New South Wales Supreme Court CITATION : Mulkearns v Chandos Developments Pty Ltd (No 3) [2005] NSWSC 504 HEARING DATE(S) : 28/04/05 JUDGMENT DATE : 30 May 2005 JURISDICTION : Equity Division JUDGMENT OF : Young CJ in Eq DECISION : Motion dismissed; costs costs in the cause. CATCHWORDS : CONVEYANCING [75] & [96]- Breach of contract- Purchaser seeking recovery of deposit and instalments- Whether relevant that purchaser had history of defaulting on land contracts. LEGISLATION CITED : Conveyancing Act 1919, s 55(2A) AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 Berry v Mahony [1933] VLR 314 Clancy v Salienta Pty Ltd (2000) 11 BPR 20,425 Dewhirst v Edwards [1983] 1 NSWLR 34 Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15,189 CASES CITED : Lexane Pty Ltd v Highfern Pty Ltd [1985] 1 Qd R 446 Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Meyers v Casey (1913) 17 CLR 90 Mulkearns v Chandos Developments Pty Ltd [2003] NSWSC 1132 Nepean District Tennis Assosciation v Penrith City Council (1988) 4 BPR 9645; 66 LGRA 440 Pratt v Hawkins (1991) 32 NSWLR 319 Real Estate Securities Ltd v Kew Golf Links Estate Pty Ltd [1935] VLR 114 Anthony Michael Mulkearns and High Forest Estate Pty Ltd (P) PARTIES : Chandos Developments Pty Limited (D) FILE NUMBER(S) : SC 4016/03 V R Gray (P) COUNSEL : C A Sweeney QC (D) Leverage Australia (P) SOLICITORS : Stephen Noss & Associates (D) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Monday 30 May 2005 4016/03 – MULKEARNS v CHANDOS DEVELOPMENTS PTY LTD (NO 3) JUDGMENT 1 HIS HONOUR: These reasons are to deal with a notice of motion filed by the defendant that (1) the defendant be permitted to adduce further evidence; (2) the defendant be permitted to cross-examine the first plaintiff; and (3) the defendant be at liberty to issue a subpoena to the plaintiffs notwithstanding that the parties closed their case some considerable time ago. 2 The case is an unfortunate one in that for a number of reasons its termination has been long delayed. Essentially, the case is a purchaser's suit for specific performance. Specific performance was refused on 3 December 2003; see Mulkearns v Chandos Developments Pty Ltd [2003] NSWSC 1132. 3 Pursuant to liberty then reserved, the plaintiffs sought (a) return of the deposit; and (b) relief against forfeiture of instalments paid towards the purchase price whilst in possession. 4 Evidence was tendered on that issue and submissions were made and I reserved my decision on 15 October 2004. 5 I gave reasons for judgment on 30 November 2004 coded [2004] NSWSC 1147. 6 The matter was listed before me on 7 December 2004 for the purpose of settling the short minutes of order. On that occasion counsel pointed out a serious mathematical error in the reasons. As this error may well have affected the exercise of the discretion as to the return of the deposit, I felt I had no option but to withdraw those reasons. No-one objected to this course and I did so. 7 The matter was then fixed for further argument on 9 March 2005. On that occasion counsel again addressed on the evidence and the law. I reserved my judgment which was prepared in draft at a time when I received a letter from the defendant's solicitors indicating that they wished to reopen their case to deal with a new matter that had arisen. 8 After correspondence with my Associate the current motion was taken out and was heard by me on 28 April 2005. 9 Basically the allegation made by the defendant is that it is relevant to consider when the Court is considering whether to exercise its discretion to return the deposit to a purchaser or to give the purchaser relief against forfeiture of instalments of purchase price paid before a contract is terminated, to consider the conduct of the purchaser generally. 10 When the matter was argued before me on 28 April, Mr V R Gray of counsel appeared for the plaintiffs, and Mr C A Sweeney QC for the defendant. Mr Sweeney put that the extra material would demonstrate that Mr Mulkearns, the principal behind the second plaintiff, had behaved in much the same way as he has behaved in the present case towards other vendors and had used a series of $2 companies to enter into contracts to purchase real estate, play the game of brinkmanship with the vendor, and then not complete. Mr Sweeney put that a court of equity should not give relief against forfeiture where the forfeiture was a result of a deliberate decision made by an experienced purchaser who deliberately used an entity which lacked the capacity to complete and involved commercially sharp practice. Moreover, in the instant case part of the instalments were paid over late only when Windeyer J indicated that unless that occurred he would not give any interim relief. 11 I do not need to concern myself with the last of these matters as it is something that is already sufficiently before the Court for decision. However, the other matters are not before the Court. 12 Mr Gray says: (1) these alleged additional matters, assuming there is evidence of them or evidence can be established by further cross-examination of Mr Mulkearns, would in any event be irrelevant; and (2) the application is made just too late. 13 As to this latter point, the application is made late. However, Mr Sweeney says that it was only able to be made very recently because it was only very recently that the material came into the hands of his solicitors and it would have been irresponsible of a party to have raised such a serious allegation without having sound evidence of their truth and reliability. 14 I consider this latter point is correct. There have been delays in this matter on both sides and I would not, as a matter of discretion in any event, hold a late application by the defendant against it. 15 Accordingly, what I need to consider is whether it is sufficiently serious a matter of argument that it is relevant to consider the conduct of a party unrelated to the present transaction when considering whether to exercise the power under s 55(2A) of the Conveyancing Act 1919 to reverse forfeiture of a deposit or whether to give relief under the Court's general jurisdiction against forfeiture of instalments paid under a failed contract because such forfeiture constitutes a penalty. 16 There is also implicit in Mr Sweeney's proposition that different rules apply to "innocents abroad", as opposed to experienced persons of business in trade and commerce. So far as this last proposition is concerned, Mr Gray says it is completely erroneous. He points to cases such as Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 where the courts did not seem to consider there was any problem about big commercial players being given relief against a penalty in equity. 17 I pass to the basal proposition, that is, to over-simplify the situation, whether the fact if it be the fact, that the purchaser has in previous conveyancing matters shown brinkmanship and knew exactly what he was doing when he entered into the current contract with a $2 company and did not perform. 18 It is necessary to look at the problem in two tranches: (1) relief against forfeiture of the deposit; and (2) relief against forfeiture of the instalments. 19 (1) There have been a number of cases decided by this Court and English courts on the approach that must be made to applications under s 55(2A) of the Conveyancing Act 1919. The Court must bear in mind that the essential purpose of the deposit is to give security to the vendor so that for the purchaser to obtain an order under the section, there must be circumstances where it would be unjust or inequitable for the vendor to retain the deposit; see particularly Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268. 20 There is no doubt at all that when the Court is considering whether it is unjust and inequitable to allow the vendor to retain the deposit (Lucas & Tait at 273), the Court looks at a number of factors, including subjective factors personal to the purchaser. As I said in Pratt v Hawkins (1991) 32 NSWLR 319 at 324, "It is clear that when considering a case under s 55(2A), the Court does not only look to the matters connected with the contract and as to whether it would be equitable to force a doubtful title on a purchaser, but it also looks to the conscionability of the conduct of the parties." Usually that involves looking to see whether there is unconscionable conduct on the part of the vendor, but not necessarily so. Orders have been made in cases where the vendor has received a windfall in a situation where a purchaser was really innocent of fault. 21 In Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15,189 at 15,202, I noted that notwithstanding that the Court has always declined to provide an exhaustive list of factors influencing its discretion under s 55(2A), ordinarily one of the factors it looks at is whether non-completion is the fault of the purchaser personally or a matter over which it had little control. That factor is relevant in the instant case, but it is already clear on the material in my first judgment that non-completion was the fault of the purchaser. There is no sense in elaborating this matter further. 22 However, the real question for determination is whether it is relevant to consider material which might show that the purchaser here was a person experienced in entering into contracts which he had little capacity to fulfil and playing games of brinkmanship with vendors. That is, subjective conduct of the purchaser not directly related to the current transaction, but indicative of his commercial character generally. 23 In the analogous case of the defence of unclean hands, the defence will only operate if the impropriety complained of has an immediate and necessary relation to the equity sued for and mere general depravity is not enough: Dewhirst v Edwards [1983] 1 NSWLR 34 at 51; Meyers v Casey (1913) 17 CLR 90. 24 It seems to me this is a good analogy, and whilst one can conceive of there being some cases where the general roguishness of a purchaser in similar transactions might just be of relevance, in the present case, and indeed in most cases, that is so remote a factor that it should not be taken into consideration. Indeed, it is the conscionability of the transaction and the conduct of the parties qua the transaction that is the matter upon which focus must be made when assessing whether a purchaser should recover a deposit under the section. 25 Thus if it were only a matter of the deposit, I would not allow the evidence. 26 (2) The question of relief against forfeiture falls into two parts: (a) The first part deals with whether there should be relief in respect of the occupation fee paid. (b) The second is whether there should be relief because of the improvements effected by the purchaser. 27 (a) Focusing on the first of these, the facts are that special condition 43 provided that the purchaser would pay a licence fee of $300,000 to be paid monthly at the rate of $37,500 for each of eight months. Under special condition 44, the vendor was to accept, on completion, such licence fees in reduction of the sale price. Special condition 45 then provided: "In the event this contract is terminated by the Vendor as authorised by this contract then the whole of the deposit monies together with the licence fees as paid and received by the vendor shall vest upon the vendor absolutely and such moneys the parties agree shall be forfeited to the vendor as security for the Purchasers default under the contract." 28 In McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, Dixon J said at 477-478: "When a contract stipulates for payment of part of the purchase money in advance, the purchaser relying only on the vendor's promise to give him a conveyance, the vendor is entitled to enforce payment before the time has arrived for conveying the land; yet his title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract. … It is now beyond question that instalments already paid may be recovered by a defaulting purchaser when the vendor elects to discharge the contract." 29 The matter was considered in great detail by McPherson J in Lexane Pty Ltd v Highfern Pty Ltd [1985] 1 Qd R 446. That case involved a failed contract for a home unit building, Shangri-La in Surfers Paradise. The purchase price was $11.5 million with a deposit of $500,000 and a $4 million progress payment to be made in four equal instalments of $1 million each. The purchaser paid the $4.5 million, but defaulted in completion and the vendor terminated. McPherson J said at 454-5: "The fundamental principle applicable to a vendor who rescinds for breach after receiving payment, wholly or in part, on account of the price is that 'he cannot have the land and its value too': Laird v Pim (1841) 7 M & W 474, 478; 151 ER 852, 854 per Parke B. Hence money so paid by the purchaser is recoverable from the vendor. At law it is recoverable as money had and received upon a total failure of consideration." 30 If the jurisdiction to relieve against forfeiture of instalments of purchase price exists at common law, then any consideration of conduct unconscientious or otherwise is quite irrelevant. Although Mr Gray did not put his case on the basis of the common law as opposed to equitable principles, the better view is that this part of the case is nowadays a matter of pure common law. 31 When considering total failure of consideration, two aspects of the matter have to be taken into account. The first is that there was a view in the early 20th century that there cannot be a total failure of consideration if the plaintiff obtains even a slight benefit from the contract. Thus in Real Estate Securities Ltd v Kew Golf Links Estate Pty Ltd [1935] VLR 114 at 120, there is a suggestion (which was indeed rejected in that case) that a person who has been in possession under the contract cannot say that consideration has fully failed. However, whilst the matter is not completely clear, the better view in 2005 is that being in possession does not mean that there has not been a total failure of consideration. The current view of the term is that total failure of consideration is directed to the key and principal part of the contract. In cases of the present type this is to provide a conveyance; see Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 464 and Voumard, Sale of Land 5th ed [12 280]. 32 The second reason is that if a contract contains a provision for forfeiture of the instalments, then that at law removes the right of action for money had and received; see eg Berry v Mahony [1933] VLR 314 at 320 and see Voumard op cit at [12 290]. However, as the authorities point out prior to the reconsideration of the matter by the High Court in AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170, there was an equitable remedy sometimes called relief against forfeiture of instalments, but, in reality, part of the exercise of the jurisdiction to relieve against penalty. 33 The equitable jurisdiction to relieve against penalty originally involved the plaintiff seeking relief against penalty in equity and there then being a reference to a court of common law to try an issue of quantum damnificatus. The jury then gave a verdict as to the real damages suffered and then courts of equity (later, courts of law) on the plaintiff in equity paying what the jury determined to be the real damages, relieved against the penalty; see Ashburner, Principles of Equity 2nd ed (Butterworths, London, 1933) p 265. 34 By statutory amendment and by gradual involvement of the common law in penalties, by 1986 Mason and Wilson JJ were able to say in AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 191: "All this leads to the conclusion that the equitable jurisdiction to relieve against penalties withered on the vine for the simple reason that, except perhaps in very unusual circumstances, it offered no prospect of relief which was not ordinarily available in proceedings to recover a stipulated sum, or alternatively, damages." 35 If a person entitled to the penalty sues for it , then at common law, the law will adjust the amount to what a jury would have found under a quantum damnificatus. However, where the person entitled to forfeit the money already has the money in his or her pocket, then there is no action at law available so that equity still needs to exercise its jurisdiction. Equity does so following the ordinary principles which originated in equity and are now part of the common law. There is no room for any examination of conduct unconscionable or otherwise. 36 Accordingly, in so far as the purchaser seeks relief against forfeiture of instalments, the additional evidence is not of any relevance. 37 (b) I now pass to the third aspect of the case, that is, the relief against forfeiture of the equitable estate of the purchaser under the contract without compensation for improvements. 38 The principles applicable were thoroughly discussed by the Court of Appeal in Clancy v Salienta Pty Ltd (2000) 11 BPR 20,425. The leading judgment on the present point was given by Giles JA with whom Stein JA agreed, Beazley JA coming to a different view. After review of the authorities, Giles JA considered that McPherson J in Highfern overstated the matter and that there was no automatic right of a purchaser to obtain compensation for improvements when a contract came to an end. 39 Giles JA said at [226] p 20,467 that the cases do not "provide clear support for a purchaser's entitlement as a matter of course to be compensated in respect of permanent improvements to the land if the vendor terminates the contract for the purchaser's default, whether to the extent to which the value of the land has been enhanced or in the amount of the expenditure. … That is not to say that a purchaser does not have an entitlement in some circumstances. But on what basis, and when?" He said that the recovery of instalments did not provide a satisfactory analogy ([240]) and it was really wrong to classify the case as one of relief against a penalty ([241]). 40 At [247] his Honour said that the basis must either be "equity's traditional jurisdiction to grant relief against unconscientious conduct, namely that a person should not be permitted to use or insist upon his legal rights to take advantage of another's special vulnerability or misadventure for the unjust enrichment of himself, or by adoption of principles of unjust enrichment." Even though Salienta knew of the improvements and acquiesced and encouraged their making, Giles JA did not think there would be any unconscionability in Salienta having the benefits of the improvements without compensation nor would there be any unjust enrichment. 41 At [111]-[112] at p 20,443 Stein JA agreed with Giles JA's conclusions. Beazley JA at [81]and following, p 20,438, took the view that the analysis in Highfern led to the view that the purchaser was entitled to compensation. 42 In the Salienta case Giles JA was guided by the decision of Hodgson J in Nepean District Tennis Association v Penrith City Council (1988) 4 BPR 9645; 66 LGRA 440. In that case the plaintiff had resurfaced tennis courts in the reasonable expectation of having a long licence to occupy them. The defendant council then put an end to the lease taking the view that an amendment to the Local Government Act 1993 meant they should lease the courts commercially. Hodgson J held that whilst there was a general principle that if A expends money on the land of B leading to the increase in the value of B's land, A cannot recover compensation, where it would be unconscionable (as he held to be the case in the matter before him) compensation should be made or else an extended licence given. 43 Accordingly, the view that binds me with respect to whether the purchaser is entitled to equitable compensation for improvements is a matter to be considered upon asking whether it is unconscionable for the vendor to walk away from this transaction while retaining land that has increased in value because of the purchaser's efforts, without making equitable compensation. 44 The question then is whether the fact, if it be the fact, that the purchaser has on many occasions in the past indulged in similar conduct to the prejudice of vendors is admissible on this issue. 45 As the enquiry is focused on the unconscionable conduct of the vendor rather than the conduct of the purchaser, to my mind it is not. 46 Accordingly, on all three aspects of the case the proposed further evidence does not assist and I decline to allow the defendant to reopen and call further evidence. 47 The motion must thus be dismissed, however, the argument on the motion was brief and has assisted my thinking on the final judgment in this matter. Thus costs of the motion should be costs in the cause. 48 There is now nothing to prevent me giving my final judgment in the proceedings. As I said earlier, I had already prepared this in final draft before the present matter came up. Part of what I was going to say I have now included in the reasons on this motion so it will be necessary to edit and revise my final draft, but I should be in a position to give final judgment shortly. *********************** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.