Legione v Hateley

Legione v Hateley - [1983] HCA 11 - HCA 1978 case summary — Zoe

[28]

Before we turn to the main question in the case, viz. whether the vendors were, in the circumstances, precluded from asserting that the contract was rescinded when the period specified in the notice of rescission expired, it is convenient to mention that in argument before us counsel for the purchasers sought to submit that the judgment of the Full Court should be upheld on two other grounds. First, it was submitted that the notice of rescission erroneously claimed too much and was therefore ineffective. This argument had been rejected both by the learned trial judge and in the Full Court. It appears that the notice was in error in stating that the purchasers' default included their failure to pay interest at the rate of 14 per cent for the quarter which ended on 1 July 1979. Under the provisions of the contract to which reference has been made, that interest was payable at the rate of 8 per cent only, and interest at the rate of 14 per cent would have become payable only in respect of a period subsequent to 1 July 1979 if the interest for the last quarter had not been paid within seven days of that date and the vendor had made a demand under cl. 3 of the copyright conditions as amended by cl. 5 of the special conditions. The notice therefore specified a non-existent default as well as a real default. However, in Green v. Sommerville [1] , Mason J., with whom Murphy and Aickin JJ. agreed, held that a notice which required the party to whom it was given, under threat of rescission, to rectify two alleged defaults when under the contract only one of those defaults provided a foundation for rescission, was not invalidated by the presence of the additional unauthorized requirement [2] . Barwick C.J. and Wilson J. took a different view [3] . The decision in that case accords with that of Gowans J. in Gair v. Smith [4] . We did not consider it appropriate to allow this question, so recently decided in this Court, to be reopened. This submission therefore fails. A second argument advanced on behalf of the purchasers was that the notice of rescission effected a forfeiture against which the purchasers were entitled to be relieved. Relief of that kind was not sought in the pleadings or in argument in the Supreme Court. We reserved for later decision, if necessary, the question whether in the circumstances the purchasers should be permitted to raise the matter for the first time in this Court. Although, for the reasons which we are about to give, we would hold that the purchasers must in any case succeed, it will nevertheless be necessary to consider that question.

[32]

it is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results - certain penalties or legal forfeiture - afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties. In Birmingham and District Land Co. v. London and North Western Railway Co. [6] , Bowen L.J. said that the principle amounts to this: if persons who have contractual rights against others induce by their conduct those against whom they have such rights to believe that such rights will either not be enforced or will be kept in suspense or abeyance for some particular time, those persons will not be allowed by a Court of Equity to enforce the rights until such time has elapsed, without at all events placing the parties in the same position as they were before. The doctrine has undergone a considerable development in recent times, particularly since Central London Property Trust Ltd. v. High Trees House Ltd. [7] . It was affirmed by the House of Lords in Tool Metal Manufacturing Co. Ltd. v. Tungsten Electric Co. Ltd. [8] . In Ajayi v. R. T. Briscoe (Nigeria) Ltd. [9] the Judicial Committee said that the principle "is that when one party to a contract in the absence of fresh consideration agrees not to enforce his rights an equity will be raised in favour of the other party". Their Lordships continued: This equity is, however, subject to the qualifications (1) that the other party has altered his position, (2) that the promisor can resile from his promise on giving reasonable notice, which need not be a formal notice, giving the promisee a reasonable opportunity of resuming his position, (3) the promise only becomes final and irrevocable if the promisee cannot resume his position. Neither the House of Lords nor the Privy Council has however had occasion to review the whole sequence of cases and reduce them to a coherent body of doctrine: see Woodhouse Ltd. v. Nigerian Produce Ltd. [10] . Nor has this Court had occasion to do so. At a time before the principle had undergone its present development, it was said in this Court, in Barns v. Queensland National Bank Ltd. [11] , that the principle laid down in Hughes v. Metropolitan Railway Co. [12] requires that "there must be something in the nature of what is called a consideration". However the Court went on to say [13] : The suggested consideration is that Nott at the request of the mortgagees refrained from taking steps which might, and upon the evidence probably would, have resulted in his saving the property for his beneficiaries. We have some difficulty in saying that this is not a sufficient consideration to bring this case within the rule laid down in Hughes v. Metropolitan Railway Co. This seems to us very close to the present doctrine, which more frankly recognizes that it is not necessary to put the label of consideration on the action or inaction of the party who has altered his position in the belief induced by the other party. 1. (1877) 2 App. Cas. 439, at p. 448. 2. (1888) 40 Ch. D. 268, at p. 286. 3. [1947] K.B. 130. 4. [1955] 1 W.L.R. 761; [1955] 2 All E.R. 657. 5. [1964] 1 W.L.R. 1326, at p. 1330; [1964] 3 All E.R. 556, at p. 559. 6. [1972] A.C. 741, at p. 758. 7. (1906) 3 C.L.R. 925, at p. 938. 8. (1877) 2 App. Cas. 439. 9. (1906) 3 C.L.R., at p. 939.

[44]

There cannot be any doubt that from the earliest times courts of equity have asserted the right to relieve against the forfeiture of property. The jurisdiction has not been confined to any particular type of case. The commonest instances concerned mortgages, giving rise to the equity of redemption, and leases, which commonly contained re-entry clauses; but other instances are found in relation to copyholds, or where the forfeiture was in the nature of a penalty. Although the principle is well established, there has undoubtedly been some fluctuation of authority as to the self-limitation to be imposed or accepted on this power. There has not been much difficulty as regards two heads of jurisdiction. First, where it is possible to state that the object of the transaction and of the insertion of the right to forfeit is essentially to secure the payment of money, equity has been willing to relieve on terms that the payment is made with interest, if appropriate, and also costs (Peachy v. Duke of Somerset [17] and cases there cited). Secondly, there were the heads of fraud, accident, mistake or surprise, always a ground for equity's intervention, the inclusion of which entailed the exclusion of mere inadvertence and a fortiori of wilful defaults. Later, after discussing some of the authorities, his Lordship went on [18] : But it is consistent with these principles that we should reaffirm the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result. The judgment of Lord Wilberforce was concurred in by all members of the House in that case except Lord Simon of Glaisdale who took a wider view, holding that "equity has an unlimited and unfettered jurisdiction to relieve against contractual forfeitures and penalties" [19] . It was held in that case that there was power to relieve against the exercise by the covenantee (the assignor of a leasehold interest) of a right of entry on failure by the covenantor to perform certain stipulations as to fencing and support of buildings. 1. [1973] A.C. 691, at p. 722. 2. (1721) 1 Stra. 447 [93 E.R. 626]. 3. [1973] A.C., at p. 723. 4. [1973] A.C., at p. 726.

[47]

The first and third of the vendors' submissions may be considered together. Before 1916 there was consistent authority in favour of the view that equity would relieve a defaulting purchaser against forfeiture of his interest in the land, even when he had failed to comply with a condition of which time was of the essence. In Vernon v. Stephens [20] , the plaintiff had agreed to purchase a manor, and after he had made default in payment had entered into orders by consent by which it was agreed that if he did not pay the money by a certain day he would give up the contract and lose whatever he had already paid. He again made default, but, having brought an appeal for specific performance, was granted relief on payment of principal, interest and costs. In re Dagenham (Thames) Dock Co.; Ex parte Hulse [21] was a similar case. Under an agreement for sale it was provided that on failure to pay the balance of the purchase money by a certain day, in respect of which time was to be of the essence of the contract, the vendors could repossess the land without any obligation to repay any part of the purchase money. It was held that the provision was a "penalty" from which the court would relieve, and the vendors were refused an order giving them liberty to issue execution in an action for ejectment. That decision was followed and applied by the Judicial Committee in Kilmer v. British Columbia Orchard Lands Ltd. [22] . There an agreement for sale provided that instalments of purchase money were to be paid on specified dates and declared time to be of the essence of the contract; in default of punctual payment of any instalment the agreement was to be null and void and all payments made under it were to be forfeited to the vendor. Default having been made, the vendor sued for a declaration that the agreement for sale was null and void and the purchaser counter-claimed for specific performance. The trial judge, whose decision was restored by the Judicial Committee, dismissed the action and decreed specific performance on the counter-claim. In McDonald v. Dennys Lascelles Ltd. [23] , Starke J. appears to have thought that relief in the two last-mentioned cases was given against forfeiture of the instalments of the purchase money. However Dixon J., with whom Rich and McTiernan JJ. agreed, said that the view adopted in those cases "seems to have been that relief should be granted, not against the forfeiture of the instalments, but against the forfeiture of the estate under a contract which involved the retention of the purchase money" [24] . It may have been this dictum that led Mr. Fullagar, as he then was, to submit in Real Estate Securities Ltd. v. Kew Golf Links Estate Pty. Ltd. [25] that "equity relieved the defaulting purchaser from the forfeiture of his interest in the land, and not of the moneys he had paid". Lowe J. agreed that in In re Dagenham (Thames) Dock Co.; Ex parte Hulse the relief given was from forfeiture of the purchaser's interest in the land, and that a similar explanation might be true ofKilmer v. British Columbia Orchard Lands Ltd., but he rejected the argument that the only relief that could be given to the purchaser was against forfeiture of his interest in the land; we are not concerned with that aspect of the matter. In our opinion it seems clear enough that in the cases mentioned equity did relieve against the forfeiture of the purchaser's interest in the land, but subsequent cases have rendered it doubtful whether relief can be given when the purchaser has failed to perform within the time stipulated an obligation in a case in which time was of the essence of the contract.

[51]

The three decisions in the Judicial Committee do not provide satisfactory authority on this question. It appears from the passage from McDonald v. Dennys Lascelles Ltd. [35] , which has already been cited, that Dixon J. doubted the explanation of Kilmer v. British Columbia Orchard Lands Ltd. which was given in Steedman v. Drinkle and Brickles v. Snell. We respectfully share those doubts. The reasons for judgment in Kilmer v. British Columbia Orchard Lands Ltd. can only be read as saying that their Lordships intended to relieve against the forfeiture of the estate, and did not think it necessary to deal with the argument based on waiver, although in truth there may have been a waiver on the facts of the case. Further, in Steedman v. Drinkle [36] , it was accepted that it was correct for the Board in Kilmer v. British Columbia Orchard Lands Ltd. to relieve against the forfeiture of the moneys paid but it was not explained why if that were so it was not possible also to relieve against the forfeiture of the estate and thus to permit specific performance. It may have been thought that the matter was sufficiently discussed in Stickney v. Keeble [37] , the judgments in which case had quite recently been given in the House of Lords, but although that case contains an authoritative discussion of the maxim that in equity the time fixed for completion is not of the essence of the contract, and shows that that maxim has no application to cases in which the parties have stipulated that the time fixed should be essential (cf. at pp. 401-402 and 415-416) it does not deal specifically with the question of relief against forfeiture. Kilmer v. British Columbia Orchard Lands Ltd. [38] and In re Dagenham (Thames) Dock Co.; Ex parte Hulse [39] have more recently been accepted as correctly decided: see Starside Properties Ltd. v. Mustapha [40] , although without discussion of the present question. For all these reasons, it seems to us that we should reconsider the correctness of the principle adopted in Steedman v. Drinkle and Brickles v. Snell.

[75]

The word "unambiguous" is explained by Kay L.J. in Low v. Bouverie [15] , the word and its explanation occurring on the same page. The Lord Justice says: "It is essential to shew that the statement was of such a nature that it would have misled any reasonable man, and that the plaintiff was in fact misled by it". Bowen L.J. says [16] : "It must be such as will be reasonably understood in a particular sense by the person to whom it is addressed". This is confirmed in George Whitechurch Ltd. v. Cavanagh [17] by Lord Brampton and in Bloomenthal v. Ford [18] by Lord Herschell. The requirement that a representation must be clear before it can found an estoppel is, in our view, applicable to any doctrine of promissory estoppel (see Woodhouse A.C. Israel Cocoa Ltd. S.A. v. Nigerian Produce Marketing Co. Ltd.; China-Pacific S.A. v. Food Corporation of India [19] ). In the Woodhouse Case Lord Hailsham of St. Marylebone L.C. (with whose speech Lord Pearson agreed) commented [20] : Counsel for the appellants was asked whether he knew of any case in which an ambiguous statement had ever formed the basis of a purely promissory estoppel, as contended for here, as distinct from estoppel of a more familiar type based on factual misrepresentation. He candidly replied that he did not. I do not find this surprising, since it would really be an astonishing thing if, in the case of a genuine misunderstanding as to the meaning of an offer, the offeree could obtain by means of the doctrine of promissory estoppel something that he must fail to obtain under the conventional law of contract. I share the feeling of incredulity expressed by Lord Denning M.R. in the course of his judgment in the instant case when he said [21] : "If the judge be right, it leads to this extraordinary consequence: A letter which is not sufficient to vary a contract is, nevertheless, sufficient to work an estoppel - which will have the same effect as a variation." In the Court of Appeal [22] , Lord Denning M.R. had proceeded to refer to the higher standard of clarity required of a promissory representation relied upon to found an estoppel if compared with that required when a representation is put forward as an agreed variation of contract: If the representation is put forward as a variation, and is fairly capable of one or other of two meanings, the judge will decide between those two meanings and say which is right. But, if it is put forward as an estoppel, the judge will not decide between the two meanings. He will reject it as an estoppel because it is not precise and unambiguous. There is good sense in this difference. When a contract is varied by correspondence, it is an agreed variation. It is the duty of the court to give effect to the agreement if it possibly can: and it does so by resolving ambiguities, no matter how difficult it may be. But, when a man is estopped, he has not agreed to anything. Quite the reverse. He is stopped from telling the truth. He should not be stopped on an ambiguity. To work an estoppel, the representation must be clear and unequivocal. That is clear from Low v. Bouverie [23] and Canadian and Dominion Sugar Co. Ltd. v. Canadian National (West Indies) Steamships Ltd. [24] . 1. [1891] 3 Ch. 82, at pp. 106, 113. 2. (1935) 52 C.L.R. 723, at p. 738. 3. [1972] A.C., at pp. 755-756, 768, 771. 4. (1924) 35 C.L.R. 355, at p. 375. 5. [1891] 3 Ch., at p. 113. 6. [1891] 3 Ch., at p. 106. 7. [1902] A.C., at p. 145. 8. [1897] A.C., at p. 166. 9. [1981] Q.B. 403, at pp. 429-430. 10. [1972] A.C., at p. 757. 11. [1971] 2 Q.B. 23, at pp. 59-60. 12. [1971] 2 Q.B., at p. 60. 13. [1891] 3 Ch. 82. 14. [1947] A.C. 46.

[138]

In the present case the vendors, by indorsing the notice with a statement in accordance with sub-cl. (2)(a), had elected to rescind the contract for breach of the purchasers' obligation to pay the residue of the purchase price on 1 July. The enforcement of the rescission was restricted by the operation of sub-cl. (1). By virtue of that sub-clause the purchasers, though in breach of their obligation to pay the residue of the price on 1 July, were entitled to complete the purchase within the time specified in the notice. The vendors' solicitors were authorized, either expressly or impliedly, to complete the purchase and receive the price if the purchasers tendered performance within that time. But once the vendors had elected to rescind the contract and had communicated that election to the purchasers by indorsing the notice with a statement in accordance with sub-cl. (2)(a), the vendors' solicitors cannot be taken to have authority to countermand the notice and to bind the vendors to performance of the contract after the time specified by them in the notice. Without any indication of a wider authority, it is not possible to infer that an undertaking by the vendors' solicitors to obtain further instructions amounted to a promise or representation that the notice would be countermanded or its operation suspended so as to keep the vendors bound by the contract after the time for rescission had passed. It is not necessary to consider what the position may have been if Miss Williams had represented that she had instructions authorizing her to extend the time for compliance with the notice. The question whether a statement by a solicitor that he has authority wider than his apparent or implied authority estops his client from denying the extent of the authority claimed does not arise upon the facts of the present case. This case turns on the anterior question, namely, whether it is to be inferred that Miss Williams, though she did not say so expressly, promised or represented on behalf of the vendors that the time for compliance with the notice was to be extended and the contract was to be kept on foot while she was obtaining instructions and during a reasonable time thereafter. Having regard to the limit upon her apparent or implied authority at the time - a limit which Mr. Gardiner must be taken to have known - no such promise or representation can be inferred. If Miss Williams' statement that she expected that the vendors would agree to the extension sought by Mr. Gardiner lulled him into believing that the vendors would not insist upon the rescission which was then imminent, his belief was induced by his sharing of Miss Williams' expectation as to what the vendors' instructions would be, not by any promise or representation made by her on the vendors' behalf.

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Judgment (155 paragraphs)

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