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

Relief Against Forfeiture

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).
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.
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.
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."
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."
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?"
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.
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."
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.
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?
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].
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.
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.
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.
I conclude, therefore, that no relief against forfeiture should be granted.

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Cases Cited (24)

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