42 The third weakness of Apex was said to be the support drawn by Simonds J from the lack of dissent in later cases, when in Associated Distributors Ltd v Hall [1938] 2 KB 83, a case concerned with the first class of case, all members of the Court of Appeal expressly reserved their position as to the earlier cases of Elsey and Chester & Cole.
43 The primary judge concluded, at [28] of his reasons, as follows about Apex:
Apex is potentially important, because it seems to be the only case in the second class, but its authority is seriously undermined by the subsequent authoritative rejection of its ratio - that if the payment is not a penalty where it is payable on the return of the article by the hirer, it ought not to be regarded as penalty where it was payable on the retaking of the article by the owner.
44 The primary judge then considered Cooden Engineering. Importantly, the court in Cooden stated that aspects of Elsey (and so Apex) were wrong, insofar as they concerned the third class of class - the termination of the contract upon breach by the hirer. Somervell LJ left open the second class, on equitable rather than common law principles. Jenkins LJ, in dissent, agreed with the reasoning in Elsey. Hodson LJ, like Somervell LJ, refused to view the provision in question as based on an event (determination) rather than on a breach (non-payment). Hodson LJ (at 932) expressed (if I may say so) the distinction sought to be drawn which he (and Somervell LJ) would not recognise:
My difficulty is to see the validity of the distinction between a claim to receive payment of a sum of money because of a right to determine arising from breach of contract, and a claim to receive payment of the same sum by reason of breach of contract giving a right to determine. The latter situation arises in cases of breach of condition amounting to a repudiation of the contract giving the opposite party the right to accept the repudiation and sue for damages. In so acting he determines the contract. Clause 11 purports to produce exactly this situation in respect of any breach referred to therein, and it seems to me unreal to speak of a remedy arising from the right to determine as opposed to a remedy arising from the breach. It is said that the right to determine arises in cl 11 not only in cases of breaches great or small, but also in a number of other events which have nothing to do with breach of contract, and, accordingly, since the law as to penalties for breach is inapplicable as such in these numerous instances, so it cannot be applied to that part of the clause to which it might otherwise be appropriate. I am unable to accept this contention which seems to involve that a draftsman of a written contract can always draw his document in such a way as to defeat the common law by incorporating in the same clause provisions dealing with the right to determine the contract on the occurrence of an infinite number of events only one of which is a breach of contract.
(Emphasis of primary judge)
45 The importance of Cooden Engineering (and later Bridge v Campbell Discount and O'Dea) should be understood, but not overstated. First, the fact that termination (and the payment provided for) could occur on the happening of a number of events, some only of which were breaches of contract, did not save the provision for payment being a penalty insofar as the termination and payment were conditioned on breach. Secondly, the distinction between payment conditioned on termination (an event) for breach and payment conditioned on breach itself, was seen as without a difference: see Hodson LJ above. These cases did not, however, decide that the need for the involvement of a breach of contract for the operation of the law of penalties no longer existed. It is important to recognise this when assessing the weight of later cases in England and Australia, in particular IAC (Leasing) Ltd v Humphrey [1972] HCA 1; 126 CLR 131 at 143. In Cooden Engineering, only Somervell LJ left this question open.
46 The primary judge then referred to Bridge v Campbell Discount Co Ltd and the House of Lords' unanimous approval of Cooden Engineering insofar as it rejected the proposition that if a payment was not a penalty in some circumstances upon which it rested, it could not be a penalty in other circumstances based on breach. The primary judge then examined the reasoning of their Lordships insofar as the first and second categories of cases were discussed. Viscount Simonds and Lord Morton of Henryton approved Associated Distributors v Hall to the effect that no question of penalty arises in the first category. Lord Denning and Lord Devlin disapproved Associated Distributors v Hall in its application to the first and second categories. Lord Radcliffe left the question of the first and second categories as penalties open.
47 The primary judge then referred to Financings Ltd v Baldock [1963] 2 QB 104 in which the Court of Appeal held (consistently with the majority in AMEV-UDC v Austin) that upon determination for breach not amounting to repudiation, the owner was only entitled to instalments unpaid, and not damages. Diplock LJ, in obiter dicta comments, dealt with payments in the first and second classes and raised the question of the possibility that they could be penalties.
48 The primary judge then referred to further comments, obiter dicta, about the first and second classes, in United Dominions Trust (Commercial) Limited v Ennis [1968] 1 QB 54. Lord Denning MR repeated his view expressed in Bridge v Campbell Discount that Associated Distributors was wrong. Harman LJ disagreed, stating that there can be no penalty without breach. Salmon LJ made comments about the first, but not second classes, to the effect that such may not be a penalty.
49 The primary judge then turned to O'Dea and noted that Gibbs CJ left open the question as to the correctness of Associated Distributors and the first (and thus second) classes of case. The primary judge also noted Brennan J's view that the balance of opinion in the High Court was that penalty is predicated upon breach.
50 The primary judge then discussed Export Credits Guarantee Department v Universal Oil Products Co [1983] 2 All ER 205, noting that the House of Lords held that the law of penalties was concerned with payments founded on breach of contract. The primary judge drew a distinction at this point, as he did with the case of Alder v Moore [1961] 2 QB 57, describing at [50] of his Honour's reasons these cases (Export Credits and Alder v Moore) as "true case[s] of … payment becoming due on an event" as distinct from cases in which (as he found here):
… the payment is exigible upon termination at the option of one party for an event committed or suffered by the other, as a collateral obligation intended in substance better to secure the performance of the main purpose of the contract, by allowing the first party to terminate and imposing an additional detriment on the other party if an event which may jeopardise performance of the main purpose occurs.
51 The primary judge then turned to AMEV-UDC v Austin and noted that all five justices were of the view that the doctrine of penalties applied when there was a right to terminate and receive a payment on the happening of a breach of contract even if that be only one of a number of events (which were not breaches) giving rise to the rights of termination and payment. As to the first and second classes of case, Gibbs CJ again left the matter, and a consideration of Export Credits, open. The primary judge then discussed the extensive joint reasons of Mason and Wilson JJ and by reference, in particular, to what their Honours said at 190, stated at [57] of his reasons:
… In that context, and read as a whole, their Honours' judgment does not decide that relief against a penalty is available only when it is conditioned upon a breach of contract; to the contrary, it suggests that relief may be granted in cases of penalties for non-performance of a condition, although there is no express contractual promise to perform the condition - apparently on the basis that despite the absence of such an express promise, a penalty conditioned on failure of a condition is for these purposes in substance equivalent to a promise that the condition will be satisfied. Such a view supports the applicability of the doctrine of penalties to the second class of case.
52 The phrase "In that context" in the first line of this passage referred to the summary (at 190) of Mason and Wilson JJ's historical discussion of equity's intervention in relation to penalties, the fifth point of the summary being:
… relief was granted, in the case of penal bonds, where there was no express contractual promise to perform the condition (see Hardy v Martin ), though it seems such a promise could in many cases readily be implied.
53 Before turning to Deane J and Dawson J, who were in dissent in AMEV-UDC, the primary judge discussed (at [58]-[61]) four cases dealing with the statutory restrictions on re-entry and relief against forfeiture in the Law of Property Act 1925 (UK), s 146 and the Conveyancing Act 1919 (NSW), s 129: Halliard Property Co Ltd v Jack Segal Ltd [1978] 1 WLR 377 (Goulding J); Cadogan Estates Ltd v McMahon [2001] 1 AC 378 (House of Lords); Della Imports Pty Limited v Birkenhead Investments Pty Limited (1987) NSW ConvR 55-358 (McLelland J as he then was); and Wynsix Hotels (Oxford St) Pty Limited v Toomey [2004] NSWSC 236 (Young CJ in Eq). From these cases, the primary judge perceived a willingness in the courts to imply a contractual provision not to bring about a state of affairs or an event on which the right to re-enter was conditioned. He saw the approach to this statutory provision in the cognate field of relief against forfeiture as supportive of Mason and Wilson JJ's fifth point of ready implication of the promise. He said at [62] of his reasons:
This line of cases reinforce the view that in a case in the second class - where termination, accompanied by a liability to pay an agreed sum, is authorised for an "event of default" where there is no express promise that the event will not occur - nonetheless the position may be seen as, in substance, akin to termination for breach.
54 The primary judge then drew further support for this conclusion from the reasons of Deane J (in dissent) in AMEV-UDC, who at 162 CLR 197-199 rejected, as a general proposition, the requirement that there be a breach of contract for the law of penalties to be invoked (though Deane J recognised the recent statements of high authority to the contrary). The primary judge then extracted from the judgment of Deane J at 162 CLR 199-200 a proposition that directly supported the application of the doctrine of penalties to cases in the second class. The relevant passage from the judgment of Deane J at 162 CLR 199-200 was as follows:
… [I]t is plain that the equitable and common law rules relating to penalties do not apply to every obligation to make a payment of money on the occurrence, or default of occurrence, of a specified event. … The general area in which they are applicable is where there exists a contractual liability (whether under seal or for consideration) to pay or forfeit an amount or amounts either on or in default of the occurrence of an event which can be seen, as a matter of substance, to have been treated by the parties as lying within the area of obligation of the party liable to make the payment in the sense that it is his or her responsibility to ensure that the specified event does or does not occur and where the stipulated payment contains an element of compensation for the economic loss or damage which might be sustained by the other party by reason of the particular occurrence or default. It is within that general area that a liability to pay or forfeit money may be discerned, as a matter of substance, as going beyond any genuine pre-estimate of damage and as representing a penal sanction or security against the occurrence or non-occurrence of an event which the obligor and obligee have seen as falling within the responsibility of the obligor. There, the particular rules relating to penalties are applicable to determine the enforceability of the liability to pay or forfeit the designated amount regardless of whether there was any distinct contractual condition or warranty that the event would or would not occur. There, if the liability is unenforceable as a penalty and the quantum of damage sustained is ascertainable, a court can give a monetary recompense or compensation for what the obligee primarily expected or desired, namely, the occurrence or non-occurrence of the particular event.