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As regards the construction put by Mr Watson upon the words ‘punctually paid’, I confess to your Lordships that I have a difficulty in understanding what the point is. He pled, and pled briefly but strenuously, in favour of a principle of elasticity – elasticity, that is to say, in the construction of a contract which provides for punctuality.
My Lords, my mind cannot comprehend the elasticity of punctuality. I know of no method of construction of a contract by way of contradiction of it.[1]
[1] Parties to a contract for the sale of land have appointed a date and
time for settlement and time is of the essence. The time
may have been made
essential by agreement or by notice to complete. One of the parties is late for
the settlement. Perhaps 5 minutes
late, 10 minutes late, 20 minutes late or
longer. There may be no excuse for the lateness. On the other hand, there may
have been
traffic congestion or transport problems preventing punctual
attendance at the settlement, computer problems at the Land Titles Office
precluding the making of a final search or any number of reasons for the
lateness. The ‘innocent’ party terminates the
contract for breach of
an essential obligation by the other. Is the termination valid at law? If so, is
there any jurisdiction in
equity to undo the termination? The answer to what may
appear, at first blush, elementary questions raises a number of interesting
legal issues which have been recently canvassed before some State superior
courts in Australia and before the Privy Council. Whatever
the answer is, in the
final analysis, the resolution of the issues may be influenced by whether the
contract is one for the sale
of residential property or commercial
property.
[2] The facts of the recent authorities all bear close resemblance and lie
within a narrow compass. The first was the decision of
the Judicial Committee of
the Privy Council on appeal from Hong Kong in Union Eagle Ltd v Golden
Achievement Ltd (‘Union
Eagle’).[2] In
accordance with a provision in a contract for the sale of land, completion was
to take place on or before 5pm on a specified date
and time was expressed to be
of the essence. The purchaser tendered performance 10 minutes after 5pm. The
vendor refused the tender
and rescinded. The purchaser submitted that time for
the settlement had not been made effectively of the essence and that, in any
case, the purchaser was deserving of equitable relief in the nature of relief
against forfeiture of the contract. The purchaser’s
submissions were
rejected by the Judicial Committee. The Board held that a specified time as well
as a date for settlement could
be made of the essence and had in fact been made
of the essence in the instant case. The Board went on to conclude that the
contract,
being an ordinary one for the sale of land, was not susceptible to
equitable relief:
Their Lordships think that [the case] ... shows the need for a firm restatement of the principle that in cases of rescission of an ordinary contract of sale of land for failure to comply with an essential condition as to time, equity will not intervene.[3]
[4] In Smilie Pty Ltd v Bruce (‘Smilie’),[6] the second relevant decision, the vendor served upon the purchaser a notice to complete which expired at 3pm. Settlement had been arranged for 2pm at the Law Society settlement rooms and the vendor’s solicitor and the representative of the incoming mortgagee were both in attendance at the appointed time. (The mortgagee left at about 2:45pm to attend to other business.) When, at about 2:55pm, the purchaser’s representative arrived at the settlement rooms, far from being willing and able to complete, this person delivered a letter to the vendor’s solicitor complaining about various matters pertaining to the vendor’s obligation to deliver vacant possession. In the event, Bryson J in the New South Wales Supreme Court held that the vendor was not in breach of this obligation, but that the letter was consistent with an intimation by the purchaser not to complete at 3pm. At about 5 minutes after 3pm, the vendor’s solicitor left the settlement rooms after telling the purchaser’s representative that he would not settle. The mortgagee returned at about 3:20pm but by then, all the other parties had left. Although the purchaser later expressed a desire to complete, Bryson J held that there was no evidence in substance that the purchaser was able to complete at 3pm and that the vendor’s termination was therefore valid. The judgment of Bryson J was challenged in the New South Wales Court of Appeal, but the appeal was dismissed.[7]
[5] The third case, Imperial Brothers Pty Ltd v Ronim Pty Ltd (‘Imperial Brothers’),[8] is a decision of the Queensland Court of Appeal. The contract in the case specified a date for completion and the time for completion was stipulated as being between the hours of 9am and 5pm. Time was agreed to be of the essence. The parties agreed on a 3:30pm settlement at premises on the Gold Coast. Earlier on the day specified for completion, the purchaser had been unable to obtain a final title search due to a departmental computer malfunction at the Land Titles Office. The purchaser’s solicitor advised that the settlement would be postponed to 5pm and the solicitor’s clerk left Brisbane for the settlement at about 3pm. Her journey was delayed by severe thunderstorms and resultant traffic sruption but she did confirm with the vendor’s solicitor that the settlement would proceed, after apprising him of the circumstances occasioning delay, at between 5pm and 5:15pm. She duly arrived a few minutes after 5pm, ready, willing and able to complete, but the vendor’s solicitor refused to proceed and rescinded the contract in writing the following day. On these facts, the Queensland Court of Appeal held that the purchaser had breached an essential obligation by arriving a few minutes late for the settlement. However, the Court also held that the contract contained an implied term[9] to the effect that the obligation to settle was suspended pending receipt of the final search. In other words, the purchaser’s obligation to complete was conditional upon the rectification of the computer malfunction at the Land Titles Office. This conclusion made it unnecessary for the Court to consider equitable relief against forfeiture of the contract.
[6] Time for completion of a contract for the sale of land may be made of the essence by agreement or by service of a valid notice to complete.[10] There is now little doubt that a time for settlement as well as the date for settlement may be made of the essence. Submissions by counsel in recent cases to the effect that only the day of settlement may be made of the essence, and that the parties have until the end of the business day so appointed to complete, have been rejected.[11]
[7] What is the precise legal effect of making time for performance of a contractual obligation of the essence? Seen in the light of late performance being measured in minutes rather than hours, this is not an entirely academic question.
[8] In Smilie, Bryson J discussed the legal nature of ‘essentiality’ in contractual performance and noted that an essential term may require either strict or substantial performance notwithstanding its label as ‘essential’. His Honour referred to Chief Justice Jordan’s well known words on this question in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (‘Tramways’).[12] In Tramways, Jordan CJ identified two limbs of essentiality, the first limb postulating strict performance of the promise and the second requiring only substantial performance.[13] Thus, the vendor’s obligation as to title was once construed in the sense of a condition strictly so called.[14] In other words, the vendor was required to perform the promise as to title strictly, in accordance with the first sense of essentiality identified by Jordan CJ in Tramways.[15] It followed that any defect in the vendor’s title, however trivial but not otherwise disclosed in the contract for sale, entitled the purchaser to terminate. In Australia, the common law now favours treatment of the vendor’s obligation as to title in the second sense referred to by Jordan CJ.[16] Thus, in Lohar Corp Pty Ltd v Dibu Pty Ltd (‘Lohar’),[17] the vendor’s attendance at settlement without lease documents and bond money amounted to substantial tender of performance of the essential obligation to complete, an essential obligation which was held to require only substantial, not strict performance.
[9] Granted that some essential contractual obligations require strict performance while others require only substantial performance, the relationship between the substantive obligation and the time for performance of the obligation is a difficult one and not easily understood. In Smilie, Bryson J was of the view that it was possible to construe essential time stipulations in the second sense of essentiality understood by Jordan CJ in Tramways, that is to say, as requiring only substantial and not strict performance. His Honour drew support for this view from the judgment of the Court of Appeal in Lohar. However, it may be respectfully suggested that the decision in Lohar only went so far as to find that the mechanical aspects of the obligation to complete or settle a contract for sale of land (for example, the obligation to hand over a stamped copy of any lease on title or to provide vacant possession) required substantial but not strict performance. The decision is not necessarily compatible with the notion that the time appointed for settlement requires only substantial and not strict compliance.
[10] Writing extra-judicially, Young J of the Supreme Court of New South Wales was clearly of the view that Justice Bryson’s analysis of essential time stipulations in contracts for the sale of land was correct,[18] and at least one academic commentator has agreed with Bryson J.[19]
[11] A countervailing view is that whether a time stipulation has been made essential or not, the time stipulation is susceptible to treatment in only one way, and that is strictly. As Lord Wilberforce put it in Bunge Corporation New York v Tradax Export SA Panama,[20] in the case of a time provision, there is only one kind of breach and that is to be late. This view accords with equity’s traditional regard of time stipulations. It is now beyond controversy that the common law and equity never differed in their approach to the construction of time stipulations. In equity, time stipulations were and are construed in the same way as at law. Equity did not comprehend an extended period of reasonableness.[21] Where the common law and equity did differ in respect of their approach to time stipulations was in their treatment of the consequences of breach.[22] As Mason J put it in Louinder v Leis:
The true position is that equity and common law differed not so much in the construction of the contract as in the consequences which they assigned to a breach of it. ... Equity departed from the common law in insisting that a breach of a stipulation as to time only entitled the innocent party to rescind where time was of the essence of the contract. It was otherwise at common law. ... Thus the time stipulation is not read as if it called for performance by the stipulated date or ‘within a reasonable time’ or ‘within a reasonable time thereafter’.[23]
[12] This view of the construction of time stipulations goes some way towards explaining why courts traditionally (and almost inevitably) construe the substantive obligation separately from the time for performance of the obligation. The substantive obligation, if essential, may require strict or substantial performance, but the time for performance of the obligation is strictly construed.[24]
[13] None of this is to suggest that there may not be some small ‘elasticity’ in the notion of punctuality and this is for two reasons. First, there must exist some leeway beyond the appointed time as a result of the de minimis rule, to allow, for example, for the lack of synchronism of timepieces. Secondly, there may be room for an argument that when the parties appoint a specified time for completion and time is made of the essence, the parties themselves intend to make the time so appointed a time that includes an additional 5 or 10 minutes. Any such implication would have to take account of the circumstances of the case but, in the ordinary case of the sale of residential property, such an implication may well be made in the light of conveyancing custom, professional courtesy and the recognition of the operation of external factors such as traffic delays and difficulties in leaving an earlier settlement. The making of time of the essence, on this view, does not necessarily negate such an implication. However, the ‘elasticity’ referred to here is a product of the agreement of the parties and is not derived from any legal notion of substantial as opposed to strict compliance with the time stipulation. It is less likely that, in commercial transactions, there would be room for any such implication, given the probability of tighter time schedules.[25]
[14] In summary, the decision of the Privy Council in Union Eagle is correct in so far as
the construction of the time stipulation is concerned, and so far as the Board
found that the contract had
been validly discharged at law for breach of an
essential term. There is nothing in the reasons for judgment of the Queensland
Court
of Appeal in Imperial Brothers which would appear to contradict
this view.
The general grounds of the law of England heed more what is good for many, than what is good for one singular person only. ... [The law] setteth a general rule which is good and necessary to all the people, that every man may well keep, without it be through his own default. And if such default happen in any person, whereby he is without remedy at the common law, yet he may be holpen by a subpoena, and so hee may in many other cases where conscience serveth for him. ... Equity is a right wisenes that considereth all the particular circumstances of the deed, the which also is tempered with the sweetness of mercie. And such an equity must always be observed in every law of man, in every general rule thereof: that knew he well, that said thus, Laws covet to be ruled by equitie.[26]
[16] While variances exist between Australian and English jurisprudence in this field, there is some common ground. First, the jurisdiction will only be exercised in exceptional circumstances.[29] Secondly, a court will be less inclined to order relief in the case of a commercial contract than with a domestic or consumer contract. The need to preserve the legal rules and foster certainty in commercial dealings is a powerful inducement to refuse relief. Thirdly, the jurisdiction, whatever its compass, is limited to relief against forfeiture of proprietary interests, although not necessarily proprietary interests in land.[30]
[17] The locus
classicus of the modern Australian law is the 1983 decision of the High
Court in Legione. Subsequent judicial and academic comment revealed two
views as having emerged from that decision respecting the nature of the
jurisdiction
– a broad and a narrow
one.[31] The former was encapsulated
in the joint judgment of Gibbs CJ and Murphy J. The authors of this joint
judgment were influenced by
the speech of Lord Wilberforce in Shiloh Spinners
Ltd v Harding
(‘Shiloh’).[32]
In Shiloh, his Lordship had spoken of three instances where equity
would relieve against forfeiture. First, where the forfeiture provision was
inserted to secure the payment of money and, therefore, could be said to be
collateral to the main object of the contract or arrangement.
Secondly, where
the forfeiture was exacted as a result of accident, surprise or mistake. These
first two heads were said to be not
controversial. The third instance was
described in this way:
[W]e should reaffirm the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result.[33]
[19] In contracts for the sale of land which are not instalment contracts, the ‘narrow’ jurisdiction identified in the joint judgment of Mason and Deane JJ in Legione becomes more relevant. The narrow jurisdiction is grounded upon the existence of unconscionability which, although difficult to define, includes the case where the vendor has ‘effectively caused or contributed to the purchaser’s breach of contract’,[38] but may not be confined to such circumstances.
[20] In Stern, the authors of
one of the joint judgments in Legione, Mason CJ and Deane J, found
themselves somewhat at variance in their views. While the facts in Stern
involved a conventional instalment contract, the vendor did not contribute in
any way to the purchasers’ breach in failing
to pay one or more
instalments. In such a case, Mason CJ and Brennan J were strongly of the view
that a case for relief had not been
made. The unconscionability necessary to
enliven the jurisdiction had to be of an exceptional kind.
[T]o extend relief against forfeiture to instances in which no exceptional circumstances are established would be to eviscerate unconscionability of its meaning. The doctrine is a limited one that operates only where the vendor has, by his conduct, caused or contributed to a situation in which it would be unconscionable on the vendor’s part to insist on the forfeiture of the purchaser’s interest.[39]
[22] Justice Gaudron reasoned that the question of relief against the forfeiture of the contract could be answered without consideration of the issue whether the termination of the contract and the forfeiture were penal. Her Honour concluded that the exercise by the vendor of the right of rescission conferred by the contract was unconscionable given that the contract had been on foot for ten years, a house had been erected on the land which had become the home of one of the purchasers, and the land had increased significantly in value. On balance, rescission would cause considerably greater hardship to the purchasers than specific performance would cause to the vendor. In summary, relief was given on the basis that to refuse relief would lead to a harsh or unconscionable result, rather than upon any specific unconscionable behaviour on the part of the vendor.[40]
[23] The thrust of the reasoning of the majority in Stern points to relief against forfeiture being granted in order to avoid a harsh or unconscionable result. The exercise of the legal right to terminate will be restrained as unconscionable if exercise of the right leads to a harsh or unfair outcome, such as the receipt by the vendor of an unmerited windfall.
[24] In New South Wales (‘NSW’), relief against forfeiture has been granted in two cases where the vendor neither caused nor contributed to the purchaser’s breach. In both cases, the value of the land had risen significantly, and both decisions reflect the view that it was unconscionable for the vendor to reap a windfall profit at the expense of the purchaser, where the breach by the purchaser was not wilful and the delay in completion slight. Both of these decisions, which perhaps represent the high water mark of the jurisdiction to relieve against forfeiture of contracts for the sale of land, illustrate the extent of the reach of equity in the light of the decisions in Legione and Stern. The result in Dillon v Bepuri[41] is a particularly dramatic one, given that the purchaser was a land developer and, thus, the contract was a commercial one from the perspective of the party seeking relief, and the vendor had given no less than three extensions to the time for completion specified in the vendor’s notice to complete. The result in Tang v Chong,[42] while less striking, followed notwithstanding the fact that time for completion had been made of the essence by the purchaser’s own notice to complete and the purchaser failed to complete on the day appointed by the purchaser’s notice.[43]
[25] The Supreme Court of Victoria signalled the prospect of relief in accordance with the decisions in Legione and Stern in TM Burke Estates Pty Ltd v PJ Constructions (Victoria) Pty Ltd (In liquidation).[44] The vendor had terminated an instalment contract for the sale of land following default in payment in circumstances where the purchaser was in possession and had built a display home upon the land. As the vendor had resold the property to a third party and the purchaser was only seeking compensation for the value of the improvements, the Court did not need to consider an order for relief against forfeiture of the contract.[45]
[26] In the Australian Capital Territory, NSW, Victoria and Western Australia, courts have relieved against forfeiture of an option to purchase and options to renew a lease in circumstances where the grantee had failed to exercise the option within time. In most of these cases, the grantor was found to have acted unconscionably in circumstances where the grantor was estopped from taking the point that the option had not been properly exercised by the grantee.[46] However, there have been decisions where the courts have indicated that relief in terms of the wider Legione decision might, in principle, be granted.[47]
[27] In NSW, the courts have expressed the view that relief against forfeiture under the Legione principle is available where a contractual licence over land has been validly terminated at law by the grantor.[48]
[28] While the results of the High Court decisions may have caused some surprise in the legal and academic professions, applauded by some and criticised by others, it must be remembered that the lineage of these decisions goes back to at least 1873 with the decision of the Court of Appeal in Re Dagenham (Thames) Dock; Ex parte Hulse.[49] In that case, although the purchaser did not seek specific performance, it appeared that the Court of Appeal in Chancery was prepared to order re-instatement of an instalment contract for the sale of land following the vendor’s termination for the purchaser’s failure to pay the final instalment.[50] Lord Justice James declared the forfeiture ‘a penalty from which the company are [sic] entitled to be relieved on payment of the residue of the purchase money with interest’.[51] Some years later, in 1913, the Privy Council in Kilmer v British Columbia Orchard Lands Ltd (‘Kilmer’)[52] granted relief against forfeiture of an instalment contract in circumstances where the vendor had terminated for breach of an essential time stipulation. It is important to note that the terms of relief extended beyond return of the purchase moneys paid to include re-instatement of the contract by an order of specific performance. However, subsequent to the decision in Kilmer, two decisions of the Privy Council in 1916 on appeal from Canada, Steedman v Drinkle[53] and Brickles v Snell,[54] provided clear authority that specific performance of a contract for the sale of land was not possible after the contract had been validly terminated at law for breach. In Steedman v Drinkle, the result in Kilmer was explained on the basis that the vendor had waived the essentiality of time.[55]
[29] Those favouring
the principle of certainty of contract, especially in commercial transactions,
and who are heard to insist that
the settled rules of contact should not be
disturbed by equitable intrusion, prospective or actual, support the results of
the decisions
and the sentiments underlying the reasoning of the Judicial
Committee in Steedman v Drinkle and Brickles v Snell. One such
supporter is Lord Diplock who, in Scandinavian Trading Tanker Co AB v Flota
Petrolera Ecuatoriana (‘Scandinavian
Trading’),[56]
spoke in the following clear and forceful terms:
It is of the utmost importance in commercial transactions that, if any particular event occurs which may affect the parties’ respective rights under a commercial contract, they should know where they stand. The court should so far as possible desist from placing obstacles in the way of either party ascertaining his legal position ... because it may be commercially desirable for action to be taken without delay ... It is for this reason, of course, that the English courts have time and time again asserted the need for certainty in commercial transactions – for the simple reason that the parties to such transactions are entitled to know where they stand, and to act accordingly.[57]
[31] A year after the decision in Scandinavian Trading, the House of Lords in Sport Internationaal Bussum BV v Inter-Footwear Ltd[59] evinced the same reserve. A licence to use certain intellectual property rights, which had been granted to resolve commercial litigation between the parties, had been terminated by the respondent. Lord Templeman, in delivering the decision of the House, presumed that the boundaries of equitable relief did not extend to comprehend forfeiture of mere contractual licences.[60]
[32] With some
exceptions,[61] it is generally fair
to describe the English view of the equitable jurisdiction over forfeiture as
one that should be exercised with
considerable caution and one which is
subordinate to the principle of commercial certainty. It has already been seen
that, in a recent
word on this subject, Lord Hoffmann in Union Eagle took
the opportunity on behalf of the Judicial Committee to demonstrate ‘the
need for a firm restatement of the principle that
in cases of rescission of an
ordinary contract of sale of land for failure to comply with an essential
condition as to time, equity
will not
intervene’.[62] To date, there
has been no decision of the English courts granting relief against forfeiture in
the form of an order for specific
performance of a contract for the sale of land
where the contract has been validly terminated at law, at least where the
contract
was not an instalment contract or the transaction was not in the nature
of a mortgage. As Lord Hoffmann put it in Union Eagle, it remains to be
seen whether developments in English law may adopt the Australian approach and
allow for specific performance of
the contract in limited cases, or whether
development may proceed more in accord with the law of
restitution.[63] If the latter
should be the approach, the purchaser’s remedy may be limited to recovery
of money paid under the contract and/or
money expended upon improvements to the
land in circumstances where the vendor has acted unconscionably or has been
unjustly enriched
at the expense of the
purchaser.[64]
an unforeseen and unexpected event, occurring external to the party affected by it, and of which his own agency is not the proximate cause, whereby, contrary to his own intention and wish, he loses some legal right or becomes subjected to some legal liability, and another person acquires a corresponding legal right, which it would be a violation of good conscience for the latter person, under the circumstances, to retain.[66]
[35] In all three of the recent cases discussed in this article, the termination by the vendor for late performance was valid at law. In any of the cases, was the purchaser deserving of equitable relief? It was common ground in all three cases that the vendor did not cause or contribute to the purchaser’s breach.
[36] The result in Smilie was clearly correct. The purchaser was almost an hour late for the appointed settlement and, when he did arrive,[68] he was not in funds. Further, he did not tender performance but remonstrated about the alleged failure of the vendor to deliver vacant possession, a claim made without any foundation. This was not a case for equitable intervention. The case of Imperial Brothers, however, is quite another matter. Were it not for the recognition by the Queensland Court of Appeal of an implied term to the effect that the obligation to complete was conditional upon the availability of a final search, this would have been a case crying out for equitable relief against forfeiture. The purchaser’s representative was only a few minutes late for the settlement, the delay was caused by accident and misadventure, not foreseen, for which neither the purchaser nor the purchaser’s representative was responsible.[69] The computer malfunction was also an accident for which the purchaser was not responsible, and it could not be said the failure to settle without a final computer search was a wilful breach of contract.
[37] The Hong Kong case of Union Eagle is the most difficult of the three. The purchaser was 10 minutes late for the settlement. This was a breach of an essential time obligation and, no doubt, outside the de minimis principle. There was no evidence before the court as to the reason, if any, for the lateness, so far as one is able to tell from a reading of the advice of the Privy Council and the judgment of the Court of Appeal.[70] In this absence, one must assume that there was no excuse. In these circumstances, should there have been relief? Probably not. It must be for the purchaser to establish the grounds for equitable intervention and to show unconscionability. The 10 minute lateness alone, in the absence of fraud, accident or misadventure, or in the absence of some other factor, such as the reaping by the vendor of an unmerited and unexpected windfall, is not enough to justify relief against forfeiture. In the Court of Appeal, Godfrey JA, who dissented in finding that the purchaser was entitled to relief, noted that ‘it is unconscionable for you to take an unfair advantage of him, because, for example, of some slight or trivial breach of contract on his part, not going to the substance of the bargain. This latter sort of case is the exemplar for the intervention of equity’.[71] With respect, a 10 minute delay in completion where time has been made of the essence is, in the absence of some evidence to the contrary, neither slight nor trivial.
[38] The prospect of equitable relief is troubling to some. However,
it should be observed that the efficient operation of the market
place, with its
perceived need for certainty in land contracts, is not threatened by the
existence of the equitable jurisdiction.
It will be a relatively rare occasion
that triggers equitable intervention on the ground of accident, misadventure,
surprise or mistake
for late performance. Equally, it has become quite clear
that relief under the wider Legione principle is even more restricted,
and is confined to the exceptional case. It may be remarked that the
jurisdiction to relieve against
forfeiture of leases, which applies to both
commercial and residential leases, is well understood and has operated for many
years
without undermining the confidence
of the market. And, as Young J has
commented extra-judicially, protestations from commercial lawyers cut little ice
in Australia where
the legislatures have enacted legislation allowing the courts
to undo solemn commercial
transactions.[72]
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