83 In these circumstances it does not seem to me that there is any question of penalty in the operation of clause 10.2(d)."
152 Duffy Bros submitted on appeal that where the cl 10.2(d) amount was not payable until 29 March 2008, and not even then if the proviso operated, but became earlier payable by reason of breach in accordance with cl 10.1, its obligation to make earlier payment was penal and void. It said that cl 10.2 remained otherwise valid, in accordance with cl 20 of the 1999 Deed. The accelerated payment was penal, Duffy Bros submitted, because as a matter of substance -
" … the obligation upon Duffy Bros to pay money (under clause 10.2(d) read with clause 10.1 was an obligation conditioned upon a breach of contract, designed as security for performance of contractual obligations, imposing upon Duffy Bros an obligation to pay a higher amount (calculated in accordance with clause 10.2(d)) than it would otherwise be obliged to pay."
153 Duffy Bros submitted that cl 10.2(d) could not be characterised in the manner to which Gibbs CJ had referred in O'Dea v Allstates Leasing System (WA) Pty Ltd at 366, as a "present debt, which, by reason of an indulgence given by the creditor, is payable either in the future, or in a lesser amount, provided that certain conditions are met", because by cl 10.1 the amount was initially not payable until 29 March 2008 and earlier payment was expressly only by reason of breach; and, it said, the same sanction was imposed for breaches which could be of differing degrees of seriousness and with outcomes disproportionate to the acceleration of payment.
154 Again, I do not think there is any substance in Duffy Bros' submissions. They failed to place cl 10.2 in its wider context.
155 As I have said, the 1999 Deed provided a new regime for the timing and amounts for payment of the rent and outgoings payable under the Lease. But it did so in a manner plainly intended to preserve to Transit recovery of the rent and outgoings payable under the Lease, if there was breach within cl 10.1 or if at the time of termination there was continuing breach contrary to the proviso. That is apparent from the continuance of the Lease with Duffy Bros as lessee of the area of the original Shop 10, and its ratification and affirmation subject to the terms of the 1999 Deed in cl 2 of that Deed; from cl 10.1, the effect of which was to defer payment subject to a condition; from the reference to the amounts in cl 10.2 as sums for rent and outgoings payable by Duffy Bros under the Lease; from the proviso referring to acceptance of the sums payable under cl 10.2(a), (b) and (c) in satisfaction of rent and outgoings payable by Duffy Bros under the Lease; and from the conditionality of the proviso.
156 The substance was that Duffy Bros remained liable for the rent and outgoings payable under the Lease, but depending on future events might not have to pay. It conditionally did not have to pay the rent and outgoings at the times and in the amounts for which the Lease provided, but was entitled to make payments at the times and in the amounts in cl 10.2(a), (b) and (c); but on one or other of the conditions expressed in cl 10.1 or in the proviso, that relief from its obligation to pay the full amount of the rent and outgoings payable under the Lease was lost. That the 1999 Deed should have that substance is unsurprising when Duffy Bros was liable for rent and outgoings under the Lease but, because trading conditions had become difficult and it was in arrears, obtained an indulgence from Transit.
157 In O'Dea v Allstates Leasing System (WA) Pty Ltd at 366 Gibbs CJ said -
"The cases to which counsel for the first respondent referred in support of his argument that there can be no question of penalty in the present case seem to me to fall into two classes. In the first class of case, if a sum of money is payable by instalments, and it is provided that in the event of one instalment not being punctually paid the whole sum shall immediately become payable, the acceleration of payment is not a penalty: The Protector Loan Co. v. Grice ; Wallingford v. Mutual Society at pp. 696, 702, 705-706, 710. Similarly there is no penalty where it is agreed to charge a certain rate of interest on condition that if payment is made punctually the rate will be reduced ( Astley v. Weldon at p. 353) or where a creditor agrees to accept payment of part of his debt in full discharge if certain conditions are met but stipulates that if the conditions are not met he will be entitled to recover the original debt: Thompson v. Hudson at pp. 15-16, 27-28, 30; Ex parte Burden; in re Neil . In all the cases of this kind there is a present debt, which, by reason of an indulgence given by the creditor, is payable either in the future, or in a lesser amount, provided that certain conditions are met. The failure of the conditions does not mean that the creditor becomes entitled to damages; the consequence is that the sum which was always owed, but which the debtor was allowed to pay by instalments or in a smaller amount, becomes recoverable at once or in full."
158 His Honour emphasised at 374 that this principle applied where there was "a present debt, a debt actually due before the breach which accelerated the payment". See also Wilson J at 380, 380 accepting the principle of an agreement which "provided merely for the acceleration of payment of an existing debt in the event of the lessee's default", and Brennan J at 386.
159 In Acron Pacific Ltd v Offshore Oil NL (1985) 157 CLR 514 Mason ACJ and Wilson, Brennan and Dawson JJ accepted, referring to Wallingford v Mutual Society (1890) 5 App Cas 685 at 702 and O'Dea v Allstates Leasing System (WA) Pty Ltd at 366-7, 382 and 386, that there is no penalty "if the provisions of the moratorium deed simply grant an indulgence for the payment of a debt that is due and payable". The importance of a present debt was emphasised, and determinative, in Zenith Engineering Pty Ltd v Queensland Crane & Machinery Pty Ltd [2000] QCA 221.
160 In Cameron v UBS AG (2000) 2 VR 108 proceedings to enforce a Swiss judgment debt for the equivalent of $8.4 million were settled by the defendant agreeing to pay the plaintiff $1 million in five instalments, but with a provision that if the defendant defaulted in payment of any one or more of the instalments the plaintiff could apply for reinstatement of the proceedings and the entry of judgment for $8.4 million. The defendant was late in paying the first instalment. The plaintiff applied for the entry of judgment for the $8.4 million. It was held that the provision for entry of judgment was not penal, because by the settlement the defendant had acknowledged that the $8.4 million was payable and it was a case of the kind referred to by Gibbs CJ in O'Dea v Allstates Leasing System (WA) Pty Ltd.
161 All members of the court said that there was an initial obligation to pay the $8.4 million, and that the deed was not an agreement to pay $1 million but was (in the words of Phillips JA at [20]) 'a bargain about the enforcement of the Swiss judgment'. There was no question of pre-estimation of damage or a penalty to compel payment of the $1 million, but rather (again in the words of Phillips JA at [20]) 'the sum payable upon default is already due and owing and the chance to pay a lesser sum or on terms is being afforded as a privilege or indulgence'.
162 In the present case there was not wholly a present or existing debt as at 2 March 1999, the date of the 1999 Deed. The arrears of rent and outgoings the subject of cl 10.2(a) was a present debt, but the future rent and outgoings under the Lease was not.
163 However, the future rent and outgoings was in my opinion within the reasoning of the principle of which Gibbs CJ spoke in O'Dea v Allstates Leasing System (WA) Pty Ltd. The distinction between an admitted debt and a disputed debt, as in Cameron v UBS AG, is matched by a distinction between an admitted obligation and a disputed (or un-established) obligation. There can be a privilege or indulgence to pay less or on terms to discharge an admitted obligation. In the present case there was a present and existing obligation to pay the rent and outgoings which would become payable under the Lease, at the least as each rental month arrived. The futurity in cl 10.2(d) was not beyond termination of the Lease, so that the rent and outgoings which could be called up in the cl 10.2(d) amount were in my view in the same position as a present or existing debt.
164 I do not think it was submitted that cl 10.2(d) was penal because it made immediately payable, if cl 10.1 had operation, all rent and outgoings to the date of termination of the Lease. I do not think it did so. If there were an operative breach prior to 29 March 2008, the rent and outgoings payable under the Lease to 29 March 2008 would not necessarily be known; it could depend on CPI increases or reviews. Clause 10.2 provided for payment of the sums to which it referred "for rent and outgoings", and the cl 10.2(d) amount was the rent and outgoings payable up to the operative breach and thereafter periodically as necessary to top up the aggregate of the cl 10.2(a), (b) and (c) amounts to the rent and outgoings periodically payable under the Lease.
165 In my opinion, the acceleration of payment of the cl 10.2(d) amount was not void as a penalty.
166 Gumland submitted also that, even if cl 10.2(d) was penal, it was entitled to recover from Duffy Bros an equivalent amount as rent and outgoings payable under the Lease. It said that cl 10.1 provided for deferral of payment only of any amount due from Duffy Bros under cl 10.2(d), and that the underlying obligation to pay the rent and outgoings under the Lease remained and Duffy Bros was relieved from it only if the proviso operated, which had not occurred because 29 March 2008 had not yet arrived; so there was no impediment to recovery of the rent and outgoings payable under the Lease. It is sufficient to say that cl 10 impeded recovery of the rent and outgoings payable under the Lease, by making the part thereof the subject of cl 10.2(d) conditionally payable only on 29 March 2008, and it was necessary that recovery be found within the regime of the 1999 Deed.