Is the redemption premium amount a penalty?
67 Lastly, the parties are at issue as to the plea in pars 74 and 75 of the amended defence, that Unwired's obligation to pay the redemption premium amount is a penalty. In argument, Unwired accepted that it was seeking to rely on a novel argument that the occurrence of an event, namely, the change of control or de-listing, although not a breach of contract for which it was responsible, could still operate as a penalty. It sought to rely upon a recent, but even more recently, reversed, decision of Brereton J in the Supreme Court of New South Wales in Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2007] NSWSC 406. That was reversed in Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd [2008] NSWCA 310.
68 After an extensive examination of the authorities, Brereton J concluded that a penalty was a contractual obligation to pay, forfeit or suffer the retention of a sum of money or property, agreed in advance to be payable, forfeited or retainable by one party to the other upon or in default of the occurrence of an event, which could be seen as a matter of substance to have been treated by the parties as lying within the area of obligation of the first party (in the sense that it was the first party's responsibility to see to it that the event did not happen) and where the stipulated payment is out of proportion or unrelated to the damage which might be sustained by the other party by reason of a particular occurrence of default: Integral [2007] NSWSC 406 at [74].
69 Allsop P, with whom Giles and Ipp JJA agreed, apparently in obiter dicta, concluded that Brereton J's "thoughtful" reasons highlighted a potential tension between different approaches in the field, but that the weight of existing authority limited the doctrine of penalties within narrow and clear boundaries. Allsop P said that it was the function of the High Court, and not the Court of Appeal of the Supreme Court of New South Wales or a judge at first instance, to expand that field: Interstar [2008] NSWCA 310 at [159]-[160].
70 The redemption premium amount here is payable, if at all, because of an event which occurs without the fault of, or any breach of contract by, Unwired. The desire of Unwired to raise an argument that the obligation to pay the redemption premium amount is, or operates as, a penalty so as to preserve its position to litigate that issue in the High Court without the need for a new trial, may possibly be a matter that can be accommodated in a proper procedural context. Although both parties argued respectively that they should each have judgment on this point pursuant to s 31A of the Federal Court of Australia Act, the existence of such an argument on each side suggests that there may be something more to the point than a summary disposal application could or should indulge.
71 My principal concern, however, is that whatever else it seeks to do, at the moment, Unwired's amended defence does not articulate precisely what the obligation is or the circumstance (or circumstances) in which it operates so as to create a penalty. That is, Unwired has not clearly identified the material fact that could be the subject of its proposed expansion of the law of penalties, were it allowed to rely on this novel point. Rather, Unwired made only a bald assertion (in par 74 of its amended defence) that the redemption premium amount is:
· not a genuine pre‑estimate of Intel's loss;
· out of all proportion to any loss Intel might suffer, so that it is extravagant and unconscionable in amount;
· a sum greater than that which ought, in any circumstances, be paid; and
· a simple lump sum made payable by way of compensation on the occurrence of one or more or all of several events at different times;
and thus is void and unenforceable as a penalty.
72 In Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 at 666 [22], Gleeson CJ, Gummow, Kirby, Hayne, Callinan and Heydon JJ said that in assessing extravagance and oppressiveness, it is necessary to be able to compare the price to be paid, and the value of what is to be transferred as a result of the claimed penalty having become payable. I do not think that Unwired's pleading does articulate, in that way, a clear basis for asserting that a penalty would be incurred by it. I am of opinion that it is necessary to plead more than the merely formulaic words contained in par 74 of Unwired's amended defence.
73 If this point is to be articulated, even in circumstances where ultimately it might have to be struck out, it should be done in a pleading that clearly raises whatever is the triable issue which Unwired ultimately seeks to use to defend itself from liability to pay this amount as a penalty. For these reasons, pars 74 and 75 are not sufficient, in themselves, to bring out the novel claim that Unwired wishes to make and should be struck out.
74 I am concerned that the caution expressed by Allsop P should not be ignored. On the other hand, courts have to be mindful that when a party wishes to raise a test case, at least the elements for the test should be stated clearly in the pleadings. In this way, ultimately, it will be possible to apply the test, as to whether the redemption premium amount is a penalty, assessed on the conventional basis which, as a judge at first instance, I would ordinarily be obliged to apply, or by using some other test to determine whether the proceedings should be dismissed under s 31A, or otherwise stuck out as untenable. The arguments which Intel has put are significant. They carry the weight not only of the previous understanding of the common law of contract but also the operation of the document penalties.
75 But, before dismissing this aspect of the proceedings entirely, if I were otherwise minded to accede to Intel's arguments, I am of opinion that I should give Unwired one further opportunity to set out in its pleadings the necessary material facts. I do that because it seems to me that this area of the law is one which is undergoing development. As Allsop P observed, it is not the function of single judges or full or appellate courts to depart from decisions of the High Court. However, in O'Dea v Allstates Leasing Systems (WA) Pty Ltd (1983) 152 CLR 359 the High Court overruled its earlier decision in Lamson Store Service Co Ltd v Russell Wilkins & Sons Ltd (1906) 4 CLR 672. That had been recently applied by the Court in IAC (Leasing) Ltd v Humphrey (1972) 126 CLR 131. The reformulation of the law as to penalties which commenced with O'Dea 152 CLR 349 and continued with AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 may not yet be at an end, albeit it that, as Allsop P noted, it may not be at the stage that Brereton J had suggested.
76 Recently, in Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 244 ALR 1, Gleeson CJ, Kirby, Heydon, Crennan and Kiefel JJ discussed the issue of relief against penalties and forfeiture in a cognate way. They referred to AMEV 162 CLR 170 and discussed the interplay which that and subsequent decisions had identified as developing between penalties and forfeitures.
77 In my opinion, the current pleading of the defence, that the redemption premium amount is a penalty, should be struck out because it does not disclose a defence known to law and does not plead adequately the elements of any such defence. It may well be that when it is repleaded by Unwired, it will clearly then articulate the material facts to ground the argument Unwired wishes to make, but nonetheless I may have to strike it out or dismiss it under s 31A because the law is as Intel submitted. I am satisfied, however, that I should give Unwired one further opportunity to replead this asserted defence.