Rossiter, C J --- "The Essence of Punctuality: Termination of Contracts for the Sale of Land for Late Performance and Relief in Equity" [2001] UNSWLawJl 10; (2001) 24(1) UNSW Law Journal 1
The Essence Of Punctuality: Termination Of Contracts
For The Sale Of Land For Late Performance And Relief In Equity
C J ROSSITER[*]
As regards the construction put by Mr Watson upon the words ‘punctually
paid’, I confess to your Lordships that I have
a difficulty in
understanding what the point is. He pled, and pled briefly but strenuously, in
favour of a principle of elasticity
– elasticity, that is to say, in the
construction of a contract which provides for punctuality.
My Lords, my mind cannot comprehend the elasticity of punctuality. I know of no
method of construction of a contract by way of contradiction
of
it.[1]
I INTRODUCTION
[1] Parties to a contract for the sale of land have appointed a date and
time for settlement and time is of the essence. The time
may have been made
essential by agreement or by notice to complete. One of the parties is late for
the settlement. Perhaps 5 minutes
late, 10 minutes late, 20 minutes late or
longer. There may be no excuse for the lateness. On the other hand, there may
have been
traffic congestion or transport problems preventing punctual
attendance at the settlement, computer problems at the Land Titles Office
precluding the making of a final search or any number of reasons for the
lateness. The ‘innocent’ party terminates the
contract for breach of
an essential obligation by the other. Is the termination valid at law? If so, is
there any jurisdiction in
equity to undo the termination? The answer to what may
appear, at first blush, elementary questions raises a number of interesting
legal issues which have been recently canvassed before some State superior
courts in Australia and before the Privy Council. Whatever
the answer is, in the
final analysis, the resolution of the issues may be influenced by whether the
contract is one for the sale
of residential property or commercial
property.
II THE RECENT AUTHORITIES
[2] The facts of the recent authorities all bear close resemblance and lie
within a narrow compass. The first was the decision of
the Judicial Committee of
the Privy Council on appeal from Hong Kong in Union Eagle Ltd v Golden
Achievement Ltd (‘Union
Eagle’).[2] In
accordance with a provision in a contract for the sale of land, completion was
to take place on or before 5pm on a specified date
and time was expressed to be
of the essence. The purchaser tendered performance 10 minutes after 5pm. The
vendor refused the tender
and rescinded. The purchaser submitted that time for
the settlement had not been made effectively of the essence and that, in any
case, the purchaser was deserving of equitable relief in the nature of relief
against forfeiture of the contract. The purchaser’s
submissions were
rejected by the Judicial Committee. The Board held that a specified time as well
as a date for settlement could
be made of the essence and had in fact been made
of the essence in the instant case. The Board went on to conclude that the
contract,
being an ordinary one for the sale of land, was not susceptible to
equitable relief:
Their Lordships think that [the case] ... shows the need for a firm restatement
of the principle that in cases of rescission of an
ordinary contract of sale of
land for failure to comply with an essential condition as to time, equity will
not intervene.[3]
[3] The Australian authorities of
Legione v Hateley
(‘
Legione’)
[4] and
Stern v McArthur
(‘
Stern’)
[5] were
discussed, but the Board put off, for some future occasion, a consideration of
English law, whether by adoption of the Australian
approach or by development of
restitution and estoppel, to take account of the peculiar problems arising in
those cases.
[4] In Smilie Pty Ltd v Bruce
(‘Smilie’),[6] the
second relevant decision, the vendor served upon the purchaser a notice to
complete which expired at 3pm. Settlement had been
arranged for 2pm at the Law
Society settlement rooms and the vendor’s solicitor and the representative
of the incoming mortgagee
were both in attendance at the appointed time. (The
mortgagee left at about 2:45pm to attend to other business.) When, at about
2:55pm,
the purchaser’s representative arrived at the settlement rooms,
far from being willing and able to complete, this person delivered
a letter to
the vendor’s solicitor complaining about various matters pertaining to the
vendor’s obligation to deliver
vacant possession. In the event, Bryson J
in the New South Wales Supreme Court held that the vendor was not in breach of
this obligation,
but that the letter was consistent with an intimation by the
purchaser not to complete at 3pm. At about 5 minutes after 3pm, the
vendor’s solicitor left the settlement rooms after telling the
purchaser’s representative that he would not settle. The
mortgagee
returned at about 3:20pm but by then, all the other parties had left. Although
the purchaser later expressed a desire to
complete, Bryson J held that there was
no evidence in substance that the purchaser was able to complete at 3pm and that
the vendor’s
termination was therefore valid. The judgment of Bryson J was
challenged in the New South Wales Court of Appeal, but the appeal was
dismissed.[7]
[5] The third case,
Imperial Brothers Pty Ltd v Ronim Pty Ltd (‘Imperial
Brothers’),[8] is a decision
of the Queensland Court of Appeal. The contract in the case specified a date for
completion and the time for completion
was stipulated as being between the hours
of 9am and 5pm. Time was agreed to be of the essence. The parties agreed on a
3:30pm settlement
at premises on the Gold Coast. Earlier on the day specified
for completion, the purchaser had been unable to obtain a final title
search due
to a departmental computer malfunction at the Land Titles Office. The
purchaser’s solicitor advised that the settlement
would be postponed to
5pm and the solicitor’s clerk left Brisbane for the settlement at about
3pm. Her journey was delayed
by severe thunderstorms and resultant traffic
sruption but she did confirm with the vendor’s solicitor that the
settlement
would proceed, after apprising him of the circumstances occasioning
delay, at between 5pm and 5:15pm. She duly arrived a few minutes
after 5pm,
ready, willing and able to complete, but the vendor’s solicitor refused to
proceed and rescinded the contract in
writing the following day. On these facts,
the Queensland Court of Appeal held that the purchaser had breached an essential
obligation
by arriving a few minutes late for the settlement. However, the Court
also held that the contract contained an implied
term[9] to the effect that the
obligation to settle was suspended pending receipt of the final search. In other
words, the purchaser’s
obligation to complete was conditional upon the
rectification of the computer malfunction at the Land Titles Office. This
conclusion
made it unnecessary for the Court to consider equitable relief
against forfeiture of the contract.
III THE VALIDITY OF THE TERMINATION AT LAW
[6] Time for completion of a contract for the sale of land may be made of
the essence by agreement or by service of a valid notice
to
complete.[10] There is now little
doubt that a time for settlement as well as the date for settlement may be made
of the essence. Submissions by
counsel in recent cases to the effect that only
the day of settlement may be made of the essence, and that the parties have
until
the end of the business day so appointed to complete, have been
rejected.[11]
[7] What is the
precise legal effect of making time for performance of a contractual obligation
of the essence? Seen in the light
of late performance being measured in minutes
rather than hours, this is not an entirely academic
question.
[8] In Smilie, Bryson J discussed the legal nature of
‘essentiality’ in contractual performance and noted that an
essential term may
require either strict or substantial performance
notwithstanding its label as ‘essential’. His Honour referred to
Chief
Justice Jordan’s well known words on this question in Tramways
Advertising Pty Ltd v Luna Park (NSW) Ltd
(‘Tramways’).[12]
In Tramways, Jordan CJ identified two limbs of essentiality, the first
limb postulating strict performance of the promise and the second requiring
only
substantial performance.[13] Thus,
the vendor’s obligation as to title was once construed in the sense of a
condition strictly so called.[14] In
other words, the vendor was required to perform the promise as to title
strictly, in accordance with the first sense of essentiality
identified by
Jordan CJ in Tramways.[15] It
followed that any defect in the vendor’s title, however trivial but not
otherwise disclosed in the contract for sale, entitled
the purchaser to
terminate. In Australia, the common law now favours treatment of the
vendor’s obligation as to title in the
second sense referred to by Jordan
CJ.[16] Thus, in Lohar Corp Pty
Ltd v Dibu Pty Ltd
(‘Lohar’),[17]
the vendor’s attendance at settlement without lease documents and bond
money amounted to substantial tender of performance of
the essential obligation
to complete, an essential obligation which was held to require only substantial,
not strict performance.
[9] Granted that some essential contractual
obligations require strict performance while others require only substantial
performance,
the relationship between the substantive obligation and the time
for performance of the obligation is a difficult one and not easily
understood.
In Smilie, Bryson J was of the view that it was possible to
construe essential time stipulations in the second sense of essentiality
understood
by Jordan CJ in Tramways, that is to say, as requiring
only substantial and not strict performance. His Honour drew support for this
view from the judgment
of the Court of Appeal in Lohar. However,
it may be respectfully suggested that the decision in Lohar only went so
far as to find that the mechanical aspects of the obligation to complete or
settle a contract for sale of land (for
example, the obligation to hand over a
stamped copy of any lease on title or to provide vacant possession) required
substantial but
not strict performance. The decision is not necessarily
compatible with the notion that the time appointed for settlement requires
only
substantial and not strict compliance.
[10] Writing extra-judicially, Young J
of the Supreme Court of New South Wales was clearly of the view that Justice
Bryson’s
analysis of essential time stipulations in contracts for the sale
of land was correct,[18] and at
least one academic commentator has agreed with Bryson
J.[19]
[11] A countervailing
view is that whether a time stipulation has been made essential or not, the time
stipulation is susceptible
to treatment in only one way, and that is strictly.
As Lord Wilberforce put it in Bunge Corporation New York v Tradax Export SA
Panama,[20] in the case of a
time provision, there is only one kind of breach and that is to be late. This
view accords with equity’s traditional
regard of time stipulations. It is
now beyond controversy that the common law and equity never differed in their
approach to the
construction of time stipulations. In equity, time stipulations
were and are construed in the same way as at law. Equity did not
comprehend an
extended period of
reasonableness.[21] Where the common
law and equity did differ in respect of their approach to time stipulations was
in their treatment of the consequences
of
breach.[22] As Mason J put it in
Louinder v Leis:
The true position is that equity and common law differed not so much in the
construction of the contract as in the consequences which
they assigned to a
breach of it. ... Equity departed from the common law in insisting that a breach
of a stipulation as to time only
entitled the innocent party to rescind where
time was of the essence of the contract. It was otherwise at common law. ...
Thus the
time stipulation is not read as if it called for performance by the
stipulated date or ‘within a reasonable time’ or
‘within a
reasonable time
thereafter’.[23]
[12] This view of the construction of time stipulations goes some way towards explaining
why courts traditionally (and almost inevitably)
construe the substantive
obligation separately from the time for performance of the obligation. The
substantive obligation, if essential,
may require strict or substantial
performance, but the time for performance of the obligation is strictly
construed.[24]
[13] None of this
is to suggest that there may not be some small ‘elasticity’ in the
notion of punctuality and this is
for two reasons. First, there must exist some
leeway beyond the appointed time as a result of the de minimis rule, to
allow, for example, for the lack of synchronism of timepieces. Secondly, there
may be room for an argument that when the
parties appoint a specified time for
completion and time is made of the essence, the parties themselves intend to
make the time so
appointed a time that includes an additional 5 or 10 minutes.
Any such implication would have to take account of the circumstances
of the case
but, in the ordinary case of the sale of residential property, such an
implication may well be made in the light of conveyancing
custom, professional
courtesy and the recognition of the operation of external factors such as
traffic delays and difficulties in
leaving an earlier settlement. The making of
time of the essence, on this view, does not necessarily negate such an
implication.
However, the ‘elasticity’ referred to here is a product
of the agreement of the parties and is not derived from any legal
notion of
substantial as opposed to strict compliance with the time stipulation. It is
less likely that, in commercial transactions,
there would be room for any such
implication, given the probability of tighter time
schedules.[25]
[14] In summary, the decision of the Privy Council in Union Eagle is correct in so far as
the construction of the time stipulation is concerned, and so far as the Board
found that the contract had
been validly discharged at law for breach of an
essential term. There is nothing in the reasons for judgment of the Queensland
Court
of Appeal in Imperial Brothers which would appear to contradict
this view.
IV RELIEF IN EQUITY
The general grounds of the law of England heed more what is good for many, than
what is good for one singular person only. ... [The
law] setteth a general rule
which is good and necessary to all the people, that every man may well keep,
without it be through his
own default. And if such default happen in any person,
whereby he is without remedy at the common law, yet he may be holpen by
a subpoena, and so hee may in many other cases
where conscience serveth for him. ... Equity is a right wisenes that considereth
all
the particular circumstances of the deed, the which also is tempered with
the sweetness of mercie. And such an equity must always
be observed in every law
of man, in every general rule thereof: that knew he well, that said thus, Laws
covet to be ruled by
equitie.[26]
[15] If the vendor’s termination of a contract
for a minor infraction of an essential time stipulation is sustainable at law,
the purchaser may be entitled to equitable relief against forfeiture of the
contract in exceptional circumstances. Those exceptional
circumstances have been
most recently identified and expounded for the law of Australia by the High
Court in the cases of
Legione and
Stern. The import of the
carefully reasoned judgments in these decisions, and the boundaries of the
equitable jurisdiction so recognised,
remain matters of some nice
interpretation. However, even at their most narrow construction, it seems that
the decisions acknowledge
a jurisdiction wider in reach than that recognised by
the House of Lords for the law of
England.
[27] The decision of the
Privy Council in
Union Eagle has done little to attenuate the gap between
the Australian and English views on this
subject.
[28]
[16] While
variances exist between Australian and English jurisprudence in this field,
there is some common ground. First, the jurisdiction
will only be exercised in
exceptional circumstances.[29]
Secondly, a court will be less inclined to order relief in the case of a
commercial contract than with a domestic or consumer contract.
The need to
preserve the legal rules and foster certainty in commercial dealings is a
powerful inducement to refuse relief. Thirdly,
the jurisdiction, whatever its
compass, is limited to relief against forfeiture of proprietary interests,
although not necessarily
proprietary interests in
land.[30]
[17] The locus
classicus of the modern Australian law is the 1983 decision of the High
Court in Legione. Subsequent judicial and academic comment revealed two
views as having emerged from that decision respecting the nature of the
jurisdiction
– a broad and a narrow
one.[31] The former was encapsulated
in the joint judgment of Gibbs CJ and Murphy J. The authors of this joint
judgment were influenced by
the speech of Lord Wilberforce in Shiloh Spinners
Ltd v Harding
(‘Shiloh’).[32]
In Shiloh, his Lordship had spoken of three instances where equity
would relieve against forfeiture. First, where the forfeiture provision was
inserted to secure the payment of money and, therefore, could be said to be
collateral to the main object of the contract or arrangement.
Secondly, where
the forfeiture was exacted as a result of accident, surprise or mistake. These
first two heads were said to be not
controversial. The third instance was
described in this way:
[W]e should reaffirm the right of courts of equity in appropriate and limited
cases to relieve against forfeiture for breach of covenant
or condition where
the primary object of the bargain is to secure a stated result which can
effectively be attained when the matter
comes before the court, and where the
forfeiture provision is added by way of security for the production of that
result.[33]
[18] An
unqualified application of Lord Wilberforce’s words to contracts for the
sale of land would equip courts of equity with
a very wide power indeed to grant
specific performance of contracts which had been validly terminated by the
vendor at law.
[34] The exercise with
alacrity of the jurisdiction so identified might, as Brennan J put it, give rise
to a new maxim: ‘once a
purchaser, always a
purchaser’.
[35] However, this
has not happened and the reason is not hard to find. In
Legione and the
other major authority, the High Court decision in
Stern, decided five
years later, the contracts in question were instalment contracts where part of
the purchase price had been paid and
where the purchasers had taken possession.
In other words, the ‘broad’ approach to the exercise of the
jurisdiction has
been set against the background of instalment contracts, which
are not dissimilar to mortgages.
[36]
The equity to relieve against forfeiture in this instance has a parallel with
the recognition of the equity of
redemption.
[37]
[19] In contracts
for the sale of land which are not instalment contracts, the
‘narrow’ jurisdiction identified in the
joint judgment of Mason and
Deane JJ in Legione becomes more relevant. The narrow jurisdiction is
grounded upon the existence of unconscionability which, although difficult to
define,
includes the case where the vendor has ‘effectively caused or
contributed to the purchaser’s breach of
contract’,[38] but may not be
confined to such circumstances.
[20] In Stern, the authors of
one of the joint judgments in Legione, Mason CJ and Deane J, found
themselves somewhat at variance in their views. While the facts in Stern
involved a conventional instalment contract, the vendor did not contribute in
any way to the purchasers’ breach in failing
to pay one or more
instalments. In such a case, Mason CJ and Brennan J were strongly of the view
that a case for relief had not been
made. The unconscionability necessary to
enliven the jurisdiction had to be of an exceptional kind.
[T]o 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.[39]
[21] However, Mason CJ and Brennan J formed the minority in
Stern. The majority consisted of Deane and Dawson JJ, who delivered a
joint judgment, and Gaudron J. Justices Deane and Dawson were of
the view that
an instalment contract for the sale of land bore many resemblances to a
mortgage, and that relief against forfeiture
of such a contract should
ordinarily follow in sympathy with Lord Wilberforce’s first head of
jurisdiction. Their Honours also
favoured an additional ground of relief. If the
forfeiture went unrelieved, a large windfall in the form of a substantial
increase
in the value of the land would have benefited the vendor in
circumstances where the parties reasonably believed that such a windfall
would
have accrued to the purchasers.
[22] Justice Gaudron reasoned that the
question of relief against the forfeiture of the contract could be answered
without consideration
of the issue whether the termination of the contract and
the forfeiture were penal. Her Honour concluded that the exercise by the
vendor
of the right of rescission conferred by the contract was unconscionable given
that the contract had been on foot for ten years,
a house had been erected on
the land which had become the home of one of the purchasers, and the land had
increased significantly
in value. On balance, rescission would cause
considerably greater hardship to the purchasers than specific performance would
cause
to the vendor. In summary, relief was given on the basis that to refuse
relief would lead to a harsh or unconscionable result, rather
than upon any
specific unconscionable behaviour on the part of the
vendor.[40]
[23] The thrust of
the reasoning of the majority in Stern points to relief against
forfeiture being granted in order to avoid a harsh or unconscionable result. The
exercise of the legal right
to terminate will be restrained as unconscionable if
exercise of the right leads to a harsh or unfair outcome, such as the receipt
by
the vendor of an unmerited windfall.
[24] In New South Wales
(‘NSW’), relief against forfeiture has been granted in two cases
where the vendor neither caused
nor contributed to the purchaser’s breach.
In both cases, the value of the land had risen significantly, and both decisions
reflect the view that it was unconscionable for the
vendor to reap a windfall profit at the expense of the purchaser, where the
breach by the purchaser was
not wilful and the delay in completion slight. Both
of these decisions, which perhaps represent the high water mark of the
jurisdiction
to relieve against forfeiture of contracts for the sale of land,
illustrate the extent of the reach of equity in the light of the
decisions in
Legione and Stern. The result in Dillon v
Bepuri[41] is a
particularly dramatic one, given that the purchaser was a land developer and,
thus, the contract was a commercial one from the
perspective of the party
seeking relief, and the vendor had given no less than three extensions to the
time for completion specified
in the vendor’s
notice to complete. The result in Tang v
Chong,[42] while less striking,
followed notwithstanding the fact that time for completion had been made of the
essence by the purchaser’s
own notice to complete and the purchaser failed
to complete on the day appointed by the purchaser’s
notice.[43]
[25] The Supreme
Court of Victoria signalled the prospect of relief in accordance with the
decisions in Legione and Stern in TM Burke Estates Pty Ltd v PJ
Constructions (Victoria) Pty Ltd (In
liquidation).[44] The vendor had
terminated an instalment contract for the sale of land following default in
payment in circumstances where the purchaser
was in possession and had built a
display home upon the land. As the vendor had resold the property to a third
party and the purchaser
was only seeking compensation for the value of the
improvements, the Court did not need to consider an order for relief against
forfeiture
of the contract.[45]
[26] In
the Australian Capital Territory, NSW, Victoria and Western
Australia, courts have relieved against forfeiture of an option
to purchase and
options to renew a lease in circumstances where the grantee had failed to
exercise the option within time. In most
of these cases, the grantor was found
to have acted unconscionably in circumstances where the grantor was estopped
from taking the
point that the option had not been properly exercised by the
grantee.[46] However, there have
been decisions where the courts have indicated that relief in terms of the wider
Legione decision might, in principle, be
granted.[47]
[27] In NSW, the
courts have expressed the view that relief against forfeiture under the
Legione principle is available where a contractual licence over land has
been validly terminated at law by the
grantor.[48]
[28] While the
results of the High Court decisions may have caused some surprise in the legal
and academic professions, applauded
by some and criticised by others, it must be
remembered that the lineage of these decisions goes back to at least 1873 with
the decision
of the Court of Appeal in Re Dagenham (Thames) Dock; Ex parte
Hulse.[49] In that case,
although the purchaser did not seek specific performance, it appeared that the
Court of Appeal in Chancery was prepared
to order re-instatement of an
instalment contract for the sale of land following the vendor’s
termination for the purchaser’s failure to pay
the final instalment.[50] Lord
Justice James declared the forfeiture ‘a penalty from which the company
are [sic] entitled to be relieved on payment of
the residue of the purchase
money with interest’.[51] Some
years later, in 1913, the Privy Council in Kilmer v British Columbia Orchard
Lands Ltd
(‘Kilmer’)[52]
granted relief against forfeiture of an instalment contract in circumstances
where the vendor had terminated for breach of an
essential time stipulation. It is important to note that the terms of
relief extended beyond return of the purchase moneys paid to
include
re-instatement of the contract by an order of specific performance. However,
subsequent to the decision in Kilmer, two decisions of the Privy Council
in 1916 on appeal from Canada, Steedman v
Drinkle[53] and Brickles v
Snell,[54] provided clear
authority that specific performance of a contract for the sale of land was not
possible after the contract had been
validly terminated at law for breach. In
Steedman v Drinkle, the result in Kilmer was explained on the
basis that the vendor had waived the essentiality of
time.[55]
[29] Those favouring
the principle of certainty of contract, especially in commercial transactions,
and who are heard to insist that
the settled rules of contact should not be
disturbed by equitable intrusion, prospective or actual, support the results of
the decisions
and the sentiments underlying the reasoning of the Judicial
Committee in Steedman v Drinkle and Brickles v Snell. One such
supporter is Lord Diplock who, in Scandinavian Trading Tanker Co AB v Flota
Petrolera Ecuatoriana (‘Scandinavian
Trading’),[56]
spoke in the following clear and forceful terms:
It is of the utmost importance in commercial transactions that, if any
particular event occurs which may affect the parties’
respective rights
under a commercial contract, they should know where they stand. The court should
so far as possible desist from
placing obstacles in the way of either party
ascertaining his legal position ... because it may be commercially desirable for
action
to be taken without delay ... It is for this reason, of course, that the
English courts have time and time again asserted the need
for certainty in
commercial transactions – for the simple reason that the parties to such
transactions are entitled to know
where they stand, and to act
accordingly.[57]
[30]
In
Scandinavian Trading, the charterer of a ship held under a time
charter sought relief against forfeiture of the charterparty, which had been
terminated
by the owners for late payment. (The charterparty was a time charter
and not a charterparty by demise.) In refusing relief on the
ground that an
order for relief against forfeiture would be tantamount to ordering specific
performance of a contract for personal
services, the House of Lords took the
opportunity to confirm the importance of certainty in commercial contracts and
to confine the
ambit of the jurisdiction to contracts involving the transfer of
proprietary and possessory rights. Lord Wilberforce’s review
of the
equitable jurisdiction over forfeitures in
Shiloh was described as mainly
historical.
[58]
[31] A year after
the decision in Scandinavian Trading, the House of Lords in Sport
Internationaal Bussum BV v Inter-Footwear
Ltd[59] evinced the same
reserve. A licence to use certain intellectual property rights, which had been
granted to resolve commercial litigation
between the parties, had been
terminated by the respondent. Lord Templeman, in delivering the decision of the
House, presumed that
the boundaries of equitable relief did not extend to
comprehend forfeiture of mere contractual
licences.[60]
[32] With some
exceptions,[61] it is generally fair
to describe the English view of the equitable jurisdiction over forfeiture as
one that should be exercised with
considerable caution and one which is
subordinate to the principle of commercial certainty. It has already been seen
that, in a recent
word on this subject, Lord Hoffmann in Union Eagle took
the opportunity on behalf of the Judicial Committee to demonstrate ‘the
need for a firm restatement of the principle that
in cases of rescission of an
ordinary contract of sale of land for failure to comply with an essential
condition as to time, equity
will not
intervene’.[62] To date, there
has been no decision of the English courts granting relief against forfeiture in
the form of an order for specific
performance of a contract for the sale of land
where the contract has been validly terminated at law, at least where the
contract
was not an instalment contract or the transaction was not in the nature
of a mortgage. As Lord Hoffmann put it in Union Eagle, it remains to be
seen whether developments in English law may adopt the Australian approach and
allow for specific performance of
the contract in limited cases, or whether
development may proceed more in accord with the law of
restitution.[63] If the latter
should be the approach, the purchaser’s remedy may be limited to recovery
of money paid under the contract and/or
money expended upon improvements to the
land in circumstances where the vendor has acted unconscionably or has been
unjustly enriched
at the expense of the
purchaser.[64]
V CONCLUSION
[33] However much respect should be paid to the need for certainty,
particularly in commercial transactions, there will always remain
the need for
equitable intervention in exceptional circumstances to prevent an unjust and
unconscionable result. It is difficult
to imagine a case more deserving of
equitable assistance than a forfeiture consequent upon the late arrival by a few
minutes of a
purchaser to a settlement where time has been made of the essence
and the lateness was the result of the purchaser’s accident,
sickness or
misadventure. Indeed, equity’s jurisdiction to relieve against forfeiture
in the case of fraud, accident, mistake,
surprise or misadventure was described
by Lord Wilberforce in
Shiloh as one without ‘much
difficulty’ and one ‘always a ground for equity’s
intervention, the inclusion of which
entailed the exclusion of mere inadvertence
and a fortiori of wilful
defaults’.
[65] Pomeroy has
defined accident as
an unforeseen and unexpected event, occurring external to the party affected by
it, and of which his own agency is not the proximate
cause, whereby, contrary to
his own intention and wish, he loses some legal right or becomes subjected to
some legal liability, and
another person acquires a corresponding legal right,
which it would be a violation of good conscience for the latter person, under
the circumstances, to retain.[66]
[34] The modern equitable jurisdiction to relieve against
forfeiture and to relieve against penal bonds was derived from equity’s
jurisdiction in cases of accident. The shift from a narrow ground of relief
based on accident to a broader ground of relief encompassing
relief against
forfeiture and penal bonds where the forfeiture and penalty were exacted to
secure a sum of money occurred in the
first half of the 17
th
century.
[67] The point to note is
that the equitable jurisdiction to relieve in cases of accident and misadventure
is very old and well established.
[35] In all three of the recent cases
discussed in this article, the termination by the vendor for late performance
was valid at law.
In any of the cases, was the purchaser deserving of equitable
relief? It was common ground in all three cases that the vendor did
not cause or
contribute to the purchaser’s breach.
[36] The result in Smilie
was clearly correct. The purchaser was almost an hour late for the appointed
settlement and, when he did
arrive,[68] he was not in funds.
Further, he did not tender performance but remonstrated about the alleged
failure of the vendor to deliver vacant
possession, a claim made without any
foundation. This was not a case for equitable intervention. The case of
Imperial Brothers, however, is quite another matter. Were it not
for the recognition by the Queensland Court of Appeal of an implied term to the
effect that the
obligation to complete was conditional upon the availability of
a final search, this would have been a case crying out for equitable
relief
against forfeiture. The purchaser’s representative was only a few minutes
late for the settlement, the delay was caused
by accident and misadventure, not
foreseen, for which neither the purchaser nor the purchaser’s
representative was responsible.[69]
The computer malfunction was also an accident for which the purchaser was not
responsible, and it could not be said the failure to
settle without a final
computer search was a wilful breach of contract.
[37] The Hong Kong case of
Union Eagle is the most difficult of the three. The purchaser was 10
minutes late for the settlement. This was a breach of an essential time
obligation
and, no doubt, outside the de minimis principle. There was no
evidence before the court as to the reason, if any, for the lateness, so far as
one is able to tell from a
reading of the advice of the Privy Council and the
judgment of the Court of Appeal.[70]
In this absence, one must assume that there was no excuse. In these
circumstances, should there have been relief? Probably not. It
must be for the
purchaser to establish the grounds for equitable intervention and to show
unconscionability. The 10 minute lateness
alone, in the absence of fraud,
accident or misadventure, or in the absence of some other factor, such as the
reaping by the vendor
of an unmerited and unexpected windfall, is not enough to
justify relief against forfeiture. In the Court of Appeal, Godfrey JA,
who
dissented in finding that the purchaser was entitled to relief, noted that
‘it is unconscionable for you to take an unfair
advantage of him, because,
for example, of some slight or trivial breach of contract on his part, not going
to the substance of the
bargain. This latter sort of case is the exemplar for
the intervention of
equity’.[71] With respect, a
10 minute delay in completion where time has been made of the essence is, in
the absence of some evidence to the contrary, neither slight nor
trivial.
[38] The prospect of equitable relief is troubling to some. However,
it should be observed that the efficient operation of the market
place, with its
perceived need for certainty in land contracts, is not threatened by the
existence of the equitable jurisdiction.
It will be a relatively rare occasion
that triggers equitable intervention on the ground of accident, misadventure,
surprise or mistake
for late performance. Equally, it has become quite clear
that relief under the wider Legione principle is even more restricted,
and is confined to the exceptional case. It may be remarked that the
jurisdiction to relieve against
forfeiture of leases, which applies to both
commercial and residential leases, is well understood and has operated for many
years
without undermining the confidence
of the market. And, as Young J has
commented extra-judicially, protestations from commercial lawyers cut little ice
in Australia where
the legislatures have enacted legislation allowing the courts
to undo solemn commercial
transactions.[72]
[*] Associate Professor of
Law, University of New South
Wales.[1] Maclaine
v Gatty [1921] 1 AC 376, 393 (Lord
Shaw).[2] [1997] UKPC 5; [1997] AC
514; [1997] 2 All ER
215.[3] Ibid 523; 222
(Lord Hoffmann).[4]
[1983] HCA 11; (1983) 152 CLR 406.[5]
[1988] HCA 51; (1988) 165 CLR 489.[6]
(1998) 8 BPR 15893 (Bryson J); aff’d (1998) 9 BPR 16723 (Court of
Appeal).[7] (1998) 9
BPR 16723.[8] [1998] QCA 444; [1999] 2
Qd R 172.[9] In
accordance with the principle applied in Codelfa Construction Pty Ltd v State
Rail Authority of New South Wales (1982) 149 CLR
337.[10] If the
parties have stipulated a time for settlement which has not been expressed to be
of the essence, the subject matter of the
sale may indicate that the parties
intended that time was to be treated as of the essence. The sale of livestock or
the sale of some
businesses as a going concern, such as a hotel, provide common
illustrations: Harrington v Browne [1917] HCA 36; (1917) 23 CLR 297; Tadcaster Tower
Brewery Co v Wilson [1897] UKLawRpCh 47; [1897] 1 Ch 705; Aldridge v Miller [1931] NSWStRp 35; [1931] 31 SR
(NSW) 520.[11]
Union Eagle [1997] UKPC 5; [1997] AC 514; [1997] 2 All ER 215; Smilie (1998) 8
BPR 15893, 15898 (Bryson J); aff’d (1998) 9 BPR 16723 (Court of Appeal).
It is submitted that the reasoning of the
Queensland Court of Appeal in
Imperial Brothers [1998] QCA 444; [1999] 2 Qd R 172 is consistent with these authorities
on this point.[12]
(1938) 38 SR (NSW) 632,
642.[13] The test of
essentiality in the second sense described by Jordan CJ is similar if not
identical in import to Diplock LJ’s
later critique in Hong Kong Fir
Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] EWCA Civ 7; [1962] 2 QB 26 – terms
which have been classified by the parties as neither conditions in the strict
sense nor warranties but described in
language, now generally accepted, as
intermediate or innominate, will operate, in effect, as conditions or warranties
depending upon
the gravity and consequences of breach. Carter and Harland argue
that terms falling into Chief Justice Jordan’s second category
of
essential terms should now be described as intermediate or innominate terms: J W
Carter and D J Harland, Contract Law in Australia (3rd ed,
1996) 649. In DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR
423, 436, Murphy J preferred the gravity of breach approach, opining that Chief
Justice Jordan’s ‘test’ is so
vague that I would not describe it as a test. It diverts attention from the real
question which is whether
the non-performance means substantial failure to
perform the contractual obligations. The inquiry into the motivation for entry
into
the contract is not the real point.
[14] DTR Nominees
Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR
423.[15] Against the
background of the nature of this obligation, the evolution and application of
the equitable doctrine of compensation
may be appreciated. In the case of minor
errors in the vendor’s title, the vendor was permitted to seek specific
performance
of the contract against the purchaser, provided that the vendor was
prepared to give compensation.
[16] Lohar Corp
Pty Ltd v Dibu Pty Ltd (1976) 1 BPR 9177, 9186; Liverpool v Lynton
[1978] Qd R 279; Borthwick v Walsh (1980) 1 BPR 9259; DTR Nominees Pty
Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR
423.[17] (1976) 1
BPR 9177.[18] P W
Young, ‘Conveyancers that still use coffee spoons’ (1997) 71
Australian Law Journal
580.[19] Peter Butt,
‘Strict Compliance with Time for Completion’ (1997) 71 Australian
Law Journal
410.[20] [1981] UKHL 11; [1981] 1
WLR 711; [1981] 2 All ER
513.[21] Louinder
v Leis [1982] HCA 28; (1982) 149 CLR 509; Raineri v Miles [1981] AC 1050; G R
Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR
80, 97 (Samuels JA), 98-100 (Meagher JA); Tilley v Thomas [1867] UKLawRpCh 88; (1867) 3 LR Ch
App 61; Stickney v Keeble [1915] AC 386; K E Lindgren, Time in the
Performance of Contracts: Especially for the Sale of Land (2nd
ed, 1982) 14,
16-17.[22] G R
Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR
80, 97 (Samuels JA), 98 (Meagher
JA).[23] [1982] HCA 28; (1982) 149
CLR 509, 524-5.[24]
Some leading texts, while accepting the traditional approach of the courts in
treating time stipulations separately from the substantive
obligation, argue
that, in principle, such an approach is logically flawed. Instead, the
preferable course, it is suggested, is to
pose one comprehensive test to
discriminate between breaches which justify termination from those which do not
and to inquire in
respect of the former whether the promisee would have entered
into the contract unless assured of performance of the promise in question
within the time stipulated: Lindgren, above n 21, 7; Carter and Harland, above n
13, 678. Carter and Harland suggest an additional
reason, namely, that where a
promisor breaches a time stipulation, the breach amounts to no more and no less
than defective performance
of the substantive obligation. Whether the
traditional or textbook approach be preferred, nonetheless, as Lindgren has put
it, ‘to
say that “time is of the essence” is an elliptical way
of indicating that fulfilment or performance of the substantive
term strictly
within the time stipulated is to be regarded as of the essence of the contract
as a whole so that upon non-fulfilment
or breach a party benefited is
immediately entitled to regard the contract as at an end’: Lindgren, above
n 21, 6-7. [25] In
some large commercial transactions, it is not unheard of for the parties to
stage a ‘dress rehearsal’ for a complicated
settlement one or two
days before the date appointed for settlement, particularly where time is or has
been made of the essence.
This is presumably designed to remove any potential
impediments to completion within the time scales appointed by the parties. The
adoption of such a practice highlights the significance of essential time
stipulations in the minds of the parties.
[26] Christopher
Saint Germain, The Dialogue in English between a Doctor of Divinity and a
Student in the Laws of England (1638 reprint) 22-3,
27.[27] See, eg,
Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana [1983] 2
AC 694; Sport Internationaal Bussum BV v Inter-Footwear Ltd [1984] 1 WLR
776; [1984] 1 All ER
376.[28] It seems
that there is also some disharmony in the views of the Australian and New
Zealand courts on this issue. In Location Properties Ltd v GH Lincoln
Properties Ltd [1988] 1 NZLR 307, Greig J, ‘with respectful
temerity’, preferred the approach of the English courts. See Young, above
n 18.[29]
Ciavarella v Balmer [1983] HCA 26; (1983) 153 CLR 438; Shiloh Spinners Ltd v
Harding [1973] AC
691.[30]
Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana [1983] 2
AC 694; BICC Plc v Burndy Corp [1985] 1 Ch 232. See generally C J
Rossiter, Penalties and Forfeiture (1992) ch 9, especially
196-203.[31] See
Stern [1988] HCA 51; (1988) 165 CLR 489, 539 (Gaudron J); Dillon v Bepuri (1989)
4 BPR 9362, 9368 (Cohen J); Rossiter, above n 30, 174. However, it is
interesting to note that Deane and Dawson JJ in Stern did not detect the
emergence of divergent
views.[32] [1973] AC
691.[33] Ibid
723.[34] Although,
to be fair, Wilberforce LJ did go on to say in the passage cited that ‘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 breach,
and of the disparity between the value of the property of
which forfeiture is claimed as compared with the damage caused by the
breach’:
ibid.[35]
Stern [1988] HCA 51; (1988) 165 CLR 489,
518.[36] A
similarity emphasised in the joint judgment of Deane and Dawson JJ in
Stern, but cf the dissenting judgment of Brennan J in the same case. See
also Rossiter, above n 30, 179 ff; Kevin Nicholson, ‘Stern v
McArthur – The Jurisdiction To Relieve Against Forfeiture and
Instalment Contracts’ (1989) 2 Journal of Contract Law 148; Anthony
J Lennon, ‘Relief Against Forfeiture of Interests in Real Property in
Australia and the United Kingdom’ (1990) 10 The Queensland Lawyer
179, 183 ff.[37]
In Location Properties Ltd v GH Lincoln Properties Ltd [1988] 1 NZLR
307, 316, Greig J expressed the view that the jurisdiction should be confined to
instalment contracts where the purchaser has been let
into possession:
‘then any forfeiture and the right to relief against it is to be
considered on the direct analogy of the right
of the mortgagor and of the equity
of redemption and of the lessee to relief from forfeiture of possession and
ownership of the property
in question’. His Honour was of the view that
the principle of relief should not be accorded to contracts which remained
largely
executory.[38]
Legione [1983] HCA 11; (1983) 152 CLR 406,
445.[39] Ibid
503.[40] For a
general overview of the decision in Stern, see Rossiter, above n 30,
179-86.[41] (1988) 4
BPR 9362.[42] (1989)
NSW Conv R
55-449.[43]
The evidence revealed that the purchaser did not attend settlement because of
the illness of his
solicitor.[44]
[1991] VicRp 33; [1991] 1 VR 610.[45]
Mason and Carter take the view that unconscionability in relation to the
improvements was not an issue since the ‘forfeiture’
was simply a
consequence of discharge, there being no forfeiture clause: Keith Mason and John
W Carter, Restitution Law in Australia (1995) 447-8. The contract did not
deal with title to the improvements. As to the relationship between
unconscionability and the
vendor’s offer to provide compensation for
improvements erected upon the land by the purchaser, see Rossiter, above n 30,
184-5.
The most recent word on the subject of a purchaser’s entitlement to
compensation for improvements erected upon the land by
the purchaser comes from
an unreported decision of the New South Wales Court of Appeal. In Clancy v
Salienta Pty Ltd [2000] NSWCA 248 (Unreported, Beazley, Stein and Giles JJA,
23 October 2000), Stein and Giles JJA (Beazley JA dissenting) held that a
purchaser had no automatic
entitlement to compensation. Any entitlement flowed
from the vendor’s unconscionable behaviour or, perhaps, was a consequence
of the vendor’s unjust enrichment.
[46] Photo Art
& Sound (Cremorne) Pty Ltd v Cremorne Centre Pty Ltd (In Liquidation)
(1987) 4 BPR 9436; Samios v Petersilka [1994] ACTSC 39 (Unreported,
Higgins J, 22 April 1994); S & E Promotions Pty Ltd v Tobin Brothers Pty
Ltd (1994) 122 ALR 637; Metro Hotels Pty Ltd v Vicotel Pty Ltd
(Unreported, Supreme Court of Victoria, Tadgell J, 21 December 1989); Forrest
Chase Medical Services Pty Ltd v Toliver Pty Ltd (Unreported, Supreme Court
of Western Australia, Anderson J, 5 September 1997). See also Michael Redfern,
‘Relief Against Failure
to Exercise Option to Renew Lease in Time’
(1994) 2 Australian Property Law Journal 286; Michael Redfern,
‘Relief Against Failure to Exercise Option to Renew Lease in Time’
(1995) 3 Australian Property Law Journal 156; Michael Redfern,
‘Relief Against Failure to Exercise Option to Renew Lease in Time’
(1996) 4 Australian Property Law Journal 161; Michael Redfern,
‘Right to Renew Lease Out of Time’ (1998) 6 Australian Property
Law Journal
195.[47] Malding
v Metcalfe (1989) NSW Conv R 55-495; Hillier v Goodfellow
(1988) V Conv R 54-310; Melacare Industries of Australia Pty Ltd v
Daley Investments Pty Ltd (1995) 9 BPR 17079; Leads Plus Pty Ltd v Kowho
Intercontinental Pty Ltd (2000) 10 BPR 18085; Rossiter, above n 30, 195-6;
Michael Redfern, ‘Relief against Loss of Option to Purchase or Renew
Lease’
(1993) 1 Australian Property Law Journal
195.[48] Milton v
Proctor (1989) NSW Conv R 55-450; Chaka Holdings Pty Ltd v Sunsim
Pty Ltd (1987) 10 BPR
18171.[49] [1873] UKLawRpCh 102; (1873) 8
Ch App 1022.[50] It
is not entirely clear whether the contract had been discharged at law for breach
in this case but it seems that it must have
been. For academic discussion of
this matter, see Rossiter, above n 30, 171-2; Charles Harpum, ‘Relief
Against Forfeiture and
the Purchaser of Land’ [1984] Cambridge Law
Journal 134; Kevin Nicholson, ‘Breach of an Essential Time Stipulation
and Relief Against Forfeiture’ (1983) 57 Australian Law Journal
632; Hossein Abedian and Michael P Furmston, ‘Relief Against Forfeiture
After Breach of an Essential Time Stipulation in the Light
of Union Eagle Ltd
v Golden Achievements Ltd’ (1998) 12 Journal of Contract Law
189.[51] [1873] UKLawRpCh 102; (1873) 8 Ch
App 1022, 1025.[52]
[1913] UKLawRpAC 8; [1913] AC 319.[53]
[1916] 1 AC 275.[54]
[1916] 2 AC 599.[55]
This explanation mostly went unchallenged although, it should be noted, it was
questioned by Dixon J in McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR
457. [56] [1983] 2
AC 694.[57] Ibid
704.[58] Ibid
702.[59] [1984] 1
WLR 776.[60] For
criticism of the reasoning (if not the result of this case), see Charles Harpum,
‘Relief Against Forfeiture in Commercial
Cases – A Decision Too
Far’ (1984) 100 Law Quarterly Review 369; Rossiter, above n 30,
198-9. [61] In
BICC Plc v Burndy Corporation [1985] Ch 232, the Court of Appeal ordered
relief against forfeiture of certain intellectual property rights,
notwithstanding that the rights concerned
were rights over personalty, and
notwithstanding that the forfeiture occurred in the context of a commercial
relationship between
international corporations. More recently, there has been
the decision of the Court of Appeal in On Demand Information plc v Michael
Gerson (Finance) plc [2000] 4 All ER 734 (‘On Demand’).
In that case, the lessee sought relief against forfeiture of a chattel lease of
certain video and editing equipment. The
lease took the form of a finance lease,
not an operating or bailment lease. The lessor submitted that the equitable
jurisdiction
of relief against forfeiture did not extend to finance leases which
generated only contractual rights. The lessor further submitted
that, as the
chattels the subject of the lease were of a wasting and precarious nature, there
was no room for the intervention of
equity. These submissions were rejected by
the Court. The Court was firmly of the view that contractual rights entitling
hirers to
possession of chattels generated property rights in the hirer and not
just purely contractual rights. Proprietary rights in chattels
were susceptible
to equitable protection, provided that the forfeiture in question came within
the first or third head of jurisdiction
referred to by Lord Wilberforce in
Shiloh. On the facts in On Demand, relief was refused. This was
because in the eyes of the majority on this point (Robert Walker and Pill LJJ;
Sir Murray Stuart-Smith
dissenting), the claimants for relief had consented to
an order for judicial sale of the goods in question and relief against
forfeiture,
after the disposal of the subject matter of the claim for relief,
was impossible. It should be mentioned that some years before the
decision in
On Demand, the High Court of Australia had foreshadowed the prospect of
equitable relief in the case of termination of a finance lease. In
Esanda
Finance Corp Ltd v Plessnig [1989] HCA 7; (1989) 166 CLR 131, 151, Brennan J noted that
relief against forfeiture may be given in principle if the chattel lease were in
the form of a finance
lease and were, in substance, a chattel
mortgage.[62] [1997] UKPC 5; [1997]
AC 514, 523; [1997] UKPC 5; [1997] 2 All ER 215,
222.[63]
Ibid.[64] Clancy
v Salienta Pty Ltd [2000] NSWCA 248 (Unreported, Beazley, Stein and Giles
JJA, 23 October
2000).[65] [1973] AC
691, 722. Later in his speech, his Lordship noted that ‘no decision in the
present case involves the establishment or recognition
directly or by
implication of any general power – that is to say, apart from the
special heads of fraud, accident, mistake or surprise – in courts
exercising equitable jurisdiction to relieve against men’s
bargains’: 723 (emphasis added). In Leads Plus Pty Ltd v Kowho
Intercontinental Pty Ltd (2000) 10 BPR 18085, Young J noted that: ‘The
cases on relief against forfeiture generally have been far more sympathetic to
a
plaintiff whose misfortune has come about as a result of accident or surprise
rather than one that has come about through negligence’:
18088.[66] John
Norton Pomeroy, A Treatise on Equity Jurisprudence (5th ed,
1941) vol 3, pt 2, [823], n 1; cf Joseph Story, Commentaries on Equity
Jurisprudence as Administered in England and America (1st ed,
1884) ch IV, especially s 78 and s
89.[67] The history
and development of the jurisdiction are traced in Rossiter, above n 30, ch
1.[68] The purchaser
did arrive before the time expressed in the notice to complete expired but was
not ready, willing and able to
settle.[69] A severe
thunderstorm and consequent traffic
disruption.[70] See
[1996] 1 HKC 349.[71]
Ibid 361.[72]
Young, above n 18. His Honour mentioned the Trade Practices Act 1974
(Cth), the Fair Trading Act 1987 (NSW) and the Industrial Relations
Act 1996 (NSW). See also Abedian and Furmston, above n 50,
215.