Discussion
67 What were the considerations as to essentiality and equitable intervention to which Glass JA referred? The historical background is the growth of the Lord Chancellor's equitable jurisdiction, to the point of courts of equity co-existent with and in some respects competing with the common law courts and the principled grant of equitable remedies. The common law became rigid, but equity appealed to conscience and, in the words of Meagher Gummow & Lehane, Equity Doctrines and Remedies, 4th ed, para 1-005, "softened and modified many of the injustices at common law".
68 The equitable remedies included specific performance of contracts, relief against forfeiture, and the "common injunction" restraining the commencement or prosecution of proceedings in the common law courts. Arrival at the following general principles was not without divergences, and their statement can not be unqualified, but they suffice for this case.
69 A contractual term was regarded as a condition or as a warranty; the category of an intermediate term need not presently be addressed. These labels were not always used, but the distinction they signified was long recognized. A condition was a term the breach of which entitled the innocent party to terminate the contract and/or claim damages. A warranty was a term the breach of which entitled the innocent party to claim damages, but not to terminate the contract.
70 In the common law courts a stipulation as to a time for performance under a contract was generally regarded as a condition. Failure of a party to perform in accordance with the time stipulation entitled the other party to terminate the contract. This common law attitude was not universal, but was taken with respect to times stipulated for completion in contracts for the sale of land. For present purposes attention can be focused on contracts for the sale of land, and it was not in dispute that, although strictly a contract for the sale of the share in South Arm, the Agreement was a contract of that nature.
71 Thus, a time stated for completion of a contract for the sale of land was a condition of the contract, and breach entitled the innocent party to terminate the contract and, if the purchaser, recover the deposit, or if the vendor, forfeit the deposit. As Griffith CJ said in Canning v Temby (1906) 3 CLR 419 at 425 -
"At common law it was said that, in the case of the sale of land, time was of the essence of the contract. That doctrine, however, only applied when a date for completion was named in the contract. It was held that when a date is so mentioned, there are mutual promises to complete on the appointed day, and that, on failure of either party to do his part on that day, he lost all rights under the contract, and became himself liable to an action for damages."
72 A stipulation as to the time for performance in a contract for sale of land in a respect other than completion of the contract, for example delivery of an abstract of title, answering requisitions on title and submission of a form of conveyance or transfer may have been a condition, but it is not necessary to go into that. Implicit in the issue joined before the judge was the assumption that a time for payment of instalments was a condition of the contract at law. That a time for payment of instalments may be a condition underlay cases such as Stern v McArthur (1988) 165 CLR 489, and there is no occasion to go behind the parties' assumption.
73 The courts of equity tempered the rigour of the common law. They relevantly did so in two ways.
74 The first way was that, if the party in breach sought the equitable remedies of specific performance and a common injunction, equity might decree specific performance and grant an injunction notwithstanding that the innocent party was entitled to terminate the contract or had terminated it. Equity did so by declining to treat the time stipulation as essential. Equity did not do so, however, if the parties had made timely performance essential. To return to the condition/warranty dichotomy, in that event the courts of equity treated the time stipulation as a condition just as the common law courts did. In Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286, in a passage taken up by the judge in the present case, Barwick CJ and Jacobs J said at 298 -
"A stipulation as to time for performance of obligations was not in proceedings in equity regarded as an essential term unless the contract expressly or by implication made it so. If the contract so provided equity would follow the law. Essentiality would be implied from the nature of the contract in its surrounding circumstances. But a contract for the sale of land where there were no special circumstances was not regarded in equity as one in which a condition as to time was an essential condition."
75 The second way was that equity might grant relief against forfeiture. The relief could be against loss of money paid under the contract notwithstanding that the contract had been validly terminated. Whether it could also be against loss of the purchaser's interest in the land notwithstanding that the default was breach of an essential stipulation as to time, the relief against forfeiture founding a decree for specific performance of the contract, fluctuated over the years. Legione v Hateley (1983) 152 CLR 406 and Stern v McArthur appeared to settle for Australia that it could. The joint judgment in Tanwar Enterprises Pty Ltd v Cauchi (2003) 77 ALJR 1853 might be thought to reopen the question, or at least narrow the occasions on which the relief will be granted, and perhaps to make essentiality of time an element in a wider view of equitable relief. It pointed to circularity in finding a purchaser's interest in land, and endorsed reluctance to interfere with the parties' choice to make time of the essence of the contract. It rested equitable relief more directly on whether specific performance remained an available remedy because the vendor's reliance on his legal right to terminate was unconscientious (see at [12]-[13], [19] in particular). It is not necessary to go further, since in the present case the purchaser did not seek relief against forfeiture, and it would be inappropriate to do so in the absence of argument.
76 To decide whether the vendor's case on appeal should be accepted, it is necessary to ask on what basis equity intervened by declining to treat the time stipulation as essential.
77 One view was that equity looked to the substance of the contract and construed a time stipulation only as a target, not firm as to the time but really meaning at the stated time or within a reasonable time thereafter. But a contract can not mean one thing when construed in a court of law and another thing when construed in a court of equity, and any suggestion that it can was put to rest by the House of Lords in Raineri v Miles (1981) AC 1050 and in the High Court in Louinder v Leis (1982) 149 CLR 509.
78 The other view also looked to the substance of the contract, but invoked the broad notion that equity would disregard the common law's strict insistence on timely performance if justice so required. This view has prevailed. Thus in Stickney v Keeble (1915) AC 386 Lord Parker said at 415 -
"In such cases, however, equity having a concurrent jurisdiction did not look upon the stipulation as to time in precisely the same light. Where it could do so without injustice to the contracting parties it decreed specific performance notwithstanding failure to observe the time fixed by the contract for completion, and as an incident of specific performance relieved the party in default by restraining proceedings at law based on such failure.
This is really all that is meant by and involved in the maxim that in equity the time fixed for completion is not of the essence of the contract, but this maxim never had any application to cases in which the stipulation as to time could not be disregarded without injustice to the parties, when, for example, the parties, for reasons best known to themselves, had stipulated that the time fixed should be essential, or where there was something in the nature of the property or the surrounding circumstances which would render it inequitable to treat it as a non-essential term of the contract."
79 Lord Loreburn agreed with Lord Parker, and added at 400 -
"I will merely observe that the date fixed for completion in a contract for the sale of land is no less a part of the contract than any other clause, but equity will grant relief where a party seeks to make an unfair use of the letter of his contract in this respect, having regard to the state of the law relating to real property in England. It is safe to say that this relief will always be refused when to grant it would be essentially unfair."
80 Lord Atkinson said at 401 -
"There is no occult or elusive mystery hidden in the phrase, 'in equity time is not of the essence of the contract'. It merely expresses in a condensed form the doctrine that if a Court of Equity, looking not at the letter but at the substance of a contract to purchase land, sees that in none of the three ways above mentioned is an intention disclosed that the time limited for completion, or for any step towards completion, is to be strictly adhered to, that Court will relieve against breaches through mere lapse of time touching these matters when that can be done without substantial injustice."
81 In Louinder v Leis at 524 Mason J referred to equity "exercis[ing] a jurisdiction similar to relief against forfeiture and penalties, construing the contract as it would be construed at common law, but restraining the parties from an unconscionable exercise of their legal rights". The common basis with that now found in Tanwar Enterprises Pty Ltd v Cauchi was adopted, and equity intervened because it would be unconscientious for the party entitled to terminate to rely on his strict legal rights.
82 In accordance with statements such as that of Barwick CJ and Jacobs J in Neeta (Epping) Pty Ltd v Phillips earlier set out, the innocent party's reliance on his legal rights would be unconscientious unless, from regard to the terms of the contract and its nature in its surrounding circumstances, the contract made timely compliance essential. Express statement that time was of the essence would ordinarily suffice. Essentiality could be found in other ways: in Brien v Dwyer the special nature of a deposit at least contributed, and if the property sold was of diminishing or fluctuating value that may suffice. The determination was made as at the time of contract, not as at the time of termination, and in this respect the inquiry into the unconscientious of legal rights differed from the inquiry where the termination was for breach of a time stipulation which was essential in equity as well as at law. It remains to be seen whether the joint judgment in Tanwar Enterprises Pty Ltd v Cauchi heralds a single (and perhaps more rational) path to equitable intervention, with essentiality in equity of timely performance one matter in deciding as at the time of termination whether reliance on strict legal rights is unconscientious.
83 Into the common law and equitable mix then came s 13 of the Conveyancing Act 1919, taking up s 25(7) of the Judicature Act 1873 (UK). Section 13 left untouched a time stipulation which the courts of equity would treat as essential. What was the position if the courts of equity would treat the time stipulation as non-essential?
84 It was well established that equitable intervention by treating the time stipulation as non-essential was only for the purposes of the claim to equitable relief. The party in breach was still in breach and liable in damages for any loss occasioned to the innocent party, and if the innocent party had terminated the contract the party in breach could not himself rely on the contract in proceedings at law. In Canning v Temby Griffith CJ said at 426 -
"The doctrine, therefore, that time is not of the essence of a contract is a doctrine applied in relief of a party who is himself technically, but not substantially, in default, so as to allow him to claim specific performance in a proper case, although at law he could not maintain an action. The Courts of Equity never held that a party who had made default in performance of his contract was not liable for damages for the breach, but they treated the stipulation as to time not as a condition, but as an independent term of the contract, the breach of which might be compensated for by damages."
85 See also Louinder v Leis at 526, 532, at the latter page pointing out that upon breach the legal right to terminate arose, that equity might "interfere with the legal remedy for the purpose of granting specific performance", and that a notice to complete was a means of obviating equitable restraint upon the legal right to terminate.
86 If the party in default, then, was not in a position to obtain a decree of specific performance, it mattered not that equity would treat the time stipulation as non-essential. The position at law remained. So in Stickney v Keeble Lord Parker said at 416 -
"It should be observed, too, that it was only for the purposes of granting specific performance that equity in this class of case interfered with the remedy at law. A vendor who had put it out of his own power to complete the contract, or had by his conduct lost the right to specific performance, had no equity to restrain proceedings at law based on the non-observance of the stipulation as to time."
87 It followed that in the application of s 13 it was necessary to ask whether in the particular case equity would have granted relief had it been sought. Speaking of s 25(7), Lord Parker said in Stickney v Keeble at 417 -
"It means, in my opinion, that where equity would prior to the Act have, for the purposes of decreeing its own remedies, disregarded a stipulation as to time and restrained an action at law based on the breach thereof, the Courts constituted by the Act are for the purpose of giving common law relief to disregard it in like manner. … The section cannot in my opinion mean that the rules as to time laid down by Courts of Equity in certain cases, for certain purposes, and under certain circumstances only, shall be applied generally and without inquiry whether the particular case, purpose or circumstances are such that equity would have applied the rules. If since the Judicature Acts the Court is asked to disregard a stipulation as to time in an action for common law relief, and it be established that equity would not under the then existing circumstances have prior to the Act granted specific performance or restrained the action, the section can, in my opinion, have no application, otherwise the stipulation in question would not, as provided in the section, receive the same effect as it would prior to the Act have received in equity."
88 The same view of s 13 or its equivalent was taken in Australia, see for example Holland v Wiltshire (1954) 90 CLR 409 and Louinder v Leis at 524, 533. In Holland v Wiltshire the vendors terminated the contract following the purchasers' failure to complete, and successfully claimed damages. Dixon CJ said at 415 -
"Section 16 of the Law of Property Act 1936-1945 contains the provision that stipulations as to time, which according to the rules of equity are not deemed to be or become of the essence of the contract, shall be construed and have effect at law in accordance with the rules of equity. But the principles explained by Lord Parker in Stickney v. Keeble , at p. 417 apply to exclude the purchasers from the benefit of this provision. For they were never ready and willing to perform their contract and eventually renounced performance. They could never therefore have invoked the equitable remedies for the purpose of which the equitable rule obtained. Even if, contrary to the view of the majority of the Supreme Court, the character of the reference in the clause in question to the dates of payment would not suffice to make equity treat time as of the essence, it is the legal rule that would apply. That however, is not a matter of importance in view of the notice and in view of the purchaser's clear intention not to complete in any case."
89 In the same case Kitto J said at 418-9 -
"At common law such a stipulation would certainly have been regarded as of the essence, that is to say it would have been treated as a condition of the contract in the sense that failure of one party to adhere to it would be held to entitle the other to put an end to the contract: Noble v. Edwardes at p. 393. This is still the position when common law relief is sought, except in cases to which s. 16 of the Law of Property Act 1936-1945 (S.A.) applies. That section, which repeats s. 25 (7) of the Judicature Act 1873 (Imp.), provides that stipulations in a contract as to time which according to rules of equity are not deemed to be or to have become of the essence of the contract, are to be construed and have effect at law in accordance with the rules of equity. The qualification thus made upon the rule to be applied in the exercise of common law jurisdiction is, however, of limited application. It applies 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 . … In the present case, even if the rescission clause in the contract should not be regarded as bringing the case within the first of these two classes, it is clear that in view of the purchasers' conduct in the face of the vendor's demands for performance, including their explicit refusal through their solicitor to go on with the contract, a court of equity considering the matter at the date when the case came before the Local Court could not possibly have thought it just to decree specific performance at the instance of the purchasers. That being so, the stipulation for completion on 14th January 1952 would not be given by a court of equity, at any rate after 28th March 1952, an effect different from that which it had at law; and accordingly, after the latter date s. 16 of the Law of Property Act 1936-1945 would not require a court exercising common law jurisdiction to treat the stipulation as not being of the essence of the contract: cf. In re Sandwell Park Colliery Co; Field v. The Company at pp. 285, 286; Lock v. Bell at pp. 43, 44."
90 It has been suggested that in United Scientific Holdings Ltd v Burnley Borough Council (1978) AC 904 the House of Lords moved towards acting on equity's view of time stipulations although specific performance would not be decreed. The decision has been criticized, amongst other things for adopting the "fusion fallacy" (Meagher Gummow & Lehane, Equity Doctrines and Remedies, 4th ed, at para 2-295), and in Raineri v Miles their Lordships may have retreated. However, this was not the subject of argument and again it would be inappropriate to go further.