(c) Stage Three - From the end of 17th century to the 18th century
18 The significant change to the common law jurisdiction at the end of the 17th century and the beginning of the 18th century was the enactment of the two penalty statutes; the Statute of William III (1696) 8 & 9 Will 3 c 11 (The Administration of Justice Act 1696 entitled "An Act for the Better Preventing of Frivolous and Vexatious Suits") and the Statute of Anne (1705) 4 & 5 Anne c 16 (The Administration of Justice Act 1705): see also Collins v Collins (1759) 2 Burr 820. Indeed, the equitable jurisdiction to grant relief against performance of a bond was to a great extent superseded by these statutes: see Browne, Ashburner's Principles of Equity (2nd ed, Legal Books Pty Ltd, 1983) at 264.
19 The effect of the Statute of William III was summarised in Wall v Rederiaktiebolaget Luggude [1915] 3 KB 66 at 72:
… in an action upon a bond (and this includes a penalty clause in a contract) conditioned for the performance of a contract the plaintiff must assign a breach, or as many breaches as he thinks fit, of the condition, and though he is entitled on proving a breach to judgment for the full amount of the penalty he can only recover by execution the amount of the damages proved to have been sustained by the breach or breaches assigned. The result of suing for the penalty is therefore that the plaintiff recovers proved damages, but never more than the penal sum fixed.
20 As the passage makes clear, the statute was (and remains) concerned with actions upon bonds with special conditions. These provisions apply to covenants and agreements in writing containing a penal sum for non-performance. In those circumstances, a plaintiff must assign or suggest breaches and can only recover damages for the breaches so assigned or suggested: Bullen E and Leake SM, Precedents of Pleadings in personal actions in the superior courts of common law, (3rd ed, Steven and Sons, 1868), at 116.
21 The Statute of Anne was quite different. The difference between the statutes of William III and Anne were described in Yale DEC (ed), Lord Nottingham's Chancery Cases, (Vol 79, Selden Society, 1961-62) p 29 as follows:
These Acts of 1697 and 1705 allowed the plaintiff suing successfully on a penal bond to enter judgment for the whole sum, but provided that he should state the breaches, and restricted him from recovering more than he proved as damages. The judgment as to the balance secured him against further possible breaches. [The Statute of William] The defendant was, on his side, entitled to plead a payment of principal and interest against the form of the obligation. [The Statute of Anne].
(Emphasis added.)
22 Where a bond falls within the Statute of Anne, it does not fall within the Statute of William III: Smith v Bond (1833) 10 Bing 125 at 132 citing Holroyd J in Murray v Earl of Stair (1823) 2 B & C 82 at 317-318. So, for example, annuity bonds, and bonds for money payable by instalments, are within the Statute of William III. Why? Because they depend on the provision in the Statute of William III that judgment should stand as a security for future payments of the annuity, or the further instalments which might become due, as the case may be: Smith v Bond at 131. Such bonds are to be contrasted with a bond for the payment of a principal sum and interest on a fixed date. Once principal and interest are due, the Court may stay the proceedings and relieve the defendant and there is no need for the judgment to stand as a security for the future. As Bramwell B said in Preston v Dania (1872-73) LR 8 Ex 19, a common money bond is within the Statute of Anne, and not within the Statute of William III, "because only one breach can be assigned, and the penal sum is not for the non-performance of several covenants".
23 On whether a bond falls within the Statute of William III or the Statute of Anne, Murray v Earl of Stair (1823) 2 B & C 82 at 317-318 is instructive. In that case, their Honours stated that:
It is now, however, fully established by decided cases, that bonds for the payment of annuities, or of money by instalments, are within the [Statute of William III]; but that bonds for the payment of a sum certain, at a day certain, are not within it. Bonds for the payment of annuities are clearly within the provision, that the judgment shall stand as a security for future payments. Before the statute a Court of Equity could only put a value upon the annuity, but could not effect that which is now done by the statute. A bond for the payment of a sum certain, at a day certain, is not within the Statute of William, for in order to ascertain the precise sum due in such a case, computation only is necessary, and intervention either of a jury, or a Court of Equity is unnecessary.
…
The [Statute of William] seems to have contemplated bonds by the condition of which more than one act was required to be done; for it directs that the judgment shall be for the penalty, but that execution shall be for the damages assessed only, and that the judgment shall remain as security for further damages that might occur. The main object of the Legislature was to make it unnecessary for parties to go into a Court of Equity to obtain relief. Now, where the penalty was a security for the doing of several acts, it became the debt at law by the non-performance of any one. And it was necessary therefore for a party to apply to a Court of Equity for relief, which was granted upon the terms of paying what was due in conscience … it is perfectly clear that if this bond be within the [Statute of Anne] it is not within the [Statute of William].
…
The mischief contemplated by the [Statute of Anne] was that where a bond was conditioned for the payment of a lesser sum at a day certain, and payment was not made at the day, the penalty became the debt at law; and payment after the day could not be pleaded in a Court of Law in bar of the action; and even pending the action, the payment of the principal, and interest, and costs, would not be a ground for discontinuing it, but the obligor of the bond was driven to a Court of Equity. Here, before the [Statute of Anne], the obligor would have been obliged to apply to a Court of Equity for relief if he had not paid the money at the day. This is therefore clearly a bond within the mischief contemplated by the [Statute of Anne].
…
[The Statute of William] is highly remedial, and calculated to advance justice and to give relief to plaintiffs up to the extent of the damage sustained, and to protect defendants from the payment of more than what is justly due, and ought not to be so construed, as to compel plaintiffs to put unnecessary matter on the record. It appears to me that a suggestion is required in two cases; first, where upon the first breach, all that may become due is not payable, as in the case of an annuity or money payable by instalments, and then justice requires that the party should recover only what is due, which cannot be ascertained without a suggestion. The second case is where the damages are unliquidated, and must be ascertained by the verdict of a jury, as in cases of breaches of covenant.
24 Under the Statute of William III, where an action was commenced at law upon a bond or any penal sum for the non-performance of a covenant or agreement in any indenture, deed or writing, and judgment was given for the plaintiff, then if the defendant paid into court damages to be assessed by reason of the breaches, together with costs and expenses, the defendant would be discharged from further execution on the bond. The concept of breach was central. Rossiter CJ in Penalties and Forfeiture: Judicial Review of Contractual Penalties and Relief Against Forfeiture of Proprietary Interests (The Law Book Company Limited, 1992) at p 11 explained it in the following terms:
The plaintiff suing on a bond or on any penal sum for breach of covenant in any indenture, deed or writing, could recover judgment in the usual way. However, upon the plaintiff assigning or alleging specific breaches, the jury was to assess the damage suffered. If the defendant paid into court, at any time before execution, the amount of the damages plus costs, stay of judgment was entered in the court record. The judgment acted as security for the damages thus suffered.
25 Under the Statute of Anne, however, where an action for debt was brought under a bond which had a condition or defeasance whereby the bond would become void upon payment of a lesser sum at a particular time, then payment by the obligor of the principal plus interest could be pleaded in bar of the action as if the condition or defeasance had been strictly met; and if the payment was made in court during the action together with costs it would constitute full satisfaction and discharge of the bond: Rossiter at 12.
26 The applicants submitted that the Statute of William III reflected that limb of equity's jurisdiction which focused on bonds or penalties referable to the non-performance of a covenant or agreement to do or refrain from any activity and that the Statute of Anne reflected equity's jurisdiction which focused on money bonds where the amount payable under the bond exceeded the underlying amount. The statutes were dealing with different types of bonds. Moreover, the applicants' submission ignores the object of the statutes. The statutes were practical and procedural. They streamlined relief against penalties. Where proceedings were brought at law by the obligee, the obligor would obtain from the court of law the relief for which otherwise it would have needed to institute a separate suit in equity to obtain. It is necessary to keep these distinctions at the forefront of any consideration of the Australian law of penalties because the provisions still form part of the law of Victoria under the Instruments Act 1958 (Vic) (the Instruments Act). The content of those provisions and their relevance are considered later in these reasons under the heading Regulatory Framework at [(C)(3)] below.
27 The applicants then submitted that three further matters should be noted about this stage in the administration of the common law as affected by the statutes:
1. the circumstances grounding relief at common law were essentially those previously recognised in equity;
2. the approach of substance over form was carried over from equity into the common law as demonstrated by the Statute of Anne. In money bonds where the stipulation was expressed in the traditional language of a conditional bond, whereby the bond would become void upon payment of the lesser sum at a certain time, relief was available whenever the bond required payment of a larger sum than the underlying amount stipulated. Thus, common law relief against money bonds was available in respect of instruments which did not in terms impose an obligation to pay the lesser sum; terms which did not reflect a promise or what would later become a term of a contract; and
3. thirdly, the procedural reforms, and expansion of the common law, did not abolish the jurisdiction in equity.
28 At one level, these propositions are unexceptional. It is true that the circumstances grounding relief at common law were essentially those previously recognised in equity, that the Statute of Anne adopted the approach of substance over form and that the procedural reforms and expansion of the common law did not abolish the jurisdiction in equity. But what follows from acceptance of those propositions was not made clear by the applicants. What, in my view, does not follow is some general proposition that common law relief against money bonds was available in respect of instruments which did not in terms impose an obligation to pay the lesser sum; terms which did not reflect a promise or what would later be construed as a term or condition of a contract.
29 The applicants referred to four cases from the 18th century as some support for the propositions they identified. The first was Peachy v The Duke of Somerset (1720) 1 Strange 447 where relief against forfeiture of a copyhold estate was granted upon the making of due recompense. One ground for seeking relief was in respect of the non-payment of rent or fines. Relief was granted because the forfeiture was by way of security. The Lord Chancellor said at 453:
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 case does not advance the understanding of the historical development of the law of penalties or provide support for the applicants' second proposition. The questions posed by the court were orthodox - whether any of several acts were forfeitures at law and, if so, whether any of them were relievable in equity: Peachy at 448. It was an orthodox application of principle and the usual grant of relief.
30 Next, the applicants cited Collins v Collins (1759) 2 Burr 820. In that case, Lord Mansfield discussed the two penalty statutes. The claim was an action of debt upon a bond where the condition involved the payment to the plaintiff of an annuity for life plus an obligation of maintenance. Lord Mansfield held this satisfied the language of the Statute of William III and, under that statute, allowed judgment to be obtained for the whole penalty. However, execution was stayed so that the plaintiff could not recover more than the debt, interest and costs or any other amounts ascertained as the true damage. Consistent with the title and object of the Statute of William III (see [18] above), the obligor was relieved from the need for an expensive suit in equity.
31 The applicants submitted that this case was further evidence that people had frequently gone to equity upon conditions in bonds under the Statute of William III and that under the Statute of William III, as well as the Statute of Anne, a broad view of substance over form was taken in bringing conditional bonds within the language of the available relief. Moreover, the applicants submitted that no point had been taken that the condition needed to be expressed as a promise or as a contractual obligation before the relief was available. Those submissions require close analysis. First, as demonstrated earlier, the two penalty statutes were different in substance and effect. The statutes were mutually exclusive: see [22]-[26] above. So, for example, if a bond fell within one statute, it could not fall within the other. Secondly, Lord Mansfield applied the Statute of William III, not the Statute of Anne, and described the operation of that statute as follows (Collins at 825):
A very beneficial remedy, and a very just one to the subject, this is. The judgment is to be for the whole penalty, and it is to remain as a further security; though, execution is to be stayed on payment of the sum due, &c. So that the penalty is a security for the debt, interest and costs, upon any future breach.
(Emphasis added.)
As is apparent, there was an agreement in writing between the parties, the penalty was payable upon breach (for non-payment to the plaintiff of an annuity for life or maintenance) and judgment for the whole penalty was retained as security for any future breach. The substance of the bond, not its form, was critical: see Collins at 826. That it was described as a "condition" was not determinative. It was a penalty for "breach".
32 The third case was Sloman v Walter (1783) 1 Bro CC 418. It was cited as an example of equity granting an injunction to restrain execution upon a verdict at law and requiring a quantum damnificatus to try the real damage. The plaintiff and defendant were partners in a coffee house. It was agreed that the business would be conducted entirely by the plaintiff but the defendant would have the use of a room in the house whenever he thought proper. In order to enforce the agreement, a bond was entered into by the plaintiff to the defendant to pay a penalty of £500. The plaintiff refused the defendant use of the room and the action was brought for the penalty of the bond. The Lord Chancellor in Sloman at 419 said the bond was to be considered as a penalty rather than as assessed damages and stated the rule as follows:
The rule, that where a penalty is inserted merely to secure the enjoyment of a collateral object, the enjoyment of the object is considered as the principal intent of the deed, and the penalty only as accessional, and, therefore, only to secure the damage really incurred, is too strongly established in equity to be shaken.
An injunction against a suit for recovery of the bond was continued. Sloman is an example of the continuing existence of the equitable jurisdiction where the common law would not assist. In that case, the "condition" was held to be the principal object or real bargain and the penalty intended only to secure the due performance of the principal object. Again, it was an orthodox application of principle and the usual grant of relief.
33 The final case cited by the applicants was Hardy v Martin (1783) 1 Cox 26. The plaintiff and the defendant had been partners in a business of brandy merchants. The plaintiff quit the business and sold the lease and goodwill to the defendant and entered into a bond to the defendant to pay a penalty of £600. The condition stated on the bond was that, if the plaintiff did not engage in certain competitive activity for an identified period, the bond would be void. The defendant obtained a verdict for the penalty at law. Lord Loughborough said equity would not regard the penalty as the price for doing what he had expressly agreed not to do: Hardy at 26-27. The Court restrained the plaintiff from competing even if he had paid the penalty and moderated the damages to the real injury. The conditional bond did not contain any promise. However, properly construed, the Court concluded this was "an agreement not to sell brandy, with a penalty for selling it": at Hardy at 27. The penalty was treated as security for the performance of the real object of the bargain - for the plaintiff not to sell brandy. The injunction was granted and the Court directed an issue to be tried quantum damnificatus. Significantly, the Court distinguished an earlier decision in Rolfe v Peterson (1772) 6 Bro PC 470 where land had been demised to a lessee to do with the land as he thought proper; if he used it one way, to pay one rent and if another way, another rent. The Court distinguished Rolfe by stating that it did not involve an agreement not to do a thing with a penalty for doing it and, accordingly, it was apparent why equity would not interfere: Hardy at 27.
34 Before leaving this stage in the development, it is necessary to consider one further aspect. In relation to the third contention (that the expansion of the common law did not abolish the jurisdiction in equity) the applicants identified two groups of cases where equity retained jurisdiction. First, where the obligee chose to bring his suit in equity under an available bill on the bond itself, thereby enabling the obligor to raise by way of defence the equitable matters and, secondly, where the obligor would need to seek affirmative relief which would be available only in the court of equity: for example, where the obligee had already obtained a verdict and execution through the common law court, or had exercised a self help remedy and obtained payment under the bond, it would be the court of equity that granted relief: see Loyd at 126 and Simpson at 418-421 and the authorities cited. In my view, the cases identified by the applicants do not assist. The first example simply reflected a choice of suit having been made by the obligee. The second reflected the procedural nature of the remedy: see [22]-[26] above. In any event, there is no doubt that the equitable jurisdiction continues to exist - indeed, the applicants and ANZ agreed on that aspect. The area of dispute between them was the extent of the operation of the continued equitable jurisdiction in relation to the law of penalties in Australia in 2011. That issue will be addressed later in these reasons for decision: see [45]-[80] below.