Landream Melbourne Pty Ltd v Aust & NZ International Investment Group Pty Ltd

The Construction Issue

1. Landream puts three alternative constructions of cl 11(a)(iii) of the Term Sheet. Its first and preferred construction is that it should be read as follows (see MFI 1): "(iii) there is a change in control including a change in the beneficial ownership of the majority shareholding of Landream or its parent company without ANZIIG's approval not to be unreasonably withheld."
2. Landream's second alternative construction (see T29.28) is "there must be a practical change in control" and that "change in control" does not automatically flow from a change in the majority shareholding: see T36.15-38.
3. The third construction is that it should be read as (see MFI 1): "(iii) there is a change in control including a change in the majority shareholding unitholding of Landream or its parent company without ANZIIG's approval not to be unreasonably withheld."
4. Mr McLure relied on a number of matters for these various alternatives: 1. The fact that in the Term Sheet both parties are described as being trustees, i.e. "Landream Melbourne Pty Ltd ACN 168 909 242 (as trustee for the Landream Melbourne Unit Trust)", and "Aust & NZ International Investment Group Pty Ltd ACN 114 597 867, being the owner of the Property (as trustee of the Shen's Family Trust)". This led to the submission that it was the change in beneficial ownership of Landream that cl 11(a)(iii) ought to be seen as the focus of the parties' concern. 2. He referred to the need to adopt a business like interpretation of the Term Sheet: Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640 at [35]. 3. The interpretation of the clause should, he submitted, be approached on the basis that it would operate in a "substantive and not formal manner": T28.27, and he referred to AMCI (IO) Pty Ltd v Aquila Steel Pty Ltd [2007] QSC 238 per Muir J, which involved a change in control clause and in particular [68] of the judgment: "[68] The joint venture agreement is a commercial document intended to establish the legal relationship between co-venturers in a large-scale mineral exploration and development project. In determining rights and obligations under such a document, in the absence of a clear indication to the contrary, the parties should be regarded as being concerned with substance over form and technicality and "no narrow or pedantic approach is warranted"." The words in the quotation in that paragraph come from Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1967) 118 CLR 429 per Barwick J at 437. Mr McLure asserted (at T29.10-12) that what Muir J was saying was that "special characterisation or special consideration should be given to the construction of a change of control clause in a joint venture‑type agreement." 1. A unit trust is constituted by beneficiaries, and ANZIIG must be taken to have known that: T29.15-23. 2. Control of Landream was held by the unitholders because cl 3 of the Trust Deed permits unitholders to remove the Trustee: CB 51. 3. The last mentioned point means that there was not a change in control when the shareholding changed, just as shareholders have the power to change the composition of the board: T32.15-16. 4. The shares in Landream were really beneficially held for the unitholders: T32-33. He asserted that the unitholders of the trust would be entitled not only to remove Landream as trustee (which they clearly would be able to do), but also to remove the director of Landream. Mr Li held the shares that he held in Landream in trust for the unitholders, and that this was said to be "an inescapable conclusion". He was, it was put, only the legal owner of the shares not the beneficial owner of the shares: see T35.20.
5. The second argument focuses on the words "change in control" and asserts that a change in the majority shareholding which does not effect a change in control of the company is not within the ambit of cl 11(a)(iii). It was contended that the words "including a change in majority control" should not be viewed as meaning that a change in majority control would necessarily amount to a change in control.
6. This argument is based on the contention that it was the unitholders who really had the control of Landream: see T37.30-34, and is linked also to the proposition that what ANZIIG would really be interested in is "the people and entities standing behind the corporate trustee who have the wherewithal to perform the obligations under the agreement": see T38.21. Mr McLure relied on Nicholson J's comment in New Standard Energy PEL 570 Pty Ltd v Outback Energy Hunter Pty Ltd [2019] SASCFC 132 at [63]: "[63] I turn first to consider the asserted purpose or function of clause 7 in the context of the parties' relationships. The Santos parties and the Sundance parties have agreed to venture with each other and not with others. Bearing in mind the nature of and the commercial significance of the obligations assumed by each party, the identity of each party and its capacity to perform its obligations is of paramount importance to the counter-parties. So much is evident from the terms of paragraphs (a) and (b) in subclause 7.2."
7. Landream contends that ANZIIG knew that the legal shareholding of the corporate trustee was of no significance: "because, of course, the financial capacity of Landream Melbourne Pty Ltd to perform its obligations under the agreement depended on the financial position of the unit holders in the trust" at T38.34-36.
8. In relation to the third interpretation asserted, Mr McLure described it as a different way of saying the same thing - i.e. what ANZIIG was really interested in was the position of those standing behind the trustee, namely the unitholders.
9. Mr Studdy responded to these points as follows: 1. Clause 11(a)(iii) is expressed in clear terms - its focus is on the shareholders in Landream and a change in the majority shareholding is all that is required. There was a change in the majority shareholding when Mr Li transferred his 100 shares in Landream to three different entities. There is no dispute that Landream did not seek ANZIIG's consent. 2. Mr Studdy referred to New Standard (supra) and the following passages: "[63] I turn first to consider the asserted purpose or function of clause 7 in the context of the parties' relationships. The Santos parties and the Sundance parties have agreed to venture with each other and not with others. Bearing in mind the nature of and the commercial significance of the obligations assumed by each party, the identity of each party and its capacity to perform its obligations is of paramount importance to the counter-parties. So much is evident from the terms of paragraphs (a) and (b) in subclause 7.2." … [65] In this case, the primary purpose of the requirement on a party to obtain consent is to provide the consenting party with a sufficient opportunity to examine and satisfy itself of the credentials of any proposed assignee or of a remaining party, itself, were a proposed change in control to be effected. In particular, will that party be willing and able to perform its contractual obligations for the balance of the joint venture? The requirement provided for in subclause 7.2 reflects the degree of importance the parties have attached to the qualified right of each party to deal with its valuable rights under the contractual arrangements governing the joint venture. It reflects the commercial importance to the consenting party of it not being put in a position of disadvantage as compared with its original contractually agreed position. … [70] It can be seen that the object of such clauses, recognised by the course of authority dealing with them principally, but not only, in the landlord and tenant context, is to ensure that assignments or changes in control that do no harm can be effected, in accordance with the parties' intention as at time of contracting. In the usual case, it is unnecessary and arguably counterproductive to also characterise a proviso requiring consent not to be unreasonably withheld as promissory such as to give rise to a damages claim if not observed." 1. Mr Studdy referred to Jhon's evidence: 1. That he had never met Yuan Liu the sole director and shareholder of Glory Era Pty Ltd ("Glory"), nor He Qiao a director and shareholder of Duoact Pty Ltd ("Duoact") and never met Jinru Chen the sole director and sole shareholder of Yara Development Pty Ltd ("Yara Development") and to the best of his recollection he was never provided with a copy of the Landream Melbourne Unit Trust. 2. That he would never have caused ANZIIG to enter the Term Sheet if it had been aware that Mr Li would not continue to be the majority shareholder in Landream. 3. That having now seen the further information provided by Harvard and Mr Li in their affidavits of 9 May 2021 there is nothing to change the view he previously expressed. 1. Mr Studdy contended that the parties specified that the entity in respect of which the change in control was relevant was Landream, not the unit trust. 2. The entity that is the subject of interest in cl 11(a) is Landream and that is so for purposes of solvency: see cl 11(a)(i), and for breaches of the agreement: see cl 11(a)(ii), as well as on the question of control (i.e. cl 11(a)(iii)). 3. Mr Studdy referred to Byrnes v Kendle (2011) 243 CLR 253 at [98]: "[98] Contractual construction. The approach taken to statutory construction is matched by that which is taken to contractual construction. Contractual construction depends on finding the meaning of the language of the contract - the intention which the parties expressed, not the subjective intentions which they may have had, but did not express.131 A contract means what a reasonable person having all the background knowledge of the "surrounding circumstances" available to the parties would have understood them to be using the language in the contract to mean.132 But evidence of pre-contractual negotiations between the parties is inadmissible for the purpose of drawing inferences about what the contract meant unless it demonstrates knowledge of "surrounding circumstances".133 And in Toll (FGCT) this court said (at [40]):134 [40] It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe." And at footnote 132 of Byrnes: "132 Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; [2009] 4 All ER 677 at [14] (Chartbrook). A fact known to one party but not reasonably available to the other cannot be taken into account: Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251; [2001] 1 All ER 961 at [49] (Ali). Gleeson CJ, Gummow and Hayne JJ agreed with this in Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; 185 ALR 152; 53 IPR 1; [2001] HCA 70 at [11] . See also Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; 211 ALR 342; [2004] HCA 52 at [40] (Toll (FGCT)). There is or may be considerable controversy in relation to whether the test turns on what background knowledge was reasonably available to the parties or on what knowledge they actually had; if the former, to whether the knowledge is what each party might reasonably have expected the other to know; and to whether the knowledge of third parties into whose hands the contract may fall is relevant. Similar problems can arise with trusts. The issues in the present case do not call for their resolution." 1. The words "beneficial" or "unitholder" are not found in the clause. The other party may not know whether a share is or is not beneficially held. In this case a search would have revealed that Mr Li did own the shares beneficially and incidentally would, after 9 September 2020, show that Yara Development, Duoact, and Glory did not own the shares beneficially without any indication on whose behalf they owned the shares: see T55.25-27, and CB 308-311. The other party would need to have regard to trust documentation which may or may not be available. Mr Studdy emphasises the practical difficulties of the interpretation advanced by Landream. 2. The concern of Jhon on behalf of ANZIIG is with the party with whom ANZIIG has contracted, not who the unitholders or beneficiaries standing behind that entity. 3. Clause 11(a)(iii) specifically refers to "a change in the majority shareholding of Landream" as a matter requiring approval of ANZIIG", a provision which cannot be ignored.
10. An important element in Landream's submissions seen in [18(1)], [20] and [21] above is the assertion that what ANZIIG should be taken to be interested in was the unitholders and their financial capacity, not the shareholders of the trustee company. I have referred to the fact that Jhon gave evidence that the involvement of Mr Li was important to him and in the absence of cross examination of him I am unable to conclude that his evidence should be rejected. Not only that, but I think that it is not at all surprising that the individual in control of the company that was required to be involved in all of the rezoning work would be of significance to a landowner rather than who owned the shares in the unit trust of which the contracting party was the trustee. I see nothing unbusiness-like in an interpretation which focuses attention on the shareholding in the trustee, rather than the units of the underlying trust. As the passage in [63] of New Standard set out above demonstrates, it is the nature and commercial significance of the obligations assumed by each party and their capacity to fulfil them that is important and the obligations are those imposed on Landream, not the unitholders. I do not accept Landream's contention that by reliance on cl 11(a)(iii) because of the change in control, ANZIIG is here focusing on form over substance.
11. Another aspect of the evidence to which ANZIIG objected as irrelevant was Harvard's account of his conversations with Jhon. Jhon did not dispute that he had conversations with Harvard, but he did dispute that Harvard had ever told him that Harvard and Mr Li were partners or joint venturers. Mr Li in his evidence does not assert that Harvard told Jhon that Harvard and Mr Li were partners in Landream or that Harvard had a stake in Landream nor is it put that whatever was said by Harvard was part of the negotiations by Landream for the Term Sheet. Even if Harvard's evidence were accepted, I am not persuaded that it would follow that the words "change in control" or "change in the majority shareholding" should be viewed in a different light than their obvious meaning. Further, given the fact that Jhon disputed that Harvard had told him that he and Mr Li were partners or had told him details of the Beecroft Place Project and Opera Residence Project, Harvard's evidence, that Mr Li did not in his evidence corroborate Harvard's evidence as to what was said to Jhon in Mr Li's presence, and the absence of cross examination of Jhon, I am not able to accept Harvard's account of what was said in preference to Jhon's account. Knowledge that Harvard had involvement in Landream's activities does not establish that Jhon was aware of a partnership between Harvard and Mr Li.
12. AMCI (supra) is a case in which there was a change of control clause, but the contest was over whether another transfer of shares to subsidiaries or related companies were caught by the change of control clause when there was a specific clause permitting transfers to subsidiaries and related companies. There is no equivalent clause in the Term Sheet permitting transfers to subsidiaries and related companies. I do not accept that Muir J was adding some additional component to the construction of change of control clauses in a joint venture agreement.
13. It is very likely that ANZIIG must have appreciated that there were unitholders in the Landream Melbourne Trust, but that does not assist Landream. Even if Harvard's evidence were accepted, it does not involve him telling Jhon who precisely held the units in the trust (i.e. a company connected with Mr Li and his wife, a company connected with Mr Li's in-laws and a company connected with Harvard).
14. It is true that Landream could be removed by unitholders by reason of the trust. There is no evidence that the trust deed was provided to ANZIIG, but assuming that it was or that ANZIIG should be taken to be aware of the likelihood that there was such a power, that does not mean that the unitholders could direct Landream as trustee to do what they wanted it to do. If the unitholders wanted to remove Landream as trustee that was open to them, but that did not empower them to remove Mr Li as the director of Landream or change the shareholders of Landream.
15. Some attention was given to the comments of Brereton J (as his Honour then was) in Hancock v Rinehart [2015] NSWSC 646, particularly at [162]-[163] which I set out as follows: "162 "Control", in the context of a trust, is a more difficult concept. However, control being concerned with the power to determine how the trust will act, it will rarely be the beneficiaries who "control" a trust. Unless the trust instrument otherwise provides, a trustee is not bound to follow directions given by the beneficiaries - even unanimously [Re Brockbank [1948] Ch 206; Hotung v Ho Yuen Ki [2002] 3 HKLRD 641; Ford & Lee, [1.1530]]. The power of beneficiaries who are collectively absolutely entitled to the trust property to call for transmission of the trust property to them and thus to terminate the trust does not imply a power to direct the trustee [Re Brockbank]. The power to terminate a trust, analogous to the power to wind up a company, is not "control" of the trust while it exists; it does not involve the ability to decide how the trust will act. 163 By analogy with the position that a company is controlled by those who have the ability to determine the composition of the board of directors through a general meeting, so may a trust be controlled not necessarily by those who have its day-to-day management (the trustee), but by those who have the ability to control the trustee through the power of removal and replacement (the appointor). But at least where there is no appointor, then it is generally the trustee who can decide how the trust will act, and thus "controls" the trust."
16. There is no provision for an Appointor in the Landream Melbourne Trust (see CB 46-91). In my view, his Honour's comments support ANZIIG's contentions, not those of Landream.
17. Much of the evidence to which objection was taken by ANZIIG related to an explanation by Mr Li as to why it was that the shares in Landream were transferred to unitholders in September 2020. Mr McLure contended that the evidence in question established that Mr Li "held the shares in [Landream] on trust for the beneficiaries of the Landream Melbourne Unit Trust": see T14.16-17. Mr Li's affidavit gives a great deal of background to his arrangement with his wife's parents, but on the subject of how he came to own shares when the company was established in 2014 with him as a director and sole shareholder it offers no explanation. Harvard says in his Affidavit of 9 May 2021 at paragraph 15 that Mr Li told him that he had a company, Landream, which "is the trustee for the Landream Melbourne Unit Trust".
18. Clause 11(a)(iii) is to be given an objective and businesslike interpretation, i.e. here, what a reasonable business person, having all the background knowledge of the surrounding circumstances available to both parties, would have understood the words to mean (see [23(6)] above, and Electricity Generation (supra) at [35]). I do not view that as requiring any consideration of whether the shares in Landream are held beneficially or not. I would, therefore, regard evidence that the shares were not held beneficially - and which was not made known to ANZIIG - as irrelevant but on the assumption that the question of the beneficial ownership of the shares is relevant, in my view the material advanced does not establish that the shares were not beneficially held by Mr Li as at 2016 (the earlier form of the Term Sheet) or more importantly as at the time of the Term Sheet in 2018.
19. It is not just the absence of any explanation of how Mr Li came to have the shares recorded in his name - he has given a reason why at one point his in-laws did not want to have any interest in the special purpose vehicles (i.e. because they were overseas residents: see paragraph 14 of the Affidavit of Mr Li dated 9 May 2021), but also the fact that the documents provided to ASIC in September 2020 described him as having owned the shares in Landream beneficially: see CB 308. Mr Li says that he did not complete that form, but neither he nor anyone else from Landream provided any evidence as to how that form came to include those details.
20. In my view, there is no warrant for reading into cl 11(a)(iii) the words "beneficial ownership" or replacing "shareholding" with "unitholding". The words used in cl 11(a)(iii) are clear and admit no ambiguity. I agree with Mr Studdy's submissions in regard to interpretations advanced by Landream - I think they introduce a complication to the contract that could not reasonably have been intended by the parties.
21. In relation to the contention that there is no change in control of Landream when the sole shareholder transfers all of his shares to other entities, I cannot accept that the requirements of the clause have not been met. I think that "change in the majority shareholding" is clearly indicated as a change with which the clause is concerned, whatever else might be caught by the clause.
22. I conclude, for the reasons given above, that the change in the majority shareholders in Landream effected on 9 September 2021 without the approval of ANZIIG entitled ANZIIG to terminate the Term Sheet.

Penalty

1. The doctrine of penalties has been reassessed in recent times: see Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 and Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525. In the High Court in Andrews at [10] the Court said: "[10] In general terms, a stipulation prima facie imposes a penalty on a party ("the first party") if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit of the second party. In that sense, the collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation. If compensation can be made to the second party for the prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are enforced only to the extent of that compensation. The first party is relieved to that degree from liability to satisfy the collateral stipulation."
2. The Court of Appeal has in Kay v Playup Australia Pty Ltd [2020] NSWCA 33 restated the relevant principles as follows: "[85] Observing that the law relating to penalties had been discussed by the High Court in Ringrow Pty Ltd v BP Australia Pty Ltd, Andrews v Australia and New Zealand Banking Group Ltd, and Paciocco v Australia and New Zealand Banking Group Ltd, his Honour adopted the following summary, by McDougall J, with whom Gleeson JA agreed, in this Court in Arab Bank Australia Ltd v Sayde Developments Pty Ltd, of the propositions which emerged from the reasons of the majority (French CJ, Kiefel, Gageler and Keane JJ) in Paciocco: (1) Lord Dunedin's propositions were not 'rules of law', but 'distillations of principle' (Gageler J at [143]; compare Kiefel J at [32] and Keane J at [260]). (2) The essence of a penalty is that it is a collateral stipulation, the (or a predominant) purpose of which is to punish the borrower for breach, and thus to compel performance (Kiefel J at [29]; Gageler J at [127], [159], [166]; Keane J at [254], [259], [273]). (3) One way of testing whether the impugned stipulation is penal - intended to punish - is to inquire whether the sum that it stipulates to be payable on breach (as I have indicated, the equitable origins and continuing equitable operation of the principle have no present relevance) is to ask whether the stipulated sum is extravagant or out of all proportion to, or unconscionable in comparison with, the maximum amount of damage that might be anticipated to follow from the breach (Kiefel J at [29], [54]; Gageler J at [158] to [162]; Keane J at [221]). (4) 'Damage' in this sense is not limited to damages recoverable upon breach of contract, but may extend to damage, or losses, caused by the impairment of other legitimate commercial interests that were intended to be protected by the stipulation (Kiefel J at [33], [42] to [47]; Gageler J at [145], [160] to [162]; Keane J at [216], [283]). (5) The analysis is to be made at the time, and taking into account the circumstances applicable, when the contract was made; not at the time of breach; the analysis is prospective, not retrospective (or as is said in some judgments, is ex ante, not ex post) (Kiefel J at [62]; Gageler J at [169]). (6) Mere disproportion between the stipulated sum and the possible damage is not enough to indicate 'penalty'; the disproportion must be such that it is unconscionable for the lender to rely on the stipulation (Kiefel J at [54], Gageler J at [164]; Keane J at [221], [240, [279]). [86] His Honour also referred to the following statement of Ward JA, with whom McColl and Gleeson JJA agreed, in Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd; Guan v Linfield Developments Pty Ltd: 368 With that in mind, it is necessary, first, to identify the interests which are sought to be protected by the impugned stipulation; and, second, to ask whether the impugned stipulation was a stipulation collateral or accessory to another stipulation (the primary stipulation) which imposed an additional detriment upon SXG to the benefit of Linfield in the sense that (consistently with Andrews) it was in the nature of a security for and in terrorem of the satisfaction of the primary stipulation in a manner that (consistently with Paciocco (HCA) and Cavendish [cited below]) was out of all proportion to the interests of Linfield intended to be protected by the primary stipulation."
3. Playup was concerned with a contractual provision for payment of amounts by the purchaser which if not paid within seven days of the due date would relieve the vendor of all restraints agreed to and warranties given by the vendor and also would accelerate the date of all payments to be made.
4. The Court of Appeal in Playup accepted that the predominate purpose of the clause was to ensure that the payments were made on time but held (at [95]): "…it achieved that purpose by imposing an additional detriment in the event of default - not only acceleration of the instalment payments, but deprivation of the benefit of the Seller Warranties, and of the Restraints. In the context of a sale of a company carrying on a business, restraints are a fundamental aspect of protection of the goodwill of the subject business, so as to ensure that the purchaser actually gains the benefit of the business. Avoidance ab initio of the Restraints and the Seller Warranties is, as his Honour said, a severe consequence; it represents a significant undercutting of the subject matter of the sale. Those consequences were out of all proportion to Mr Kay's legitimate interest in securing payment of each instalment as and when it fell due. In my judgment, if the purpose of cl 4.3(b) was to focus the mind of Playup on ensuring that the instalments were paid punctually, it sought to achieve that purpose by imposing such consequences that its operation was plainly in terrorem."
5. The provision, it was held, operated "indiscriminately" because it operated not only in the case of a total failure to pay, but in the event of any delay: see [96], and that it, "at least insofar as it operated to avoid the Seller Warranties and the Restraints, was a penalty": see Playup at [99].
6. Mr McLure contended that cl 11(a)(iii) was similar to the relevant clause in Playup because breach of it gave ANZIIG the right to terminate the Term Sheet and that would not only deprive Landream of the right to continue with the development and potentially obtain a 20% share in it for $10M, but also lose the benefit of the $1.7M expended by it in endeavouring to obtain the rezoning. Recognising that the issue of penalty must be assessed as at the time of entry into the contract, Mr McLure contended that at least $350K would be foreseen as lost to Landream if the Term Sheet was terminated.
7. Mr McLure pointed out that Playup makes clear that it is no longer necessary for a finding of a penalty that the impugned clause provides for a money sum. In Playup what was lost was the benefit of restraints and warranties.
8. Mr McLure contended that the clause in question here does have a secondary stipulation, i.e. termination if the consent of ANZIIG is not sought, and that the consequence of breach is termination (or the right to terminate more accurately). Mr McLure, as I have noted, accepted that the question of whether the clause constituted a penalty had to be considered at the time of entry into the contract, not at the time of breach.
9. I should also note that Mr McLure accepted the proposition advanced by ANZIIG that when a clause provided that approval is to be sought and it is not sought no investigation of whether the consent should or ought to have been provided is required: see Hendry v Chartsearch Ltd [1998] CLC 1382 at 1393-1394, Ace Property Holdings Pty Ltd v Australia Postal Corporation [2010] QCA 55 at [188]; Nguyen v Valore [2018] NSWSC 1364 at [53]; Fulham Partners LLC v National Australia Bank Ltd [2013] NSWCA 296 at [90]. He relied, however, on this principle as a factor supporting the penalty argument: see T45.16-27.
10. Mr Studdy, on the issue of penalties, contended that: 1. Paciocco requires, for a provision of a contract to constitute a penalty, that it must be a collateral stipulation the purpose or predominant purpose of which is to punish the borrower for breach and thus to compel performance: see Kiefel J at [29], Gageler J at [127], [159]-[160], and Keane J at [254], [259] and [273]. 2. Clause 11(a)(iii) does not impose any secondary stipulation, but rather confers on ANZIIG the right to terminate the Term Sheet. 3. No additional liability is imposed on Landream if ANZIIG terminates the Term Sheet.
11. The question of whether a particular provision is a primary or secondary obligation is one of some subtlety (see R. Halson, Liquidated Damages and Penalty Clauses (2018, Oxford University Press) at 2.52-2.61). Accepting that the effect of cl 11(a)(iii) is that it permits termination for breach, it does not follow that the clause is a penalty, unless every clause that permits termination for breach is to be so categorised. Subclause (a)(i) of the same clause 11 permits termination on an "insolvency event", and in JPA Finance Pty Ltd v Gordon Nominees Pty Ltd [2019] VSCA 159 at [107] it was held that a clause of that kind was not a penalty.
12. Clause 11(a)(iii), to paraphrase the words of the Victorian Court of Appeal at [104] of JPA Finance, secured ANZIIG's "entitlement to deal with a party that" had not had a change in its majority shareholding. Further, there is no compensation required to be paid by Landream as the consequence of its failure to comply with the clause and so even if the possibility of termination is viewed as "in terrorem of the satisfaction of the primary stipulation", the fourth requirement in Andrews (see [10] of Andrews which is set out at paragraph [37] above), is not met.
13. Mr Studdy also contended that to constitute a penalty the purpose of the impugned clause must be to punish the borrower for breach and then to compel performance, and one way to test that is to ask, as the High Court indicated in Paciocco, "whether the stipulated sum is extravagant or out of all proportion to, or unconscionable in comparison with, the maximum amount of damage that might be anticipated to follow from the breach": see [85(3)] and [85(6)] of Playup (which are set out at [38] above). Whilst, as is now accepted by the NSW Court of Appeal, there need be no stipulated "sum", there is still a requirement to assess whether the stipulated "effect", i.e. here the right to terminate for breach and the prospective consequences for the party in breach is "out of all proportion" or "unconscionable" in comparison with the effect of breach.
14. When companies, rather than individuals, are the contracting party and that contracting party is to provide services or bring expertise to a project or endeavour, it is not uncommon for there to be provision of the kind in question here. Clause 11(a)(iii) was directed to the protection of a legitimate commercial interest. As Basten JA noted in Fulham Partners (supra) at [90]: "It is well established that, in a case involving continuing contractual relations, the identity and solvency of the other contracting party will commonly be a legitimate, if not critical, consideration: Secured Income at 609-610."
15. In my view there is nothing unconscionable in relying on a clause which requires one party to seek the other's agreement to a change in the majority shareholding, and to provide that a change in control for which consent has not been sought is a ground for termination particularly where there is a proviso that consent cannot be unreasonably withheld.
16. I do not accept the contention that the effect of the authorities referred to at [45] above assists Landream. The failure to seek consent produces the result that it cannot be contended that consent should have been provided to the change in majority shareholders, which undermines Landream's contention that the change in control was insignificant, but the fact that Landream could have sought consent also undermines its case that the clause is a penalty.
17. I conclude, therefore, that cl 11(a)(iii) is not a penalty.

Relief Against Forfeiture

1. Landream contends that if it has been unsuccessful on the construction and penalty grounds it should be granted relief against forfeiture. Mr McLure accepts that there is a very real question as to whether that remedy is available in respect of a contractual breach which does not involve a proprietary interest, but he points to authority which supports the grant of relief even when the breach does not involve a proprietary right: i.e. see Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) [2015] FCA 825 at [980]-[990], Mineralogy Pty Ltd v Sino Iron Pty Ltd [2017] FCAFC 55 at [421], Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd (2017) 324 FLR 378, Ayers Rock Skyship Pty Ltd v Voyages Indigenous Tourism Australia Pty Ltd [2019] NSWSC 828, and JPA Finance (supra).
2. On the other hand, as Mr Studdy pointed out, in Playup Brereton JA examined all of the authorities and concluded that relief against forfeiture was not available in relation to purely contractual breaches: see [116]-[123]. His Honour did accept (at [118]) that there is authority "extending relief against forfeiture to contractual licences in respect of real property, that is only so where the licensee has, in addition to their contractual rights, some estate or interest in the land which equity would protect". Both Macfarlan JA and Simpson AJA, in view of their conclusion, in agreement with Brereton JA, that the clause in question was a penalty, declined to address the issue of relief against forfeiture.
3. Whilst I am, with respect, much attracted to the approach taken in Playup by Brereton JA, having regard to the views of support for a more expansive approach to relief against forfeiture that have been expressed in the authorities referred to in [54] above, I will proceed on the basis that the absence of a proprietary interest in land is not a bar to a grant of relief from forfeiture.
4. Mr McLure cited the following passages from JPA Finance at [98]-[101]: "[98] The following principles, relevant for present purposes, emerge from these authorities. First, equitable relief against forfeiture may be available in two kinds of situation. The first situation is where there is a contractual stipulation for forfeiture which is directed at securing an object of the transaction, where that object can be attained by means other than forfeiture, such that insistence on forfeiture would constitute a penalty. The second situation is where a party is entitled at law to terminate a contract and forfeit the relevant interest but it would be unconscientious to do so, whether because of fraud, mistake, accident or surprise or because of other unconscientious conduct such as taking advantage of a special vulnerability in order to derive an unjust enrichment. Both kinds of case may be characterised as 'unconscientious', on the basis that it is unconscientious to take advantage of a penal forfeiture, but the two are often treated separately, keeping the label 'unconscientious' for the latter situation. [99] Secondly, the Court should not intervene so as to interfere with the contractual rights of the parties merely because it thinks it would be fair or reasonable to do so because subsequent events have rendered one party's situation more favourable. [100] Thirdly, equity will not intervene if forfeiture has resulted simply from one party's inadvertence, or that party's wilful default. [101] Fourthly, the question of unconscientious conduct may be addressed by reference to the five 'subsidiary questions' identified by Mason and Deane JJ in Legione and set out [80] above."
5. Mr McLure also made reference to [97] of JPA Finance: "[97] The joint judgment went on to endorse the five 'subsidiary questions' identified by Mason and Deane JJ in Legione. However, their Honours cautioned that the questions were 'subsidiary' to the 'basic issue' whether there should be relief against forfeiture, based on an unconscientious use of the legal right to terminate. The appeal was ultimately dismissed because the purchaser had not shown that it was against conscience for the vendors to terminate the contract: the purchaser had not laboured under any mistake, there was no accident or surprise attracting relief against forfeiture, and the conduct of the vendors had not in some significant respect caused or contributed to the breach of the essential time stipulation."
6. The relevant passage from Legione v Hateley (1983) 152 CLR 406 is set out at paragraph 89 of the POS: "In the ultimate analysis the result in a given case will depend upon the resolution of subsidiary questions which inevitably arise. The more important of these are: (1) Did the conduct of the vendor contribute to the purchaser's breach? (2) Was the purchaser's breach (a) trivial or slight, and (b) inadvertent and not wilful? (3) What damage or other adverse consequences did the vendor suffer by reason of the purchaser's breach? (4) What is the magnitude of the purchaser's loss and the vendor's gain if the forfeiture is to stand? (5) Is specific performance with or without compensation an adequate safeguard for the vendor?"
7. In Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315, in which the High Court expounded on the principles of relief against forfeiture and on which authority ANZIIG places much emphasis, the vendor relied on the failure of the purchaser to complete on the due date (made of the essence by notice) and terminated the contract even though the day after the due date the purchaser obtained the finance it had been selling. The purchaser contended that the NSW Supreme Court should have granted relief against forfeiture but the High Court unanimously rejected the appeal as the vendor had not caused or contributed in any way to the purchaser's breach and it was not unconscientious for them to exercise their right to terminate the contract: see [57]-[62]; see also Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367.
8. I accept that the consequences of termination for breach by Landream are significant - it loses the right to the plans and other material in connection with the project, and loses the right to potentially obtain either a development agreement or obtain a 20% share in the project in return for payment of $10M and its expenditure of $1.7M will have no benefit to it. However, all of Landream's expenditure was at risk even without breach by it of any clause (see cl 11(c) and cl 18 of the Term Sheet), and the payment of $350K did require ANZIIG to allow Landream the exclusive opportunity to obtain rezoning. Up until termination Landream had the benefit of that promise and ANZIIG did nothing to breach that right. In Tanwar the vendor on termination obtained the benefit of approvals sought and obtained by the purchaser and the plurality said (at [42]) "But that was an inevitable outcome bargained for…" In Tanwar the High Court pointed out that in Romanos (supra) at [24], it had held that: "…equity does not intervene in such a case to reshape contractual relations in a form the court thinks more reasonable or fair where subsequent events have rendered the situation of one side more favourable than that of the other side."
9. In cases where a landlord has a right to terminate the lease for non-payment of rent within the stipulated time, but all of the outstanding rent has been paid before Notice of Termination is given, the Court usually regards reliance on the right to terminate as unconscientious. It might be said that this is because the breach has been fully cured and the party otherwise entitled to the benefit of the forfeiture has been compensated: J.D. Heydon, M.J. Leeming and P.G. Turner, Meagher, Gummow and Lehane's: Equity Doctrines and Remedies (2015, 5th ed, LexisNexis Butterworths) at [18-250]. The breach here has not been cured - Landream has effected a change in control and ANZIIG has treated that change for which permission was not sought (and hence for which, it is accepted, consent cannot be found to have been unreasonably withheld) as a basis for termination. I have referred to Jhon's unchallenged evidence that he did not want to continue with the shareholding change and would not have entered into the Term Sheet if Mr Li was not the sole shareholder and sole director of the other party to the agreement. ANZIIG is not in the position equivalent to a landlord whose lease to the tenant has now had all of the tenant's breaches cured.
10. The question which, on the authority of Tanwar, and Romanos at [25], must be answered is: has Landream identified conduct of ANZIIG which is unconscientious or unconscionable?
11. I am not persuaded that there was anything unconscientious or unconscionable in ANZIIG relying on cl 11(a)(iii) to terminate the Term Sheet: see [50]-[52] above. The requirement for change not to be made without approval is found in a clause headed "Termination of Term Sheet". Failure to comply with an express term of the agreement dealing with termination and relating to control in this connection is a breach that cannot be described as trivial or slight. ANZIIG did not induce Landream to ignore the clause and had nothing to do with Landream's failure to give notice of the change and seek ANZIIG's approval. The POS at paragraph 91 assert that Landream did not consider that there was a change in control for which it needed consent - there is in fact no evidence from Mr Li as to why he did not seek consent of ANZIIG. In the absence of evidence from Landream, it is difficult to conclude that inadvertence was the reason, but as JPA Finance (supra) demonstrates, inadvertence to the contents of a clause by the party in breach will not found a basis for intervention by the Court: see [87]-[88], and see also Tanwar at [66] and Ayers Rock Skyship (supra) at [110].
12. Further, relief would leave ANZIIG with Landream, the other party to the contract, under the control of entities to whom, for good reason, it had not consented, a result for which compensation cannot be assessed.
13. Also, ANZIIG was entitled to terminate the Term Sheet and hence was entitled as a result of the exercise of its legitimate rights to refrain from progressing the VPA. Obviously, the rezoning has not occurred by what had been the agreed contractual date, and if ANZIIG was entitled to terminate on 18 December 2020, as I have held it was, there was no obligation on it to do anything after termination. The relief against forfeiture which Landream seeks is to reinstate the Term Sheet and ANZIIG would be adversely affected by such a reinstatement if it was precluded from relying on the failure to obtain rezoning by 1 February 2021.
14. Landream has fought the case on the basis that the change of shareholders did not infringe the clause. Mr McLure did, in oral submissions in reply, contend that the Court could require, as a condition of relief from forfeiture, that the shares be retransferred to Mr Li. The current shareholders have had the opportunity to do that since 18 December 2020 and have not done so, nor is there any evidence from them that they are now willing to do so, and they are not parties to the proceedings. Mr Studdy objected to the attempt to introduce a new matter at such a late stage and contended that it was too late for retransfer. In my view, it was too late for the Plaintiff to advance this contention at such a late stage of the proceedings but even if it were appropriate to take into account what the current shareholders of Landream could be required to do (but have not done) and without them having been made parties to the proceedings, the matter referred to in [66] is relevant and a return to the previous shareholding cannot undo what has occurred as a consequence of the valid termination.
15. I conclude, therefore, that no relief against forfeiture should be granted.

Conclusion

1. It follows that Landream's summons be dismissed and Landream should pay ANZIIG's costs.

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