms of relief against penalty saying at p 325 that "... the penalty, if enforced according to the letter of the agreement, becomes more and more severe as the agreement approaches completion, and the money liable to confiscation becomes larger." But the relief granted was against the forfeiture of the purchaser's interest under the contract. Specific performance was ordered, not the return of any part of the purchase moneys already paid by the purchaser. Thus it was that in McDonald v. Dennys Lascelles Ltd (1933) 48 CLR 457, at p 478, Dixon J. suggested that the ground upon which Kilmer v. British Columbia Orchard Lands Ltd may have been decided was "that relief should 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." That is the explanation of the nature of the relief given in Kilmer v. British Columbia Orchard Lands Ltd. which was adopted in Legione v. Hateley (per Gibbs C.J. and Murphy J. at p 426; per Mason and Deane JJ. at p 442).

12. Notwithstanding that the appellants had elected to terminate the contract Mrs Bates continued in possession. She continued to pay the monthly instalments. In May 1979 Mr McArthur paid $2,500 into the bank account of the appellants, that being sufficient to pay whatever amount might then have been the balance purchase price. The fact of this payment did not come to the knowledge of the appellants for some considerable time and at that stage Mr Stern drew a cheque for this amount and forwarded it to his solicitor, Mr McQueeney, for refund to the respondents. Mr McQueeney, for reasons unknown, did not effect that refund. Later, in February 1981 and May 1981, cheques for $1,100 and $150 were forwarded to the respondents' solicitor, Mr Wilson, presumably by way of refund of instalments paid after notice of termination. These cheques were not negotiated.

13. In September 1979 the appellants commenced an action against the respondents in the Supreme Court of New South Wales claiming possession of the land and damages. By amended statement of claim they also claimed, inter alia, declarations that the contract for sale had been validly terminated and that the deposit of $250 had been forfeited to the vendors. By an amended defence and cross claim the respondents sought a declaration that the notice of termination was ineffective and a decree of specific performance. Alternatively, they sought relief against "the forfeiture (if any) of their rights and interests under the said contract upon such terms as the Court may think fit." In the further alternative they sought an account of profits and damages for breach of contract.

14. At first instance Waddell J. held that the appellants were entitled to the relief claimed by them and that the respondents were entitled to "relief against forfeiture of the value added to the land by the house as at the date on which it is resold and such of the payments made (other than the deposit) as are not required to meet any of the items mentioned in cl.15 of the contract."

15. Although his Honour expressed the remedy in relation to the instalments paid in terms of relief against forfeiture it would seem that what was intended was a declaration of the respondents' entitlement pursuant to cl.15 of the contract. The basis of the grant of relief against forfeiture of the value added to the land was not made clear. In this Court it was suggested by counsel for the appellants that the respondents were entitled to an equitable lien as part of a purchaser's lien quite independently of any concession made by the appellants. It is not readily apparent that this entitlement (assuming it to exist) should be anything other than an immediate entitlement rather than one to be ascertained in the event of resale: see Rawson v. Hobbs (1961) 107 CLR 466, at p 485.

16. The respondents successfully appealed to the Court of Appeal. It was held by majority (Hope and Priestley JJ.A., Mahoney J.A. dissenting) that the respondents should be granted relief against forfeiture and specific performance.

17. In the Court of Appeal, Priestley J.A., with whom Hope J.A. agreed, upheld the respondents' appeal on two distinct bases. In his Honour's view, by reason of the respondents going into possession, building their home and paying rates, the legal rights of the appellants had become, in essence, security for the payment of money, and as such it was equitable to grant relief as claimed by the respondents. However, his Honour was also of the view that insistence by the appellants on their strict legal rights amounted to unconscionable conduct entitling the respondents to the grant of relief.

18. In this Court it was argued on behalf of the appellants that the exceptional relief identified in Legione is only available if the actions of a vendor in rescinding a contract amount to unconscionable conduct, and that in the circumstances of the present case the conduct of the appellants could not be so characterized. Although other matters were in issue at earlier stages of the proceedings, the only issues argued in this Court were those relating to the respondents' entitlement to relief against forfeiture of their interest arising under the contract and the grant of specific performance.

19. It is convenient to remark at once that there is some uncertainty as to what is involved in a case such as the present in the remedy of relief against forfeiture. In the Court of Appeal Mahoney J.A. regarded the issue raised as whether "the termination of the contract should be set aside as on relief against forfeiture." On the other hand Priestley J.A., conformably with expressions to the same effect in Legione, saw the issue as "(relief) against forfeiture of a purchaser's interest in land under a contract of sale where that interest is lost consequent upon a discharge of the contract".

20. To understand the significance of relief against forfeiture in a case such as the present it is necessary to embark on an historical excursus beginning with the decisions in In re Dagenham (Thames) Dock Co. Ex parte Hulse (1873) LR 8 Ch App 1022 and Kilmer v. British Columbia Orchard Lands, Limited (1913) AC 319. In In re Dagenham there was an agreement for sale of land for the sum of 4,000 pounds, of which 2,000 pounds was payable on execution of contract and the balance, together with interest, at a specified date (in which respect time was made essential) when the purchase was to be completed. The purchaser was to have possession from the date of the contract. By a subsequent agreement a later date was fixed for the payment of the balance purchase price and interest. It was provided in the subsequent agreement that time was of the essence, and that if all moneys were not paid on the date fixed, the vendors were entitled to retake possession of the lands and all works thereon and to retain the land as in their former estate, without obligation to repay any of the moneys paid by the purchaser. The purchaser defaulted and the vendors brought action in ejectment. It was agreed that they should be at liberty to sign judgment, but that they should undertake not to issue execution until further order and to abide by any order made as to the property affected. On an application to issue execution it was held that the contract provisions constituted a penalty from which the purchaser was entitled to relief on payment of the balance of the purchase price with interest.

21. In Kilmer a purchaser in possession defaulted in payment of an instalment under a contract for sale in which time was of the essence. The contract provided that in the event of default the contract should be null and void, the vendor should be at liberty to resell the land and all payments made should be forfeited. An extension of time was granted for the payment of one instalment, but it was not paid within the extended time. The vendor brought action seeking a declaration that he was entitled to enforce his rights under the contract. The purchaser sought specific performance. The Privy Council held that the contract provisions constituted a penalty and granted specific performance.

22. In Steedman v. Drinkle (1916) 1 AC 275 the Privy Council explained the decision in Kilmer on the basis that the stipulation as to time had ceased to be applicable. In McDonald v. Dennys Lascelles Ltd. (1933) 48 CLR 457, Dixon J. (at p 478) noted the explanation given in Steedman but expressed the view that what was involved in In re Dagenham, and perhaps also in Kilmer, was relief "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". However, his Honour did not proceed to identify the basis upon which that relief was granted. In In re Dagenham and in Kilmer the contractual provisions providing for termination and forfeiture of payments upon default were seen, in their entirety, as constituting a penalty in the circumstances under consideration. In In re Dagenham because the contractual provisions were viewed in their entirety as a penalty they constituted no bar to the grant of the relief appropriate in that case, i.e. relief against the provisions operative upon default, conditional upon payment of the balance purchase money. In Kilmer the contractual provisions were similarly viewed, and being viewed in that light constituted no impediment to the grant of specific performance. Thus in Kilmer the contractual provisions involving the termination of the contract and forfeiture of the moneys paid were treated in the same manner as non-essential provisions relating to time, which, in an action for specific performance were simply disregarded, at least if capable of being disregarded without injustice to the parties. See Stickney v. Keeble (1915) AC 386, per Lord Parker of Waddington at pp 415-416.

23. In Steedman there was an instalment contract for sale providing that in default the vendor should be at liberty to cancel the agreement and to retain, as liquidated damages, the payments already made. Time was stated to be of the essence. It was held that the provision for forfeiture of payments constituted a penalty against which relief should be granted on proper terms. The purchaser's claim for specific performance was refused, it being stated (at p 279):

"Courts of Equity ... no doubt exercise an extensive jurisdiction which enables them to decree specific performance in cases where justice requires it, even though literal terms of stipulations as to time have not been observed. But they never exercise this jurisdiction where the parties have expressly intimated in their agreement that it is not to apply by providing that time is to be of the essence of their bargain."

See also Brickles v. Snell (1916) 2 AC 599, at p 605.

24. The decisions of the Privy Council in Steedman and Brickles came to be accepted as authority for the proposition that where a condition making time of the essence was not waived it was not possible to grant specific performance to a defaulting purchaser Legione, per Gibbs C.J. and Murphy J. at pp 427-428 and the cases there cited) or that specific performance could not be granted to a purchaser once the contract was rescinded in consequence of the breach of an essential term Legione, per Mason and Deane JJ. at pp 441-443 and the cases there cited).

25. In Legione it was decided that a less restrictive view should be taken of the power to grant specific performance to a purchaser even though the contract had been rescinded following the breach by the purchasers of an essential term. In that case Gibbs C.J. and Murphy J. (at p 429) considered that relief could be granted against forfeiture of interest in property (providing forfeiture is unjust in the circumstances) as a preliminary to an order for specific performance in favour of a purchaser notwithstanding that the purchaser was in breach of a time stipulation made essential by the contract. On the other hand, Mason and Deane JJ. (at p 449) stated that specific performance should be available "so that it becomes an effective instrument in situations in which it is necessary to relieve against forfeiture of the purchaser's interest under a contract for sale." Brennan J. differed from other members of the Court both as to the result and the reasons producing that result. In this context it is permissible to express a somewhat different view as to the relevance of relief against forfeiture to the grant of specific performance to a purchaser even though the contract has been rescinded following breach by the purchaser of an essential time stipulation. Before expressing that view it is convenient to note that there are some difficulties inherent in the different views of the majority in Legione as to the significance of relief against forfeiture.

26. There is reason to accept that if, at law and in equity, a contract has been rescinded it may be necessary to reinstate the contract as a preliminary to the grant of specific performance. On this basis, as Mahoney J.A. observed, "termination of the contract should be set aside as on relief against forfeiture." However, there is a degree of circularity in the notion that it is necessary to grant relief against forfeiture of an interest in land as a preliminary to the grant of specific performance. The protect the interest under the contract by obtaining specific performance: Legione, at pp 446-447 and 456-457; Bahr v. Nicolay (1988) 62 ALJR 268; 78 ALR 1, at pp 269 and 285; pp 4 and 29-30 of ALR. The issue raised by a purchaser who seeks specific performance of a contract which has been rescinded is not whether relief should be granted against the forfeiture of the interest arising under that contract, but whether specific performance remains an available remedy notwithstanding rescission.

27. The view that specific performance may be necessary to effectuate relief against forfeiture of an interest in land seems to me to obscure the nature of the interest forfeited. Compliance with a decree of specific performance will vest the legal interest contracted to be sold. Is this the interest that has been forfeited? I think not. What is forfeited under a contract for the sale of land is, as above stated, an equitable interest commensurate with the ability to obtain specific performance.

28. It seems to me that the significance of relief against forfeiture to the grant of specific performance to a purchaser even though the contract has been rescinded following breach by the purchaser of an essential term is the identification of some matter or circumstance bearing upon loss or forfeiture, which matter or circumstance Equity will disregard. Once the matter or circumstance is disregarded a question then arises as to the entitlement Equity regards as subsisting and the remedy necessary to give effect to that entitlement. The entitlement may be to have that which was forfeited restored - hence the remedy as was allowed in Steedman in relation to the instalments paid. On the other hand the entitlement may be to all the rights contracted for - hence the remedy of specific performance as was granted in Kilmer.

29. The question then arises whether the only matter or circumstance bearing upon forfeiture of an interest under a contract of sale which will justify the grant of specific performance to a purchaser of a contract which has been rescinded is unconscionable conduct on the part of the vendor. In Legione, Mason and Deane JJ. were of the view that unconscionable conduct was crucial to the grant of relief, stating (at p 449) that the existence of exceptional circumstances "hinges on the existence of unconscionable conduct." Their Honours identified such conduct as including conduct which has "effectively caused or contributed to the purchaser's breach of contract" and conduct engaged in with the object "not to safeguard the vendor from adverse consequences ... but merely to take unconscientious advantage of the benefits which will fortuitously accrue to him on forfeiture of the purchaser's interest under the contract" (at p 449).

30. On the other hand Gibbs C.J. and Murphy J. were of the view that relief might be granted because forfeiture would result in the exaction of "a harsh and excessive penalty for a comparatively trivial breach" (at p 429).

31. The difference between the two approaches is manifest. The approach adopted by Mason and Deane JJ. concentrates on the quality of the vendor's action. The approach adopted by Gibbs C.J. and Murphy J. assimilates the consequences of that conduct to a penalty.

32. If it is the conduct of the vendor that is in issue then, in my view, it is the quality of that conduct which must be evaluated, and for it and its consequences to be disregarded, it must amount to unconscionable conduct.

33. In view of the different approaches taken in Legione that case cannot be taken to have decided that specific performance can be granted to a purchaser in breach of an essential term only if the actions of the vendor in rescinding the contract amount to unconscionable conduct. Nor is that conclusion dictated by the subsequent decision in Ciavarella which reaffirmed statements in Legione that only in exceptional circumstances will relief be granted to a purchaser after rescission for breach of an essential term.

34. In Legione it was pointed out by Mason and Deane JJ. (at p 445) that forfeiture of a purchaser's interest under a contract of sale is to be distinguished from a contractual forfeiture designed to ensure performance of a principal obligation. Their Honours also pointed out (at pp 445-446) that a contractual provision providing for rescission and forfeiture of the interest under the contract following breach of an essential term is neither a penalty nor in the nature of a penalty. So much must be accepted.

35. In Shiloh Spinners v. Harding (1973) AC 691 Lord Wilberforce reviewed the jurisdiction to grant relief against forfeiture and stated (at pp 723-724):

"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 convenant 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."

36. 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.

37. It may be that a provision enabling rescission is properly to be viewed as having the object of securing a stated result, for example, 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 and in Kilmer, the question in those cases being the characterization of the contractual stipulation rather than the characterization of the vendor's conduct.

38. 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 and Motor Company Ltd (1915) AC 79, at pp 86-87; O'Dea v. Allstates Leasing System (W.A.) Pty. Ltd. (1983) 152 CLR 359, at pp 368 and 373.

39. 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.

40. By the time cl.15 was brought into operation the contract had been on foot for ten years. A house had been erected on the land and had become the home of Mrs Bates. The land had appreciated in value. The balance purchase price was a relatively insignificant amount, and (as a matter of simple mathematics) the total of instalments already paid, albeit that they had been allocated first to the payment of interest and thereafter to payment of the purchase price, greatly exceeded the amount then outstanding. The vendors had a choice as to whether they would seek specific performance which would secure all for which they had contracted or whether they would take steps to terminate the contract and to enforce the consequential rights provided in cl.15 of the contract. They chose the latter course, electing to resell the property had greatly appreciated in value, to forfeit the deposit paid and to retain all payments of instalments as security for the "deficiency" which might arise on resale. Clearly there was no prospect of any deficiency. The only prospect was one of considerable profit accruing by reason of the increased value of the land. Insistence on those rights, involving the loss to Mrs Bates of her home, the loss to the respondents of their interest under the contract, the forfeiture of the deposit and the indefinite retention of the instalments already paid, so long as an action for damages was commenced within 12 months of termination, when a decree of specific performance would secure all that the appellants had contracted for was, in my view, unconscionable.

41. The unconscionability of the appellants' action in asserting and insisting upon the legal rights conferred by cl.15 of the contract is not, in my view, alleviated by the concession allowing to the respondents the benefit of the increased value referable to the house erected on the land. First, it may be remarked, that unconscionability is a matter to be determined by reference to the circumstances obtaining at the time of the actions in question. No concession was made until some weeks after notice of termination had been given, and then it was expressed to be conditional upon the respondents' introducing their purchasers to the appellants. But, more importantly, the concession very much leaves the time of receipt of the benefit of the increased value referable to the improvements on the land within the power and control of the appellants. The benefit will accrue only if and when the property is sold. It is as unconscionable for the respondents to be shut out from that benefit pending sale as it is for them to be shut out from money which they have paid towards the purchase price pending ascertainment of the deficiency arising on resale when clearly no such deficiency will arise.

42. To identify a matter or circumstance involving forfeiture of an interest under a contract of sale as a matter or circumstance which may be disregarded for the purpose of granting specific performance is not to assert that specific performance will be granted by reason of that matter or circumstance having been so identified. There remains the further question whether the conduct of the purchaser has been such as to effect a disentitlement from the grant of specific performance. In general terms that conduct will fall for assessment by reference to the breach giving rise to the right to rescind, including, (as stated in Legione, at p 449) whether the breach was wilful and serious or inadvertent and trivial.

43. In the present case the breach giving rise to rescission was the failure to pay the balance purchase price at the time made essential by the notice to complete. That was, in essence, a secondary obligation brought into existence by the appellants in reliance upon the automatic operation of cl.18 of the contract making the balance purchase price payable in the event of default for four weeks in the payment of an instalment. It was an obligation brought into existence after the respondents had tendered payment of all arrears of instalments. Although this tender was refused the respondents thereafter paid and the appellants thereafter accepted (at least until the issue of the notice to complete) payment of instalments as provided in cl.1 of the First Schedule to the contract. Apart from the period of 13 months dating from March 1977 when Mr McArthur failed to make payment of instalments, there was no blatant disregard of the primary contractual obligation. Rather, the respondents were asserting their willingness to discharge the primary obligation whilst the appellants were asserting their right to have the balance purchase price paid in full, notwithstanding that in the early period of that assertion the appellants, despite repeated requests, did not provide a payout figure. In these circumstances I think the breaches by the respondents were not such as to disentitle them from relief otherwise available by reason of the unconscionable conduct of the appellants in terminating and insisting on their strict legal rights as provided in cl.15 of the contract.

44. I would dismiss the appeal.

Orders

Appeal dismissed with costs.