Romanos v Pentagold Investments Pty Limited

Romanos v Pentagold Investments Pty Limited - [2003] HCA 58 - HCA 2003 case summary — Zoe

[45]

In this Court, Pentagold and Maroon submit that Windeyer J ought to have inferred from the evidence that the default in the timely payment of the balance of the deposit moneys occurred by inadvertence on their part and was not deliberate. Even if his Honour should have so concluded (a matter which it is unnecessary to decide), that, without more, would not make out a case for relief by reason of "accident". The reasoning in Tanwar discloses why that head of jurisdiction was not attracted in the present case.
The majority in the Court of Appeal stressed that, were the termination of the contracts to stand and specific performance to be refused, the vendors would receive a "windfall" because "no doubt" the land had increased in value and it now had "the benefit of the development approval".
However, as to this, several points should be made. First, no evidence had been proffered as to the effect of obtaining the development approval upon the value of the properties; the trial judge had been prepared to assume that their value with development approval was greater than the purchase price. Secondly, the contracts had required the purchasers to make application for development approval and Special Condition 22 stipulated that, in the events that had happened, the vendors were to have the use and benefit of the relevant plans and the development consent. Thirdly, the decision in Tanwar indicates 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.
Rather, as Giles JA emphasised in his dissenting judgment in the Court of Appeal, one asks in the present case whether the conduct of the vendors caused or contributed to a circumstance rendering it unconscientious for them to insist upon their legal rights to terminate the contracts. The answer is that the conclusions of fact reached by the trial judge present a plain case against the giving of relief to Pentagold and Maroon in respect of the termination of the contracts.
The evidence contains nothing to suggest that, by reason of supervening circumstances of the kind considered by Kitto J in Tropical Traders Ltd v Goonan[8], the time stipulation had ceased in equity to be essential. Nor was a case presented of estoppel, lying by, lulling to sleep or other such conduct by the vendors bearing upon the matter. For example, there was no evidence given by the purchasers that they had been led by events in the period between 1 and 11 December 2000 to believe that the contracts were no longer liable to termination by the vendors.
The appeal to the Court of Appeal should have been dismissed. The appeal to this Court should be allowed with costs. The orders made by the Court of Appeal should be set aside. In place of those orders it should be ordered that the appeal to the Court of Appeal should be dismissed with costs and the cross appeal should be allowed with costs. Involved in allowing the cross appeal is the conclusion that Windeyer J erred in the exercise of his discretion under s 55(2A) of the Conveyancing Act in ordering the return of the deposit where evidence was insufficient to show that it would be unjust or inequitable to allow the vendors to retain the total sum of $50,000 paid as deposits under the contracts for sale. There should be a declaration that that sum of $50,000 is forfeited to the appellants.
KIRBY J. This is one of two appeals[9] from judgments of the New South Wales Court of Appeal[10] concerning the equitable doctrines of relief against forfeiture and unconscionable reliance on legal rights.
In this case, as in the other, contracts for the sale of land were terminated by the vendors on the ground of default by the purchasers in compliance with a stipulation as to time declared by the contracts to be essential. In each case, the primary judge (Windeyer J) rejected the purchasers' claim for relief against forfeiture and for specific performance of the contracts.
There are points of similarity and of difference in the facts of the two cases. The essential difference is that, in the present case, the Court of Appeal allowed the appeal from the judgment of the primary judge, set aside his orders, granted relief against forfeiture, declared that the purchasers were entitled to have the subject agreements specifically performed and ordered specific performance in each case. From those orders, by special leave, the vendors have appealed to this Court.

[47]

The primary judge held that, in the circumstances, compliance with the provisions of the contracts as to time would have been sufficient if the payment had been made "on the first reasonable possible day after notice of approval of the development application was in the hands of the [purchasers]"[11]. This meant, in his Honour's opinion, on Monday, 4 December 2000. In fact, the balance of the deposits was not paid on that day. Nor was it paid at any time before, on 19 December 2000, each of the vendors gave notice terminating the contracts. On the face of things, therefore, two legally advised investment companies, which had accepted an essential time stipulation for the payment of the remaining portions of substantial deposits, failed to comply with the legal obligations that they had accepted. At law, they were in breach of the contracts. Such breaches entitled the vendors to terminate the contracts. The vendors exercised that entitlement.
There were a number of defects in the purchasers' case at trial. Despite their obligation to notify the vendors of the development approval, the purchasers did not assert in their evidence that they had signified the development approval to the vendors "immediately approval is received". Nor did they, in explicit evidence, prove the precise reason why they did not do this or pay the balance of the deposits on time. They did not prove exactly the sums that they had paid on the project before and after obtaining development consent. Nor did they prove the precise accretion in value of the consolidated property by virtue of the development approval that they had secured. At the trial, the purchasers did not argue that the vendors had waived compliance with the time stipulation. Nor did they contend that the vendors were estopped by their conduct from relying on the breach. They did submit that the vendors had affirmed the contracts after the termination. They argued that they had done so by the acceptance, by their agents, of the amount of the balance deposits tendered on the following day. The argument of waiver was rejected by the primary judge[12].
On the face of this evidence, or lack of it, the case for the purchasers appeared an unpromising one for the provision of equitable relief. The primary judge declined to grant relief against forfeiture. He was unconvinced that the exercise by the vendors of their legal rights amounted to "unconscionable conduct" or that the purchasers' failure to comply with the essential term as to time in each contract amounted to "exceptional circumstances", as required to attract equitable relief[13]. The primary judge therefore dismissed the purchasers' application.
Unlike in Tanwar Enterprises Pty Ltd v Cauchi[14], pursuant to s 55(2A) of the Conveyancing Act 1919 (NSW) the primary judge ordered the vendors to return the deposits received by them. He gave no separate reasons for this order. From his general comments, his reasons appear to have been that, (1) although the precise gains secured by the vendors were unproved, it was likely that the value of the properties (with development consent) was enhanced and (2) the losses occasioned to the vendors by the short delay in notice and payment were very small[15]. The primary judge remarked that he had come to his conclusion, refusing relief against forfeiture, "with considerable reluctance because … it is impossible to express any enthusiastic approbation of the conduct of the vendor[s]"[16]. The purchasers suggested that, in the considerations mentioned by the primary judge on the collateral claim for return of the deposits, lay elements that justified their entitlement to the primary relief that they sought.
In the Court of Appeal, the vendors, by cross-appeal, contested the order for the return of the deposits. However, that claim was rejected. It was pressed upon this Court.

[48]

The Court of Appeal's decision in favour of the purchasers was reached by majority. The reasons of the majority were given by Sheller JA, with the concurrence of Mason P.
The considerations that appear to have moved the Court of Appeal to afford equitable relief to the purchasers were (1) that the "forfeiture provision was security for the payment of the deposit"[17] and that such purpose had, to that extent, been fulfilled by the payment made the day after the notice of termination was given; (2) that the land, with "the benefit of the development approval", had "no doubt … increased in value" affording the vendors a windfall gain if the contracts were not performed[18]; (3) that the contracts were terminated for breach a fortnight after the entitlement to do so arose without any prior notice by the vendors to the purchasers of their intention to do so[19]; (4) that the balance of the deposit moneys had been tendered to the agent of the vendors the day after the contracts were terminated[20]; and (5) that discussions between a representative of the purchasers and one of the vendors on and after 1 December 2000 concerning the release to the vendors of part of the deposit moneys and early completion of the settlement of one sale (to enable the vendors to buy another property) were "only consistent with" the intention of the vendors to proceed on the footing "that the contracts were still on foot"[21].
There is no doubt that between 4 December 2000 and the termination of the contracts on 19 December 2000 there were negotiations in which Mr Romanos, one of the vendors, took an active part. Mr Romanos had said that the vendors wanted to vary the terms of the contracts to have the deposit moneys released to them so that they could use such moneys as a deposit on another property and an advance on the settlement moneys for such property. The purchasers agreed to this request. They notified the vendors of their agreement. On 5 December 2000, the purchasers also instructed their solicitor that they would agree to settle the purchase of one of the three properties a month earlier to allow Mr Romanos to complete the purchase of the other property he had in mind. This fact was also notified to the vendors. Further, the purchasers agreed to allow Mr Romanos to remain in possession of the property he occupied rent free for two weeks after the indicated settlement to permit repairs to the other property to be carried out.
On the face of things, these dealings, immediately before the notice of termination of the contracts, suggested that both sides were proceeding at that time on the basis that the settlement of the sale of the three parcels of land would go ahead[22]. However, on 11 December 2000 Mr Romanos notified the purchasers that he was looking for another property. Although Mr Romanos was asked to inform the purchasers as soon as he found another property, so that they could arrange an earlier settlement as agreed, no such property was nominated before the notice terminating the contracts was given by the vendors on 19 December 2000.

[49]

The principles applicable to cases of this kind, by reference to the authorities in this Court, are explained in my reasons in Tanwar[23]. I will not repeat them. I incorporate them by reference.
The major point of difference between the circumstances of this appeal and those of Tanwar is that here, the Court of Appeal granted the purchasers the equitable relief which they sought. To disturb the orders providing relief, it is therefore necessary for this Court to conclude that the Court of Appeal erred in the decision that it reached. That decision was a majority one. The dissenting judge (Giles JA) was unconvinced that unconscionable or unconscientious conduct had been proved[24]. He favoured dismissing the purchasers' appeal and allowing the vendors' cross-appeal concerning the return of the deposits.
The basic difficulty which the purchasers faced in establishing a foundation for equitable intervention lay in serious defects of proof of their case. As the primary judge found, they failed to prove elements which, if they had been proved, would have been relevant to building a case for relief against the vendors. In the Court of Appeal the purchasers challenged the rejection by the primary judge of an application by them at trial to reopen their case to call further evidence. That challenge was dismissed by the Court of Appeal. Understandably, it has not troubled this Court[25].
Nonetheless, the Court of Appeal quoted in extenso a letter sent by the purchasers' solicitor immediately after the notice of termination was given. That letter contained assertions concerning the dealings between the purchasers and Mr Romanos in the interval between 4 December 2000 and the termination of the contracts. In argument, the purchasers referred to the contents of the letter in an endeavour to fill the gaps in their evidence at trial. However, there remain fundamental difficulties in arguing from this evidence a substantive case upon which to provide equitable relief against forfeiture and to order specific performance of the validly terminated contracts.
First, the letter was not admitted at trial as proof of the facts stated in it. It was received into evidence only as proof that the letter was written, in effect protesting about the termination. As such, the letter does not advance the case of the purchasers in the way that substantive evidence might have done.
Secondly, the thrust of the claims made in the letter was to the effect that no prior demand had been made by the vendors for the balance of the deposits to be paid to the agent. That may be so. I am prepared to assume that such was the case. It is difficult to believe that the purchasers would not have responded to such a demand had the vendors made one.
Nevertheless, the contracts between the parties did not call for such prior notice to be given. On the contrary, in the assignment of the obligation of notice, the contract made it clear that it was for the purchasers to notify the vendor "immediately approval is received". The fact that, in their evidence, the purchasers refrained from giving evidence of such notification suggests that none was given. Had such notification been given, it would have been of considerable significance in assessing the importance of the events that followed. It might therefore have been expected that the purchasers would have proved the fact[26]. They did not. Even in the letter of the purchasers' solicitor there was no assertion to that effect.
Thirdly, these considerations are critical to the significance to be given to the negotiations that took place between Mr Romanos and the purchasers after 4 December 2000. If Mr Romanos were acting in ignorance of the fact that development approval had already been given (and that he was therefore entitled, as of right, to the immediate payment of the balance deposits) the ongoing negotiations would clearly have been relevant to the quality of Mr Romanos' subsequent conduct and possibly that of the other vendor. If such a sequence of events were proved, a case of affirmation of the contracts might indeed have been established, rendering the sudden turn-around by the vendors without notice to the purchasers arguably unconscionable. However, if it be assumed that the vendors were ignorant of the fact that development approval had been given, Mr Romanos' dealings with the purchasers take on a completely different quality. He was, in effect, seeking favours that the purchasers were willing to accord. But had he known that he was immediately entitled to the balance of the deposits he would have been in a much stronger negotiating position.
Given that waiver and estoppel were not advanced in the Court of Appeal and are not argued in this Court, the most that is left to sustain the orders providing equitable relief is the possibility that, by his conduct, Mr Romanos was affirming the contracts for the vendors. There are several difficulties with this argument. Affirmation would be of little value or relevance if it rested on an assumption that the development approval had not yet come through. In the silences of the evidence proved at trial, it is impossible to do other than to speculate about the notification given to the vendors and the state of their knowledge at that time. But given that it was to the distinct advantage of the purchasers to prove notification, if such were the case, and that they failed to do so, it is proper to infer that Mr Romanos and the vendors together continued to deal with the purchasers after 4 December 2000, and before 19 December 2000, in the belief that the purchasers were still waiting for development approval. The fact was, as the purchasers knew, that approval had been given enlivening the vendors' right, in default of immediate payment of the balance of the deposits, to terminate the contracts, as they soon did.

[56]

I would adhere to what I have said in Tanwar Enterprises Pty Ltd v Cauchi[34]. It follows that the appeal must succeed. I would also reject for three reasons the contention that the Court of Appeal was entitled to hold that an inferred increase in the value of the land because of the grant of the development approval would, if the contracts were terminated, confer a windfall on the appellants, disentitling them to rescind the contracts and forfeit the deposits. First, it is wrong to speak of such an increase as a windfall. If it eventuated it was no more than the consequence of the bargain which the parties made, and did so on legal advice. It is something that will almost always be on the cards whenever a contract contains a condition which is not simply and solely for the benefit of one party. Courts have no reason to suppose that it was not a matter that was factored into all of the terms and conditions of the contract, including in particular the price and the time within which it was to be paid.
The second reason is that it is an unsafe assumption to make that a windfall has resulted. In this regard what I said in Tanwar about options and their value is relevant[35]. The vendors are out of their money and can sell to no other whilst approval is sought, and this comes no doubt at an opportunity cost. Whether there is a nett benefit, and its value to one side or the other is a matter of conjecture. It could be that the development sought would not be the highest and best use of the land anyway. Planning laws may change, and indeed might even have done so pending the obtaining of approval. Markets can be volatile. The value of money and interest rates may change, even over relatively brief periods. In short, assumptions about windfalls to one side of the kind made here fail to take into account both sides of the ledger.
Thirdly, and as the matters to which I have just referred would suggest, even if the result of a termination in circumstances of the kind which existed here may properly be regarded as giving rise to the possibility of a windfall, such a possibility may not be converted into a probability by a court without valuation evidence as to it. The evidence would need to cover all of the matters referred to in the preceding paragraph, the volatility or otherwise of the market during the relevant period, what could or could not have been foreseen at the beginning of the period, and the market value of an option comparable in utility to the conditional contracts of which the purchasers have had the benefit.
I am of the opinion that the Court of Appeal erred in the respects to which I have referred.
It also erred in the identification and application of the principles. The outcome of a case such as this one is not to be determined by describing and treating the forfeiture provisions, not only as if they were no more than a security for the payment of the deposit, but also as if they stood alone, and were not one of a complex of terms for which the parties bargained.
Nothing turns on the discussions between the parties immediately before the contracts were terminated. Parties may, and did here, negotiate for different arrangements without compromising their contractual rights. No such arrangements were made, and no estoppel arose.
It is not possible to regard the respondents as having been the victims of surprise or accident, let alone of such in any exceptional degree. The appellants did not act oppressively. They simply exercised their contractual right to avail themselves of the essential provision as to time. The appellants were not shown to have acted unconscionably.
I would allow the appeal with costs and join in the orders set out in the joint judgment.

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