Sun North Investments Pty Ltd as trustee v Dale & Anor [2013] QSC 44

EQUITY - EQUITABLE REMEDIES - UNCONSCIONABLE BARGAINS - REMEDIES OF MORTGAGOR - REDEMPTION - PENALTY - RELEIF AGAINST FORFEITURE - where defendant loaned funds to plaintiff secured by a fixed charge - where call option to buy shares in plaintiff company - where call option exercised by defendant - whether option was a separate transaction to loan - whether is a clog on the equity of redemption - whether the traditional rule against clogs on the equity of redemption has been narrowed by Australian courts - whether exercise of option constitutes a penalty - whether relief against forfeiture should be granted.

MORTGAGES - REMEDIES OF MORTGAGEE - REDEMPTION - whether option is part of the same lending transaction or a separate transaction - whether option extinguishes the plaintiff's right to redeem the shares - whether the rule against clogs on the equity of redemption applies only if there has been unconscionable conduct - whether option is void.

CONTRACT - COUNTERCLAIM - BREACH - DAMAGES - REPUDIATION - where defendant counterclaims alleging breach of contract - whether seeking a determination of legal rights evinces an intention not to be bound by the contract.

Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30; (2012) 86 ALJR 1002

Baker v Biddle (1923) St R Qd 46

Chase Corporation v North Sydney Brick & Tile (1994) 35 NSWLR 1

DC Wagemaker & Sons v Commonwealth Development Bank (1970) 91 WN(NSW) 617

Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1914] UKHL 1; [1915] AC 79

Epic Feast Pty Ltd v Mawson KLM Holdings Pty Ltd (1998) SASR 161

Fairclough v Swan Brewery Co [1912] UKPC 1; (1912) AC 565

Kreglinger v New Patagonia Meat Cold Storage Co Ltd [1913] UKHL 1; [1914] AC 25

Lewis v Frank Love Ltd [1961] WLR 261

Lift Capital Partners Pty Ltd & Ors v Merrill Lynch International & Ors [2009] NSWSC 7; (2009) 73 NSWLR 404

Re Modular Design Group Pty Ltd (1994) 35 NSWLR 96

Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656

Samuel v Jarrah Timber and Wood Paving Corporation [1904] UKHL 2; [1904] AC 323

Shiloh Spinners v Harding (1973) AC 691

Shipbuilding Co Limited (1918-1919) All ER 963

Spettabile Consorzio Veneziano di Armamento e Navigazione v Northumberland (1918-1919) All ER 963

Stern v McArthur [1988] HCA 51; (1987-1988) 165 CLR 489

Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd & Ors [2007] QSC 32

Toohey v Gunther [1928] HCA 19; (1928) 41 CLR 181

Westfield Holdings Ltd v Australian Capital Television Pty Ltd (1992) 32 NSWLR 194

Wily v Endeavour Health Care Services Pty Ltd (No 5) (2003) NSWSC 616

B O'Donnell QC for the plaintiff and defendants by counterclaim

J C Bell QC, T Fantin for the defendant and plaintiff by counterclaim

Clayton Utz for the plaintiff and defendants by counterclaim

McKays Solicitors for the defendant and plaintiff by counterclaim

[1] In mid-2009 the plaintiff entered into a deed granting a call option to buy shares held by the plaintiff. The deed was entered into as part of a commercial arrangement for the defendant to lend the plaintiff $500,000. That loan fell due, but remained unpaid, on 31 October 2009. It was still unpaid when, on 13 May 2010, the defendant notified his exercise of the option. The loan was repaid five days later, but the defendant maintained an entitlement to proceed with the purchase of the shares.

[2] The shares were worth about $5 million but the option purchase price for the shares was only $2 million, less than half their actual value. The option therefore had the potential to deliver an extraordinary windfall to the defendant.

[3] The plaintiff contends the option to purchase was void from its commencement under principles of equity as an impermissible clog on the plaintiff's equity of redemption or, alternatively, that the court should refuse to enforce it in that it constitutes a penalty giving rise to a windfall gain disproportionate to any likely loss flowing from the late payment of the loan and because the loan has been repaid.[1]

[4] The defendant counterclaims, alleging breach of contract, seeking damages in the amount the value of the shares exceeds the ascribed purchase price of $2 million.

[5] Sugarworld Pty Ltd is the owner of a real estate development near Sugarworld Edmonton, Cairns. It has three shareholders:

1. the plaintiff, Sun North Investments Pty Ltd as trustee of the Sun

Development Trust, which is controlled by Luigi Garozzo and holds 40 per cent of the shares;

2. Bilkford Pty Ltd as trustee of the Sugarworld Property Trust which is controlled by Charles Gianarakis and holds 30 per cent of the shares; and

3. Decentralised Developments Pty Ltd which is controlled by the Parker family and holds 30 per cent of the shares.

[6] The project manager of the real estate development is, through several of his companies, David Dale, the defendant. He is the director of Machland Holdings Pty Ltd, the company project manager for the development, Kode Holdings Pty Ltd, the primary earthmoving and construction supplier for the development and Firmbank Pty Ltd trading as Sugarworld Realty, the real estate agent for the estate sales.

[7] Under the project management agreement, the defendant, through his company Machland Holdings Pty Ltd, has absolute discretion as to the design, progression and funding of the project.[2] Moreover, it is a condition of the agreement that Sugarworld Pty Ltd not distribute dividends or make payments to any shareholders without the consent of the manager; the intention of the condition being to ensure a satisfactory gearing ratio between debt and equity during the progression of the project.[3]

[8] The plaintiff is a family company. Its director and manager is Luigi Garozzo. The other director is his father, Salvatore Garozzo. The plaintiff ran a wholesale food business that it sold to a company known as Bidvest. The plaintiff subsequently commenced a business called Access Cold and Dry Storage located at Redden Street, Portsmith, next door to other premises owned by it and rented by Bidvest. The plaintiff started a company called Australian Produce Management Solutions in conjunction with another entity, which facilitates the supply of wholesale produce from farmers to retail outlets. The plaintiff also formed a company called Salt House Pty Ltd in conjunction with another entity and developed a restaurant and bar near The Pier and marina in Cairns.

[9] In 2002 the plaintiff established Sugarworld Pty Ltd, having been brought together with the other two major shareholders of that company, Bilkford Pty Ltd and Decentralised Developments Pty Ltd by Chas Gianarakis of Bilkford Pty Ltd. It was at the outset of this development that Mr Garozzo was introduced to the defendant, Mr Dale. Mr Garozzo would deal with Mr Dale on about a monthly basis during the progression of the project, signing cheque payments and discussing the progression of the project.

[10] In the wake of the global financial crisis the plaintiff's financial circumstances became tenuous.[4] A number of its projects were running considerably over budget.[5] One of those projects was the extension of its building at 36-44 Redden Street for its tenant Bidvest, and another was the construction of a new cold storage facility at Redden Street for Access Cold and Dry Storage.[6] In mid-2008 its financier, the Commonwealth Bank, reduced the plaintiff's loan facility by $1 million.[7] There were no substantial assets of the plaintiff that were not secured by the Commonwealth Bank.[8] A reduction of the loan facility was premised upon there being a permanent reduction in debt through the sale of the plaintiff's real property at 34 Redden Street.[9]

[11] The sale of 34 Redden Street was to have occurred during 2008, but there were progressive extensions of settlement dates[10] matched by temporary extensions of the plaintiff's overdraft limit by the Commonwealth Bank.[11] There was an extension of the settlement date to later in the year on 28 November 2008 but the sale did not settle then either. The plaintiff gave the purchaser a further opportunity to settle over the Christmas period and into early January 2009, by which time it was obvious to Mr Garozzo that the sale was not going to settle at all.[12] The plaintiff was very short of cash and there was no prospect of it being able to borrow further money from the Commonwealth Bank.[13] The plaintiff's lack of available unsecured equity meant it would have been unable to borrow funds from another bank.[14]

Meeting of 17 January 2009 ("the first meeting") and credit issues

[12] Against that dire financial background, Mr Garozzo sought out Mr Dale[15] and met with him on 17 January 2009. Mr Garozzo discussed with Mr Dale the plaintiff's dire financial position, flowing in particular from the non-settlement of the sale of 34 Redden Street. Mr Garozzo gave evidence that he enquired of Mr Dale whether a dividend from Sugarworld Pty Ltd could be made available, with the obvious intention of easing the financial pressures upon the plaintiff.

[13] A dividend had been issued to the shareholders back on 27 November 2008.[16] The payment of that dividend had been brought forward, at least in part, at the request of Mr Garozzo.[17] The $400,000 thereby received by the plaintiff had not solved its immediate financial problems.

[14] According to Mr Garozzo's evidence, Mr Dale indicated at the first meeting that he could not recommend the payment of a further dividend.[18] According to Mr Dale, Mr Garozzo did not raise the subject of obtaining a further dividend from Sugarworld in the course of the meeting.[19] That evidence was inconsistent with the more credible evidence of Mr Garozzo on the issue. It was also inherently implausible. Mr Garozzo was desperate for funds. It was not unrealistic to raise the prospect of a further dividend given that at that time Sugarworld Pty Ltd had retained profits of about $8.8 million.[20] Moreover, Mr Dale acknowledged that Mr Garozzo had said his bank was aware Sugarworld was holding substantial cash and it wanted him to seek a dividend from Sugarworld.[21]

[15] Mr Dale suggested Mr Garozzo sell the property on which Bidvest was the tenant as a means of easing financial pressure. Mr Garozzo responded that was impossible because of the emotional attachment that he and more particularly his father had to that property.[22] He described it as the jewel in their crown.[23]

[16] Mr Garozzo raised the possibility of somebody being interested in his company shares in Sugarworld, asking Mr Dale what chance there was of an interested party, including Mr Dale, buying his shares. Mr Dale indicated he was not interested in buying the shares because he did not want to have to provide a director's guarantee. Mr Dale suggested the Gianarakis family might be interested in acquiring the shares.

[17] They discussed the value of the shares. Mr Dale explained that, based on the previous year's balance sheet, the value of the shares overall was $12 million,[24] making Mr Garozzo's company's 40 per cent share worth $4.8 million. Mr Dale acknowledged there had not been a recent valuation of Sugarworld Pty Ltd's land and that the overall share value could be up to $8 million higher than the $12 million value ascribed in the balance sheets.[25] Mr Dale accepted in cross-examination that the asset backing of the company in the plaintiff's shares would have been in the order of $8 million.[26] On the other hand, Mr Dale suggested the plaintiff's shares probably had a more realistic value of only $2 million.[27] He explained that in the wake of the global financial crisis and given the shares would be a minority shareholding, it would be difficult to sell the shares easily. However, even allowing for those considerations, I do not accept in the light of the balance sheet figures that $2 million was a reasonable estimate of the price then achievable for the shares.

[18] Mr Dale did at least accept in cross-examination that contemplating selling the plaintiff's shares in early 2009 for $2 million would not be the act of a willing seller in a properly functioning market.[28]

[19] Mr Dale testified Mr Garozzo said $2 million was also the figure Mr Garozzo had come up with,[29] but I did not believe that testimony. It was at odds with Mr Garozzo's evidence that he responded the shares were worth a lot more than that,[30] as well as Mr Dale's evidence that Mr Garozzo said he would want more than $2 million to sell the shares.[31]

[20] Subsequent to the meeting on 2 February 2009, Mr Garozzo sought a summary from Mr Dale of Sugarworld Pty Ltd's financial position to give to his financiers at the Commonwealth Bank. He asked that the summary show "we are in need of tightening our position on any further possible short-term shareholder dividends".[32] The document subsequently provided by Mr Dale,[33] which was altered slightly by him at Mr Garozzo's request,[34] indicated it was unlikely funds would be available for any dividend payment within the following 12 months. In apparent reference to that proposition, Mr Garozzo, by email of 13 February 2009, told Mr Dale, "With your dividend policy, I appreciate you are being super conservative (and realistic)."[35] Mr Garozzo did not further press his request for another dividend,[36] for example, by enlisting the support of the other shareholders in a majority vote.[37]

[21] Mr Garozzo also met with Charles Gianarakis subsequent to the first meeting. Mr Garozzo told Mr Gianarakis because of his family company's financial difficulties he was considering selling some or all of its shares in Sugarworld. Mr Gianarakis responded that he could not speak on behalf of the other two partners, but that he could safely say that the Gianarakis family "were good for a million dollars".[38] Mr Garozzo was "a bit taken aback", believing Mr Gianarakis was offering a million dollars for all of the plaintiff's shares in Sugarworld.[39]

[22] Mr Gianarakis gave evidence that in parting he said of his reference to a million dollars, "What that buys, I don't know."[40] He explained in evidence that he was not actually expecting $1 million would buy the entire 40 per cent of the plaintiff's share interest, but was not sure what proportion of that interest it would buy.[41] However, Mr Garozzo did not understand there to be such a qualification to the comment of Mr Gianarakis. That much appears obvious. Mr Garozzo interpreted the offer of $1 million as being for all of the plaintiff's shares, which greatly surprised him. That is confirmed by Mr Gianarakis's evidence that at the time Mr Garozzo had a surprised look on his face.[42]

[23] Mr Garozzo subsequently made arrangements to again meet with Mr Dale.[43]

Meeting of 3 March 2009 ("the second meeting") and credit issues

[24] Mr Garozzo and Mr Dale met on about 3 March 2009. Mr Garozzo informed Mr Dale of the continuation of the plaintiff's financially dire situation. He again asked whether Mr Dale was interested in buying the plaintiff's shares in Sugarworld and Mr Dale said he was not, explaining in particular that he did not want to have to give a director's guarantee.

[25] Mr Dale again suggested Mr Garozzo should consider a solution through the Gianarakis family and further confirmed there was not any chance of a dividend in the near future.

[26] On Mr Garozzo's account, Mr Dale asked Mr Garozzo how much money he needed. Mr Garozzo indicated $400,000. Mr Dale responded by personally offering him $500,000 to assist with his financial situation, explaining though that he would have to discuss that with his partner, Maryanne. Mr Dale said that if he were going to lend the money, he would require a formal loan document and security, and would like to have an option agreement as well.[44] He explained the option to purchase was for the security of the loan.[45] Mr Garozzo responded he was grateful for the offer, but also uncomfortable with it.[46]

[27] I accept Mr Garozzo's account of the meeting as reliable with one exception. He testified that no specific amount was mentioned for the option price at that meeting[47] and he only learnt of a proposed $2 million price on the option after his solicitor told him of it some days later.[48] Mr Dale testified that a price of $2 million was talked about and agreed on in the course of the second meeting.[49] Considering that an estimate of $2 million had been mentioned by Mr Dale in the first meeting, and that $2 million was the option price in the agreement subsequently drawn up, it is probable that the figure was at least mentioned in the second meeting. The same considerations mean Mr Garozzo had no particular reason to falsely deny it was mentioned. It is more likely Mr Garozzo was simply mistaken in his recollection as to whether it was mentioned.

[28] However, even accepting that there was probably some reference to $2 million as the likely option price at the meeting, I reject the defendant's argument that agreement was actually reached at the second meeting. Mr Garozzo must have foreshadowed some willingness to try and reach agreement because even on Mr Garozzo's account, Mr Dale explained he would have his solicitor prepare documents and interact with Mr Garozzo's solicitor.[50] But that does not mean they had reached agreement. At best, Mr Garozzo and Mr Dale indicated a willingness to try and reach agreement. It remained for Mr Dale to check on his partner's attitude and for the parties' solicitors to detail an arrangement in writing on which mutual agreement could be reached.[51]

[29] On Mr Dale's account, in the course of the second meeting he put the proposed agreement to Mr Garozzo in the following way:

"I said to him ... 'Lui, are you a betting man? Because if you are, you might be able to do this' and I said to him, 'What's your need for money?', and he said, 'Four hundred thousand dollars.'... I said to him, 'Well, I could lend you ... $500,000, but I would want it to be enforceable and secured ... I can lend you the money till September, you know, late August, early September, on the proviso it's enforceable, and then if you do not repay me by that date, there's an absolutely separate and enforceable option for me to buy the shares. Now, Lui, it'll either get better or it'll get worse, and if you think it'll get better, that's the wager for you, and if I ... think it'll get worse, that's the wager for me'."[52]

[30] Mr Dale's account of this aspect of the meeting, particularly its reference to betting and to "an absolutely separate and enforceable option" was not credible and smacked of a reconstruction of the conversation designed to fit legal issues looming in the trial. A further assertion by Mr Dale later in his evidence-in-chief about the option and the loan being separate transactions lacked credibility for the same reason.[53]

[31] In cross-examination Mr Dale went so far as to claim that in the second meeting he had told Mr Garozzo:

"... there were two deals, 'One, I would lend you the money and if you didn't pay the money back in time, I would have an option to purchase'."[54]

He disagreed that he had raised the option as only being enforceable if the loan was not repaid, saying, "[t]he option was a separate agreement".[55] Mr Dale refused to concede it was obvious the arrangement of being able to exercise the option and set off the option price against the unrepaid loan would have the effect of not only transferring the shares, but of achieving repayment of the loan.[56] This would have been a reasonable concession to make if Mr Dale was being candid with the court.

[32] Mr Dale's assertion he told Mr Garozzo in the second meeting that the option to purchase was to be a separate transaction did not appear in his detailed written overview of the evidence he was going to give.[57] Nor was it put to Mr Garozzo in cross-examination or mentioned in his counsel's opening of the case.[58] It was also inconsistent with his solicitor's ensuing correspondence about the agreement, discussed below. All of this is not the product of some innocuous error of recollection. Mr Dale's account of events in court professed a recollection so certain and detailed as to not permit of error.[59] The assertion was obviously false.

[33] Mr Dale's implausible certainty and unwillingness to make reasonable concessions was troubling. However, it is the added impact of his persistence in falsely asserting that the option was described as a separate transaction in the second meeting that causes me to regard his evidence as unreliable insofar as it relates to any contentious evidentiary issues in the case.

[34] In contrast, Mr Garozzo presented as a credible witness, prepared to make reasonable concessions and not prone to asserting an improbably certain recollection of detail. Such inconsistencies as the defendant contended existed as between his testimony, the pleadings and the overview of his evidence were inconsequential. The defendant also highlighted some overstatement and understatement of the real position by Mr Garozzo in his representations to the bank in early 2009 on the subject of obtaining a further dividend. This highlighted the desperation of Mr Garozzo's position in his dealings with his bank but did not materially undermine his reliability as a witness in this proceeding.

[35] In the aftermath of the meeting, by an email of 5 March 2009, Mr Dale advised Mr Garozzo that Mr Dale's solicitor, Andrew Coates of McKays Solicitors, was chasing copies of some documents to draw up the agreement between the plaintiff and Mr Dale and indicated it would be easier if their lawyers communicated.[60]

[36] Later that day, Mr Coates emailed Mr Garozzo's solicitor, Peter O'Connor, indicating, "I have been told that David is to lend Lui $500k on a certain basis and was asked urgently to draft the required documentation." In summary, the required documents were:

1. a loan agreement for a loan of $500,000 plus interest with capital and all interest payable 1 September 2009;

2. a personal guarantee from Mr Garozzo in respect of the loan;

3. a fixed charge granted by Sun North Investments Pty Ltd over its shares in Sugarworld Pty Ltd;

4. a form of authority to facilitate execution of documents;

5. a form of transfer to be executed by Sun North and held in case of default or possibly in case of exercise of the option;

6. an option deed granting Mr Dale the right to purchase the shares for $2 million and apply any monies owed under the loan agreement towards part payment of the purchase price;

7. a form of contract for the sale of shares to be annexed to the option agreement, "specifically catering for the fact that the contract will be entered into pursuant to the exercise of the option, that David may not actually be the buyer but a nominee may be the buyer and yet the amount payable to David under the loan agreement is still to be offset against the purchase price at completion"; and

8. a personal guarantee by Mr Garozzo of obligations under the option agreement and the contract.[61]

[37] In the course of the ensuing negotiations between the solicitors, the plaintiff's solicitor requested that the loan repayment date be on or before 31 March 2010 rather than 1 September 2009.[62] Mr Dale's solicitor responded that the loan repayment date was still required to be 1 September 2009, "but that the option to acquire the shares can only be exercised if there is default and the default has not been rectified by 31 March 2010".[63]

[38] The negotiations identified the limited security provided by the proposed charge and on 23 March 2009 Mr Dale's solicitor informed the plaintiff's solicitor the option's purpose was to back up the security of the charge.[64]

[39] On 9 April 2009 Mr Dale's solicitor wrote to the plaintiff's solicitor confirming:

1. Our client, David Dale, will lend Sun North Investments Pty Ltd (as trustee of the Sun Development Trust) the sum of $500,000;

2. Sun North Investments Pty Ltd will grant David a conditional option to purchase the Shares for $2m;

3. The option is only able to be exercised if the loan has not been repaid to David by 31 March, 2010;

4. If the option is to be exercised, then it needs to be exercised before, say, the end of April, 2010;

5. Upon exercise of the option, a contract for the sale of the shares will be deemed to have been entered into with the $500,000 owing being credited against the purchase price so that, at completion, David is only to pay $1.5 million".[65]

[40] The plaintiff's solicitor responded affirmatively that the letter set out the agreed deal, but made a request that a letter going to the plaintiff's bank be less specific in some respects.[66] Some amendments were made in the ensuing exchange of documents.[67]

[41] On 23 April 2009 the plaintiff's solicitor informed Mr Dale's solicitor that Mr Garozzo had executed the documents and they were awaiting the signature of the plaintiff's other director, Mr Garozzo's father.[68] On 27 April 2009 Mr Garozzo informed Mr Dale he had all documents signed and would get them back to Mr Garozzo's solicitor that day for onforwarding.[69] The executed documents were returned to Mr Dale's solicitor.

[42] On 7 May 2009 Mr Dale's solicitors informed the plaintiff's solicitors that the annexure to the call option deed had been signed, but not the actual option deed itself and requested that omission be attended to.[70] That process was attended to on 5 June 2009 and was confirmed by email exchanges of 15 June 2009.[71] Mr Garozzo conceded in evidence that this sequence meant he had three months to think about whether to sign the call option deed.[72] However, he felt he had no choice by then because the $500,000 loan had been received and used.[73]

[43] Mr Garozzo gave evidence that at the time he entered into the option to purchase he did not consider that $2 million represented fair value for the plaintiff's shares.[74] It transpires he was correct. The parties' experts agree the shares were then worth $5,000,521 (including development costs), more than twice the option price.[75] Mr Garozzo was asked why he entered into the option to purchase if it was not fair value, to which he replied:

"I keep asking myself that every night. Basically I - I really had myself into a corner and I just didn't - I had - I was eyes wide open to the fact that I was truly a believer, that I would make good that debt, so whether it was a two million or one million, or whatever figure, I was going to make good that debt. I really believed that. I didn't go in without - without the expectation of repaying David on the due date. It was always my intention, and it was a short term fix."[76]

[44] He credibly acknowledged he appreciated there was a risk he could lose the shares for $2 million, but he explained:

"...in the financial position I was I didn't believe I had another option, and ... I entered into an agreement that - that I wasn't - that made me very, very uncomfortable".[77]

[45] Mr Garozzo acknowledged in cross-examination that in hindsight he might have had other "options". The "options" explored with him in cross-examination included:

- attempting to procure a loan from his accountant who he did not then realise would be in a position to loan him money;[78]

- pressing for monies held by his family's superannuation fund[79] which he was particularly reluctant to pursue because of his parents' interest in those funds and because of his mother's dementia diagnosis which also impacted upon his father who had become her dedicated carer;[80]

- selling the Bidvest building which the family would not want to do because of emotional reasons;[81]

- seeking funds through encumbering his parents' properties;[82] and

- encumbering a property he had bought for his son[83] and which was only temporarily unencumbered because of a bank oversight.[84]

Some of the options were in substance unrealistic and the rest were very unappealing. They also related largely to Mr Garozzo's personal financial options rather than those of the plaintiff company.

[46] Mr Garozzo testified that he accepted the deadlines for repayment of the loan and period of default before the option was exercisable because he knew he did not have a lot of choice and did not consider he had any basis on which to bargain for a better arrangement.[85]

[47] Mr Garozzo testified that he did not have any financial advice from his accountant, Mr Tognola, before entering into the transaction.[86] It is self-evident from the above account of events that Mr Garozzo's solicitor was involved in negotiations relating to the content of the documents containing the agreement. However, there was no evidence that Mr Garozzo sought any particular advice from his solicitor about the wisdom of entering into the agreement. That said, Mr Garozzo is an experienced businessman and does not allege that he was at any special disadvantage from lack of advice.

[48] By an email of 4 August 2009 Mr Garozzo asked Mr Dale for an extension of the time within which to repay the loan.[87] Mr Dale responded by an email of 11 August 2009 extending the repayment date until 31 October 2009.[88] There was no repayment by 31 October 2009.

[49] On 13 November 2009 Mr Garozzo emailed Mr Dale a copy of the contract for the sale of the Garozzo family's property at 34 Redden Street annexing the sale contract, which was for a purchase price of $3,300,000.[89] Mr Garozzo wrote, "I have enclosed a copy of the sale contract for the commercial property in question, pertaining to me being able to return funds to you as owing and overdue." Mr Garozzo believed at that stage that his bank would allow sufficient sale proceeds to be available to repay the plaintiff's debt to Mr Dale.[90]

[50] By the time of settlement in January 2010 the proceeds the bank was permitting the plaintiff to retain had been reduced to $200,000. Mr Garozzo informed Mr Dale of that fact by email on 13 January 2010 indicating in the light of that development, "I have a cash position in my super but I am absolutely loathe ... to go there but that may be my only choice."[91]

[51] The plaintiff subsequently sought out a loan statement from Mr Dale with a view to the payment of at least some money.

[52] On 2 February 2010 Mr Dale forwarded Mr Garozzo a loan statement indicating the amount of interest and charges to 31 January 2010 was $40,359.46.[92] The statement's only reference to charges, as distinct from interest, was a figure of $2,500 for legal fees to Mr Dale's solicitor for the preparation of the original loan documents, an inclusion which Mr Garozzo had not previously been aware of.[93] In any event, no repayment of money, not even a part payment, was made at that stage.

[53] On 19 February 2010[94] Mr Garozzo and his accountant Mr Tognola met with Mr Dale for the purpose of being transparent about Mr Garozzo's and the plaintiff's financial position.[95] In the course of that meeting Mr Garozzo and Mr Tognola explored the possibility of achieving repayment by Mr Dale being given an interest in the Garozzo family's Tamworth property, a proposal Mr Dale did not appear interested in, but indicated he would consider.[96]

[54] On 18 March 2010 Mr Dale emailed Mr Garozzo indicating the option of repayment by granting of a shareholding in the Tamworth property was of no interest to him and noting that interest on the loan had not been paid, notwithstanding Mr Garozzo had indicated it would be. Mr Dale's emails indicated Mr Dale intended to exercise the option, saying:

"I now think that the option should be exercised for the purchase of the shares and I would like to meet with you next week to discuss and facilitate this process."[97]

[55] The interest and charges amount of $40,359.46 was paid by the plaintiff to Mr Dale by cheque dated 22 March 2010.[98] That amount had not been paid earlier because Mr Garozzo was short of cash.[99]

[56] Mr Garozzo and Mr Dale subsequently met and it was agreed that the option exercise date would be extended from 1 March 2010 to 17 May 2010.[100] By an email of 31 March 2010 from Mr Dale to Mr Garozzo, Mr Dale explained the reason for the extension was to facilitate the transfer process and not to extend the repayment period.[101] By email of 12 April 2010, Mr Garozzo asked Mr Dale to allow him to repay the debt in return for Mr Dale relinquishing the option.[102]

[57] On 12 April 2010 Mr Garozzo met with Mr Dale indicating that he had funds available from the family pension fund to repay the loan and interest and costs on the giving of approximately 21 days' notice. The following day, Mr Garozzo's solicitor wrote to Mr Dale's solicitor requesting that Mr Dale reconsider the exercise of the option and allow the plaintiff to repay the loan funds plus interest and costs and retain its shareholding.[103] Mr Dale emailed Mr Garozzo on 19 April 2010 indicating that it remained his intention to exercise the option.[104]

[58] On 22 April 2010 Mr Garozzo wrote a handwritten letter to Mr Dale pleading for him not to call in the option, describing it as "the ultimate penalty".[105] That plea was to no avail and on 10 May 2010 Mr Dale emailed Mr Garozzo, indicating he intended to exercise the option on that or the following day.[106]

[59] On 10 May 2010 Mr Garozzo emailed Mr Dale asking him to delay the formal exercise of the option until 13 May 2010.[107]

[60] On 13 May 2010 Mr Dale, in an email to Mr Garozzo with the subject heading "The time has come the walrus said", indicated he would exercise the option later that day.[108]

[61] At 5 pm on 13 May 2010 Mr Garozzo's new solicitors wrote to Mr Dale's solicitors indicating the plaintiff would be in a position to repay the loan by 19 May 2010 and requesting Mr Dale's calculation of the balance outstanding projected to that date.[109] The letter indicated that in exchange for the repayment the plaintiff would require the release of the fixed charge and the return of the blank share transfer that had been provided as part of the loan transaction. The letter requested confirmation that Mr Dale would not be seeking to enforce the call option in respect of the shares.

[62] Mr Garozzo's means of raising the funds for the repayment contemplated in that letter was by accessing the Garozzo family superannuation fund,[110] a means of repayment he had previously been very reluctant to utilise.

[63] By letter dated 13 May 2010, not forwarded by facsimile until the following morning, Mr Dale's solicitors wrote to the plaintiff's former solicitor, attaching a notice of exercise of option and a contract for the sale of the shares.[111] It is common ground that as at this date the shares' value (including development costs) was $4,628,860.[112] This represented a proportionately minor reduction in their value of $5,000,521 (including development costs) in the previous year when the agreement was reached. On any view, their value remained well over twice the option purchase price and the defendant still stood to make a windfall gain.

[64] On 17 May 2010 Mr Dale's solicitors wrote to the plaintiff's new solicitors in response to their letter of 13 May 2010, indicating settlement of the sale of the shares was to be effected on 19 May 2010 and asserting the plaintiff was obliged to forward a copy of the duly executed contract for the sale of the shares.[113]

[65] On 18 May 2010 the plaintiff's new solicitors wrote to Mr Dale's solicitors, indicating that the plaintiff now expected to be in a position to repay the loan later that day and requesting, inter alia, Mr Dale's calculation of the amount owing as at that date.[114] No calculations of the amount owing were forthcoming.[115] Mr Dale acknowledged that he would not have provided such calculations and that he was acting under advice at that point.[116]

[66] On 18 May 2010 there was a further letter by the plaintiff's new solicitors to Mr Dale's solicitors.[117] The letter advanced reasons why the option was void or unenforceable, namely that the call option deed was a clog on the equity of redemption in respect of the shares, that the call option deed constituted a penalty and that the plaintiff was entitled to relief against the forfeiture of its interest or a stake in the shares. The letter sought Mr Dale's undertaking that he would not complete the contract for the sale of the shares and would not take steps to transfer the shares, in the absence of which undertaking it was intimated the plaintiff would apply to the Supreme Court for an injunction to restrain the taking of those steps. Mr Dale's solicitors, in a letter of response of the same date, maintained the option was valid and enforceable, but undertook that steps would not be taken to complete the contract for the sale of the shares or to transfer the shares without Mr Dale first giving three days' notice.[118]

[67] Also on 18 May 2010 the plaintiff deposited into Mr Dale's bank account the sum of $514,055.17 which, by a letter of the same date, the plaintiff's new solicitors indicated was based on their calculation of the balance of interest owing, absent a calculation having been provided by Mr Dale.[119] As at that time, the plaintiff had the capacity to repay a greater amount had Mr Dale calculated and indicated that the amount owing was higher.[120] However, it is likely that the amount then owing was not greater than that paid.

[68] By letter dated 19 May 2010 Mr Dale's solicitors noted that the deposit had occurred, but asserted, "[w]e do not acknowledge that the monies constitute repayment of the debt owing and do not accept the monies in satisfaction of the debt."[121] The letter indicated the monies were available to the plaintiff if it wanted the money returned and in the meantime asked what the plaintiff wanted done with the monies "pending the outcome of this matter". The money was never returned to the plaintiff,[122] although the plaintiff does not appear to have sought its return either.

[69] After the present proceedings were instituted, annexure A to the Defence asserted that the amount owing for repayment exceeded the amount of the payment which had been made by $10,472.13 as at July 2010.[123]

[70] By a letter to Mr Dale's solicitors dated 18 April 2012 the plaintiff's solicitors requested details of the basis for the calculation of the additional amount said to be owing and the daily interest accruing on that sum.[124] Again there was no reply to that request.[125] On 5 October 2012 the plaintiff deposited a further $14,959.82 into Mr Dale's account. That payment was not returned either.[126] The amount was calculated by reference to the monetary allegations in the defence and counterclaim, inflated in turn by an additional $2,000 "so as to eliminate the prospect of any minor variance or shortfall".[127] In taking this course the plaintiff obviously intended to avoid any prospect of an argument, even though incorrect, that the quantum of monies repaid was insufficient.

[71] The plaintiff seeks to avoid a forfeiture of its share interest under the call option on the following three alternative bases:

1. The option is a clog on the equity of redemption.

The plaintiff contends the option to purchase was void from the outset because it was given as part of a lending transaction. It submits the option would extinguish the plaintiff's equity to redeem the shares, which under equity parties are not free to contract to do, and it is therefore repugnant to the equity of redemption and should be held void.

2. There should be relief on the basis the option constitutes a penalty.

The plaintiff submits the option's exercise should be restrained as unconscionable because it would constitute a penalty.

The plaintiff submits this court should restrain the exercise of the option as unconscionable because full payment was made.

1. The option was a separate transaction from the loan.

The defendant submits the option was a separate transaction from the loan agreement and, accordingly, it was not a clog on the equity of redemption or a penalty and there should be no relief against forfeiture.

The defendant submits the approach of cases such as Westfield Holdings Ltd v Australian Capital Television Pty Ltd[128] should be followed. It is submitted under that approach collateral advantages such as the option should not be struck down in the absence of unconscionable conduct and such conduct is not present here.

3. The option did not involve a penalty or forfeiture.

[73] The plaintiff submits the characteristics of the present transaction attract equity's principles relating to the borrowing of money on security, particularly its long developed principles in respect of mortgages.

[74] It is an essential feature of every mortgage that the mortgagor has a right to discharge the mortgage in payment of the debt or performance of the obligation for which security was given. That right, the "right of redemption" or the "right to redeem", can arise contractually, so long as the mortgagor is not in default. But even if the mortgagor does not repay a loan in time and thus loses the contractual right to redeem, there exists an equitable right to redeem.[129] The equity of redemption may be enforced, notwithstanding a failure to redeem by the repayment date, until the point in time when the mortgagee's power of sale has been exercised or a court has made an order for foreclosure.[130]

[75] The principle that a mortgage cannot at the time of the mortgage transaction in any way fetter or lessen redemption[131] has been characterised as a special application of a more general power to relieve against penalties and to mould them into mere securities.[132] It was the severity or hardship inherent in forfeiture of a security far exceeding the quantum of the repayment to be secured which, from an early date, attracted the intervention of equity to relieve against what was virtually a penalty.[133]

[76] The foundation for the principle was well summarised in Coote's Law of Mortgages (Eighth Edition):

"The right of redemption is an essential and inseparable attribute of a mortgage, as mortgages are regarded in equity. It is inherent in the thing itself. The absolute forfeiture of the estate at common law, on breach of the condition, was, in the eye of equity, an injustice and hardship, although perfectly accordant with the system on which the mortgage itself was grounded. The courts of equity, founded on the principles of the civil law, gradually succeeded, by an introduction of those principles, in moderating the severity with which the common law followed the breach of the condition. Though they could not alter the legal effect of the forfeiture at common law, they operated on the conscience of the mortgagee, and, acting in personam, they declared it unreasonable that he should retain for his own benefit what was intended as a mere security; and they adjudged that the breach of the condition was in the nature of a penalty, which ought to be relieved against, and that the mortgagor had an equity to redeem on payment of principal, interest and costs, notwithstanding the forfeiture at law."[134] (citations omitted)

[77] The equity of redemption is an inherent incident of the mortgage transaction.[135] In Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd & Ors Muir J explained:

"[T]he equity of redemption is not a right or concept attached to or inherent in the secured property itself: it is an incident of the mortgage transaction. ... As a general proposition, conduct which has the effect of hampering redemption after the contractual date for redemption has passed is not permitted and equity will grant relief by allowing redemption. The remedy, which operates in personam, has as its foundation the prevention of unconscionable conduct. In cases such as this, unconscionability is to be found in the lender's exercising rights which constituted, in substance, a penalty or a forfeiture".[136]

[78] The principle is thus founded upon the unconscionability inherent in the transaction otherwise allowing the lender to exercise rights amounting to a penalty or forfeiture. It is the nature of the transaction, if allowed, which is unconscionable.

[79] The principle has been held to apply to "a fair bargain between men of business without any trace or suspicion of oppression, surprise or circumvention"[137] and has been held to apply where the parties are legally represented.[138] It is unnecessary to demonstrate fraud, accident, mistake, surprise or other unconscionable conduct on the part of the person against whom the relief is sought.[139]

[80] In Kreglinger v New Patagonia Meat and Cold Storage Company Ltd[140] Lord Haldane distinguished the principle from the rule as to collateral advantages, which he explained had been eased by the repeal of the usury laws and by the recognition of modern varieties of commercial bargaining:

"It is no longer true that, as was said in Jennings v Ward, "a man shall not have interest for his money and a collateral advantage besides for the loan of it." Unless such a bargain is unconscionable it is now good. But none the less the other and wider principle remains unshaken, that it is the essence of a mortgage that in the eye of a Court of Equity it should be a mere security for money, and that no bargain can be validly made which will prevent the mortgagor from redeeming on payment of what is due, including principal, interest, and costs. He may stipulate that he will not pay off his debt, and so redeem the mortgage, for a fixed period. But whenever a right to redeem arises out of the doctrine of equity, he is precluded from fettering it. This principle has become an integral part of our system of jurisprudence and must be faithfully adhered to."

[81] The principle is not confined to deeds creating legal mortgages and applies to all mortgage transactions.[141] For instance, in Stern v McArthur[142] where there was no mortgage and the vendors retained the legal estate in a property sold to and built on by the purchasers as security for payment of instalments of the purchase price plus interest, Deane and Dawson JJ observed:

"Had there been a mortgage, equity would have regarded the respondents as entitled to their equity of redemption without regard to any stipulation as to time...that being so, there seems to us to be no good reason why equity should not extend a similar remedy in a transaction of such a similar character or why that similarity should not provide the justification for refusing to hold the respondents strictly to their bargain."[143]

[82] The transaction in the present matter involves a mortgage in the form of a fixed charge,[144] under which the plaintiff was described as the mortgagor and the defendant as the mortgagee. The fixed charge was over all shares held by the plaintiff in Sugarworld Pty Ltd. While it was over shares rather than land the principles protecting the equity of redemption are logically of equal application to such a form of security.

[83] The application of the principle cannot be avoided by the mortgage transaction also including a contract which would prevent the redemption of the mortgagor's interest in the property. As Lord Lindley explained in Samuel v Jarrah Timber and Wood Paving Corporation:[145]

"The doctrine "Once a mortgage always a mortgage" means that no contract between a mortgagor and a mortgagee made at the time of the mortgage and as part of the mortgage transaction, or, in other words, as one of the terms of the loan, can be valid if it prevents the mortgagor from getting back his property on paying off what is due on his security. Any bargain which has that effect is invalid, and is inconsistent with the transaction being a mortgage."

[84] An option to purchase given as part and parcel of a mortgage transaction is such a contract. In Samuel's Case the House of Lords unanimously concluded that an option to purchase given as part of a mortgage transaction is inconsistent with the mortgagor's equity of redemption.[146]

[85] The rationale behind the principle extending to a right or option to purchase the property arises from the prospect that if a mortgagee exercises the option and acquires title it will cease to be open to the mortgagor to redeem his interest in the property and the option to purchase will, if exercised, cancel out the equity of redemption. That penal consequence and its repugnancy to the equitable right and potentially to contractual rights was said by Lord Parker in Kreglinger's Case to afford:

"...a possible and reasonable explanation of the rule referred to in some of the authorities, to the effect that a mortgagee cannot as a term of the mortgage enter into a contract to purchase, or stipulate for an option to purchase, any part of or interest in the mortgaged premises".[147]

[86] Since Kreglinger's Case courts have continued to rule options to purchase unenforceable where they are granted as part of a mortgage transaction.[148]

[87] Here, if the option to purchase was made as part of the mortgage transaction, an application of the rule against fettering the equity of redemption compels the conclusion that the option was void because it was given as part of a lending transaction and had the effect of purporting to extinguish the plaintiff's equity of redemption.

[88] The defendant emphasises, correctly, that the principle does not extend to an option to purchase where it is a transaction independent of the mortgage transaction and thus not susceptible to inconsistency with the essential nature of a mortgage. This reflects the above discussed distinction Lord Haldane made in Kreglinger's Case between mere collateral advantage and interference with the right to redeem.

[89] The defendant submits there were in substance two separate transactions so that the rule against clogging the equity of redemption does not apply. It also advances this submission in answer to the plaintiff's arguments as to penalty and forfeiture.

[90] Whether a mortgage and an option to purchase are really independent transactions will be assessed as a matter of substance rather than merely form, and the court will look to the underlying nature of the transactions in determining whether they were really part and parcel of the one transaction which cut down the right to redeem rather than independent transactions involving a collateral undertaking outside and clear of the mortgage.[149] The court may have regard to parole evidence in determining this question of fact.[150]

[91] The defendant submits that the belated execution of the option deed demonstrated it was a separate transaction. However, as Lord Haldane pointed out in Kreglinger's Case:

"The question is ... not whether the two contracts were made at the same moment and evidenced by the same instrument, but whether they were in substance a single and undivided contract or two distinct contracts."[151]

[92] In any event, it is plain from the solicitors' correspondence that the parties had intended that the documents were to be executed contemporaneously. Mr Garozzo behaved honourably in correcting the logistical failure to tend properly to the correct execution of the option deed. Had Mr Garozzo not done so Mr Dale would have been the first to assert the conclusion he now seeks to avoid. He would have said that the making of the loan and the giving of the option were part of the same contract; that he would not have given the loan without having an option to purchase. He would have said he had only advanced the loan monies in the understanding that the option deed had been or would soon be executed by the plaintiff. He would have said such things because that was the mutual understanding of the parties. The fact that Mr Dale's agreement to loan the money was obviously conditional upon the plaintiff's provision of the option provides powerful support for the conclusion that the option deed was part and parcel of the same transaction as the loan.[152] The option was integral to the loan transaction proceeding.

[93] The defendant emphasises the absence of reference to the option deed in the loan agreement or the deed of guarantee or the fixed charge. However, the correspondence between the parties' solicitors in settling the content of the various documents clearly contemplated they were to be executed collectively, as part of a single transaction. The absence of reference to the option deed in other documents considered in isolation is therefore unremarkable. In a similar vein, there was much emphasis in the defendant's submissions on the purpose and sense of each document, including the option, considered in isolation. Such an approach ignores the evidence that the documents were formulated to collectively implement a single commercial arrangement.

[94] The defendant submits that the option did not have the purpose of providing security and if it did there would have been no need to have the fixed charge. That the fixed charge constituted a form of security for recovery of monies owing under the loan does not mean Mr Dale regarded it as adequate security. Clearly he did not. It was an option, not a charge, which was the security foreshadowed by Mr Dale during the second meeting.[153] It may well be that Mr Dale perceived some potential commercial advantage in an option, but that does not mean it did not have the purpose of providing security as professed.

[95] Significantly, Mr Dale's own solicitor in negotiating the final form of the documents indicated that there would only be adequate security if the charge was "backed up" by the added security of the option. On 23 March 2009 Mr Dale's solicitor wrote in an email to the plaintiff's solicitor:

"The last thing David wants is to have to purchase Lui's shares but, as you no doubt realise, my recommendation to David is that he needs to have adequate security for the loan of $500k. Ordinarily having a charge over a minority shareholding in a company is not great security given the difficulty in taking possession of the shares and having them sold for a reasonable value. In this case the security of a first charge backed up by the conditional option provides David with adequate security because of his knowledge of the company and the relationship with the other shareholders and directors. If Lui despite the best intentions is unable to repay the loan then David has a definite way he can recover the loan even if it means having to spend more monies to acquire the shares."[154] (emphasis added)

[96] The defendant submits such evidence is irrelevant because the relevant point in time to consider whether the option was intended to provide security for the loan is the occasion of the second meeting, as that was "the time at which the deal was done and agreement was reached between Dale and Garozzo".[155] However, I have already rejected the argument that agreement was reached at the second meeting.[156] Agreement was not reached until the documents to be executed were successfully negotiated between the parties' solicitors. What was said during those negotiations is therefore relevant.

[97] In any event, I have generally preferred Mr Garozzo's account of the second meeting to Mr Dale's and accept Mr Garozzo's evidence that at the meeting Mr Dale told him the option's purpose was to be security for the loan.[157] I am fortified in accepting that evidence as reliable given that Mr Dale's own solicitor later also indicated that the option's purpose was to provide adequate security for the loan, even though it meant Mr Dale would have to spend money to acquire the shares.[158]

[98] The option to purchase was required by way of security to ensure repayment of the loan. The option provided the means by which unrepaid loan monies could be recovered, that is, the discounting of the option price by the unrepaid amount of the loan and interest.[159]

[99] There were not two separate transactions here. The option and the loan agreement and the other documents were part and parcel of what was in substance one transaction. The option formed part of and was in substance security for a mortgage transaction and was an impermissible fetter on the plaintiff's equity of redemption. It was void from the outset.

[100] The defendant submits in the alternative that even if there was in substance a single transaction, the option ought not attract the rule against fettering the equity of redemption. He asserts the traditional operation of that rule has narrowed so that it will now only apply if there has been unconscionable conduct.

[101] The defendant argues as a starting point that the modern approach of Australian courts is to hold that collateral advantages are not to be struck down in the absence of unconscionability. There is nothing new in that approach. Lord Haldane referred to it 100 years ago in Kreglinger's Case when explaining the distinction between the rule against clogging the equity of redemption and the rule as to collateral advantage.[160] He explained the latter had been eased by modern varieties of commercial bargaining so that it only applies where the bargain is unconscionable.

[102] However, the defendant goes further. He contends the rule against fettering the equity of redemption has narrowed and will not apply "without the essential element of unconscientiousness or unconscionability".[161] The defendant appeared to contend that element was required separately from the unconscionability inherent in the nature of the transaction. In Kreglinger's Case Lords Haldane and Parker identified no such separate element in respect of the rule.[162] That is unsurprising. The rationale for the rule lies in the unconscionability inherent in the transaction otherwise allowing the lender to exercise rights amounting to a penalty or forfeiture.[163] No additional unconscionable conduct by a party to the transaction is required.

[103] The line of authority relied upon by the defendant commences with Westfield Holdings Limited v Australian Capital Television Pty Ltd.[164] In that case Young J departed from the traditional approach in respect of fetters on the equity of redemption. He reasoned that an express agreement of the parties that overrides an equity of redemption should not automatically be unenforceable. His Honour said:

"There does not appear to be any commercial reason why, in 1992, the court should invalidate any transaction merely because a mortgagee obtains a collateral advantage or seeks to purchase a mortgaged property. Quite obviously equity must intervene if there is unconscionable conduct. Again equity must intervene in the classic case where it can be seen that a necessitous borrower is not, truly speaking, a free borrower.

In my view, in 1992, the rule only applies where the mortgagee obtains a collateral advantage which in all the circumstances is either unfair or unconscionable. It may be that the court presumes from the mere fact of a collateral advantage that the transaction is unconscionable unless there is evidence to the contrary, but the principle does not extend to invalidate automatically the cases in which the mortgagee has obtained the right to purchase the whole or part of the mortgaged property in certain circumstances or has obtained a collateral advantage where the circumstances show that there has been no unfairness or unconscionable conduct."[165]

[104] In another single-Judge decision of the New South Wales Supreme Court, Barrett J in Lift Capital Partners Pty Ltd & Ors v Merrill Lynch International & Ors[166] agreed with the approach of Young J. His Honour observed:

"It cannot be said today that a contractual provision freely assented to by a mortgagor is void or unenforceable just because it allows the mortgagee to acquire the mortgaged property or to resist that mortgagor's attempt to redeem. The susceptibility of such a provision to equitable intervention is, however, well established. In a given case, equity will prevent reliance on the provision by the mortgagee if that reliance is unconscientious because of some factor associated with the formation of the contract or something distinct from mere changed circumstances or supervening event operative at the time of reliance.

In determining whether reliance is unconscientious, regard must be had to the nature of the bargain, the circumstances in which it was made and the circumstances in which the mortgagee seeks to assert the mortgagor's promise to defeat the right to redeem."[167]

[105] The reasoning of Young J was only obiter dictum. Barrett J's reasoning was also obiter dictum in that the nature of the transaction was itself found to be against conscience and having an unconscionable operation.[168] That is, whether under the traditional approach or the Westfield approach, equity was destined to intervene.

[106] Barrett J described the Westfield approach as having been "approved" by other Judges of the New South Wales Supreme Court at first instance in Re Modular Design Group Pty Ltd[169] and Wily v Endeavour Health Care Services Pty Ltd (No 5)[170] and noted without adverse comment by the Full Court of the Supreme Court of South Australia in Epic Feast Pty Ltd v Mawson KLM Holdings Pty Ltd.[171] However, the expression of approval by Gzell J in Wily v Endeavour Health Care Services Pty Ltd (No 5) was obiter in that it was decided the transaction was not, in substance, a mortgage.[172] The views expressed in Epic Feast v Mawson KLM Holdings Pty Ltd were also obiter in that the Full Court's decision did not turn on the point and it was not even argued at the trial.[173]

[107] As to Re Modular Design Group Pty Ltd, Santow J merely referred to the reasoning in Westfield in the course of an analysis which culminated in him finding unconscionability was inherent in the nature of the transaction:

"Thus I conclude that in the present circumstances to permit the charge, without the chargor's consent, to cover the assignee's pre-assignment indebtedness, or for that matter, indebtedness arising post-assignment from a pre-assignment contingent liability on the assignee's part, merely by reason of an extended definition of Bank and a generally drawn "all obligations" clause, is to impede the mortgagor in exercising its equity of redemption and thus to constitute a clog. It is also unfair or unconscionable for the assignee, as mortgagee, thereby to obtain such a collateral advantage. ... I consider neither the long service leave debt nor the Green guaranteed debt to be secured by the relevant charges. For them so to be secured, would be an unconscionable collateral advantage impeding exercise of the equity of redemption."[174]

His Honour's reasoning, with respect, appears to be entirely consistent with the traditional approach, which did not require some additional unconscionable conduct because it was the unconscionability inherent in the transaction itself that attracted the intervention of equity.

[108] The traditional approach has continued to be favoured in other decisions of Australian courts. For instance, in Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd & Ors,[175] Muir J acted on the principle that equity will grant relief so as to allow redemption, overriding any conduct that has the effect of hampering redemption after the contractual date for redemption has passed. Finkelstein J similarly followed the traditional view in Beconsfield v ANZ.[176] Moreover, Cohen J in Chase Corporation v North Sydney Brick & Tile[177] expressed reservations about the approach of Young J in Westfield Holdings, saying:

"As his Honour had decided the case on a different ground these views were, and were stated to be, obiter. It was confidently to be expected that the matter would go on appeal but this did not eventuate. With respect to his Honour I am not sure that I would have agreed with him. Whatever may be the position in the two High Court and Court of Appeal decisions referred to by him, at least two other Judges of this court have followed Kreglinger's Case and I would feel that I should do so in the absence of detailed submissions to the contrary."

[109] The Westfield approach does not give proper weight to the explanation underlying the traditional approach. As discussed above, it is the unconscientious nature of the transaction in clogging the equity of redemption and allowing the lender to exercise rights amounting to penalty or forfeiture that lies at the heart of equity's refusal to enforce legal rights that take away an equity of redemption.

[110] In Shiloh Spinners v Harding[178] Lord Wilberforce reiterated that where the object of a transaction and 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".

[111] In Stern v McArthur,[179] Deane and Dawson JJ also emphasised the significance of the unconscientious nature of the transaction as the foundation for equity's intervention:

"One situation in which equity has traditionally granted relief is where provision for forfeiture has been made to secure the payment of money and the party in default seek relief upon the basis of payment of the amount owing together with the appropriate compensation. In that situation the object of the provision is achieved and it would be unconscientious for the other party to seek to take advantage of the forfeiture. An obvious application of this principle (although it may have emerged separately) is the equity of redemption in the case of a mortgage. There, no proof of fraud, mistake, accident or surprise is required to establish the equity because the very nature of the transaction is such that the court, acting upon conscience, will grant relief." (emphasis added)

Westfield approach involves a departure from established law

[112] The failure of the Westfield approach to give determinative weight to the inherently unconscientious nature of the transaction as an automatic foundation for intervention involves a departure from established law, particularly the decisions in Samuel v Jarrah Timber[180] and Kreglinger's Case.

[113] While decisions of the House of Lords may be persuasive but not binding on Australian courts, decisions of the Privy Council given in the period in which appeals lay from Australia to the Privy Council are ordinarily regarded as binding on all Australian courts below the High Court in the absence of a conflicting High Court decision.[181] Fairclough v Swan Brewery Co[182] upheld the traditional approach of the House of Lords in the Privy Council and has not been overruled by the High Court.

[114] The traditional approach has been followed in seriously considered dicta of the majority of the High Court, including in Baker v Biddle[183] and Toohey v Gunther.[184] Further, in a series of subsequent cases, individual members of the High Court have apparently accepted the English cases, though not in a way essential to their decision.[185] Given the long established authority on which the traditional approach is based, and its support in the seriously considered dicta of the High Court it should be followed by courts below the High Court.[186]

[115] In Queensland, cases such as Baker v Biddle (at first instance)[187] and Team Dynamik[188] provide further support for the following of the traditional principle.

[116] In all of the circumstances, I decline to follow the Westfield approach.

Intervention warranted even under the Westfield approach

[117] Further, even if the Westfield approach were good law, it does not follow that its application would preclude equitable intervention here.

[118] The defendant contended to the contrary, arguing the Westfield approach requires there to be some unconscionable conduct additional to the act of purportedly exercising the option. To that end the defendant's submissions sought to characterise the plaintiff's case as a failed attempt to rely upon such additional conduct.

[119] The defendant emphasised that the plaintiff had failed to make good its pleaded allegation that the defendant refused to give his company's consent to a further dividend thus precluding the plaintiff from obtaining funds via a dividend.[189] However, that inaccurate allegation was not pivotal to the plaintiff's case.

[120] The defendant also emphasised the plaintiff had failed to prove its allegation the defendant required the option to be entered into knowing the plaintiff was otherwise unable to obtain sufficient funding to meet its immediate cash flow requirements.[190] While the plaintiff was undoubtedly in desperate financial straits it could not be said it was otherwise unable to obtain funds. Rather, its other options for finance were very unappealing.[191] However, the plaintiff's case did not depend on it being one of a lender exploiting a borrower so necessitous that the borrower was not truly speaking a free borrower. The plaintiff's case simply does not fall to be considered as one involving knowing exploitation by one party of the special disadvantage of another.

[121] The defendant's highlighting of some unsustainable aspects of the plaintiff's pleadings suits its endeavour to characterise the case as a failed attempt to allege knowing exploitation of special disadvantage. However, it overlooks the obviously relevant balance of the pleaded case. The plaintiff's case as pleaded clearly alleged the option was entered into as security for repayment of the loan and that the defendant's reliance upon the call option deed was repugnant to the plaintiff's right to redeem and was unconscionable because of the very nature of the bargain and the consequences of the exercise of option.[192] The plaintiff's case did not stand or fall on proof of some additional unconscionable conduct beyond that.

[122] Further, the Westfield approach does not necessarily require that there be some unconscionable conduct additional to the act of relying upon the exercise of the option. Rather, it postulates that intervention should not be automatic.[193] It does not prevent a court from concluding, depending on the particular facts of the case, that "the nature of the bargain" and "the circumstances in which the mortgagee seeks to assert the mortgagor's promise to defeat the right to redeem" would make reliance on the transaction unconscientious.[194]

[123] The observations of Young J in Westfield and Barrett J in Lift Capital Partners[195] do not expressly refer to the situation where, as here, the relevant provision - the so called collateral advantage - is not a collateral undertaking outside and clear of the mortgage transaction, but is rather part and parcel of the one transaction. My earlier findings that the option was inseparably part of the mortgage transaction and was to serve as security for the loan are relevant to whether intervention, even if not automatic, is warranted.

[124] The option to purchase was given by way of security to ensure repayment of the loan but nonetheless stood to benefit the defendant with a windfall gain out of all proportion to any loss he might suffer if the loan were not repaid and the risk he undertook in entering into the transaction. Given the option to purchase was provided by way of security for the loan and the loan has now been repaid in full with interest, it is unconscientious for the defendant to insist on enforcing a transfer of the shares so that he ends up with both full repayment and about $5 million worth of shares for an outlay of only $2 million.

[125] In the present case, even applying the Westfield approach, the very nature of the transaction and the unconscionability inherent in it otherwise allowing the lender to exercise rights amounting to a penalty or forfeiture renders reliance upon it unconscientious and warrants the intervention of equity.

[126] Much of the foregoing analysis of issues arising in connection with the first basis for intervention advanced by the plaintiff is also relevant to the alternative bases for relief advanced in respect of penalty and forfeiture.

[127] The plaintiff submits, in the alternative to the option being void as a clog on the equity of redemption, that the option should be set aside because its exercise would constitute a penalty.

[128] In Kreglinger's Case[196] Lord Parker explained:

"A condition to the effect that if the contractual right is not exercised by the time specified the mortgagee shall have an option of purchasing the mortgaged property may properly be regarded as a penal clause."

[129] In Andrews v Australia and New Zealand Banking Group Ltd[197] the High Court summarised what constitutes a penalty and how its enforcement will be limited:

"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." (citations omitted)

[130] Whether a stipulation is a penalty is to be determined objectively[198] and by reference to the time the contract was made, not the time of breach.[199]

[131] In its standard application the law of penalties operates where "a contract stipulates that on breach the contract-breaker will pay an agreed sum which exceeds what can be regarded as a genuine pre-estimate of the damage likely to be caused by the breach".[200] This was emphasised by two of the tests propounded by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd[201]:

"(a) It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach...

(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid..."

[132] Here, the primary stipulation was to pay the $500,000 with interest. I have already found the option to purchase served as security to ensure performance of that primary obligation. In such a situation it is necessary to compare the price to be paid for the transfer and the actual value of what is to be transferred as a result of the option having been exercised.[202]

[133] Here, the experts are agreed that the plaintiff's shares had a market value of $5,000,521.[203] The option did make provision for the proceeds of sale to be applied in reduction of the debt. However, the option did not make provision for the return to the plaintiff of any surplus over and above the amount required to pay the capital and interest. Exercise of the option to purchase would therefore not only see the loan repaid, but would advantage the defendant to the extent of about $3 million. This far exceeds the greatest loss that could have followed from breach of the obligation to repay the loan. At the time of the contract, the greatest potential loss to the defendant would not have been more than $500,000 plus interest at 9.49 per cent for one year, that is $47,200 plus any incidental costs. A reasonable genuine pre-estimate of Mr Dale's potential loss would have been perhaps $570,000 at most.

[134] A gain of $3 million represents a gain over five times the greatest loss to the defendant that would flow from the breach. This meets the exceptional requirement of the law of penalties that the propounded penalty is not merely lacking in proportion, but is out of all proportion and is an extravagant and unconscionable amount.[204] The disparity is so unconscionable that the option to purchase would be unenforceable as a penalty, had I not already found it was void as a clog on the equity of redemption.

[135] The plaintiff further submits in the alternative that there should be relief against forfeiture.

[136] The option to purchase had the purpose of securing the lent money. It was a means of achieving reimbursement in the event the loan was not repaid. However, by 18 May 2010 the loan had been repaid with interest. Thus, the purpose of the option as security had been achieved.

[137] It is against conscience for the defendant to insist on his legal right to force a transfer of the shares in circumstances where the loan has been fully repaid.

[138] It is in accordance with the equitable principles discussed above to allow the plaintiff to realise its equity of redemption and take back the shares unencumbered by the security, notwithstanding the defendant's contractual rights to the contrary. The unconscionability inherent in the exercise of those rights is that in substance it constitutes a forfeiture.[205]

[139] The unconscionability is well illustrated by the discrepancy between the option price and the market value of the shares. In the absence of default the transaction only entitled the defendant to repayment of the loan with interest. By the time of the purported exercise of the option the shares were worth about $4.6 million. The exercise of the option would allow the defendant to acquire the plaintiff's interest in the shares at a discount of $2.6 million on their market value. That would constitute a windfall out of all proportion to the risk taken by the defendant in respect of a $500,000 loan. It is obvious Mr Dale did not co-operate in the plaintiff's eventual attempts to identify the correct amount owing so as to repay it because Mr Dale wanted to obtain the windfall.

[140] The way in which such a windfall provides further justification for exercise of the jurisdiction to grant relief was explained by Deane J and Dawson J in Stern v McArthur:[206]

"If, however, further justification is required for the exercise of the jurisdiction to grant relief, it is to our minds provided by the circumstance that it is the respondents who had a reasonable expectation of benefitting from any increase in the value of the land with the passage of time. Under the contract the appellants could, in the absence of default, look for no more than the purchase price together with the interest provided. The land has in fact increased considerably in value so that it forms much more than adequate security for the balance of the purchase monies owing. The forfeiture of the respondent's interest in the land would truly result in a windfall to the appellants whereas relief against forfeiture would not result in a gain to the respondents properly describable as a windfall."

[141] If I had not found the call option deed was void I would in any event have granted relief against forfeiture.

[142] The defendant's counterclaim focuses upon the events of 18 May 2010 when the plaintiff by its solicitors alleged that the option to purchase was void and or unenforceable and that the defendant had no entitlement to require that the shares be transferred to him. The conduct giving rise to the repudiation also allegedly extends to the plaintiff's payment on the same date of $514,055.17 to the defendant's bank account and its request for a release of the fixed charge and return of other paperwork effectively confirming that the amount repaid satisfied the plaintiff's obligations. These events of 18 May 2010 are also said to include the plaintiff's solicitors filing an originating application seeking injunctive relief.

[143] Repudiation occurs where a party renounces his or her liabilities under a contract, evinces an intention to not be bound by the contract or shows an intention to fulfil the contract only in a manner substantially inconsistent with his or her obligations.[207] However, a party willing to perform a contract according to its terms as determined by the court does not repudiate merely by asserting an incorrect interpretation of a contract. That is, where there is a genuine dispute as to the true construction of a contract, there will not be repudiation if a party maintains its willingness to perform the contract in accordance with the court's ruling.[208] Similarly, if a party asserts a contract is unenforceable, but is still willing to perform the contract if the court finds the contract is enforceable, the party will not have repudiated the contract.[209]

[144] For example, in Spettabile Consorzio Veneziano di Armamento e Navigazione v Northumberland Shipbuilding Co Limited,[210] Warrington LJ said:

"...where one party to a contract conceives that he is no longer bound by the contract or has a right to have it rescinded or declared null and void and issues a writ for the purpose of obtaining that which he believes to be his right he does not by that mean to repudiate the performance of the contract in any event. It seems to me that he submits to perform it if the court, as a result of the action, comes to the conclusion that he is bound to perform it, and it cannot be taken to be an absolute repudiation."

[145] That view was applied by Helsham J in DC Wagemaker & Sons v Commonwealth Development Bank[211] who observed:

"...mere launching by it of a suit ... for a declaration that the contract was no longer in existence would not, if it failed, be regarded of itself as an act of repudiation ... of the self-same contract".

[146] The real issue in this context is whether the allegedly repudiating party evinces an intention not to be bound in any event, that is, regardless of whether or not its assertion is justified.[212]

[147] The plaintiff's actions were entirely unremarkable. It believed on established principles that the option to purchase was either void or would not be enforced by a court of equity. It applied to the court seeking to have the court determine what the legal rights of the parties were and restrain further steps in respect of the transfer of the shares pending that determination. In doing so, it was merely invoking the assistance of the court in order to have the legal rights of the parties determined. Its actions did not evidence a determination not to perform the contract in any event.

[148] The plaintiff's assertion in correspondence of its belief that the option to purchase was void or unenforceable was entirely consistent with its submissions to the court. There was no repudiation. The counterclaim must fail.

[149] I have found that the call option deed was void. I will make a declaration to that effect and in consequence of that finding will also order the delivery up of the share transfer form and a release in respect of the fixed charge. It is unnecessary, given my declaration, to also set aside the call option deed as a penalty or grant relief against forfeiture.

[150] The claim also sought an injunction restraining the defendant from completing any contract arising from the exercise of the option and from transferring the plaintiff's shares to the defendant or his nominee. Such orders appear to be unnecessary given the orders to be made.

[152] I will hear the parties as to costs and any additional orders they contend are necessary to give proper effect to my findings.

1. The call option deed made between the plaintiff and defendant and executed on or about 5 June 2009 is declared void.

(a) a release duly executed by the defendant of the fixed charge made between the plaintiff and the defendant and executed by the plaintiff on or about 28 April 2009;

(b) an Australian Securities and Investments Commission form 312 in respect of such release, duly executed by the defendant;

(c) the undated standard share transfer form executed by the plaintiff in respect of its $1,200,000 fully paid ordinary shares in Sugarworld Pty Ltd.

4. I will hear the parties as to costs and any other orders they contend are necessary to give proper effect to my findings.

[1] Statement of Claim [27], [28]; plaintiff's opening T1-3.

[24] The Sugarworld balance sheet as at 2008 at Ex 1 v 5 p 2825, indicates total shareholders' equity was $11,880,946.69.

[34] Ex 1 v 1 p 625, 628 (last sentence removed from paragraph 3).

[51] Even Mr Dale's solicitor subsequently issued draft documents with the qualification that they might not represent Mr Dale's final position, e.g. Ex 1 v1 pp 638, 647.

[91] Ex 1 v 3 p 1208. While that email appears to indicate settlement was to occur on 18 January, it may actually have occurred on about 7 January 2010 (see settlement statement Ex 1 v 1 p 1162 and bank statement Ex 1 v 3 p 1259).

[128] (1992) 32 NSWLR 194.

[129] Beaconwood v ANZ [2008] FCA 594; (2008) 246 ALR 361, 372, Sandgate Corporation Pty Ltd v Ionnou Nominees Pty Ltd [2000] WASC 91; (2000) 22 WAR 172, 182.

[130] Latec Investments Ltd v Hotel Terrigal Pty Ltd [1965] HCA 17; (1965) 113 CLR 265, 274-275, Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2001) 217 CLR 315, 331.

[131] Toohey v Gunther [1928] HCA 19; (1928) 41 CLR 181, 197.

[132] Kreglinger v New Patagonia Meat & Cold Storage Company Ltd [1913] UKHL 1; [1914] AC 25, 35.

[134] Vol 1, pp 11 - 12; quoted with approval by Muir J in Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd & Ors [2007] QCS 32, [53].

[135] Noakes & Co Limited v Rice [1901] UKHL 3; (1902) AC 24, [30], Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd & Ors [2007] QSC 32, [57].

[136] [2007] QSC 32, [57]-[58] citations omitted.

[137] Samuel v Jarrah Timber & Wood Paving [1904] UKHL 2; (1904) AC 323, 325.

[138] Lewis v Frank Love Ltd (1961) 1 WLR 261, 270.

[139] Stern v McArthur [1988] HCA 51; (1987-1988) 165 CLR 489, 526-529, 539; Shiloh Spinners v Harding (1973) AC 691, 722-723.

[140] [1913] UKHL 1; [1914] AC 25, 38.

[141] Samuel v Jarrah Timber and Wood Paving Corporation [1904] UKHL 2; [1904] AC 323, 329.

[142] [1988] HCA 51; (1987-1988) 165 CLR 489, 529.

[145] [1904] UKHL 2; [1904] AC 323, 329.

[147] [1913] UKHL 1; [1914] AC 25, 50.

[148] See, e.g., Baker v Biddle (1923) St R Qd 46, 49, 50, approved by the High Court, see Baker v Biddle [1923] HCA 26; (1923) 33 CLR 188; Lewis v Frank Love Ltd (1961) 1 WLR 261, 270, 271; Bannerman Brydone v Murray (1972) NZLR 411, 420, 421, 425, 429; Re Supreme Court Registrar to Alexander Dawson Inc (1976) 1 NZLR 615, 627; Jones v Morgan [2001] EWCA Civ 995 [55], [65]-[67].

[149] Kreglinger v New Patagonia Meat & Cold Storage Company Ltd [1913] UKHL 1; [1914] AC 25, 35, 36, 39; Baker v Biddle (1923) St R Qd 46, 50-51_; Toohey v Gunther_ [1928] HCA 19; (1928) 41 CLR 181, 196_; Lewis v Frank Love Ltd_ (1961) 1 WLR 261, 268_._

[150] Kreglinger v New Patagonia Meat & Cold Storage Company Ltd [1913] UKHL 1; [1914] AC 25, 46, 47_; Barton v Bank of New South Wales_ [1890] 15 AC 379, 380, 381_._ Also see Gurfinkel v Bentley Pty Ltd [1966] HCA 75; (1966) 116 CLR 98.

[151] [1913] UKHL 1; [1914] AC 25, 39.

[152] See, e.g., Lewis v Frank Love Ltd [1961] WLR 261, 267. It was the same conditional quality of the defendant's preparedness to make the loan in that case that compelled the conclusion the loan and the grant of the option were all part and parcel of one transaction.

[159] That the call option deed had the effect of allowing such reduction of the share purchase price payable was admitted - Amended Defence and Counterclaim [5].

[162] [1913] UKHL 1; [1914] AC 25, 38, 56.

[163] Ibid 35, 56; also see [77], [78] above.

[164] (1992) 32 NSWLR 194.

[166] [2009] NSWSC 7; (2009) 73 NSWLR 404, 430-431.

[167] Ibid 431; cited in Sam Management Services (Aust.) Pty Ltd v Bank of Western Australia [2009] NSWSC 676, [79] where the trial judge found the rule against fettering the equity of redemption had no application because there was no attempt to fetter the redemption of the property.

[169] (1994) 35 NSWLR 96.

[170] (2003) NSWSC 616 and on appeal (2003) NSWCA 321.

[171] [1998] SASC 7106; (1998) 71 SASR 161.

[172] (2003) NSWSC 616, [78]-[80] and on appeal (2003) NSWCA 321, [12].

[173] [1998] SASC 7106; (1998) 71 SASR 161, 173.

[174] (1994) 35 NSWLR 96, 104B-D.

[175] (2007) QSC 32, [52]-[58].

[176] [2008] FCA 594; (2008) 246 ALR 361, [46], [50].

[177] (1994) 35 NSWLR 1, 25.

[178] (1973) AC 691, 722.

[179] [1988] HCA 51; (1988) 165 CLR 489, 527.

[180] [1904] UKHL 2; (1904) AC 323.

[181] Barclay v Pemberthy (2012) HCA 40, [103]; Cook v Cook [1986] HCA 73; (1986) 162 CLR 376, 390; Viro v R (1978) 141 CLR 88.

[182] [1912] UKPC 1; (1912) AC 565.

[183] [1923] HCA 26; (1923) 33 CLR 188, 196-8 where the High Court upheld a decision of the Supreme Court of Queensland, see Baker v Biddle (1923) St R Qd 46.

[184] [1928] HCA 19; (1928) 41 CLR 181, 192-196, 203.

[185] Bevham Investments Pty Ltd v Belgot Pty Ltd [1982] HCA 45; (1982) 149 CLR 494, 501; Marshall v Allsop (1946) ALR 378, 379, 380; Southwell v Roberts & Anor [1940] HCA 23; (1940) 63 CLR 581, 598.

[186] Farah Constructions Pty Ltd v Say-dee Pty Ltd (2007) 230 CLR 89, [134].

[187] (1923) St R Qd 46, 49-52.

[188] (2007) QSC 32, [52]-[57].

[189] Statement of Claim [27](c)(i)C.

[190] Statement of Claim [27](c)(i)AB.

[192] Statement of Claim [27]-[28].

[193] Westfield (1992) 32 NSWLR 194, 203.

[194] Lift Capital Partners Pty Ltd & Ors v Merrill Lynch International & Ors [2009] NSWSC 7; (2009) 73 NSWLR 404, 431.

[195] Quoted above at [103], [104].

[196] [1913] UKHL 1; (1914) AC 25, 50.

[197] [2012] HCA 30; (2012) 86 ALJR 1002, 1005.

[198] Philips Hong Kong Ltd v The Attorney-General of Hong Kong [1993] UKPC 3; (1993) 61 BLR 41, 59; O'Dea v Allstates Leasing System (WA) Pty Ltd [1983] HCA 3; (1983) 152 CLR 359, 400; Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) (2012) 287 ALL RIGHT 360, [90].

[199] Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1914] UKHL 1; [1915] AC 79, 86-88; P C Developments v Revell (1991) 22 NSWLR 615, 631-632, 645, 651; Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656, [11].

[200] Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656, 10.

[201] [1914] UKHL 1; [1915] AC 79, 86-87.

[202] Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656, 22.

[204] Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656, 32.

[205] See the remarks of Muir J in Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd & Ors quoted above at para [77]; also see Re Modular Design Group Pty Ltd (1994) 35 NSWLR 96, 104C.

[206] [1988] HCA 51; (1987-1988) 165 CLR 489, 529; compare Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 which demonstrates that in a contract of sale the courts' willingness to relieve against forfeiture is on narrower grounds than equity's relief against forfeiture of a mortgagor's equity of redemption.

[207] Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620, 625-626.

[208] DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423; Perpetual Trustee Company Limited v Meriton Property Management Pty Ltd [2006] NSWCA 75.

[209] Lombok Pty Ltd v Supetina Pty Ltd (1987) 71 ALR 333, 342.

[210] (1918-1919) All ER 963, 966; (1919) 121 LT 628, 633.

[211] (1970) 91 WN(NSW) 617, 622 E-F; also see to the same effect Highmist Pty Ltd v Tricare Limited (2005) QCA 357, [54]-[58].

[212] Supetina Pty Ltd v Lombok Pty Ltd (1986) 11 FCR 563, 568.