Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd; Guan v Linfield Developments Pty Ltd [2017] NSWCA 99 Hearing dates: 30 November and 1 December 2016 Decision date: 17 May 2017 Before: McColl JA at [1]; Ward JA at [2]; Gleeson JA at [379] Decision: In proceedings 2016/104216 (the ACFM appeal) (1) Appeal allowed in part. (2) Set aside orders 4 and 5 of the declarations and orders made on 31 March 2016 and in lieu thereof: (a) Order that the plaintiff (Linfield Developments Pty Limited) pay to the sixth defendant (Australia Capital Financial Management Pty Limited) the sum of $360,364.14 plus interest on the sum of $20,360,364.14 at 12% p.a. from 5 August 2014 to 31 March 2016, together with the sixth defendant's reasonable costs in relation to land tax, insurance rates and utility charges incurred from 5 August 2014 to 31 March 2016 in respect of the Land; (b) Declare that the plaintiff is entitled to receive from the first defendant (Shuangxing Development Pty Ltd (in liq) (receivers and managers appointed)), through its receivers and managers, on payment of the sum of $20,000,000, a transfer of the Land in registrable form free from any mortgage, charge or encumbrance other than the plaintiff's Caveat No. AI792023. (3) Order that the appellant pay the first respondent 75% of the first respondent's costs of the appeal. (4) Grant liberty to the first respondent to apply on 3 days' notice for any further order necessary to effect the transfer of the Auburn Land to it. In proceedings 2016/104679 (the Guan appeal) (1) Appeal dismissed with costs. Catchwords: CONVEYANCING – conditional call option – nature of optionee's interest under call option – where purchaser of land grants option to third party prior to the purchaser acquiring legal title to the land – whether third party optionee acquires equitable interest in land before purchaser completes contract EQUITY – priority and notice – competing equitable interests in land – test for resolution of priority – whether merits equal – whether conduct not leading to the creation or acquisition of a later equitable interest but only to a failure to protect existing contractual rights in respect of land qualifies as disentitling conduct where such rights would, if exercised, have led to the creation of an equitable interest in that land prior in time to the competing interest – whether conditions can be attached to declaration as to priority EVIDENCE – Jones v Dunkel inference – whether evidence supported drawing of Jones v Dunkel inference – whether findings were open on evidence without need for drawing a Jones v Dunkel inference ADMINISTRATIVE LAW – procedural fairness – whether findings by primary judge that party acted "surreptitiously", "stealthily", and engaged in "sharp practice" amounted to a denial of procedural fairness EQUITY – relief against penalties – whether impugned stipulation out of all proportion to loss that might be suffered on happening of insolvency event – time at which penal nature of a non-monetary stipulation is to be assessed EQUITY – relief against forfeiture – whether adequate compensation available on happening of insolvency event such as to warrant relief against forfeiture of property Legislation Cited: Australian Consumer Law, ss 237, 243 Competition and Consumer Act 2010 (Cth), Sch 2 Conveyancing Act 1919 (NSW), s 129 Corporations Act 2001 (Cth), ss 440D(1)(b), 500(2) Cases Cited: Abigail v Lapin (1934) 51 CLR 58; [1934] UKPCHCA 1 AG(CQ) Pty Ltd v A & T Promotions Pty Ltd [2011] 1 Qd R 306; [2010] QCA 83 AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170; [1986] HCA 63 Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30 Arab Bank Australia Ltd v Sayde Developments Pty Ltd [2016] NSWCA 328 Armidale Dumaresq Council v M & P (North Coast) Pty Ltd (2005) 64 NSWLR 1; [2005] NSWSC 628 Austin v United Dominions Corporation Ltd [1984] 2 NSWLR 612 Australian Financial Services and Leasing Ltd v Hills Industries Ltd (2014) 253 CLR 560; [2014] HCA 14 Australian Guarantee Corporation (NZ) Ltd v CFC Commercial Finance Ltd [1995] 1 NZLR 129 Bailey v Barnes [1894] 1 Ch 25 Barba v Gas & Fuel Corporation of Victoria (1976) 136 CLR 120; [1976] HCA 60 Barlin Investments Pty Ltd v Westpac Banking Corporation (2012) 16 BPR 30,671; [2012] NSWSC 699 Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510 Breskvar v Wall (1971) 126 CLR 376; [1971] HCA 70 Butler v Fairclough (1917) 23 CLR 78; [1917] HCA 9 Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 4) (2006) 229 ALR 136; [2006] FCA 446 Carritt v Real and Personal Advance Co (1889) 42 Ch D 263 Cash Resources Australia Pty Ltd v BT Securities Ltd [1990] VR 576 Casquash Pty Ltd v NSW Squash Ltd (No 2) [2012] NSWSC 522 Cavendish Square Holding BV v Talal el Makdessi; ParkingEye Limited v Beavis [2016] AC 1172; [2015] UKSC 67 Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd (2014) 45 VR 79; [2014] VSCA 32 Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd; Hotray Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952 Circuit Finance Australia (Receivers and Managers appointed) (in Liq) v Panella (2011) 16 BPR 30,347; [2011] NSWSC 311 Citicorp Australia v Hendry (1985) 4 NSWLR 1 Clark v Raymor (Brisbane) Pty Ltd (No 2) [1982] Qd R 790 Commissioner for Australian Capital Territory Revenue v Alphaone Pty Ltd (1994) 49 FCR 576; [1994] FCA 1074 Commissioner of Stamp Duties (NSW) v ISPT Pty Ltd (1998) 45 NSWLR 639 Commissioner of Taxes (Qld) v Camphin (1937) 57 CLR 674; [1937] HCA 30 Commonwealth of Australia v McLean (Court of Appeal (NSW), 31 December 1996, Handley and Beazley JJA, unrep) Cranston v CBFC Ltd (Supreme Court (NSW), Bryson J, 11 June 1993, unrep) Dunlop Pneumatic Tyre Company Limited v New Garage & Motor Company Limited [1915] AC 79 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81 Forder v Cemcorp Pty Ltd (2001) 51 NSWLR 486; [2001] NSWSC 281 Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 Golden Mile Property Investments Pty Ltd (In Liq) v Cudgegong Australia Pty Ltd (2015) 89 NSWLR 237; [2015] NSWCA 100 GPT Re Ltd v Lend Lease Real Estate Investments Ltd (2005) 12 BPR 23,217; [2005] NSWSC 964 Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641; [1937] HCA 58 Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326; [1983] HCA 30 House v The King (1936) 55 CLR 499; [1936] HCA 40 Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2007] NSWSC 406 J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546; [1971] HCA 57 Jessica Holdings Pty Ltd v Anglican Property Trust Diocese of Sydney (1992) 27 NSWLR 140 JM Kelly (Project Builders) Pty Ltd v Toga Development No 31 Pty Ltd (No 5) [2010] QSC 389 Jobson v Johnson [1989] 1 WLR 1026 Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 King v AGC (Advances) Ltd [1983] 1 VR 682 Labracon Pty Limited v Cuturich (2013) 17 BPR 32,497; [2013] NSWSC 97 Lapin v Abigail (1930) 44 CLR 166; [1930] HCA 6 Latec Investments Ltd v Hotel Terrigal Pty Ltd (in Liq) (1965) 113 CLR 265; [1965] HCA 17 Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57; [1974] HCA 49 Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11 Lend Lease Real Estate Investments Ltd v GPT Re Ltd [2006] NSWCA 207 Linfield Developments Pty Ltd v Shuangxing Development Pty Limited [2016] NSWSC 68 Luu v Sovereign Developments Pty Ltd (2006) 12 BPR 23,629; [2006] NSWCA 40 Moffett v Dillon [1999] 2 VR 480; [1999] VSCA 32 Moratic Pty Ltd v Gordon (2007) 13 BPR 24,713; [2007] NSWSC 5 Paciocco v Australia and New Zealand Banking Group Limited (2014) 309 ALR 249; [2014] FCA 35 Paciocco v Australia and New Zealand Banking Corporation Ltd (2015) 236 FCR 199; [2015] FCAFC 50 Paciocco v Australia and New Zealand Banking Group Ltd (2016) 333 ALR 569; [2016] HCA 28 Palm Gardens Consolidated Pty Ltd v PG Properties Pty Ltd [2009] SASC 311 Philips Hong Kong Ltd v The Attorney General of Hong [1993] 1 HKLR 269 Radoman Pty Ltd v Vexapu Pty Ltd (2008) 13 BPR 24,903; [2008] NSWSC 8 Re Berkeley Applegate (Investment Consultants) Ltd (In Liq) [1989] Ch 32 Re Henderson's Caveat [1998] 1 Qd R 632 Re Premier Freehold Pty Ltd's Caveat [1981] Qd R 547 RHG Mortgage Corporation Ltd v Ianni [2016] NSWCA 270 Rice v Rice (1854) 2 Drew. 73; (1853) 61 ER 646 Richardson v Aileen Pty Ltd; Application by D J Hughes [2007] VSC 104 Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656; [2005] HCA 71 Rimmer v Webster (1902) 2 Ch 163 Riverlate Properties Ltd v Paul [1971] Ch 133 Robinson Helicopter Company Inc v McDermott (2016) 331 ALR 550; [2016] HCA 22 Sahade v BP Australia Pty Limited (2004) 12 BPR 22,149; [2004] NSWSC 512 Shiloh Spinners Ltd v Harding [1973] AC 691 Shropshire Union Railways and Canal Co v The Queen (1875) LR 7 HL 496 SS Pharmaceutical Co Ltd v Qantas Airways Ltd [1991] 1 Lloyd's Rep 288 Stewart v Atco Controls Pty Ltd (in Liq) (2014) 252 CLR 307; [2014] HCA 15 SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs (2006) 228 CLR 152; [2006] HCA 63 Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 Taylor v Johnson (1983) 151 CLR 422; [1983] HCA 5 Taylor v London and County Banking Co [1901] 2 Ch 231 Universal Distributing Co Ltd (In Liq) (1933) 48 CLR 171 Texts Cited: W Ashburner, Principles of Equity (2nd ed, 1933, Butterworth) J Baker, An Introduction to English Legal History (4th ed, 2002, Oxford University Press) J Carter et al, "Contractual Penalties: Resurrecting the Equitable Jurisdiction" (2013) 30 Journal of Contract Law 109 GE Dal Pont, Equity and Trusts in Australia (6th ed, 2011, Lawbook Co) R Derham, "Estoppel by Convention, Part II" (1997) 71 Australian Law Journal 976 J Edelman and E Bant, Unjust Enrichment (2nd ed, 2016, Hart Publishing) DJ Farrands, The Law of Options and Other Pre-emptive Rights (2nd ed, 2012, Thomson Reuters) E Henderson, "Relief from Bonds in the English Chancery: Mid-Sixteenth Century" (1974) 18(4) American Journal of Legal History 298 JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (5th ed, 2015, LexisNexis) F Jordan, Chapters on Equity in New South Wales (6th ed, 1945) AJ Oakley, "Judicial Discretion in Priorities of Equitable Interests" (1996) 112 Law Quarterly Review 215 JN Pomeroy, A Treatise on Equity (2nd ed, 1892, vol 1) JN Pomeroy, A Treatise on Equity Jurisprudence (2nd ed, 1892, vol 2) S Rodrick, "Resolving Priority Disputes Between Competing Equitable Interests" (2001) 9 Australian Property Law Journal 172 C Rossiter, "Relief Against Penalties" in P Parkinson, ed, The Principles of Equity (2nd ed, 2003, Lawbook Co) AWB Simpson, "The Penal Bond with Conditional Defeasance" (1966) 82 Law Quarterly Review 392 PW Young, ELG Tyler and ML Smith, On Equity (2009, Thomson Reuters) Category: Principal judgment Parties: Proceedings No. 2016/104216 Australia Capital Financial Management Pty Ltd (Appellant) Linfield Developments Pty Ltd (First Respondent) Shuangxing Development Pty Ltd (In Liq) (Receivers and Managers appointed) (Second Respondent) Proceedings No. 2016/104679 Xiuyan Guan (First Appellant) Shuangling International Development Pty Ltd (Second Appellant) Shuang Sheng Pty Ltd (Third Appellant) Linfield Developments Pty Ltd (First Respondent) Shuangxing Development Pty Ltd (In Liq) (Receivers and Managers appointed) (Second Respondent) (submitting appearance) Shuangfu Developments Pty Ltd (In Liq) (Receivers and Managers appointed) (Third Respondent) Australia Capital Financial Management Pty Ltd (Fourth Respondent) (submitting appearance) Representation: Counsel: J Sexton SC with Ms V Whittaker (Appellant in 2016/104216) A Bell SC with C Freeman (First Respondent in 2016/104216; First Respondent in 2016/104679) MK Condon SC with P Sharp (Appellants in 2016/104679) Solicitors: Baker & McKenzie (Appellant in 2016/104216; submitting appearance as Fourth Respondent in 2016/104679) Deutsch Miller (First Respondent in 2016/104216; First Respondent in 2016/104679) Arnold Bloch Leibler (Second Respondent in 2016/104216; submitting appearance in 2016/104679) Auyeung Hencent and Day Lawyers (Appellants in 2016/104679) ERA Legal (Third Respondent in 2016/104679) File Number(s): CA 2016/00104216; CA 2016/00104679 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2016] NSWSC 68 Date of Decision: 14 March 2016 Before: Pembroke J File Number(s): 2014/346903 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This Headnote is not to be read as part of the judgment] This judgment relates to two appeals from a decision in the Equity Division of the NSW Supreme Court. In June 2013, Shuangxing Development Pty Ltd (SXG) entered into a contract to purchase land in Auburn (the Auburn land) from RSL Custodian Pty Ltd for $20 million (the Sale Contract). Completion was fixed for June 2014. The purchase price was payable in three tranches. In December 2013, Linfield Developments Pty Ltd (Linfield) entered into a development agreement with SXG in relation to the proposed residential and commercial development of this land (the Development Agreement). Under the Development Agreement, Linfield agreed to loan $1 million to SXG and make an amount up to $5 million available to SXG to complete the Sale Contract if SXG requested it. SXG also agreed that SXG would not use or agree to use the land as security for any purpose and would not grant any mortgage, charge or other encumbrance over the Auburn land. SXG also granted to Linfield a call option (the Call Option). If exercised prior to completion of the Sale Contract, Linfield could step into the shoes of SXG as purchaser under a power of attorney and complete the contract for the purchase of the Auburn land. If exercised after completion, Linfield could require SXG to transfer to Linfield the title to the Auburn land. The Development Agreement contemplated that Linfield could lodge a caveat in respect of the land any time after completion of the Sale Contract. Ms Xiuyan Guan was the sole director of SXG and various other companies (the Guan entities). The Guan entities guaranteed the obligations of SXG under the Development Agreement. By April 2014 it became apparent that SXG lacked the resources to complete the Sale Contract. Australia Capital Financial Management Pty Ltd (ACFM) became involved as a potential financier. Between April and June 2014, there were a number of meetings between various representatives of SXG (Ms Guan and Mr Liang), ACFM (Mr Chen and Mr Ting), and Linfield (Mr Ben Lin, Mr Jally Lin and Mr Tanevski). On 26 June 2014, ACFM entered into a loan agreement with SXG (the Loan Agreement). The Loan Agreement provided for a first registered mortgage to be given to ACFM over the Auburn land upon completion by SXG of the purchase. On 18 July 2014, ACFM and SXG entered into a Deed of Amendment and Restatement. On 5 August 2014, completion of the Sale Contract occurred (the completion date having been extended through agreement with the vendor, RSL Custodian Pty Ltd). On settlement, ACFM advanced around $20 million to enable SXG to complete the purchase. As mortgagee, ACFM received a transfer in registrable form in respect of the Auburn land. The transfer was not lodged for registration. On 6 August 2014, Linfield lodged a caveat claiming an estate or interest in the Auburn land as "mortgagee and grantee of a call option". The caveat prevented registration of ACFM's mortgage. On 20 November 2014, an administrator was appointed to SXG, as also were receivers and managers. In January 2015, Linfield took steps to exercise the Call Option, expressly relying on the appointment of the administrator (or, alternatively, the appointment of receivers and managers) to SXG as an Insolvency Event as defined in the Development Agreement. Linfield brought proceedings in the Equity Division of the Supreme Court against SXG, the Guan entities and ACFM. The primary judge held, among other things, that: the Development Agreement was valid and enforceable; the Call Option was not a penalty; Linfield had validly exercised the Call Option; both ACFM (as equitable mortgagee) and Linfield (as the grantee of an option) acquired equitable interests in the Auburn land upon completion of the Sale Contract on 5 August 2015; and that ACFM had engaged in disentitling conduct with the consequence that Linfield's interest took priority over ACFM's interest. The effect of the orders was that Linfield was entitled to acquire the Auburn land unencumbered by ACFM's security. In the ACFM appeal, there were four main issues: first, the date on which Linfield's equitable interest in the Auburn land arose (grounds 1 and 2); second, whether the primary judge erred in drawing certain inferences about ACFM's state of mind (ground 6) and whether there was a denial of procedural fairness in the drawing of such inferences (ground 7); third, whether ACFM engaged in disentitling conduct such that Linfield's later interest in the Auburn land should take priority over ACFM's earlier interest in that land (ground 3); and fourth, the appropriate relief (grounds 4 and 5). In the Guan appeal, there were two main issues: first, the time at which the allegedly penal nature of the Call Option should be assessed and the appropriate use of evidence concerning the value of the Auburn land (grounds 12 and 13); second, whether the Call Option was unenforceable as a penalty or whether SXG was otherwise entitled to relief against forfeiture in respect thereof (grounds 10 and 11). Held, per Ward JA (McColl and Gleeson JJA agreeing at [1] and [379], respectively) in relation to the ACFM appeal: as to grounds 1 and 2, and the notice of contention: (1) (at [105]) prior to completion of the Sale Contract, no equitable interest in favour of Linfield in respect of the Auburn land arose. As at the time of the grant of the Call Option, Linfield could not have obtained relief in equity against the registered proprietor of the land as a consequence of which the registered proprietor could have been deprived of the land "without any further action or decision" on the registered proprietor's part. (2) (at [98]-[99]; [106]) nor did SXG "deal" with its equitable interest in land as purchaser under the Sale Contract by the grant of the Call Option. The grant of the Call Option conferred on Linfield a contractual right, contingent on certain future events, to step into the shoes of SXG in exercise of a power of attorney. (3) (at [109]) once the Sale Contract was completed, the availability of equitable relief in favour of Linfield both to restrain SXG from acting inconsistently with Linfield's rights and to compel SXG to comply with its obligation to transfer title to the Auburn land to Linfield is not in doubt. as to ground 6: (4) (at [192]) it was open to the primary judge to conclude that ACFM's conduct amounted to "sharp practice". This conclusion flowed from the cumulative effect of his Honour's earlier findings and would stand even without resort to a Jones v Dunkel inference. as to ground 7: (5) (at [199]; [201]; [202]) there was no denial of procedural fairness. The observations made by the primary judge were based on matters clearly ventilated in the course of the hearing and squarely raised on the evidence and in the submissions. ACFM had ample opportunity to put on evidence and make submissions in relation to these observations. as to ground 3: (6) (at [227]) the primary judge did not simply apply a criterion of "sharp practice". His Honour carefully reviewed the factual circumstances and framed his enquiry by reference to the leading authorities. (7) (at [228]; [229]-[257]) the concept of disentitling conduct is not necessarily confined to conduct that leads to the creation or acquisition of a later equitable interest. In an appropriate case (such as the present) the concept of disentitling conduct can extend to conduct which contributes to a failure by the holder of a later interest to have taken steps at an earlier time to protect the rights that it had in relation to the land (and which would, if exercised, have given rise to its interest in the land at an earlier time to the time at which the earlier interest holder obtained its interest in the land). (8) (at [258]-[260]) the primary judge did not err in concluding that ACFM's conduct amounted to disentitling conduct. The conduct of ACFM caused Linfield to act (by not taking action at an earlier time to protect its existing rights) on a false premise (namely, that ACFM would not advance funds without arrangements being put in place for a new development agreement on terms no less favourable to Linfield than the existing one) until it was too late from a practical point of view for Linfield to act otherwise so as to protect its position. as to ground 4 and 5: (9) (at [283]; [278]-[281]) in an appropriate case, a court may require a claimant obtaining priority as a result of disentitling conduct of the holder of the prior interest to "do equity" vis-à-vis the holder of that prior interest through the imposition of conditions. (10) (at [285]; [286]-[289]) the discretion of the primary judge miscarried in the sense considered in House v The King (1936) 55 CLR 499 when his Honour refused to impose conditions on the making of the order for specific performance in that although no error of the kinds there described was manifest, nevertheless the result is so unreasonable as to bespeak such an error. (11) (at [302]) the appropriate period for which Linfield should bear the interest and holding costs is from 5 August 2014 through to 14 March 2016, when judgment was handed down in Linfield's favour. in relation to the Guan Appeal: as to grounds 12 and 13: (12) (at [330]) whether the primary judge could properly have taken into account events beyond the date of entry into the Development Agreement would depend on whether the analysis typical in the case of a secondary stipulation whose subject is money should be adjusted before being applied in a case of a secondary stipulation about particular items of property. (13) (at [328]; [331]) even assuming that it is permissible (when applying the penalties doctrine) to look in hindsight to the actual value of the Auburn land at the time when the impugned stipulation is to operate, or to look prospectively at what its value would then likely be, it is not sufficient that the impugned stipulation be lacking in proportion – it must be "out of all proportion" to any legitimate interest that Linfield had in enforcement of the Development Agreement. (14) (at [339]) while the primary judge's reasons were brief, it was not necessary for the purposes of the enquiry before him that the primary judge determine a precise value for the land as at December 2013. What is relevant is that there was evidence on which his Honour could reasonably conduct that, as at the time of entry into the Development Agreement, the price at which the Call Option was exercisable (if exercised prior to the grant of development approval) was not so "extravagant and unconscionable" or "out of all proportion" in the relevant sense. as to grounds 10 and 11: (15) (at [358]) despite the invocation of the doctrine of relief against forfeiture, the Guan appellants largely approached their challenge to the primary judgment by reference to the doctrine of penalties. In any event, compensation would not be available to make good the loss to Linfield of the development opportunities which the Call Option was clearly intended to preserve, such as to call into operation the forfeiture doctrine. (16) (at [361]) in circumstances where there is no express obligation in the Development Agreement to avoid commission of an Insolvency Event, and where the Call Option is more comfortably seen as a stipulation, collateral to a primary stipulation in favour of Linfield, imposing on SXG (on the Guan appellant's case) an additional detriment on the failure of the primary stipulation to the benefit of Linfield, then the penalty doctrine in equity is engaged. (17) (at [371]) the Call Option was not penal in operation. It was not "out of all proportion" to the protection of Linfield's legitimate interests in relation to the proposed development. INDEX JUDGMENT [1] McCOLL JA WARD JA [2] Introduction [3] Background [11] The Development Agreement [12] Involvement of ACFM as potential financier [23] The Loan Agreement [29] Security documents entered into with ACFM [33] Completion of purchase of the Auburn land and subsequent events [38] Commencement of proceedings and exercise of Call Option [45] Proceedings at first instance [48] Primary judgment [56] Appeals [72] ACFM appeal [74] Grounds 1 and 2 of ACFM's notice of appeal; ground 1 of Linfield's notice of contention – the date on which Linfield's equitable interest arose [78] ACFM's submissions [83] Linfield's submissions [87] Determination [93] Grounds 6 and 7 of ACFM's appeal – adverse inferences/findings about ACFM's state of mind [110] Further background [112] Ground 6 – Drawing of an adverse Jones v Dunkel inference [166] Determination as to ground 6 [173] Ground 7 – Complaint as to denial of procedural fairness [194] Determination as to ground 7 [198] Ground 3 of ACFM's appeal – Finding that ACFM engaged in disentitling conduct [203] ACFM's submissions [204] Linfield's submissions [218] Determination [227] Grounds 4 and 5 – Relief [263] ACFM submissions [264] Linfield's submissions [271] Determination [277] ACFM Appeal – Appropriate relief [290] Proposed orders and opposing submissions [291] Determination [300] ACFM Appeal - Costs [305] Guan appeal [309] Grounds 12 and 13 [317] Determination [323] Grounds 10 and 11 [340] Guan appellants' submissions [340] Linfield's submissions [345] Determination [353] Conclusion and Orders [378] GLEESON JA [379] Judgment 1. McCOLL JA: I have had the privilege of reading Ward JA's reasons in draft. I agree with her Honour's reasons and the orders she proposes. 2. WARD JA: Late last year this Court heard two appeals arising out of disputes between various parties in relation to the same underlying transaction – the acquisition by Shuangxing Development Pty Ltd (SXG) of land at Auburn (the Auburn land) that was formerly owned and operated by RSL Custodian Pty Ltd as the Auburn RSL Club. Introduction 1. The first of the two appeals (CA 2016/104216) was brought by Australia Capital Financial Management Pty Ltd (ACFM), the entity which financed the purchase by SXG of the land and took a mortgage and charge over the land as security for the finance it had provided. 2. The second (CA 2016/104679) was brought by Ms Xiuyan Guan, who controlled SXG at the time of the purchase of the land, and various companies with which Ms Guan was associated (the Guan entities) who, with Ms Guan, had guaranteed the obligations of SXG under a development agreement entered into in December 2013 with Linfield Developments Pty Ltd (Linfield) in relation to the acquisition and proposed residential and commercial development of the Auburn land (the Development Agreement). 3. Under the Development Agreement, SXG granted to Linfield a call option (the Call Option) pursuant to which Linfield could, depending on when the option was exercised, either step into the shoes of SXG as purchaser and complete the contract for the purchase of the Auburn land in its name or require SXG to transfer to it the title to the land. In the latter case, the sum payable on exercise of the Call Option depended on whether it was exercised before or after development approval had been granted in relation to the land. 4. After completion of the purchase of the land by SXG on 5 August 2014, and after the appointment on 20 November 2014 of an administrator (and then receivers and managers) to SXG, Linfield took steps to exercise the Call Option. At that time, development approval had not yet been granted in respect of the proposed development of the land and hence the sum payable on exercise of the Call Option was $20 million. SXG, through its receivers and managers, refused to provide a transfer in respect of the land. 5. Linfield then brought proceedings in the Equity Division of the Supreme Court against SXG, the Guan entities and ACFM. In those proceedings, it sought, among other relief, declarations that the Development Agreement was valid and enforceable; that it had validly exercised the Call Option under that agreement; and that its interest in the Auburn land took priority over ACFM's interest as (unregistered) mortgagee, as well as an order that the Development Agreement be specifically performed. It succeeded in obtaining that relief (Linfield Developments Pty Ltd v Shuangxing Development Pty Limited [2016] NSWSC 68). 6. The primary judge ordered that SXG, through the receivers and managers appointed to it, do all things reasonably necessary specifically to perform the Development Agreement, including the payment of all land tax liabilities and discharge of all statutory and other charges outstanding in relation to the land; the removal or withdrawal of various caveats lodged in respect of the land; and the delivery of a duly signed transfer of the land in favour of Linfield, free from any mortgage charge or encumbrance (other than Linfield's caveat); and that, on the happening of those events, Linfield pay to SXG by unendorsed bank cheque the sum of $20 million (orders 4 and 5). The effect of those orders was thus that Linfield was entitled to acquire the Auburn land unencumbered by ACFM's security. 7. ACFM does not in these proceedings contest the making of the order for specific performance in favour of Linfield (although in its pleading at first instance it did not admit any entitlement to specific performance and indeed denied Linfield's entitlement to any relief at all). Rather, what it maintains (and what it says is the way it attempted to put its case at first instance – see T7.26) is that Linfield should have been required, as a condition of the grant of such relief, to pay interest on the loan that ACFM had advanced for the purchase of the Auburn land, together with an additional amount of around $360,000 which it had also advanced on settlement of the purchase (T 2.30-44). Absent such a condition, ACFM contends that Linfield will obtain the Auburn land "interest-free" and with a "gift" of that additional amount (T 21.34). In the course of the hearing of the appeal, ACFM handed up draft short minutes of the orders it now seeks in order to impose such a condition on any order for specific performance, in respect of which the parties were given an opportunity to make submissions after judgment was reserved. I will consider those submissions in due course (see [291]-[304] below). 8. The appellants in the Guan appeal (the Guan appellants) contend, on the other hand, that the relevant provision of the Development Agreement pursuant to which Linfield exercised the Call Option in respect of the Auburn land (cl 18.6) constituted an impermissible forfeiture of property and was unenforceable, at least on the terms Linfield had propounded. They seek orders setting aside the primary judgment and dismissing with costs the amended statement of claim filed by Linfield on 23 October 2015 or, in the alternative, a declaration that cl 18.8 of the Development Agreement, under which SXG was obliged on exercise of the Call Option to transfer the property to Linfield for the sum of $20 million, is void as a penalty. Background 1. Ms Guan was the sole director of SXG and a director of each of the Guan entities. On 24 June 2013, SXG, as purchaser, entered into a Contract for the Sale of Land with RSL Custodian Pty Ltd, as vendor, in respect of the Auburn land for the sum of $20 million (the Sale Contract). A deposit of $1 million was payable in three tranches, the first of which ($300,000) being paid by SXG on exchange of contracts. Completion was fixed for 24 June 2014. The Development Agreement 1. On 20 December 2013, following signed heads of agreement, SXG and Linfield entered into the Development Agreement for the proposed development of residential and commercial lots on the Auburn land. As noted earlier, the Guan entities were parties to the Development Agreement as guarantors of SXG's obligations. 2. Pursuant to the Development Agreement, SXG was required to complete the Sale Contract for the purchase of the Auburn land for $20 million (cl 4.1). Linfield agreed to make a "Deposit Loan" to SXG in instalments totalling $1 million (the amount of the deposit) (cl 5.2) and SXG agreed to pay the balance of the purchase price due under the Sale Contract on or before 19 June 2014 (cl 5.5). Linfield also agreed to advance an amount up to $5 million to assist SXG to complete the purchase if – which it did not – SXG requested, at least one month before 24 June 2014, that it do so (cl 5.6). 3. Subject to any extensions of time under cl 6.2 (which provided for the deferral of completion by agreement with the vendor and the prior written consent of Linfield), if SXG failed to complete the Sale Contract by 24 June 2014 it was required to repay the Deposit Loan within 5 Business Days of demand (cl 6.1). The Deposit Loan was also repayable within 5 Business Days of demand if the Contract was terminated or rescinded for any reason (cl 6.3) or if the contract was not completed by 24 December 2014 (cl 6.4). 4. If Linfield made demand for repayment of the Deposit Loan, the Development Agreement was automatically to terminate on the date of the demand (cl 6.5) and, pursuant to cl 6.6, SXG was required to pay to Linfield, in addition to repayment of the Deposit Loan, the project costs incurred by it to date and Linfield's Project Management Fee (amounting to $1,150,000) calculated on the basis of a notional valuation of the project on the date of termination as at $23 million. 5. Linfield was to undertake the planning, design, construction and development of the project at its cost (cl 10); to perform project management services for a fee; and to provide development and marketing services (cl 14). Linfield and SXG were to share equally in Project Income, as defined in cl 1.1, after repayment to Linfield of the costs of the development (and subject to adjustments if, which in the present case it had not, Linfield had advanced money in accordance with cl 5.6). 6. SXG agreed that it "must not use (or agree to use) the Land as security for any purpose" including, without limiting the generality of the clause, that it must not grant any mortgage, charge or other encumbrance over the land (cl 7.1). SXG further agreed that it must not sell, assign, transfer, alienate or otherwise deal with the land other than for the mutual benefit of Linfield and SXG (cl 23.8). 7. The Call Option granted to Linfield under cl 18.6 of the Development Agreement was in the following terms: 18.6 Option (a) On the date of this agreement and in consideration of the sum of $1 paid by LFD [Linfield] to SXG (receipt of which is hereby acknowledged) SXG grants to LFD an unconditional Call Option. (b) LFD may exercise the Call Option if: (1) SXG does not comply with a Default Notice, if the Event of Default is capable of being remedied; (2) The Event of Default by SXG is not capable of remedy; (3) The Event of Default by SXG is an Insolvency Event. (c) The Call Option is exercised by LFD if it serves notice in writing on SXG stating that it exercises the Call Option because of one of the events specified in clause 18.6(b). (d) On completion of the transaction in clause 18.6(d), this agreement will be deemed to be terminated and the Participants will have no further claims on each other, except in relation to breaches or entitlements under this agreement occurring before the date of termination. 1. As indicated by cl 18.6(b), the happening of an "Insolvency Event" in relation to SXG, which was defined to include the appointment of an administrator to SXG, was an Event of Default triggering the ability of Linfield to exercise the Call Option. 2. As adverted to earlier, the Development Agreement contemplated that the Call Option might be exercised either before or after completion of the Sale Contract. If the Call Option was exercised after completion of the Sale Contract but before the relevant development approval had been obtained (which is what happened in the present case), Linfield was required, within 10 Business Days of service of the requisite notice under cl 18.6(c), to pay to SXG the sum of $20 million by unendorsed bank cheque (cl 18.8(b)). If the Call Option was exercised after the development had been approved, the option price was to be adjusted in accordance with cl 18.8(c) of the Development Agreement. 3. Pursuant to cl 23.10 of the Development Agreement it was agreed that Linfield had a caveatable interest and that it was entitled to lodge a caveat at any time after completion of the Sale Contract. 4. After entry into the Development Agreement, Linfield paid amounts totalling $700,000 (the first two tranches of the Deposit Loan) and incurred expenses in preparing a development application for the land, including architects' and other fees in relation to the proposed development. Involvement of ACFM as potential financier 1. The primary judge found (and the parties do not suggest otherwise) that by April 2014 it had become apparent that SXG did not have the resources to complete the Sale Contract (see [31] of his Honour's reasons). 2. ACFM had earlier provided finance for another project with which Ms Guan and/or entities associated with her were involved (the Kensington Project). During April to June 2014, there were discussions between Ms Guan and representatives of ACFM and Linfield (to which I will refer in more detail later in these reasons – see [113]-[148] below) in relation to the proposed financing of the purchase by ACFM. 3. ACFM's proposal for the provision of finance in relation to the Auburn project involved a structure whereby the Auburn land, on acquisition, would become an asset of a unit trust to be established called the Australia Capital Sunlink Property Fund (the ACSP Fund) and that ACFM and SXG (and/or other of the Guan entities) would acquire units in the trust. 4. In the course of those tripartite discussions: it was acknowledged by at least one of ACFM's representatives (Mr Ouyang "Owen" Chen) that Linfield's position was that the Development Agreement in place "must STAY" (see the contemporaneous note taken by Linfield's managing director, Mr Ben Lin, of a meeting held at ACFM on 22 April 2014); ACFM was on notice of Linfield's rights and SXG's obligations under the Development Agreement; and it was contemplated that Linfield would enter into a new development agreement with the trustee of the ACSP Fund, the responsibility for the drafting of which documentation was to be assumed by ACFM's lawyers (see Structure Paper signed on 2 June 2014) ([132] below). (References that follow to Mr Lin are to Mr Ben Lin, not to his father Mr Jally Lin.) 5. There were also some discussions during this period separately between Linfield and ACFM as to the possibility of ACFM financing Linfield's acquisition of the property if Linfield were to exercise the Call Option. Again, I will refer to those discussions in more detail in due course (see [149]-[155] below). 6. Completion of the Sale Contract did not take place on 24 June 2014 (the date fixed under the Sale Contract). By agreement with the vendor the completion date was extended first to 24 July 2014 and then ultimately to 5 August 2014. Linfield's consent was not sought to either extension, though it was on notice of and seemingly acquiesced in at least the later extension. The Loan Agreement 1. On 26 June 2014, by which time there was already a default under the financing arrangements in relation to the Kensington Project, SXG and Shuangfu Development Pty Ltd (Shuangfu), jointly as borrower, entered into a loan agreement with ACFM (Loan Agreement). The facility limit was $45,018,000, of which $19 million was stated to be for the purchase of the Auburn land and the balance related to the refinancing of the Kensington project (to which I adverted briefly at [24] above). 2. The Loan Agreement provided for a standard interest rate at 12% with provision for increases referable to increases in the RBA cash rate and a default interest rate of 12% plus 1% for every week the facility was in default. 3. Under the Loan Agreement a first registered mortgage over the Auburn land was to be granted to ACFM (cl 16; Item 6A(b)), it being noted that the land would be held by the trustee of the ACSP Fund by no later than 8 July 2014 (cl 17). 4. The Loan Agreement provided for ACFM to have a 40% share of the returns received or receivable by the borrower in respect of the borrower's total unit holding in the ACSP Fund at any given time (cl 7B; Item 4A). Security documents entered into with ACFM 1. As security for the ACFM loan, SXG entered into a General Security Deed with ACFM, in accordance with cl 16 of the Loan Agreement and Item 6 of the Schedule thereto, under which ACFM was granted a fixed charge over all SXG's other property (cl 2.1). 2. That ACFM was aware, at the time of entry into the loan and security agreements, of the prohibition on SXG mortgaging the Auburn land, other than in favour of Linfield, is clear from the advice it had earlier received in a letter dated 3 June 2014 from its solicitors, Baker & McKenzie. Relevantly, ACFM was advised, following their solicitors' review of documents provided to them by Mr Howard Ting of ACFM on 26 May 2014, including the Structure Paper and the Development Agreement, that: ● SXG has granted a Call Option to Linfield under this Agreement, which allows Linfield to call for the transfer of the property to it, in circumstances where SXG defaults in its obligations under the Agreement, commits an act of insolvency or fails to comply with a default notice issued under the Agreement. This can be exercised prior to Completion of the Contract or after Completion. … ● There are a number of provisions in the Agreement that arise on Termination, which we will need to ensure do not trigger (eg. payment of Linfield's project management costs as at that date) when an agreement to terminate this arrangement and enter into a new arrangement is reached. ● The Agreement currently prohibits SXG mortgaging the property, other than in favour of Linfield who is permitted to mortgage the property to secure project finance. This will need to be addressed to the extent that mortgage arrangements are proposed to be used as part of the Completion steps. ● Termination of the Agreement by mutual agreement is contemplated, and provided Linfield agrees to the proposed termination and replacement of this Agreement with a new development agreement, there is nothing in the existing arrangements that should prevent that. 1. Under the Loan Agreement, it was a condition precedent to the drawdown of funds for the Auburn purchase that SXG deposit the sum of $4 million no later than 30 June 2014 to contribute to the settlement and to cover costs for administering, managing and developing the property (cl 18); and that SXG agree to pay any interest to the vendor for possible delayed settlement of the Auburn land. 2. On 18 July 2014, ACFM and SXG entered into a Deed of Amendment and Restatement of the Loan Agreement (Deed of Amendment), pursuant to which SXG executed transfers with respect to the land (the Transfers) in favour of Shuangxing Holding Pty Limited (SXG Holding) to be held as an asset of the ACSP Fund; SXG Holding executed a mortgage over the Auburn land in favour of ACFM as mortgagee (the SXG Holding Mortgage); and SXG and SXG Holding delivered the Transfers and the SXG Holding Mortgage to ACFM in registrable form (subject to payment of stamp duty) (see cl 17(b) of the Loan Agreement and the Deed of Amendment; and Items 6(d) and 6A(b) of the Schedules thereto). 3. The Guan entities and ACFM entered into a Deed of Guarantee and Indemnity at the same time, under which the former guaranteed the obligations of SXG and SXG Holding under the Loan Agreement and other documents. Completion of purchase of the Auburn land and subsequent events 1. Completion of the purchase of the Auburn land occurred on 5 August 2014. Linfield became aware of that proposed re-scheduled completion date initially through contact with the vendor's solicitors. After a query had been raised with SXG's solicitors as to this, Linfield's solicitors were notified on 22 July 2014 that completion was expected to occur on 5 August 2014. SXG's solicitors' letter of 22 July 2014, in which that notification was made, enclosed a copy of the following correspondence with the vendor's solicitors: their letter of 21 July 2014 to the vendor's solicitors in which they had advised that "all lending procedures" had been finalised but that the financial adviser would not be able to settle until 8 August 2014; and their subsequent letter of 22 July 2014 advising that their client could actually settle earlier on 5 August 2013 and preferred "to settle all account on the date of settlement as funding is restricted for the time being". 2. Linfield was not provided with any detailed information at that stage as to the arrangements for the funding of the purchase (though, as will be seen in due course, it had received from ACFM an unsigned copy of a loan agreement on 26 June 2014). By letter dated 24 July 2014, SXG's solicitors notified Linfield's solicitors simply that: …completion will occur on 5 August 2014, all legal formality and obligation will be conducted and complied with as much as practicable. We do not believe your client needs to scrutinise further. 1. On settlement, ACFM advanced the sum of $20,360,364.14 to enable SXG to complete its purchase of the Auburn land and, as mortgagee, ACFM received a transfer in registrable form in respect of the land. That transfer was not, however, lodged for registration on 5 August 2014 (nor were any of the documents by which the land was to be on-transferred to the trustee of the ACSP Fund). 2. In advance of the 5 August settlement date, Linfield's solicitors had prepared a caveat over the land. Mr Lin deposed that this was the only way that he understood Linfield could protect its rights and interests (see his affidavit at [211]). That caveat was lodged for registration on 6 August 2014 (AI792023) (the Caveat). In the Caveat, Linfield claimed an estate or interest in the land as "mortgagee and grantee of a call option". Registration of Linfield's Caveat in advance of the security documents in favour of ACFM prevented ACFM's mortgage becoming registered. 3. On 15 August 2014, SXG's solicitors confirmed to Linfield's solicitors that completion of the sale had taken place. They made allegations of breach by Linfield of the Development Agreement that were said to amount to a repudiation of that agreement but expressly noted that there was no acceptance of that repudiation. There followed further allegations by SXG, this time of misrepresentations having been made by Linfield to Ms Guan. The respective allegations of breach/misrepresentation were denied by Linfield. 4. On 4 November 2014, with Linfield's consent, the transfer of the land to SXG Holding was registered. Perhaps not surprisingly, given the absence of any sign of the proposed development agreement with the new registered proprietor of the land (SXG Holding), Linfield did not consent to the registration of ACFM's mortgage. 5. On 20 November 2014, an administrator was appointed to SXG, as also were receivers and managers. On the same day an administrator was appointed to Shuangfu. Commencement of proceedings and exercise of Call Option 1. Linfield commenced its proceedings in the Equity Division of the Supreme Court by way of summons. On 25 November 2014, leave was granted pursuant to s 440D(1)(b) of the Corporations Act 2001 (Cth) for Linfield to commence the proceedings against each of SXG and Shuangfu. 2. On 20 January 2015, at which time no development approval had yet been given in respect of the land, Linfield served a Notice of Exercise of Option pursuant to cl 18.6(c) of the Development Agreement, expressly relying on the appointment of the administrator, or alternatively of the receivers and managers, to SXG as an Insolvency Event as defined under that agreement. No transfer was provided by SXG, as required pursuant to cl 18.8(a) of the Development Agreement. Nor was an unendorsed bank cheque tendered within the requisite period by Linfield. There was, however, evidence at the hearing (in respect of which confidentiality orders were made by the primary judge) of a loan facility having been arranged in early December 2014 for the purpose of financing the acquisition by Linfield of the Auburn land pursuant to the Call Option; of those arrangements being revised in February 2015; and also of a revised offer of loan facility for that purpose having been provided to Linfield in July 2015. 3. SXG went into liquidation on 2 March 2015. Proceedings at first instance 1. The matter in due course proceeded by way of pleadings. An amended statement of claim was filed on 23 October 2015, in which Linfield sought an order for specific performance of cl 18.8(a) of the Development Agreement ([33]). An action for damages for breach of contract was also pleaded against the Guan entities, but only if the Court declined to make an order for specific performance (see [34]-[36] of the amended statement of claim). In the alternative, a constructive trust claim was pleaded against the Guan entities but again only if the Court declined to make an order for specific performance (see [37]-[40]). 2. In that alternative constructive trust claim, Linfield alleged that SXG held its interest in the Auburn land subject to a constructive trust in favour of Linfield: first, to the extent of the Contributions (defined in the pleading as the liabilities incurred and moneys "made" – sic., scil paid – by Linfield in reliance on undertaking the project with SXG and the terms of the Development Agreement – see [38] read with [27]-[28]) and the increase in the value of the Auburn land ([40(c)(i)]); or to the extent that the Contributions have increased the value of the Auburn land ([40(c)(ii)]); or to the extent of the value of the Contributions, together with interest and costs ([40(c)(iii)]). Linfield also claimed the value of the Contributions and an entitlement to an equitable charge or lien over the Auburn land to secure the value of the Contributions together with interest and costs ([40(d)]). 3. In the context of the constructive trust claim, Linfield pleaded (at [39]) that ACFM accepted the mortgage (from SXG) with knowledge of the matters pleaded at [23], namely: the terms of the Development Agreement, including the Call Option; Linfield's interest in the Auburn land as a consequence of the Call Option; and that Linfield had incurred liabilities and expended moneys under the Development Agreement. No relief was sought specifically against ACFM. 4. ACFM, in its defence to the amended statement of claim, asserted, among other things, that: as at 26 June 2014 and at least until 5 August 2014 it understood that Linfield had consented to it taking a first ranking mortgage over the Auburn land and did not have or claim to have an interest in the Auburn land that it would assert against ACFM ([26(b)]); by reason of that, it did not have notice of the Call Option ([26(c)]); and by reason of certain other matters (set out at [23(d),(e) and (f)]), Linfield had provided its consent to ACFM taking a first ranking mortgage over the Auburn land ([26(d)]). ACFM did not admit that SXG was entitled to specific performance of cl 18.8 of the Development Agreement ([33]); denied the allegation that it accepted the mortgage with the knowledge alleged by Linfield ([39]); and denied that Linfield was entitled to the relief claimed against ACFM "or any other relief" ([41]). (On the appeal, as noted earlier, ACFM maintained that its resistance to the enforcement of the Call Option was only as to the terms on which the option could be exercised.) 5. ACFM further pleaded that if, which was denied, Linfield had an interest in the Auburn land in priority to ACFM's equitable mortgage, Linfield was estopped from departing from (among others) a representation allegedly made by Linfield to the effect that if ACFM financed the purchase Linfield would not assert any of its rights under the Development Agreement against ACFM irrespective of whether a deed of release had been entered into in relation to that agreement (see [42]-[44] of the defence). 6. Further, ACFM raised a claim, based on alleged misleading and deceptive conduct on the part of Linfield, to be entitled to an order pursuant to ss 237(1) and 243 of Sch 2 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law) declaring that Linfield's Call Option ranked behind its mortgage in priority (see [45] of the defence). It filed a cross-claim but did not challenge the primary judge's dismissal of the cross-claim. 7. The Guan appellants' defence to the claim made against them raised a variety of issues, including the allegations: that the Development Agreement was void or unenforceable ([23]); that, to the extent that it was valid and enforceable, the Development Agreement was terminated by mutual agreement on or about 2 June 2014 or abandoned on and from about that date ([20(c)]); that Linfield was estopped from asserting an entitlement to rely on such rights it had under the Development Agreement ([20(d)]); and that the Development Agreement was discharged by reason of their acceptance of Linfield's repudiation ([20(e)]). The Guan appellants alleged that a series of representations had been made ([45]-[51]) giving rise to claims of misleading and deceptive or unconscionable conduct. A defence based on promissory estoppel was also raised. The Guan appellants pursued those matters in an amended cross-claim. 8. SXG's defence was broadly a series of non-admissions, other than in respect of matters to which it did not plead at all or admissions as to matters relating to non-controversial matters such as: the identity of the parties, the purchase of the Auburn land, the lodgement by Linfield of its caveat and the fact that SXG had not delivered to Linfield a signed transfer of the land. Primary judgment 1. At the outset I note that in these reasons paragraph references to the primary judgment are as taken from the version published on CaseLaw (that version having rectified the omission of one paragraph number from the certified copy of the judgment). The discrepancy is not material but it explains the different paragraph references in the respective parties' written submissions. 2. The primary judge found (at [74]) that each of ACFM and Linfield acquired an equitable interest in the land upon completion of the Sale Contract on 5 August 2014. Although there was no express finding to this effect, it appears that his Honour accepted that ACFM's equitable interest had arisen first on that day (since his Honour went on to determine whether ACFM's interest ought be postponed to that of Linfield). His Honour noted the possibility that ACFM may have acquired an interest in the land at an earlier time, namely on 26 June 2014 when it entered into the Loan Agreement, but no finding was made to that effect. His Honour concluded that, even assuming that ACFM had acquired an interest on that earlier date, the merits as between Linfield and ACFM were not equal; rather, they favoured Linfield. In that respect, his Honour said (at [74]): … To start with, the sequence of events that I have explained in paragraphs [47] – [65] above suggests that ACFM perceived an advantage in acting surreptitiously. In late June and July 2014, it commenced to depart from the basis upon which the parties had been proceeding since April. It was no longer interested in the negotiation of a new development agreement between SXG and Linfield or in arranging for the termination of their existing development agreement. And there was no explanation for this departure. One available inference is that ACFM perceived a commercial benefit in ignoring Linfield's rights and ignoring the past course of dealing – in the hope or expectation that Linfield might retreat or be forced into a position of negotiating from a position of disadvantage. 1. I interpose to note that ACFM takes issue with the primary judge's description of its conduct as surreptitious, as it does with the other epithets the primary judge attached to its conduct – such as, for example, the reference to ACFM acting "stealthily" (at [78]) (see ground 7 of its grounds of appeal). 2. His Honour considered (at [75]) that the forensic decision of ACFM not to read the affidavits of the two senior officers of ACFM who were involved in the relevant negotiations (Messrs Chen and Ting) enabled him more readily to draw an unfavourable inference against ACFM (citing SS Pharmaceutical Co Ltd v Qantas Airways Ltd [1991] 1 Lloyd's Rep 288 at 293 (Gleeson CJ and Handley JA)). The primary judge went on to say (at [76]-[79]): The following facts tell against ACFM. They formed part of a written submission provided to ACFM on the first day of the hearing. The clarity with which Linfield's responsive case on priority was set out made it unnecessary for there to be a formal pleaded reply. I did not require it and senior counsel for ACFM consented to this course. The case on priority between ACFM and Linfield was conducted by reference to those matters. I am satisfied that each has been established: (a) at all material times ACFM was aware of the existence and terms of the development agreement; (b) those terms included clause 7.1 by which SXG agreed that it 'must not use (or agree to use) the Land as security for any purpose' including, without limiting the generality of the clause, that it 'must not grant any mortgage, charge or other encumbrance over the Land'. The terms also included clause 11.6 headed 'Alienation of Interests' and 11.7 headed 'Mortgaging of Interests'; (c) ACFM had received specific advice from Baker & McKenzie on 3 June 2014 in relation to the development agreement and the constraints which that agreement presented for any involvement by ACFM; (d) ACFM was aware that Linfield had paid $700,000, representing 70% of the deposit on the property and had been working hard at its own expense to progress the development application for the project; (e) ACFM knew that Linfield expected that, if its development agreement were to be superseded, Linfield and ACFM would have to agree to the terms of a new development agreement as part of any new financing arrangement; (f) ACFM knew that Linfield expected that the terms of a new development agreement would be first agreed between the parties before a new financing arrangement; (g) ACFM entered into its loan and security arrangements with SXG in the knowledge that doing so entailed a breach by SXG of the existing development agreement and in circumstances where that development agreement had not been terminated nor the terms of a new development agreement agreed; (h) ACFM departed from the conventional basis upon which the parties had been proceeding, namely that any financial participation by ACFM which involved it taking security over the land would necessarily require formal termination of the existing development agreement and execution of a new development agreement on terms satisfactory to Linfield. From a commercial perspective, and having regard to the evidence, it seems reasonable to infer that by late June 2014, ACFM had concluded that it did not want to share any profits from the proposed development with Linfield; did not want to reimburse Linfield for the substantial expenses which it had incurred; and wished to improve its own security and negotiating position as against Linfield. It chose to run the risk of taking a mortgage from SXG with knowledge that the grant of mortgage would constitute a breach of SXG's obligation pursuant to clause 7.1 of its development agreement with Linfield. ACFM acted stealthily - despite the candid discussions between Ben Lin, Howard Ting and Owen Chen in April and May 2014 and the apparent recognition by ACFM at that stage that it was necessary or appropriate for Linfield's existing development agreement to be terminated and a new agreement entered into. And the unexplained absence of Howard Ting and Owen Chen from the witness box merely reinforced the inference of sharp practice. I accept Ben Lin's evidence, which was plausible, and in the circumstances, understandable, that 'ACFM gave Linfield comfort that it would be receiving a new development agreement'. He added, equally credibly in the circumstances, that he 'trusted that ACFM would front up with the new development agreement'. Having changed its mind, ACFM did not give Ben Lin full, frank and honest information, including advance notice, about the loan agreement on 26 June 2014, the amended loan agreement on 18 July 2014 and the proposed settlement on 5 August. When Ben Lin became aware that settlement had occurred, he caused Linfield to lodge a caveat preventing registration of ACFM's mortgage. If he had been fully aware of the arrangements between SXG and ACFM before 5 August 2014, there might have ensued the very renegotiation of the development agreement on which the parties had embarked in apparent good faith in April. There was no necessarily insuperable obstacle to such a renegotiation from Linfield's perspective. It was just a question of terms. But ACFM did not want to pay the price and instead attempted to 'freeze out' Linfield. 1. His Honour approached the priority question on the basis that the crux of Linfield's case, though not pleaded as such, was an allegation of conventional estoppel, recording (at [80]) Linfield's concluding contention in its case in reply that: ACFM departed from the conventional basis upon which the parties had [been] proceeding, viz. that any financial involvement by ACFM involving it taking security over the Land would as a necessary component first require termination of the existing Development Agreement and agreement being reached with Linfield as to satisfactory terms of a new development agreement. 1. His Honour accepted (at [81]) that ACFM did not cause Linfield to enter into the Development Agreement in which its right to an interest in the land was embodied but held (at [82]) that ACFM's conduct caused Linfield to act on a false premise and resulted in it suffering detriment. 2. Applying what was referred to as a broader, more overarching statement of principle than that circumscribed by the factors that had earlier been articulated by the primary judge in Circuit Finance Australia (Receivers and Managers appointed) (in Liq) v Panella (2011) 16 BPR 30,347; [2011] NSWSC 311 at [13], his Honour held (at [85]) that the facts of the present case were sufficient both to ground a conventional estoppel against ACFM and to justify Linfield's equitable interest being treated as having priority over the interest of ACFM. In so doing, his Honour expressly adopted (at [83]) the approach set out by Bryson J in Cranston v CBFC Ltd (Supreme Court (NSW), Bryson J, 11 June 1993, unrep) at pp 30-31. 3. His Honour adopted (at [85]) Linfield's submissions that: there was tangible conduct by ACFM which caused it to act or not to act on a false premise (referring to the test in Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326; [1983] HCA 30); from 2 June 2014 all parties proceeded on the conventional basis or footing that, if there were to be a new funding agreement put in place which would see ACFM or its nominated entity assuming some interest in the property, that would be on the basis set out in the Structure Paper signed on that date (see [132] below); and that the execution of the Loan Agreement on 26 June 2014 and subsequent amended documentation and related security documents represented a departure from that conventional basis by both SXG and ACFM in circumstances that were relevantly unconscionable (if that be a necessary element for conventional estoppel) and obviously caused a detriment to Linfield. 4. His Honour concluded (at [86]) in this regard that: I add, to the extent that it is necessary to do so, that the facts that I have found demonstrate unconscionability by ACFM. I acknowledge that in principle, parties to commercial arrangements do not have to safeguard the interests of each other. ACFM could have made clear from the outset that it was not interested in the renegotiation of Linfield's development agreement with SXG and that, if SXG chose to deal with ACFM in breach of the development agreement, Linfield would have to look to its remedies against SXG. But that would have been impractical and ACFM adopted a different course – on which it proceeded until late June. And Linfield acted to its detriment. ACFM should not now be permitted to resile from the basis on which the parties had been dealing with each other. The equities are not equal. In my view, ACFM has forfeited the priority to which its equitable mortgage and charge would otherwise have been entitled. 1. His Honour then proceeded (at [87]-[89]) to deal with ACFM's defence and cross claim based on estoppel and misleading and deceptive conduct, saying that there was no factual basis for a finding of such conduct against Linfield and that ACFM did not rely upon Linfield's representation and conduct to act to its detriment. There is no cross-appeal from those findings. 2. As to the penalty argument propounded by the Guan appellants, his Honour found it difficult to see anything at all extravagant or unconscionable about the terms or operation of the Call Option (at [91]). His Honour made clear that he was assessing whether the clause was penal in character as at the time of entry into the contract (citing Allsop CJ in Paciocco v Australia and New Zealand Banking Corporation Ltd (2015) 236 FCR 199; [2015] FCAFC 50 at [95] (Paciocco (FCAFC)). The primary judge concluded (at [94]) that, on its face, and as a matter of substance, cl 18 was fair and reasonable and that both Linfield and SXG stood to benefit from it; a conclusion which alone led his Honour to reject the penalty argument. 3. His Honour went on to add (at [97]) that, in any event, he was not satisfied that the value of the Auburn land was more than $20 million as at 20 December 2013. His Honour noted (at [97]) that the valuer called by the Guan appellants (Mr Sukkar) had valued the land (on a highest and best use basis) between $21.7 million and $24.3 million as at that date, based on a risk factor rate of 22% but that Mr Sukkar accepted that a reasonable and competent valuer could equally have chosen a risk factor rate of 25%, which would have produced a valuation of between $19.7 and $22.3 million. His Honour considered that this also was alone fatal to the penalty case – "at least, the case based on the value of the land at the time of entry into the agreement". 4. His Honour also considered (at [98]) that there were other difficulties with Mr Sukkar's valuation – "in particular his methodology, not to mention his unwarranted enthusiasm" – and did not consider it appropriate to value the land (as Mr Sukkar had done) on a highest and best use basis in December 2013 "given the numerous uncertainties that pertained to the development". Even if such a methodology were appropriate, his Honour said (at [101]) he was not satisfied that there was a proper foundation to accept several of the critical assumptions on which Mr Sukkar's report relied. 5. His Honour considered (at [110]) that most of the remaining issues raised by the Guan appellants could be resolved on the basis of his findings of fact and conclusions as to credibility. On the issue of credibility, his Honour was scathing of Ms Guan's credit throughout. By contrast, as to Mr Lin the primary judge said (at [16]): Ben Lin was Linfield's only factual witness and is its sole director. He is obviously a clever young man. Mrs Guan said he was 'too smart' but I do not agree. He was a good witness who was cross-examined over three hearing days and remained at all times cool-headed, articulate, impressive and precise. The principal effect of his lengthy cross-examination was to reinforce his evidence and enhance its plausibility. The manner in which he gave his evidence and the content of the many emails which he sent, suggest that he is cautious, prudent and scrupulously careful. 1. As to the construction issue raised in relation to the guarantee (which turned on the use of the word "guarantors"), his Honour considered that there was no ambiguity in the relevant clause (cl 21.1) and held (at [114]) that, in context, the word "guarantors" referred both to Ms Guan (the "Guarantor") and to the entities defined in the Development Agreement as the "Corporate Guarantors". 2. Finally, as to relief, his Honour said (at [116]): Nor is there any occasion for denying Linfield the relief to which it is entitled, or for qualifying that relief, because ACFM advanced $20,360,364 to SXG. The insolvency of SXG means that, after payment of the $20 million due by Linfield pursuant to the exercise of its option, and the deduction of expenses, ACFM will be out of pocket. But as I have reiterated, ACFM is the author of its own misfortune. And I have found that it acted unconscionably. Its sharp practice was designed to advance its own commercial interests and prejudice those of Linfield. It has lost its priority and must bear the consequences. There is no occasion for equity to ameliorate those consequences. Appeals 1. At the outset of the hearing of the respective appeals leave was granted pursuant to s 500(2) of the Corporations Act 2001 (Cth) to each of ACFM and the Guan entities to proceed against SXG in liquidation. A similar application by the Guan entities in relation to Shuangfu was not pressed on the basis that the outcome of the appeal will have no practical significance to that entity. SXG filed a submitting appearance in the Guan entities' appeal on 31 August 2016, submitting to the making of all orders sought and the giving or entry of judgment in respect of all claims made, save as to costs. It filed an unconditional appearance in the ACFM appeal but took no active role in that proceeding other than to make written submissions after judgment was reserved as to the proposed orders ultimately sought by ACFM. 2. I turn now to the respective appeals, in the order in which they were argued before the Court. ACFM appeal 1. In its written submissions, ACFM described its appeal as concerning the priority between two competing equitable interests in the land, namely, its interest under the unregistered charge and mortgage over the land granted to it by SXG and Linfield's competing interest arising pursuant to the Call Option granted by the Development Agreement. 2. In its oral submissions, ACFM stressed that this was not a competition between ACFM and Linfield about legal title to the Auburn land nor was it a contest between Linfield and anyone claiming an interest in the fee simple in the land (T 5.15). Rather, ACFM maintained that the issue was as to Linfield's ability to obtain the fee simple to the land "without recognising that it was only able to do that because ACFM had advanced the purchase price on terms that it receive interest and that its interest be secured" (T 5.38). Such a stance sits somewhat uncomfortably with ACFM's contention that its equitable interest should not have been postponed to that of Linfield, since if its mortgage was, and remained, entitled to priority then the consequence would be that it could register and enforce that mortgage against the Auburn land for the whole of the sum secured by the mortgage (see the discussion at T 24.19 – 35). Since ACFM's unregistered mortgage also secures funds provided by it in relation to the Kensington Project (in which Linfield has no involvement and in respect of which SXG was already in default at the time the ACFM mortgage was granted), if ACFM's interest as mortgagee arose earlier in time (as is the effect of his Honour's findings) but (contrary to his Honour's conclusions) retained its priority, then Linfield would be placed in the position where, in order to obtain unencumbered title to the Auburn land, it would (or might, depending on the composition of any then outstanding debt for which the mortgage stands as security) need to discharge debts owing by SXG relating to the Kensington Project. 3. The grounds on which ACFM appeals are as follows: 1. The primary judge erred in finding that the First Respondent (Linfield) acquired an equitable interest in the property known as … (the Auburn Land) upon completion of the contract for sale of the Auburn Land on 5 August 2014. 2. The primary judge ought to have found that the equitable interest asserted by Linfield in support of its claim for specific performance was acquired on either: (i) 20 January 2015 when Linfield purported to exercise a call option to purchase the Auburn Land; or (ii) alternatively, on 20 November 2014 after the appointment of administrators, receivers and managers to Shuangxing Development Pty Ltd; or (iii) alternatively, after the Appellant (ACFM) acquired its equitable interest in the Auburn Land as equitable mortgagee and chargee. 3. The primary judge erred in finding that ACFM engaged in disentitling conduct such that Linfield's later equitable interest in the land, arising from its call option, has priority over ACFM's earlier interest as equitable mortgagee and chargee. 4. The primary judge erred in finding that Linfield need only tender the sum of $20 million in order to exercise its call option. 5. The primary judge ought to have found that, if ACFM did engage in disentitling conduct, then nevertheless Linfield's right to specific performance was conditional upon it compensating ACFM for advancing the sum of $20,360,364.14 on 5 August 2014 to complete the purchase of the Auburn Land. 6. The primary judge erred in drawing adverse inferences against ACFM by reason of ACFM not calling witnesses. 7. The primary judge erred in finding that: (i) ACFM "perceived an advantage in acting surreptitiously", (ii) ACFM "acted stealthily"; (iii) Mr Chen of ACFM "was not speaking honestly" to Mr Lin of Linfield; (iv) ACFM provided a "disingenuous" response to Mr Lin; and (v) ACFM engaged in "sharp practice", in circumstances where: (i) no submissions to that effect were made by Linfield; and (ii) the primary judge did not inform ACFM that he was contemplating making such findings. 1. By notice of contention filed on 11 November 2016, Linfield contends that the primary judge's decision ought be affirmed: … on the basis that (and the primary judge should alternatively have held that) the equitable interest of the first respondent in the Auburn Land arose on entry into the Development Agreement, and took priority for this reason over that of the Appellant. Grounds 1 and 2 of ACFM's notice of appeal; ground 1 of Linfield's notice of contention – the date on which Linfield's equitable interest arose 1. The first two grounds of appeal, and Linfield's notice of contention, raise the issue as to the date on which Linfield acquired its equitable interest in the Auburn land. 2. The primary judge found (at [72]-[73]) that Linfield's equitable interest arose on completion of the Sale Contract on 5 August 2014 because, from that time, Linfield had the right, enforceable in equity, to require SXG to deliver to it a duly signed transfer of the land in registrable form free from mortgage, charge or encumbrance upon the payment of $20 million. 3. His Honour accepted (at [68]) that, generally speaking, a conditional call option would create an interest in land at the time of the grant of the option and it would not be necessary to wait until the condition had been triggered or the option exercised for the equitable interest to arise. His Honour also accepted (at [69]) that Linfield had acquired a valuable contractual right prior to completion of the Sale Contract, which was enforceable in equity by injunction against SXG. 4. However, his Honour did not accept that, in circumstances where the Call Option had been granted by SXG prior to completion of its purchase of the Auburn land, Linfield had an equitable interest in the land which would have entitled it to restrain the registered proprietor (i.e., RSL Custodian Pty Ltd) from dealing with the land if it were otherwise justified in so doing (see [69]-[70]), such as where there had been some breach by SXG of the Sale Contract and a consequent termination of that contract. 5. In terms of the description given by White J (as his Honour then was) of the contingent equitable interest of the grantee of a call option from the registered proprietor (in GPT Re Ltd v Lend Lease Real Estate Investments Ltd (2005) 12 BPR 23,217; [2005] NSWSC 964 at [62]), the primary judge in the present case said (at [71]) that no equitable interest in the land had been carved out of or imposed on the registered proprietor's legal estate. ACFM's submissions 1. ACFM does not dispute that, as from the time that Linfield exercised the Call Option on 20 January 2015, Linfield acquired an equitable interest in the land. Its principal contention is that this is the earliest time that Linfield's equitable interest could have arisen because until a valid exercise of the Call Option (in accordance with cl 18.8 of the Development Agreement) Linfield would not be entitled to an order for specific performance of the kind claimed in the proceedings, namely, an order that SXG deliver up to it an executed transfer in respect of the land. ACFM says that it was not until then that Linfield's interest was commensurate with the interest for which it sought relief in the proceedings. 2. ACFM's alternative contention (see ground 2(ii)) is that his Honour ought to have found that Linfield's equitable interest was acquired on 20 November 2014 after the appointment of administrators, receivers and managers to SXG. That alternative contention is based on that which ACFM accepts is a possibility, namely, that, since cl 18.6(b)(3) of the Development Agreement permitted Linfield to exercise the Call Option after the appointment of an administrator to SXG, from that time a court of equity would have granted Linfield relief of a kind such as to give rise to an equitable interest in the land. 3. ACFM argues that the primary judge (at [72]) wrongly equated Linfield's interest, for the purposes of the priority contest, with its broad contractual right to lodge a caveat after completion of the Sale Contract. It seeks to distinguish the cases referred to by the primary judge (at [68]) in support of the general proposition that a conditional call option creates an interest in the land at the time of the grant of the option (Jessica Holdings Pty Ltd v Anglican Property Trust Diocese of Sydney (1992) 27 NSWLR 140; Re Henderson's Caveat [1998] 1 Qd R 632; Re Premier Freehold Pty Ltd's Caveat [1981] Qd R 547; Forder v Cemcorp Pty Ltd (2001) 51 NSWLR 486; [2001] NSWSC 281; GPT Re; Lend Lease Real Estate Investments Ltd v GPT Re Ltd [2006] NSWCA 207; Radoman Pty Ltd v Vexapu Pty Ltd (2008) 13 BPR 24,903; [2008] NSWSC 8) on the basis that in those cases the condition to which the option was subject was one which the parties were obliged to bring about or which it was contemplated would be brought about by the parties – as opposed to the present case where the option was conditional upon events the occurrence of which it was the objective intention of the parties to avoid (relevantly, the financial failure of SXG). 4. ACFM relies on Palm Gardens Consolidated Pty Ltd v PG Properties Pty Ltd [2009] SASC 311 in support of that proposition. There, where an option had been granted over a number of units in a retirement village, development of which had yet to be completed, Kourakis J (as his Honour then was) found that there was no arguable case that the holder of the option had an equitable interest in the land, saying (at [80]): I am prepared to accept that a contract for the sale of land which makes settlement contingent upon the occurrence of an event, which one or both of the parties must endeavour to bring about, may confer an equitable interest in the land on the purchaser. It may also be the case that a contract which, properly construed, precluded the vendor from dealing with the land in a way which would frustrate the occurrence of the event may also confer an equitable interest. However, in this case, the legal freedom to develop or not develop the land, which in my view is so clearly given by the Option Deed precludes a finding that an equitable interest in the land has been acquired under it. Linfield's submissions 1. Linfield's position – as contended for in its notice of contention – is that its interest arose earlier than at completion of the Sale Contract, namely, when it entered into the Development Agreement. 2. Linfield relies, as it did at first instance, on the proposition (not disputed by ACFM) that a call option to acquire property gives the grantee an equitable estate or interest in the property (Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57; [1974] HCA 49 at [14]) and, referring in particular to GPT Re (at [57]), for the proposition that the grantee of a conditional call option obtains an equitable interest prior to the occurrence or satisfaction of that condition which is commensurate with its right to compel the grantor to honour its contract. 3. Linfield argues that its conditional right, from the time of entry into the Development Agreement in December 2013, to step into the shoes of SXG as the purchaser under the Sale Contract was a pre-completion (contingent) interest in the land that was "imposed on but not carved out of the legal estate" (adopting the terminology used in GPT Re) and hence that it had a contingent equitable interest prior in time to the equitable interest acquired by ACFM. It argues that SXG, by granting the Call Option, "dealt with" its equitable interest just as GPT was found to have done in GPT Re. (In response to the proposition that the grant of the Call Option was a dealing by SXG with its equitable interest, ACFM points out that cl 18 did not in terms purport to assign or dispose of SXG's equitable interest in the land – nor was notice of any such assignment or disposition given to the registered proprietor or contemplated by the Development Agreement.) 4. In oral submissions, Senior Counsel for Linfield put its position as follows (at T 82.40-84): [J]ust as the purchaser could go to Court and the purchaser's right to go to Court has been held to be an equitable interest in the property, if the optionee's [i.e., Linfield's] right derives and entails the ability, for example, to stand in the shoes of the purchaser [i.e., SXG] then in my submission the same equitable interest is there. It's conferred contractually yes, but it's there. … … I mentioned Laybutt and the question then of whether or not if a purchaser prior to completion with an equitable interest, if that purchaser grants an option contractually to another party, in this case, … [Linfield], which allows the option to be exercised pre-completion, with a mechanism of the optionee stepping into the shoes, effectively of the purchaser, so that the optionee [Linfield] is able to exercise such equitable rights that the purchaser [SXG] has against the vendor [i.e., RSL Custodian Pty Ltd], then we submit, albeit facilitated by the contractual mechanism, there is, in practical terms, an equitable interest in the land able to be enjoyed by the optionee [i.e., Linfield]. … The fact that the event has not yet come to pass does not mean, according to that line of authority, including White J [in GPT Re], does not mean that there is no equitable interest in the property. 1. Linfield argues that ACFM's submissions fail to have regard to the proper construction of the Call Option in the context of its genesis, background and commercial purpose (referring to the principles articulated in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]). Linfield submits that the objective and commercial reason for the Call Option was to afford protection to Linfield in view of the expenditure it was to incur that would otherwise be unrecoverable in the event of an unremedied breach of the Development Agreement or the insolvency of SXG. It argues that this must imply the creation of an equitable interest at an earlier point in time than the exercise of the Call Option. (In response to this, ACFM points out that the parties expressly dealt with the provision of security for expenditure in cl 9 of the Development Agreement and argues that the purpose of the Call Option was to provide a mechanism to give Linfield the right, in certain events, to take over the project as registered proprietor – being not security for moneys expended but, at most, an incentive for SXG to do all it could to avoid results that neither party wanted to happen. Further, ACFM complains that Linfield's argument does not accord with orthodox principles of construction because it does not explain how the alleged intention is reflected in the language of the Development Agreement such that the words of cl 18 should be given some different meaning to their ordinary sense.) 2. Linfield further argues that ACFM's approach impermissibly treats the contingent equitable interest arising on the grant of a conditional call option as divorced from, and separate to, the "absolute" interest which arose on exercise of that option (referring to the explanation given by Gibbs J, as his Honour then was, in Barba v Gas & Fuel Corporation of Victoria (1976) 136 CLR 120; [1976] HCA 60 at [22] as to how a contingent interest becomes an absolute interest on the exercise of an option). Determination 1. It is not disputed in the present case that, as purchaser under the Sale Contract, SXG had an equitable interest in the Auburn land prior to completion. The nature of the equitable interest of a purchaser prior to completion of a contract for the sale of land was considered by Emmett AJA in Golden Mile Property Investments Pty Ltd (In Liq) v Cudgegong Australia Pty Ltd (2015) 89 NSWLR 237; [2015] NSWCA 100 (at [104]-[105]), his Honour there adopting the analysis propounded by JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (5th ed, 2015, LexisNexis) (MGL) (at [6-055]). 2. The four "equities" or rights which form part of the purchaser's interest under a contract for the sale of land include an equity or right in relation to the land which is enforceable against third parties and which is recognised as being an interest capable of competing in a priority dispute. Relevantly, what must be demonstrated is that "the contract is of a type which is capable in due course of being the subject of a decree of specific performance" (MGL at [6-055]); not the matters that would be necessary to be shown for such an order ultimately to be made. 3. Leaving aside the debate as to the true nature of an option (that is, whether it amounts to a binding irrevocable offer or a conditional contract), the interests which are created on the grant of an option are derived in essence from the relief that equity will (or will not) grant the grantee (see DJ Farrands, The Law of Options and Other Pre-emptive Rights (2nd ed, 2012, Thomson Reuters) at 38). 4. In Commissioner of Taxes (Qld) v Camphin (1937) 57 CLR 674; [1937] HCA 30, Latham CJ noted (at 134) that the equitable interest of the grantee "is measured by what a court of equity would decree in an action for specific performance". In the context of the so-called vendor-purchaser constructive trust, specific performance has been understood in a broader sense, consistently with the well-known footnote of Sir Frederick Jordan in Ch V of his Chapters on Equity in New South Wales (6th ed, 1945) at 52 (see, for example, Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11 at [35]), such that the purchaser's interest is understood as being commensurate with the equitable relief to which the purchaser may be entitled. This approach has been subject to criticism (Commissioner of Stamp Duties (NSW) v ISPT Pty Ltd (1998) 45 NSWLR 639 at 654-655), the controversy being noted but not resolved by the High Court in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 at [57]. 5. In Armidale Dumaresq Council v M & P (North Coast) Pty Ltd (2005) 64 NSWLR 1; [2005] NSWSC 628 Gzell J said (at [6]) that equity intervenes in this context "because it would be unconscionable to allow the other party [i.e., the grantor of the option] to act inconsistently with its obligations under … the call option". Earlier, in Sahade v BP Australia Pty Limited (2004) 12 BPR 22,149; [2004] NSWSC 512, Campbell J (as his Honour then was) said (at [43]): An equitable interest arises in land which is the subject of an option to purchase because the grantor of the option can, in at least some circumstances, be deprived of that land without there being any further action or decision on his part. In that situation, he cannot in conscience regard the land as being completely his own. [my emphasis] 1. By the grant of the Call Option, SXG did not, contrary to Linfield's submissions, "deal" with its equitable interest in the land as purchaser under the Sale Contract. Rather, the grant of the option conferred on Linfield a contractual right, contingent on the happening of certain events in the future, to step into the shoes of the purchaser (SXG) and acquire the land. It may readily be accepted that the grant of the option bound SXG's conscience as grantor and that relief would potentially have been available in equity to restrain SXG from disposing of its equitable interest in the land inconsistently with the grant of the Call Option or otherwise from acting inconsistently with any conditions attached to the Call Option. 2. Relevantly, however, had Linfield exercised the Call Option, and stepped into the shoes of SXG prior to completion of the Sale Contract, it would have completed the contract in the exercise of the power of attorney provided for under cl 18.7 of the Development Agreement; that is, in SXG's name (and would then have been entitled to a transfer of the land from SXG to it). 3. Therein lies the difficulty to which the primary judge pointed. What is the relief that equity might have granted against the registered proprietor of the land prior to exercise of the Call Option by Linfield? Put another way, how is the conscience of the registered proprietor (that is, RSL Custodian Pty Ltd) relevantly bound by the grant by SXG to Linfield of the Call Option? 4. The analysis in Sahade (adverted to above) necessarily assumes that the grantor of the option has the legal title to the land – since Campbell J was there speaking of circumstances in which the grantor can be deprived of the land without further action or decision on the grantor's part, not of circumstances where the holder of an equitable interest in land might be deprived of that interest. 5. Farrands notes (The Law of Options at 40) that two concurrent equitable interests arise on the grant of an option: "an immediate equitable interest … measured by the relief a court of equity will grant to the grantee to prevent the grantor from disposing of the property inconsistently with the option or acting inconsistently with conditions attaching to the option" (to which Linfield refers as being a right commensurate with the relief available in the extended sense of the term of specific performance); and a contingent equitable interest "measured by the relief a court of equity will decree if the option is exercised" (to which Linfield refers as a right commensurate with the relief available in the traditional sense of specific performance). The reason that the latter is referred to as a contingent (or executory) equitable interest is that until exercise of the option the grantee has no right to call for a conveyance of the property (see Farrands, Law of Options at 46-7, citing Barba at [22]; see also PW Young, ELG Tyler and ML Smith, On Equity (2009, Thomson Reuters) at [11.200]). 6. The difficulty for Linfield in the present case arises from the fact that the relief available in equity to protect Linfield's rights under the Call Option is relief that would be directed to SXG's conduct in relation to SXG's (then) equitable interest in the Auburn land arising by reason of the Sale Contract. It has not been shown why relief would be available at the suit of Linfield as against the vendor (that is, RSL Custodian Pty Ltd), which was not itself a party to the Development Agreement. 7. It is one thing to say that, prior to completion of the Sale Contract, SXG might have been restrained from dealing with its equitable interest in the land in such a way as would preclude compliance by SXG with its obligation to transfer unencumbered title to Linfield in the event that the Call Option were to become exercisable and were to be exercised. It can also be accepted that from the time of entry into the Development Agreement Linfield had a contingent right to step into SXG's shoes and complete, as SXG's attorney, the Sale Contract. However, Linfield could not as grantee of the option directly have called upon the registered proprietor to transfer the Auburn land to it. Its ability to obtain relief, vis-à-vis SXG, to protect its rights under the Call Option in certain events to complete the purchase as SXG's attorney is not something that in my opinion binds the conscience of the registered proprietor. 8. If (as I consider to be the case) it cannot be said that, as at the time of the grant of the Call Option, Linfield could have obtained relief in equity against the registered proprietor as a consequence of which the registered proprietor could have been deprived of the land "without there being any further action or decision" (to adopt the wording in Sahade at [43]) on the registered proprietor's part, then no equitable interest in the land arose at that time. 9. The foregoing analysis of the interest of Linfield prior to completion, like that of the primary judge, is premised on a consideration of the rights that Linfield may have had as against the registered proprietor of the Auburn land, RSL Custodian Pty Ltd. It may be objected that this is unduly narrow, given the concept of relativity of title. For example, one might contend that, in the same way that a thief may have possessory title good against all but the true owner (see, for example, Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81 at [37]-[39]), so too might equity recognise that one party (here, Linfield) has an equitable proprietary interest in respect of certain land capable of competing in a priority dispute with other interests in respect of that land, even though such interest would be incapable of binding the conscience of the registered proprietor. In the present case, the answer to such objection would lie in cl 18.7 of the Development Agreement. Clause 18.7(a) provided that, if exercised prior to completion, Linfield was irrevocably appointed as SXG's attorney. In short, Linfield's right as against SXG was a contractual right to step into SXG's shoes – the Development Agreement plainly envisioned that Linfield would acquire (or be entitled to exercise) certain of SXG's rights, not that Linfield would acquire some sort of new equitable interest in the land (in this connection, as the primary judge observed (at [72]), it is noteworthy that cl 23.10 contemplated Linfield having sufficient an interest in the Auburn land to lodge a caveat only after completion of the Sale Contract). 10. Insofar as Linfield has submitted that the objective purpose of cl 18 "must imply" the creation of an equitable interest at an earlier time: first, it is by no means clear that the objective purpose of cl 18 was as asserted by Linfield (there being provision elsewhere in the Development Agreement for security for Linfield's expenditure); and, second, such an argument goes beyond the permissible ambit of construction of commercial contracts – rather, it is tantamount to asking the Court to re-write the contract in some way in order to avoid a result that may now be seen to be impractical or undesirable. 11. In GPT Re, where the option was conditional upon the waiver by a third party of pre-emptive rights and the option deed imposed an obligation on the grantor to use reasonable endeavours to obtain the waiver, White J expressed (at [57]) difficulty in conceptualising a proprietary interest in terms of the availability of equitable relief to enforce the contract, where the consent of a third party was required before an obligation to transfer the property could arise, and that consent could not be compelled. In the present case, the difficulty is that of conceptualising a proprietary interest in terms of the availability of equitable relief to enforce a transfer to Linfield in circumstances where there is nothing to bind the conscience of an entity not party to the Development Agreement (namely, the registered proprietor, RSL Custodian Pty Ltd). Thus in my opinion Linfield's notice of contention is not made good. 12. Nor, however, am I persuaded that grounds 1 and 2 of ACFM's grounds of appeal, have been made good. Once the Sale Contract had been completed, and SXG was in the position to register the transfer and obtain legal title to the Auburn land, the availability of equitable relief in favour of Linfield both to restrain SXG from acting inconsistently with Linfield's rights under the Call Option and to compel SXG to comply with its obligation to transfer title to the land to Linfield in the event that the Call Option were to be exercised is not in my opinion in doubt. The fact that the Call Option could be triggered (as it was on the facts of this case) by an Insolvency Event (an event that it may be inferred it was the objective intention of the parties should not occur) is not a reason for distinguishing this case from the authorities to which the primary judge referred (at [68]). Grounds 6 and 7 of ACFM's appeal – adverse inferences/findings about ACFM's state of mind 1. Before dealing with the complaints made by ACFM as to the finding of disentitling conduct (ground 3 of the grounds of ACFM's appeal), I propose to address the complaint made by ACFM as to the drawing of adverse inferences from the fact that Messrs Chen and Ting were not called by ACFM to give evidence (ground 6) and ACFM's complaint that the characterisation by the primary judge of its conduct involved findings about its state of mind in respect of which it was denied procedural fairness (ground 7). 2. It is necessary at this stage to set out some further detail as to the communications between the respective parties in the period from April 2014, which formed the basis on which the primary judge made the findings as to disentitling conduct about which ACFM complains. Further background 1. As already noted (at [23] above), the primary judge found that by April 2014 it had become apparent that SXG was not in a position itself to fund the purchase of the land. The Loan Agreement, under which finance was ultimately provided for the purchase, was signed on 26 June 2014. However, Linfield was not told that the financing arrangements had been finalised until around 22 July 2014, that being the date on which Linfield's solicitors received a copy of the relevant correspondence to the vendor's solicitors – see [38] above – and even then it was not made clear to Linfield precisely what those arrangements were (at best, it being left to Linfield to infer that the unsigned copy of a loan agreement provided to it in late June 2014 recorded the final arrangements – see [145] below). The evidence as to the circumstances in which that came about can be summarised as follows. 2. In around late March or early April 2014, Mr Henson Liang (one of Ms Guan's advisers and a member of her staff) told Mr Lin of Linfield that ACFM was a potential funder of the project and said that Mr Lin needed to meet Mr Chen and take him through the project (see Mr Lin's affidavit affirmed 11 December 2015 at [98]). 3. For that purpose, on 11 April 2014 Mr Lin attended a meeting at ACFM's offices with Mr Chen and others. Mr Liang and Ms Guan were also at that meeting. Mr Lin deposed that Mr Chen said at that meeting that he wanted to create a $45 million pool for both the Auburn and Kensington projects and put them into a trust (at [101]; see also Mr Lin's father's notes of the meeting). Mr Lin says that, following that meeting, Mr Ting of ACFM provided him with a document setting out the basic structure of what ACFM thought needed to be done (the Property Fund Document). (Pausing here, it can thus be seen that the trust structure contemplated by the parties and discussed in the period from April 2014 first emanated as a requirement of ACFM if it were to become involved in financing the purchase.) 4. On 15 April 2014, following a conversation between Mr Lin and Mr Ting, Mr Lin forwarded to Mr Ting a copy of the Development Agreement, the Sale Contract and a draft deed for SXG to assign the purchase to an unnamed unit trust. In that email, Mr Lin recorded his understanding that once the assignment was done Linfield would maintain the same terms of the Development Agreement already in place with the new trustee and/or hold units in the trust. The email referred to a desire to have the assignment completed as soon as possible so as not to delay progress and to give Linfield "comfort in raising the funds to settle prior to June 23rd 2014" (i.e., before the date initially fixed for completion under the terms of the Sale Contract). 5. On 17 April 2014 there was a meeting between Mr Lin, Mr Ting, Mr Chen, Ms Guan and others. Mr Lin deposed that at that meeting Mr Chen said words to the effect that ACFM could only lend $12.5 million because this was 65% of the purchase price (at [115]) and that Mr Ting said words to the effect that Linfield was to be the development manager and all existing contracts would be assigned (at [116]). At a further meeting on 22 April 2014, Mr Lin says that Mr Chen again said that he could only lend up to $12.5 million (at [122]). As the purchase price was $20 million, of which $1 million had been paid by way of deposit, this left around $6.5 million to be raised. 6. Mr Lin deposed that at the 22 April 2014 meeting Mr Chen was provided with a copy of the Development Agreement (a copy having earlier been provided to Mr Ting) and that at some point in the discussion Mr Chen said words to the effect that the existing development agreement with Linfield "must stay" (at [123]-[124]). At that meeting, Mr Chen is noted as having advised that there would be "huge consequences" if SXG could not settle, so Ms Guan should just secure the settlement funds first. 7. By 30 April 2014, Mr Lin told Mr Ting he had "almost finalised the terms of the new development agreement to be put in place between the Trust Fund and Linfield" and wished to discuss them with him. 8. On 2 May 2014 Mr Lin had a meeting with Mr Ting, at which Linfield's adviser, Mr David Tanevski, was also present. Mr Lin gave to Mr Ting his proposed key terms, which included that a new development agreement be signed upon the ACSP Fund raising significant funds to settle the Auburn property. Mr Lin deposed (at [131]) that Mr Ting said that "we need to sort out a new development agreement before we can lend the money" (my emphasis) and that Mr Tanevski said that Linfield could not be any worse off under the new development agreement. (Pausing again here, ACFM was thus, according to Mr Lin's account of the conversation, conveying to Linfield its position that a new development agreement was at least in a practical sense a pre-requisite to the making of the ACFM loan.) 9. On 6 May 2014, at ACFM's request, Linfield executed a notice of waiver of rights in favour of SXG and Shuang for the proposed transfer of the Guarantee Land (the Kensington property) to a unit trust "for corporate restructuring purposes". This related to the first right of refusal that Linfield had been granted pursuant to cl 22.1 of the Development Agreement in respect of the Kensington property. Linfield places significance on this as supporting Linfield's expectation at the time as to what would in due course occur in relation to its rights in relation to the Auburn land. 10. On 7 May 2014, Mr Lin emailed Mr Ting asking how the Auburn property was coming along and expressing concern as to whether the process "has indeed begun". Mr Ting's response was that the funds from Ms Guan had "now cleared" and "we will be proceeding full steam ahead". That response is incomprehensible by reference to what in hindsight appears to have been the position, since it is not apparent that any funds were contributed by Ms Guan. 11. Towards the end of May, Mr Lin was still seeking advice as to progress, expressing concern as to the timing of settlement and asking as to the status of settlement funds. 12. Meanwhile, ACFM proceeded in May 2014 to seek assistance from its solicitors, Baker & McKenzie, as to the proposed structure of an arrangement whereby it would fund the acquisition of the Auburn land and the Auburn land would be transferred into a unit trust (namely, the ACSP Fund). Mr Ting met with Baker & McKenzie on 14 May 2014. On 26 May 2014, Mr Ting sent an email to a senior associate of Baker & McKenzie, in which he set out, among other things, ACFM's understanding that Linfield had paid $700,000 in respect of the deposit under the Sale Contract and that he had been informed by Linfield that it was now 60% through the preparation of the development application. In that email, Mr Ting raised, under the heading "Issues & Constraints", the following: Issues & Constraints The first issue is whether: (a) Shuangxing [i.e., SXG] should "assign" or otherwise transfer its rights under the "Sale Contract" to Grosvenor Pirie as trustee for ACSP immediately, then Shuangxing will subscribe for $23 million of units in ACSP (using money borrowed from ACapital and others) and Grosvenor Pirie as trustee for ACSP will use the funds received to settle the property; OR (b) Shuangxing will use $19 million to settle the property. Under the loan arrangement between ACapital and Shuangxing, Shuangxing will immediately prior to settlement, execute a Transfer document to transfer the title to Grosvenor Pirie as trustee for ACSP upon settlement in exchange for 19 million units in ACSP and Shuangxing will subscribe for $4 million units in ACSP to cover the DA costs. The second issue relates to how Shuangxing can "terminate" the existing Development Agreement with LFD [i.e., Linfield] and then for Grosvenor Pirie as trustee for ACSP to enter into a new Development Agreement with LFD. The constraints are as follows – 1. We do not want to cause Shuangxing to inadvertently breach its obligations either under the Sale Contract or the Development Agreement. 2. ACapital and others would not like to have to "park" a substantial amount of money in ACSP pending settlement of the property. 3. ACapital and others would not like Shuangxing to "back out" of the arrangement after they have lent money. 4. ACapital and others would like to get a "mortgage" over the Auburn property for the money which they loan to Shuangxing. Ideally this "mortgage" should rank pari-passu with the mortgage which will be given to ACIF later. 5. Grosvenor Pirie as trustee for ACSP would not like to take on the obligation of having to settle the property without receiving funds. 6. Nor would it like to assume any of Shuangxing's liability under the existing Development Agreement. 7. We also need to deal with the fact that LFD has provided for some $700,000 as well as incurred costs in relation to the DA. 8. In relation to points 6 and 7, I have an understanding from LFD that they are willing to enter into a new Development Agreement with Grosvenor Pirie as trustee for ACSP. 1. In relation to that second issue, Mr Ting indicated that his initial thoughts were: For the second Issue, we will need LFD [Linfield] to sign a Deed of Release to relieve Shuangxing [SXG] from all liability under the existing Development Agreement and arrange for LFD to enter into a new Development Agreement with Grosvenor Pirie as trustee for ACSP. To deal with the fact that LFD has provided money and also incurred costs, we would prefer for those amounts to be recognised in the new Development Agreement as a Security Deposit which will be repaid to LFD upon successful completion of the Project. 1. Attached to the email were various documents, including what was referred to as an "updated structure diagram" under which the task of preparing documentation including "New development agreement between [the ACSP Fund] and [Linfield]" was allocated to ACFM's solicitors. 2. By 30 May 2014, Baker & McKenzie had confirmed to Mr Ting that he could "now engage" with SXG and Linfield on the revised diagram. They advised Mr Ting that they were still working through the Development Agreement, Sale Contract and Lease and expected to have those documents to Mr Ting the following Monday morning (i.e., 2 June 2014). 3. On 2 June 2014, a meeting took place attended by representatives of Linfield, SXG and ACFM as well as Ms Guan. At that meeting, Mr Chen provided Mr Lin with a document entitled "Australia Capital Sunlink Property Fund Auburn Project, Structure Paper" dated 30 May 2014 (the Structure Paper) which he said was the structure that ACFM wished to achieve. In diagrammatic form it set out the structure of the project, including that the project manager was to be Linfield. The project developer was recorded as being Linfield in association with Kingsway Capital (KWC), an entity associated with Mr Tanevski. 4. The proposed steps referred to in the Structure Paper included that, immediately upon settlement of the Sale Contract, the Auburn land was to be transferred by SXG to the trustee of the ACSP Fund in return for 100% of the issued units in the ACSP Fund and that the investment manager for the ACSP Fund was to acquire up to 20 million additional units in the ACSP Fund – equivalent to under a 12 month option secured by a mortgage over the Auburn land – but that at no point was the investment manager to hold more than 49.9% of the issued units in the ACSP Fund. 5. The transaction documents as there proposed included: transfer documentation in relation to the transfer of real estate from SXG to the ACSP Fund (including a transfer form executed by SXG in favour of the trustee of the ACSP Fund); a deed of release between SXG and Linfield to terminate the existing Development Agreement; and a new development agreement between the ACSP Fund (more accurately, the trustee of the ACSP Fund) and Linfield. Mr Lin deposed (at [140]) that, at this meeting, Mr Ting said that the new development agreement and deed of release would need to be done prior to settlement. 6. Mr Lin further deposed (at [141]) that there was discussion at the 2 June 2014 meeting about ACFM needing a mortgage and that he said words to the effect: That goes against our development agreement. That is not how it is structured. But as long as Linfield's profit share is protected we would consider letting ACFM have a mortgage. A new development agreement needs to be agreed before any mortgage can be registered. Linfield must not be any worse off. and that, following the meeting, Mr Ting of ACFM said (at [141]): This is not any sort of contractual consent or obligation, just an acknowledgment of the proposed structure of the deal if ACFM are to get involved. 1. Mr Lin also deposed that during the 2 June 2014 meeting his father (Mr Jally Lin) said words to the effect that Linfield was not giving Ms Guan any more money ([142]). 2. At the 2 June 2014 meeting each of Mr Lin and a representative of SXG signed a note (handwritten by Mr Ting) recording their agreement with the "Structure Document" and their agreement to endeavour in good faith to complete the necessary steps in the document and execute the necessary documentation listed therein. Relevantly, what was included in the material to which the note was appended was the email chain between Baker & McKenzie and ACFM (referred to above at [123]) in which the "issues and constraints" and Mr Ting's initial thoughts on those issues were set out, as well as Mr Ting's 21 May 2014 proposed fundraising target, a proposed timeline for preparation of documents and a proposed timeline of events. The last mentioned document indicated that on the settlement date (24 June 2014) not only would the Auburn land be transferred to the ACSP Fund but also the "old" Development Agreement" would cease effect and the "new" Development Agreement would be in force. 3. On 3 June 2014, Baker & McKenzie forwarded their advice to ACFM in relation to, inter alia, the Development Agreement (to which I have referred at [38] above). 4. Presumably in pursuance of the proposal set out in the Structure Paper (which no one now contends was binding), by letter dated 5 June 2014 Australia Capital Investment Management Pty Ltd, as appointor for the ACSP Fund, wrote to Linfield appointing it the Development Manager in relation to all real estate development projects held by the ACSP Fund. Linfield accepted that appointment. 5. On 10 June 2014, Mr Lin emailed Mr Ting, "wondering" how everything was going with the Auburn project, asking whether Ms Guan had "now signed everything that is required for the new structure" and asking him to forward (as well as the draft information memorandum) a draft copy of the new development agreement between Linfield and the trust as soon as it was available "so we can have some time to review and exchange comments". Mr Lin noted that the target date to have everything signed was 12 June 2014 and that "settlement is just around the corner". 6. The following day, Mr Lin emailed Ms Guan and others associated with SXG (copying this to SXG's solicitors) seeking confirmation as to any correspondence from the vendor "in terms of booking a settlement date" and confirmation "that funds required to settle are ready as per your arrangement with A Capital and what is the latest update with the proposed fund". He noted that 12 June 2014 was the "cut-off date for all documentation to be finalised with A Capital" and sought confirmation "that this will still be the case". The response to this from Mr Zheng, the accountant at Shuangfu, was that "I understand the funding is in process as scheduled. We should have the result very soon". The response from SXG's solicitors, somewhat inconsistently with Shuangfu's response, was to confirm that settlement was due on 24 June 2014 and that: … the other side has indicated its readiness to complete on time. I have taken no particular action to confirm settlement due to the uncertainty with the funding arrangement. However, there is nothing to prevent settlement to take effect on the scheduled date. 1. Mr Lin's understanding at that time, apparently derived from a conversation with Mr Ting, was that "he [Mr Ting] is still finalising all the nitty gritty on Mrs Guan side of things before he can finalise the development agreement and IM but settlement will not be an issue". 2. Mr Lin deposed (at [159]-[162]) to at least three telephone conversations with Mr Ting in about June 2014, as to the progress of the matter in the third of which Mr Lin says that he said it was getting close to settlement and asked when they could resolve the documents. 3. It was against that background that the primary judge found (at [50]) that, increasingly from about 11 June 2014, Mr Lin was "kept uninformed" and that such information as was provided to Linfield about SXG's contemplated new funding arrangements was "sketchy". 4. From about 19 June 2014, Mr Chen was the person at ACFM handling the Auburn project "with direct assistance" from ACFM's lawyers, according to Mr Ting. 5. On 24 June 2014, the settlement date initially fixed under the Sale Contract, Mr Lin received a telephone call from Mr Liang in which the latter said words to the effect (see [168] of Mr Lin's affidavit): Owen [Chen] has a caveat over Mrs Guan's properties because she owes him money and has defaulted on her Kensington loans. He has not yet committed to loan the $7 million or the $12.5 million. [The reference to $7 million seems to be to the funds necessary if ACFM were to lend only 65% of the purchase price, i.e., only to lend $12.5 million.] 1. Mr Lin then had a meeting with Ms Guan and others on 25 June 2014 at which he says she told him, among other things, that she could come up with $5 million and that she wanted to go back to China to get more money (Mr Lin's affidavit at [170]). 2. Also on that day, Mr Lin attended with his father and Mr Tanevski a meeting at ACFM's offices with Mr Chen and an administrative assistant at ACFM (Ms Wu). Mr Lin deposed (at [177]-[178]) that at that meeting Mr Chen told him that he could only lend $12.5 million; that there was a big shortfall and so he had arranged for Ms Guan to borrow a further $7 million from others, which he had guaranteed; and that SXG had agreed to share 40% of its profits with the financiers but that Ms Guan needed to come up with a further $4 million before they could lend the money. 3. The primary judge referred to this conversation (at [52]), noting (at [53]) that ACFM's Senior Counsel had not sought to contradict or undermine, in cross-examination of Mr Lin, the account Mr Lin had given nor had Mr Chen been called. The primary judge said (at [53]): … Mr Chen's words appear to be at odds with the reality of what he must have known was about to happen on the next day. The disparity between what Mr Chen said on 25 June and what happened on 26 June, suggests that Mr Chen was not speaking honestly to Ben Lin. 1. An unsigned loan agreement between ACFM as lender, SXG and Shuangfu as borrowers, and various guarantors was forwarded by Ms Wu to Mr Lin on 26 June 2014 by email at 8.51 am. Mr Lin deposed (at [185]) that he believed that the agreement had been sent to him in error because his later attempts to confirm the terms and structure of the arrangement between ACFM and SXG were met with the response that it could not be disclosed for confidentiality reasons. Mr Lin emailed Ms Wu with the message "[j]ust confirming that Mrs Guan has already signed this agreement with A Capital?", to which Ms Wu replied at 10.09am "[n]ot yet". The primary judge considered this answer to be disingenuous (at [55]). 2. The unsigned loan agreement contained a recital to the effect that the lender had initially agreed to lend $12 million to assist SXG in settling the Auburn properties and that upon further negotiations had agreed to assist in raising up to a further $7 million "from external funding" on condition that the Kensington loan be refinanced, the Kensington and Auburn properties be transferred to a unit trust and the borrowers agree to share returns with the lender (Recital E). The document identified both the Kensington and Auburn properties as the properties to be mortgaged. It was a condition precedent to the second drawdown (for settlement of the Auburn land purchase) that SXG by no later than 30 June 2014 deposit $4 million to contribute towards the settlement and to cover costs for administration management and development of the Auburn property (cl 18(3)). 3. The solicitors for Linfield wrote to SXG's solicitors on 26 June 2014, asserting Linfield's ability to enforce its rights under the Development Agreement and reminding SXG of its obligation to keep it informed of all material correspondence regarding the Sale Contract (. That letter makes clear that Linfield was aware of SXG's request for an extension of the completion date and sought information as to this and confirmation that SXG "is or will be in funds to complete". That letter was not copied to ACFM. 4. On 27 June 2014, Mr Lin met with Mr Joe Zheng (to whom Ms Guan had earlier referred him when Mr Lin had asked her on 25 June 2014 to show him copies of all the documents he was going through with Mr Chen). Asked what was going on in SXG/Ms Guan's camp, Mr Zheng responded that Ms Guan was looking for money and that he was not sure what was going on. Mr Zheng said that he did not have a copy of the "proposed loan documents". The primary judge considered this response to be "evasive, at best" (at [56]). 5. Mr Lin met with Mr Chen of ACFM on 4 July 2014. He deposed (at [192]) to a conversation to the following effect: Lin: It is past the date for settlement and so [SXG] has defaulted on our development agreement. We're still concerned about whether they can settle or not. They have told us, and you have told us, that Mrs Guan needs to come up with more funds before you will agree to lend her the rest of the money to settle. I don't believe she can get money. How about you do business with us? We can call the call option in the development agreement and buy the land. Chen: I'm locked up with Mrs Guan on Kensington and I'm trying to put Auburn into a combined fund. I'm worried I'll be sued by Mrs Guan if I loan money to you. You need to sort out your issues with the development agreement with Mrs Guan. However if you're confident that Linfield has the right to buy the land, we'll see what ACFM can offer. I can't do anything for three months though. 1. It may be noted that in the above conversation Mr Chen did not disabuse Mr Lin of the notion that Ms Guan needed to come up with more funds before ACFM would agree to lend the rest of the money to settle the purchase. Nor did Mr Chen inform Mr Lin that the Loan Agreement had by then already been signed or that ACFM was already committed to financing the purchase. The significance of the 3 month delay to which Mr Chen had referred was not apparent on the evidence to which this Court was taken. 2. By email on 4 July 2014, Mr Lin confirmed to Messrs Chen and Ting Linfield's invitation for ACFM to fund the Auburn property on "key terms" including that ACFM lend $19 million and take a first mortgage, that Linfield pay an interest rate of 5% p.a., capitalised and payable at the end of the Project; that Linfield share 20% of profits, and that all existing development management and consultant arrangements be maintained. There is no suggestion that Linfield there contemplated a mortgage being granted over the Auburn land to secure borrowings over both the Auburn and Kensington lands. 3. In the period from 26 June 2014, when Mr Lin had sought confirmation from Ms Wu as to whether the ACFM loan agreement had been signed, to at least 7 July 2014 (see email of that date referred to below) the evidence points to Linfield being unaware of the status of the financing arrangements between SXG and ACFM. Linfield was also expressing concern at that stage as to the completion of the Sale Contract. 4. On 7 July 2014, Mr Lin emailed Mr Chen and Mr Ting of ACFM indicating Linfield's intention to exercise its rights under the Development Agreement and inviting ACFM to lend $19 million to it to fund settlement of the purchase; an invitation repeated at a meeting with Mr Ting and Mr Chen on 10 July 2014 ([198]) at which there was a discussion as to what interest rate ACFM would charge. In the 7 July 2014 email, Mr Lin asked for immediate clarification as to whether ACFM was proceeding with the arrangement about which he understood there had been talks with SXG – for ACFM to provide funds to complete the contract subject to SXG providing $2-4 million in equity and whether ACFM had received evidence that SXG had the funds required to complete the contract. It is clear from the email that Mr Lin did not know whether SXG had the funds to complete, since he referred to having sought confirmation from SXG as to this and to the lack of evidence as to this. 5. There was no response to this email, in which Mr Lin expressly adverted to Linfield needing to find an alternative financier if ACFM was not willing to find the acquisition, in case SXG did not settle and Linfield called its option to purchase the site. In his email, Mr Lin also referred to the need for settlement to occur so that the opportunity to develop the land was not lost; and stated that if ACFM did not finance the completion of the purchase then Linfield was "extremely exposed and will lose significant money, time and reputation if settlement doesn't occur". 6. Linfield's position, as communicated to Mr Chen and Mr Ting at a subsequent meeting on 10 July 2014, remained that it would not accept a new development agreement under which it was worse off (see the affidavit of Mr Lin at [200]). 7. The primary judge's assessment of the position at this point (at [61]) was that: ACFM was not interested. It had decided on a different strategy. It ignored the 7 July email. It shut its eyes to the past course of dealing. It disregarded the basis on which the parties had been proceeding. It ignored the development agreement and Linfield's proposals for its re-negotiation. And unknown to Linfield, it entered into an amended loan agreement with SXG on 18 July and arranged settlement for 5 August. 1. On 22 July 2014, SXG's lawyers wrote to Linfield's lawyers noting that there were "many issues outstanding" with the development application and that "our respective clients will need to work out a way to move forward after completion". By that stage, completion was expected to occur on 5 August 2014. 2. The response to that letter, on 23 July 2014, drew to the attention of SXG's solicitors, among other things, the prohibition under the Development Agreement of use of the land as security (cl 7.1). Again, that letter was not copied to ACFM. The 23 July letter, which reserved Linfield's rights to demand repayment of the Deposit Loan, also sought "[e]vidence that SXG will have the required funds to settle on 5 August 2014". ACFM says this is inconsistent with "everything that was known" by Linfield at that stage. However, at that stage, Linfield had not been provided with any signed loan documentation and Mr Lin's evidence (accepted by the primary judge) was that he did not know whether or on what terms the financing had been arranged. Therefore the request for evidence of the required funds for settlement was explicable. Furthermore, it is consistent with what Mr Lin was saying to Mr Chen on 4 and 7 July 2014 (see [149] and [153] above), 3. SXG's solicitors, by letter dated 24 July 2014, responded by asserting that "[a]s a result, or partly as a result, of the [there alleged] breaches, our client has to enter in mortgage and other financial arrangement with another party in order to complete the purchase of the Auburn property. Your client is fully aware of the source of the finance and our client does not see the need at this stage to provide further information". ACFM argues that this tells Linfield what it already knew, namely that ACFM was going to advance funds secured by a mortgage over the land in order for the Sale Contract to be completed for the mutual benefit of Linfield and SXG. However, although the reference to the "source of the finance" would presumably have been understood by Mr Lin to be a reference to ACFM and perhaps also the other (unidentified) financiers who might meet the shortfall that it had been contemplated there would be after the ACFM funding, the evidence does not support a conclusion that Linfield knew that the funding arrangements proposed in June 2014 had been finalised. 4. On 1 August 2014, Ms Wu contacted Mr Lin about a proposed meeting with Mr Chen the following day to discuss "that [$2 million] that Linfield can lend to ACFM for Auburn settlement". Mr Lin's response, the following morning was to state that there was no current agreement for Linfield to loan ACFM any funds and that "[w]e can discuss". Meanwhile, the vendor's solicitor had informed Mr Lin that there were "big problems" with the 5 August settlement and had referred to the potential rescission of the Sale Contract. 5. At Mr Lin's meeting on 2 August 2014 with Mr Chen, at which the primary judge accepted (at [65]) Mr Lin had told Mr Chen he was unclear what ACFM's agreement with SXG and Ms Guan was, Mr Lin said words to the effect that: he would not put any money into the ACSP Fund; he did not have any agreement with the ACSP Fund; and Linfield had to "stick with its existing development agreement until such time that a new acceptable one is in place" (see affidavit of Mr Lin at [208]. 6. Mr Lin deposed (at [210]) that, with settlement approaching on 5 August 2014, he felt "Linfield was being cut out of the loop" and that he did not know if SXG had all the money required to complete or, if it had, on what terms. Again, this evidence was accepted by the primary judge. His Honour said of the 2 August 2014 conversation (at [65]) that: It would seem that Mr Chen did not inform Ben Lin that ACFM had decided to adopt a different strategy. He did not disabuse Ben Lin of the latter's apparent belief that there was some utility in Linfield sticking to 'its existing development agreement until such time as a new acceptable one is in place'. In truth, ACFM had decided to ignore the development agreement between SXG and Linfield, including in particular, the express prohibition on the grant of a mortgage. 1. The primary judge later found (at [88]) that ACFM, through Mr Ting and Mr Chen: …knew exactly what they were doing. Their eyes were wide open. They took a chance, knowing that a grant of mortgage by SXG would be a breach of an express term of its development agreement with Linfield. They were prepared to take a commercial and legal risk to advance their own interests, not because of any misunderstanding, but because they made a clear-eyed business decision to do so. 1. His Honour considered (at [88]) that there was "strong ground" for the submission made on behalf of Linfield that ACFM had decided to "acquire now and negotiate later". 2. After completion, ACFM's solicitors wrote to Linfield's and SXG's solicitors expressing concern as to the registration of Linfield's caveat in relation to the property and stated that they did not have instructions to engage in discussions as to potential disputes involving the Development Agreement "which are currently a matter for resolution between those contracting parties", thus effectively washing their hands of any responsibility for the drafting of that documentation (see letter dated 3 September 2014). Ground 6 – Drawing of an adverse Jones v Dunkel inference 1. I have noted above (see [59]) the primary judge's observation (at [75]) to the effect that the absence of evidence from Messrs Chen and Ting enabled him more readily to draw an unfavourable inference against ACFM. His Honour made a number of references throughout his reasons to the absence of evidence from those senior officers of ACFM (see at [7], [53], [65], [78]). His Honour noted (at [7]) that those officers "might have explained ACFM's actions and motivations" and said (at [74]) that there was no explanation for ACFM's departure from the basis on which the parties had been negotiating since April 2014, there referring to a lack of interest on ACFM's part in the negotiation of the new development agreement or in arranging for the termination of the existing Development Agreement. 2. One inference that his Honour considered was available from the evidence was that ACFM "perceived a commercial benefit in ignoring Linfield's rights and ignoring the past course of dealing – in the hope or expectation that Linfield might retreat or be forced into a position of negotiating from a position of disadvantage" (at [74]). 3. After making the findings of fact at [76] (set out at [59] above), his Honour expressed the view that it was reasonable to infer the matters he then set out at [77], including that ACFM had chosen to run the risk of taking a mortgage from SXG knowing that the grant of the mortgage would constitute a breach by SXG of the Development Agreement. 4. Ultimately, the adverse inference that the primary judge felt more comfortable in drawing by reason of ACFM's decision not to call evidence from its senior officers was that of "sharp practice" on the part of ACFM ([78]; see also [116]). 5. ACFM submits that the findings about ACFM's state of mind were not available on the objective evidence adduced and that, insofar as the primary judge drew an adverse inference from ACFM's decision not to call Messrs Chen and Ting to give evidence, his Honour misapplied the relevant principles. It maintains that following Mr Lin's cross-examination it was not necessary for it to call any witness to make good its claim to priority over Linfield's equitable interest in the Auburn land. In that regard it points to the acceptance by Mr Lin that if Linfield were to exercise the Call Option on the basis of a default before the time for completion of the contract then Linfield would have to give a mortgage over the property and pay interest (see T 10.43) and to the course of the cross-examination that followed (see T 11-15), including that Mr Lin knew that 12% was the interest rate for which ACFM was at all times stipulating (T 18.35). 6. Linfield submits that the findings about which ACFM complains do not depend upon the drawing of a Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 inference. In particular, it submits that the findings: that Mr Chen was not speaking honestly in the 25 June 2014 conversation when he informed Mr Lin that he could only lend the Guan interests $12.5 million for the Auburn land (at [53]); that ACFM had provided a disingenuous answer when Ms Wu said "[n]ot yet" in response to Mr Lin's question on 26 June 2016 as to whether Ms Guan had signed the loan agreement (at [55]); and that the sequence of events (set out at [47]-[65]) suggested that ACFM had perceived an advantage in acting surreptitiously (at [74]), were all open to his Honour on the evidence. 7. In particular, Linfield argues that the provision of a loan facility of $19 million for the Auburn land on 26 June 2014 points to the falsity of what Mr Chen had said to Mr Lin the day before; argues that the words "not yet" were disingenuous in the context of what Mr Lin had been informed the day before and that settlement of the facility was in fact imminent at that stage; and points to the submissions it made to the primary judge as to the circumstances in which ACFM went "behind Linfield's back" (see [110] of its closing submissions at first instance). Determination as to ground 6 1. The proposition by ACFM that the objective evidence did not support the making of the findings of which (in ground 7) it complains should in my opinion be rejected. There was material before the primary judge on which I consider it was open to his Honour to make those findings, even without the comfort that his Honour drew from the absence of evidence from Messrs Chen and Ting. Before addressing that material, however, I consider the complaint that the primary judge misapplied the principles applicable when drawing a Jones v Dunkel inference. 2. The so-called (inaptly so-called, as Basten JA has pointed out in RHG Mortgage Corporation Ltd v Ianni [2016] NSWCA 270 at [19]) "rule" in Jones v Dunkel is well known. It permits the more ready acceptance of evidence which might have been, but was not, contradicted by the party against whom it is drawn. It typically applies to strengthen or weaken an inference otherwise available on the evidence for the benefit of the party not in default (see Commonwealth of Australia v McLean (Court of Appeal (NSW), 31 December 1996, Handley JA and Beazley JA, as her Honour then was, unrep)). It does not permit the Court to infer that the uncalled evidence or missing material would not have assisted or was in fact damaging to the case of the party who did not call the evidence. Nor does it permit a choice between two guesses or conjectures or supply missing gaps in evidence (Jones v Dunkel at 305 (Dixon CJ); and see Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 4) (2006) 229 ALR 136; [2006] FCA 446 at [50]). 3. There was no suggestion that, if the evidence adduced by Linfield called for explanation or contradiction by ACFM, Messrs Chen and Ting were not persons who were in ACFM's "camp" and might be expected to have been called to give such evidence. 4. If one asks what there was, on the evidence adduced by Linfield, that called for an answer by ACFM or which, if left uncontradicted, would permit the more ready drawing of an otherwise available inference adverse to ACFM, the answer can be found in the nature of the enquiry raised on a priority dispute between competing equitable interests. Such an enquiry calls for an exploration of all the circumstances in which the respective interests were acquired in order to determine where the better equity lies. That would include the circumstances in which, on Mr Lin's evidence, Linfield was led to believe that ACFM would not advance funding unless a new development agreement was in place (see [115]; [119] above) and the circumstances in which: ACFM's lawyers apparently did not progress the drafting of a new development agreement and ACFM did not alert Linfield at the end of June 2014 to the imminence of the financing arrangements being finalised in advance of the extended settlement fixed for 5 August 2014 and to the likelihood of settlement being effected without a new development agreement being put in place with the trustee of the ACSP Fund as contemplated in the Structure Paper. 5. The evidence given by Mr Lin of the various meetings and conversations with ACFM's representatives, particularly Messrs Chen and Ting, leading up to entry into the Loan Agreement and completion by SXG of the Sale Contract, together with the documentary evidence of the communications between the parties, gave rise to inferences of the kind that his Honour ultimately drew. It was that which called for an explanation by ACFM, and that which permitted the application of the so-called rule in Jones v Dunkel. 6. Turning then to the complaint as to the findings themselves (and why it is that I consider them to have been open on the evidence without the need for any Jones v Dunkel inference to be drawn) they are as follows. 7. First, complaint is made as to the finding that ACFM perceived an advantage in acting surreptitiously (see [74]). It is not clear that his Honour made an actual finding of surreptitious conduct in this paragraph. Rather, what his Honour said was that the sequence of events set out (at [47]-[65]) "suggest[ed]" that ACFM had perceived such an advantage. The basis on which his Honour formed that view was by reference to the events from 10 June 2014 to 2 August 2014 over the course of which his Honour found that, increasingly, Mr Lin had been "kept uninformed" ([50]); the provision of information as to the new funding arrangements was "sketchy" ([50]); and responses characterised by his Honour as disingenuous (or no responses) were given to requests for information. 8. Thus the reference to ACFM acting "surreptitiously" was, in effect, a reference to his Honour's conclusion that Linfield (or Mr Lin) was kept increasingly in the dark about what was happening in relation to the proposed funding arrangements. That inference was clearly open on Mr Lin's evidence. Further, that it might be inferred that this conduct was perceived by ACFM to be to ACFM's advantage in some fashion is hardly surprising if it is assumed that its conduct was not accidental. Ordinarily one would expect a financier (or, for that matter, any commercial entity) to be acting in what it considered to be its best commercial interests. In the absence of evidence from ACFM to suggest that Linfield had been accidentally left uninformed as to the precise status of the funding arrangements, the inference that it intended to do that which it did (and intended not to do that which it did not do) was clearly open. Acceptance of Mr Lin's evidence as to the responses to his attempts to find out what was happening clearly gave rise to the inference his Honour drew. Therefore his Honour's finding was open on the evidence and not reliant on any Jones v Dunkel inference (though such an inference would have reinforced it). 9. Second, complaint is made as to the finding that ACFM "acted stealthily" (at [78]). That is no more than a repetition of the view that it had acted "surreptitiously" and, whatever might be said of the pejorative connotations of the adverbs used by his Honour in this respect, such a finding was open for the same reasons as the first finding. 10. Third, complaint is made as to the finding that the evidence suggested Mr Chen was not speaking honestly to Mr Lin in the 25 June 2014 conversation (see [142]-[144] above). Insofar as the respective submissions have proceeded on the basis that there was a finding of dishonesty on the part of Mr Chen, it should be noted that what his Honour in fact said (at [53]) was that the disparity between what Mr Chen said on 25 June and what happened on 26 June "suggests that Mr Chen was not speaking honestly to Ben Lin" (my emphasis). I do not read this as a positive finding of dishonesty. Rather, it seems to me that what his Honour was expressing was the view that the evidence was suggestive of dishonesty, without going so far as to make a finding to that effect. I would assume that his Honour was there using his words with care in light of the seriousness of a finding of dishonesty. 11. What his Honour was clearly uncomfortable with was what he regarded as a disconformity between the statements made by Mr Chen (to the effect that there was a big shortfall but that he had arranged for others to lend a further $7 million and that Ms Guan needed to come up with a further $4 million before they could lend the money) and the fact that the very next day ACFM entered into the Loan Agreement with Ms Guan (without Ms Guan having "come up" with a further $4 million). 12. Assuming (contrary to the way I read [53] of his Honour's reasons) that there was in fact a finding of dishonesty, I accept that, as ACFM emphasises, what was said in the extract of the conversation set out at [52] of his Honour's reasons was consistent with the provisions of the unsigned loan agreement that was provided to Linfield the following morning and with the agreement as executed that same day. The Loan Agreement (under which a facility of $19 million was to be provided for the Auburn land) included in its recitals that ACFM had agreed to lend $12 million, that $7 million was to be obtained through external funding, and that drawdown of those funds was (before the Loan Agreement's later amendment) subject to a condition precedent as to the deposit by Ms Guan of funds in the amount of $4 million. I accept that there was in terms no dishonest statement contained in what Mr Chen is recorded as having said. 13. His Honour said (at [53]) that Mr Chen's words appeared to be "at odds with the reality of what he must have known was about to happen on the next day" and referred to a disparity between what Mr Chen said and what happened the following day. ACFM contends that there was no disparity; that the only difference was that ACFM lent the whole of the funds rather than some being provided by other lenders; and that his Honour's criticism in this regard does not withstand close scrutiny (T 26.13). Nevertheless, the difference was not immaterial to the extent that reference to doubt as to whether further funds would be required from a third party might well convey the impression to a listener in Mr Lin's position that finalisation of loan arrangements was not imminent. 14. In my opinion it was open to his Honour to form the view that Mr Chen's statements in the 25 June 2014 conversation as to the funding for the purchase of the Auburn land were disingenuous. ACFM complains (T 26.25) that his Honour did not identify why he concluded it was disingenuous. However, it seems obvious that his Honour did so because what was left unsaid by Mr Chen was that arrangements were (as they must by then have been) in train, or at least contemplated, for the loan documentation soon to be finalised and signed (as it was the very next day). It would be surprising, in the ordinary course of events, for a senior officer arranging the provision of finance for a facility of up to $45 million not to be kept informed, or at least made aware, of arrangements for execution of the finance documentation and it is hard to believe this would occur at a moment's notice. Hence an inference was available that Mr Chen knew, at the time of his conversation with Mr Lin, at least of the possibility, if not indeed the likelihood, that the loan documentation would shortly be executed. He did not alert Mr Lin to that possibility (or likelihood). Nor did he at any stage prior to the funding of the acquisition alert Mr Lin to the possibility that, contrary to what Mr Lin had been told, ACFM might be prepared to make good any shortfall in respect of the funds that Mr Lin had been told Ms Guan would be required to provide in respect of the settlement, or otherwise to proceed with the funding of the acquisition without those funds being provided by Ms Guan. 15. There was, therefore, a basis on which the primary judge could properly infer that Mr Chen had been disingenuous, in the sense of not being completely candid, in that particular conversation, without the need to rely on an adverse inference from the fact that he was not called to give evidence. 16. Similarly, it was open on the evidence for the primary judge to conclude that Ms Wu's response to Mr Lin on 26 June 2014 (see the fourth matter complained of) was disingenuous in circumstances where there was evidence that: Ms Wu, as an administrative assistant of ACFM, was the person ostensibly with sufficient responsibility or authority to provide the unsigned loan agreement to Mr Lin; Ms Wu had attended with Mr Chen at least one of the meetings with Mr Chen; and Ms Wu had sufficient knowledge of what was happening to be able to give the answer "not yet" (as opposed to saying that she did not know). The unlikelihood of what, in hindsight, can be seen as the imminent signing of a facility agreement for a substantial sum of money coming as a surprise to the senior officer who had arranged it (or to his administrative assistant who had seemingly been involved in the loan arrangements) would support such an inference, without the need to draw any adverse inference from the failure to call Mr Chen (or Ms Wu, for that matter). 17. Finally, ACFM complains as to the finding that it engaged in sharp practice. 18. The concept of "sharp practice" is most frequently invoked in the context of rescission for mistake (a concept that can be traced back to Riverlate Properties Ltd v Paul [1971] Ch 133, recently applied by Pembroke J in Casquash Pty Ltd v NSW Squash Ltd (No 2) [2012] NSWSC 522). In his dissenting judgment in Taylor v Johnson (1983) 151 CLR 422; [1983] HCA 5, Dawson J referred (at [25]) to "[f]raud, misrepresentation or, perhaps, sharp practice falling short of actual fraud" as sufficing as a basis for rescission in the eyes of equity" (my emphasis). In some cases (e.g., JM Kelly (Project Builders) Pty Ltd v Toga Development No 31 Pty Ltd (No 5) [2010] QSC 389 at [93]) it is suggested that "sharp practice" requires one to show that the person responsible for the impugned conduct had knowledge that the other was mistaken. 19. In another branch of equity, namely the law relating to relief against penalties (to which I will turn in due course in dealing with the Guan appeal), in Paciocco (FCAFC), Allsop CJ referred (at [293]) to sharp practice in the same breath as "trickery" in contradistinction to "good faith and fair dealing", which conveys the flavour of "sharp practice" in the commercial context. The concept of "sharp practice" has found some currency in priority disputes (see, for example, Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd; Hotray Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952 at [99]; [112]). 20. In my opinion, it was open to the primary judge in the present case to reach the conclusion that ACFM's conduct (in leaving Mr Lin relevantly uninformed as to the status of the loan arrangements until a time when, for practical purposes, it was likely to be too late for Linfield to procure its own funding in time for a 5 August 2014 settlement) amounted to "sharp practice". Such a conclusion flows from the cumulative effect of the earlier findings made by his Honour. Therefore, even without resort to a Jones v Dunkel inference the findings made by his Honour would stand. 21. Ground 6 is therefore not made good. Ground 7 – Complaint as to denial of procedural fairness 1. ACFM further complains that the findings listed in ground 7 of its grounds of appeal (see above at [76]) were made without any indication during the course of the hearing that ACFM's state of mind was a critical issue or factor in the proceeding and in the absence of any submission by Linfield that its motivations were determinative. ACFM argues that there was thus a breach of procedural fairness (referring to what was said in Commissioner for Australian Capital Territory Revenue v Alphaone Pty Ltd (1994) 49 FCR 576 at 591; [1994] FCA 1074 (Northrop, Miles and French JJ), as referred to in SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs (2006) 228 CLR 152; [2006] HCA 63 at [29] (Gleeson CJ, Kirby, Hayne, Callinan and Heydon JJ)). 2. ACFM says that the case as pleaded and opened did not involve any allegation by Linfield of dishonesty or "sharp practice". It says that, beyond ACFM's conduct in not agreeing or obtaining a new development agreement or deed of release in respect of the existing Development Agreement, Linfield did not argue that there was any disentitling conduct which amounted to sharp practice or was otherwise in bad faith. 3. Linfield cavils with the proposition that there was any denial of procedural fairness. In that regard, it points to exchanges in the course of Linfield's opening submissions in which the primary judge raised the question whether it mattered whether there was any sharp practice. Senior Counsel for Linfield answered that it did if his Honour were to accept ACFM's contention that its equitable interest arose first in time (see T 11.49-12.21) and said that an available inference was that ACFM had so acted for the purpose of "freezing out" Linfield (see T 19.48-20.5). Linfield also points to the submissions made on its behalf in closing as to the conduct of ACFM (T 553.35-553.46) as raising such an issue and its argument that ACFM's motivation was to "acquire now and negotiate later" (T 599.3-599.4), noting that ACFM's Senior Counsel in closing address had disputed that ACFM went behind Linfield's back in its conduct (referring to T 567.14-567.25). Hence Linfield submits that ACFM knew the case it had to meet and had advanced lengthy written and oral submissions against it. 4. ACFM, however, says that the response from Senior Counsel for Linfield to the question raised by his Honour in opening as to sharp practice was in terms that made it plain that the case that was put was that there was postponing conduct because of conventional estoppel (i.e., not proceeding with the new development agreement, not the conduct involved in keeping Mr Lin in the dark). It submits that the injustice involved in his Honour making the findings in question can be illustrated by an exchange during the course of closing addresses (to which Linfield has also referred though in support of the proposition that ACFM knew the case it had to meet) in which the primary judge remarked that, in the absence of Mr Ting and Mr Chen, he would not be able "other than to speculate" as to what their motivation was in proceeding to finance the acquisition of the land. ACFM notes that, notwithstanding this, his Honour went on in the judgment to make a finding of dishonesty against Mr Chen in relation to a conversation with Mr Lin prior to the execution of the Loan Agreement (at [53]). Determination as to ground 7 1. Although "sharp practice" was not pleaded as such, it is clear that what was contended in the proceedings was that there was disentitling conduct on the part of ACFM such that if ACFM's equitable interest arose first in time it should nevertheless be postponed to that of Linfield. That required, as the parties (and, relevantly, ACFM) must have appreciated, an assessment of the whole of the conduct of the respective parties. It was open to the primary judge to draw inferences from the evidence before him as to the conduct of ACFM in that regard. 2. The complaints by Linfield both that it had been kept uninformed and that it was unconscionable for ACFM to depart from the conventional basis on which the parties had been proceedings since the signing of the Structure Paper (namely that part of any financing arrangement involving ACFM would be the entry into of a new development agreement preserving in substance the position of Linfield under the existing Development Agreement) were clearly ventilated in the course of the hearing at first instance. ACFM had ample opportunity to put on evidence (and make submissions) in relation to those complaints. 3. The observation by the primary judge that he could only speculate as to the motive underlying ACFM's conduct in proceeding to finance the acquisition of the land is not in my opinion inconsistent with his Honour drawing the inference that ACFM perceived there to be a commercial advantage in acting as it did. Unless ACFM were to be taken to be acting out of a sense of altruism, the notion that it was perceived to be to its commercial advantage to act as it did (or not to take steps that it did not take) is hardly surprising. What his Honour did not engage in was speculation as to why ACFM might have considered this to be to its commercial advantage. 4. I have already expressed doubt as to whether there was any actual finding of dishonesty. Whether or not there was, the observations made by his Honour that the evidence suggested Mr Chen was not speaking honestly or that ACFM was being disingenuous, which informed the finding of sharp practice, were based on matters that were squarely raised on the evidence and in the submissions - namely that ACFM was going behind Linfield's back and had kept it in the dark when departing from the proposed structure of the financing transaction (which ACFM had itself put forward in the Structure Paper) and proceeding to finance the acquisition of the land. 5. In those circumstances there was no denial of procedural fairness and ground 7 is not made good. Ground 3 of ACFM's appeal – Finding that ACFM engaged in disentitling conduct 1. Turning back to ground 3 of the notice of appeal, this relates to the finding by the primary judge that ACFM engaged in disentitling conduct such that Linfield's equitable interest prevailed over that of ACFM. ACFM's Submissions 1. ACFM submits that its conduct prior to 5 August 2014 had no bearing upon Linfield's acquisition of an equitable interest in the land, which depended upon a pre-existing contractual right from SXG and an event of default by SXG. 2. ACFM characterises the primary judge's approach as one of "conducting a broad ranging moral enquiry into which party's conduct was most commercially unsatisfactory and allocating priority on that basis" and submits that there is no support in the authorities for such an approach. It argues that the relevant enquiry (see Heid v Reliance at 341) is one directed towards the overriding question as to "whose is the better equity, bearing in mind the conduct of both parties, the question of any negligence on the part of the prior claimant, the effect of any representation as possibly raising an estoppel and whether it can be said that the conduct of the first or prior owner has enabled such a representation to be made". Reference is made in this context to what was said in J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 at 552; [1971] HCA 57 (Barwick CJ). 3. ACFM notes that the examination of the parties' conduct was said by Dixon J in Lapin v Abigail (1930) 44 CLR 166; [1930] HCA 6 (at 204) to be directed towards acts or defaults which have in some way contributed to the assumption upon which the subsequent legal owner acted when acquiring the equity. It submits that there is no support in the authorities or academic commentary (there referring to MGL at [8-030]-[8-090]) for the proposition that priority may be lost as a result of general "sharp practice" which does not cause the creation of a subsequent equitable interest or the failure to protect an existing one. 4. ACFM also submits that his Honour made an error of fact in concluding (at [76(h)]) that there was a "conventional basis", from which ACFM had departed, between the parties that ACFM would not finance completion of the contract of sale until entry into a new development agreement. ACFM argues that Linfield's evidence established that, as at 2 August 2014, Linfield: knew that settlement was very likely to occur on 5 August 2014; wanted settlement to occur in order to secure the property to exploit it for the development project; wanted ACFM to provide the funds to enable that to occur; knew that ACFM would be taking a mortgage and other security for the advance of the outstanding purchase price; and did not then advise ACFM that it required a new development agreement to be in place before settlement of the Sale Contract. 5. ACFM says that the evidence also established that Linfield had appreciated (from as early as April 2014 when it became apparent that SXG could not provide the balance of the purchase price) that any alternative source of funding, including from ACFM, would require security over the land to be provided, contrary to the provisions of the Development Agreement prohibiting SXG giving such security; and that Linfield had also appreciated (from early June 2014 at the latest) that unless the proposed ACFM funded structure proceeded, or Linfield financed the purchase of the land itself, the opportunity to develop the property would be lost. ACFM further says that Linfield knew that the terms of the proposed new development agreement were not being progressed after about 10 June 2014. (Pausing there, it is not clear on what basis such a submission is made other than the fact that no drafts were provided to Linfield. In any event, as the chronology of events recited earlier makes clear, Linfield had not abandoned its requirement that it be no worse off under a new development agreement and appears to have pressed for such a document to be prepared.) 6. ACFM points to the absence of complaint by Linfield (at the meetings on 4 July, 10 July and 2 August 2014) as to ACFM taking a mortgage over the property and says that Linfield raised no issue about completion occurring before a new development agreement had been finalised or before entry into a deed of release in respect of the existing Development Agreement. ACFM complains that Linfield did not tell it prior to completion of the Sale Contract that, unless a new development agreement was finalised, it would assert its rights under the existing one after completion or that it considered itself free to exercise the Call Option after completion in competition with ACFM's proposed security; and did not inform ACFM that it had a caveat prepared which it intended to lodge after completion to prevent the proposed transfer to the trustee of the ACSP Fund and the registration of a mortgage in favour of ACFM. It points out that by the time Linfield (through its solicitors) first asserted to ACFM that the Development Agreement remained on foot and that Linfield would suffer prejudice if the transfers and mortgages were registered (15 September 2014) Linfield had obtained the benefit of the completion of the Sale Contract by virtue of ACFM's advance of funds to settle the purchase. 7. ACFM says that, whatever might have been the position in June 2014, it was "quite clear" to Linfield by at least 24 July 2014 that SXG was intending to complete on 5 August using funds provided by ACFM to be secured by a mortgage. It emphasises that Mr Lin knew: on 2 August 2014 that settlement was intended to occur on 5 August 2014; that it was very likely that ACFM would provide funds to permit completion of the contract and that ACFM would be taking a mortgage as security in relation to that funding; and that Mr Lin wanted settlement to occur in order to secure the property which was to be exploited for the development project and wanted ACFM to provide funds for that to occur. ACFM also refers to Mr Lin's evidence in cross-examination to the effect that he thought $20 million was a cheap price for the land and that he did not want that price to be lost; and that Linfield did not itself have funds to complete the purchase. 8. ACFM says that, in those circumstances, if the parties were proceeding on any "conventional basis" as at 2 August 2014 it was that completion would occur through the provision by ACFM of the necessary interest-bearing finance secured by a mortgage over the Auburn land. 9. Further, ACFM maintains that the letter of 23 July 2014 from Linfield's solicitors to SXG's solicitors (see [158] above) makes it plain that Linfield knew, well before 2 August 2014, that it could prevent completion if it chose to do so by exercising rights under the Development Agreement, and that, instead of taking that course, Linfield preferred to allow completion to occur with ACFM providing finance subject to a mortgage. ACFM says that this was a commercial decision, made by Linfield with its eyes wide open. (Linfield, in response, characterises this as a "Hobson's choice", where there is only the appearance of choice.) 10. ACFM argues that Linfield actively encouraged ACFM to advance the funds, or at least acquiesced in it doing so, in order to preserve for itself the opportunity to exploit the commercial development of the land; and that it did so in the knowledge that ACFM would then transfer the land to the trustee of the ACSP Fund, which would grant a mortgage to ACFM (that being the structure set out in the Structure Paper). Thus (though there is no appeal from his Honour's dismissal of ACFM's cross-claim) ACFM argues that Linfield encouraged ACFM to take its equitable interest in the land and impliedly represented to ACFM that it consented to ACFM so doing. ACFM says that in light of that there was either no "conventional basis" of the sort found by the primary judge or else if there was then Linfield acquiesced in a departure from it. 11. Insofar as Linfield (or its representative, Mr Tanevski) had reiterated that it could not be "worse off" than under the existing Development Agreement (see e.g. [155] above), ACFM maintains that it was objectively impossible for Linfield not to be "worse off" under any new arrangement involving funding from ACFM. It says this because, first, Linfield knew that any financier advancing funds for the purchase price would require security over the land and, second, Linfield could not itself fund the purchase price. I interpose at this point to note that ACFM does not appear to have alerted Linfield to the inevitability of it being worse off in any of the discussions with Linfield prior to the completion of the Sale Contract in which Linfield expressed that requirement. 12. On the basis of the above submissions, ACFM argues that both the finding as to the conventional basis on which the parties had been operating and the finding that it had engaged in sharp practice were unsustainable and it submits that, even if the legal test propounded by the primary judge was correct, his Honour erred in finding that ACFM had engaged in any disentitling conduct such that its priority was displaced. 13. Insofar as Linfield places emphasis on ACFM's knowledge that entry into the Agreement was a breach by SXG of the Development Agreement, ACFM argues that this provides no basis for it to lose priority for two reasons: first, because Linfield made a deliberate commercial decision not to enforce this right prior to completion (and that it cannot be unconscionable for ACFM and SXG to proceed in the knowledge of the existence of a contractual obligation imposed for the benefit of Linfield when Linfield itself knew that it could enforce that obligation but did not want to do so); and, second, because cl 7.1 of the Development Agreement did not itself create any interest in the land. 14. Further, ACFM argues that it is not possible for a finding of conventional estoppel based on the Structure Paper to have the consequence that ACFM loses its priority, in that the Structure Paper does not contemplate that Linfield (or the trustee of the ACSP Fund) would be the registered proprietor of the Auburn property free of any encumbrance; rather, it contemplates that ACFM would hold a registered mortgage over the property. Linfield's submissions 1. Linfield notes that the question as to which party had the "better equity" requires an examination of the conduct of both parties, in respect of which issues of fairness and justice are relevant (referring to Heid v Reliance at 341-342; Barlin Investments Pty Ltd v Westpac Banking Corporation (2012) 16 BPR 30,671; [2012] NSWSC 699 at [31]-[32] (Ball J)). It relies on Cash Resources Australia Pty Ltd v BT Securities Ltd [1990] VR 576 where it was said (at 586) that questions of priority as between competing equities must be determined by applying, not technical rules, but broad principles of right and justice (the Court there referring to Rice v Rice (1854) 2 Drew. 73 at 78-9; (1853) 61 ER 646) and that there are no rigid principles (the Court there referring to King v AGC (Advances) Ltd [1983] 1 VR 682 at 687). As it did at first instance, Linfield points in this context to the decision of Bryson J in Cranston v CBFC Ltd and that of the Queensland Court of Appeal in AG(CQ) Pty Ltd v A & T Promotions Pty Ltd [2011] 1 Qd R 306; [2010] QCA 83. 2. Linfield argues that it is of particular significance in the present case that ACFM acquired its equitable interest in effect "behind Linfield's back". It submits that the finding as to there being a departure from the conventional basis upon which all parties had been proceeding since the Structure Paper was signed on 2 June 2014 was correct and maintains that this was a proper basis on which to find that ACFM's interest lost priority. 3. Linfield further argues that particular deference should be accorded to the primary judge's assessment of the merits, having regard to what was said by the plurality in Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [23] and more recently by the High Court in Robinson Helicopter Company Inc v McDermott (2016) 331 ALR 550; [2016] HCA 22 at [43]. It emphasises the factual findings at [76], including the finding (at [76](e)) that ACFM knew Linfield expected that, if its development agreement were to be superseded, Linfield and ACFM would have to agree to the terms of a new development agreement as part of any new financing arrangement and (at [76](f)) that ACFM knew Linfield expected that the terms of a new development agreement would be first agreed between the parties before a new financing arrangement. In that regard, ACFM argues that the finding at (e) is incorrect and that the finding at (f) relates only to the new trust arrangements and that the proposed new development agreement was to be between Linfield and the trustee of the ACSP Fund. 4. While I accept that the reference to ACFM agreeing to the terms of a new development agreement is strictly incorrect, in that the proposed new development agreement was to be entered into with the trustee of the ACSP ACSP Fund, the finding at [76(e)] should be understood in the context that ACFM's lawyers were allocated responsibility for the drafting of the new development agreement and it might be thought that they would seek instructions from ACFM in that regard. Moreover, the nub of the finding in this sub-paragraph is that the terms of a new development agreement were to be agreed as part of any new financing arrangement with ACFM. Indeed, ACFM had said as much in its requirements to be involved in the financing (see [114]; [119] above) 5. A similar comment may be made as to the criticism made by ACFM of his Honour's finding at [76(f)]. True it is that the proposed new development agreement was one contemplated to be entered into with the trustee of the ACSP Fund. But it was a requirement that had been stipulated by ACFM for its involvement in the financing – and ACFM had allocated responsibility of this to its lawyers under the Structure Paper (again, see [114]; [119]; [132] above). 6. As to ACFM's submission that Linfield acted deliberately to encourage ACFM to provide funding to complete the contract for sale in order to preserve the Auburn land and only raised complaint afterwards, Linfield argues that this does not take into account the primary judge's analysis of the facts (at [32]-[66]) and ignores the significance of the approach which had been set out in the Structure Paper as to the basis of ACFM's involvement as financier. Linfield maintains that the clear position confirmed and agreed by the parties at the 2 June 2014 meeting was that, if ACFM were to become involved, part of the structure would be agreement to a new development agreement and formal termination of the existing Development Agreement. 7. Linfield points to the evidence that: ACFM gave Linfield comfort that it would be receiving a new development agreement (T 153.35-37); Mr Lin assumed at all times that part of the successful outcome of the 2 June Structure Paper process would involve renegotiation of a new development agreement (see T 158.18); Mr Lin was quite content to allow SXG and ACFM to come to some arrangement so that the contract could be completed "subject to Linfield preserving its rights" and said "we always thought that this was an intention for ACFM to preserve those rights" (T 160.10 ff); and Mr Lin made no complaint (until 23 July 2014) because he trusted that ACFM would front up with the new development agreement (T 162.10-23). 8. Linfield argues that it was apparent to ACFM, following the conversation on 2 August 2014, that: Linfield pressed its rights under the Development Agreement and was proceeding in accordance with the Structure Paper that had originally been propounded by ACFM; and Linfield was not acquiescing in any new financing or mortgage of the property until its accrued rights and contributions by way of deposit and progression of the development approval were properly protected in and by a satisfactory new development agreement. 9. In this regard, Linfield emphasises the following exchange, in the cross examination of Mr Lin: Q. Can I just clarify Mr Lin, even though the giving of security to A Capital would have involved a breach of the development agreement you were prepared to acquiesce in that with a view to achieving the provision of finance to settle the purchase? A. No your Honour it was subject to Linfield receiving a new development agreement with similar key terms, and Linfield would be no worse off. Determination 1. I do not accept that the primary judge simply applied a criterion of "sharp practice" in place of the enquiry required when determining whether there had been disentitling conduct such as to cause ACFM to lose priority. It is clearly not permissible for a court to adjudicate competing property rights by reference to its own idiosyncratic conceptions of fairness. However, an examination of his Honour's reasons does not suggest that he fell into error in this way. On the contrary, his Honour carefully reviewed the factual circumstances and examined the conduct of the parties, framing his enquiry by reference to the leading authorities, which make clear that questions of fairness and justice are relevant in such an enquiry. To the extent that his Honour focussed on the conduct of ACFM in the period from April 2014, this was relevant as going to the circumstances in which ACFM acquired its equitable interest and in which Linfield took no steps, prior to lodgement of its caveat, to protect its rights under the Call Option. 2. The nub of ground 3 of the grounds of appeal is the contention by ACFM that the conduct which his Honour found to be disentitling conduct was conduct that did not lead to the creation or acquisition of the later interest but rather led only to a failure to protect existing contractual rights in respect of land, which rights in due course would, if exercised, have led to the creation of an equitable interest in that land. For the reasons that follow I am not persuaded that the concept of disentitling conduct is necessarily confined to acts contributing to the creation or acquisition of a later equitable interest. I consider that in an appropriate case (such as the present) the concept of disentitling conduct can extend to conduct which contributes to a failure by the holder of a later interest to have taken steps at an earlier time to protect the rights that it had in relation to the land (and which would, if exercised, have given rise to its interest in the land at an earlier time to the time at which the earlier interest holder obtained its interest in the land). 3. By way of general introduction to this issue, I note that there has been academic debate as to the correct approach to resolving a competition between two equitable interests (see generally, S Rodrick, "Resolving Priority Disputes Between Competing Equitable Interests" (2001) 9 Australian Property Law Journal 172), in particular, as to the issue whether the rule for priority for the interest first in time is a rule of first or last resort. In AG(CQ), Holmes JA (as her Honour then was), with whom McMurdo P and McMeekin J agreed, referred (at [35]) with apparent approval to the statement in Clark v Raymor (Brisbane) Pty Ltd (No 2) [1982] Qd R 790 at 795 that "[t]he fact that one interest was created before the other is a factor of last resort only", which was followed by the statement that "[t]he correct function is 'to determine where the better equity lies'". 4. Elsewhere, academic opinion has been that the test is one of first resort (see On Equity (at [8.360]), relying upon Butler v Fairclough (1917) 23 CLR 78; [1917] HCA 9 and Australian Guarantee Corporation (NZ) Ltd v CFC Commercial Finance Ltd [1995] 1 NZLR 129; and MGL at [8-015]). 5. In Latec Investments Ltd v Hotel Terrigal Pty Ltd (in Liq) (1965) 113 CLR 265; [1965] HCA 17 Kitto J emphasised (at 276) that the problem "is to determine where the better equity lies". For present purposes, suffice it to note that the parties proceeded on the assumption, consistent with the weight of authority, that it was incumbent upon Linfield as the holder of the later interest to demonstrate that it had the better equity (or, which amounts to the same thing, that ACFM has engaged in disentitling conduct). 6. As to the question whether disentitling conduct is confined to conduct that causes or contributes to the creation or acquisition of the later interest, a consideration of the historical development of the relevant priority principles, and the context in which these principles have been judicially formulated (and reformulated), leads me to the conclusion that they do not rest upon any narrow conception of disentitling conduct. 7. In the leading case of Rice v Rice, Kindersley VC, having said (at 648) that what is meant by saying that one party has the better equity than another is only that "according to those principles of right and justice which a Court of Equity recognizes and acts upon, it will prefer A. to B., and will interfere to enforce the rights of A. as against B", went on to emphasise that, in looking for the "better equity" a court will look to: … the nature and condition of their respective equitable interests, the circumstances and manner of their acquisition, and the whole conduct of each party with respect thereto. And in examining into these points it must apply the test, not of any technical rule or any rule of partial application, but the same broad principles of right and justice which a Court of Equity applies universally in deciding upon contested rights. [my emphasis] 1. Pomeroy, in the second edition of his treatise on equity, noted (at 952) that it is "impossible to define 'equal equities' affirmatively by any exact formula" (John Norton Pomeroy, A Treatise on Equity Jurisprudence (2nd ed, 1892, vol 2)) and stated the applicable rule as follows (at 951): Among successive equitable estates or interests, where there exists no special claim, advantage, or superiority in any one over the others, the order of time controls. Under these circumstances, the maxim, Among equal equities the first in order of time prevails, furnishes the rule of decision. 1. In Taylor v London and County Banking Co [1901] 2 Ch 231 Stirling LJ said (at 261): [The order of priority between purely equitable titles] is governed by order of time — unless there has been some act or omission on the part of the owner of an equitable title prior in point of time, such as to cause that title to be postponed to a subsequent equitable interest. 1. In Bailey v Barnes [1894] 1 Ch 25, Lindley LJ, speaking for the Court, said (at 36): Equality, here, does not mean or refer to priority in point of time, as is shown by the cases on tacking. Equality means the non-existence of any circumstance which affects the conduct of one of the rival claimants, and makes it less meritorious than that of the other. [my emphasis] 1. In Shropshire Union Railways and Canal Co v The Queen (1875) LR 7 HL 496, Lord Cairns LC (in a passage cited with approval in Lapin v Abigail at 204 (Dixon J); 196 (Gavan Duffy and Starke JJ)) said (at 507): I conceive it to be clear and undoubted law, and law the enforcement of which is required for the safety of mankind, that, in order to take away any pre-existing admitted equitable title, that which is relied upon for such a purpose must be shewn and proved by those upon whom the burden to shew and prove it lies, and that it must amount to something tangible and distinct, something which can have the grave and strong effect to accomplish the purpose for which it is said to have been produced. 1. Turning then to the Australian authorities, in Lapin v Abigail, where the High Court considered the law relating to priorities between competing equitable interests, Knox CJ referred (at 183) to several early decisions (Shropshire Union; Carritt v Real and Personal Advance Co (1889) 42 Ch D 263; Taylor v London; Rimmer v Webster (1902) 2 Ch 163, 172) and viewed them (at 183-184) as indicating that "the possessor of the prior equity is not to be postponed to the possessor of a subsequent equity unless the act or omission proved against him has conduced or contributed to a belief on the part of the holder of the subsequent equity, at the time when he acquired it, that the prior equity was not in existence" (my emphasis). However, it is by no means clear that his Honour intended this proposition to operate as the exclusive test in this context. 2. In the same case, Isaacs J referred to the decisions in Bailey and Taylor (noted above) and said (at 185-186) that, in his opinion, "those enunciations are not exhaustive: they state rather a working rule, which applies in the great majority of instances, but do not state the principle. The principle is that the court seeks, not for the worst, but for the best equity. And the best equity … is that which on the whole is the most meritorious" (my emphasis). His Honour's approach suggests that disentitling conduct is not to be considered in an unduly strict manner. 3. Dixon J's formulation of the relevant principles in that case (at 204) was qualified by the expressions "in general" and "generally" (something noted by Holmes JA in AG(CQ) at [28] as allowing for other possibilities): In general an earlier equity is not to be postponed to a later one unless because of some act or neglect of the prior equitable owner. … The act or default of the prior equitable owner must be such as to make it inequitable as between him and the subsequent equitable owner that he should retain his initial priority. This, in effect, generally means that his act or default must in some way have contributed to the assumption upon which the subsequent legal owner acted when acquiring his equity. [my emphasis] 1. In passing, I note that the approval of Dixon J's statement of principle by Barwick CJ (with whom McTiernan and Owen JJ agreed) in J & H Just (Holdings) Pty Ltd at 554-555 omitted the word "generally" but gave no explanation for so doing. 2. Finally, the dissenting joint judgment of Gavan Duffy and Starke JJ in Lapin v Abigail expressed the relevant principles in the following manner (at 196): In the cases, inquiries are made as to the better equity, as to the better right to the legal estate, as to which party was the more vigilant or careful, and whether the conduct of a party estops him from the assertion of a prior title, and so on. But, however the matter is approached, the question must ultimately come down to a consideration of the words or actions of the person having the prior equitable title, and whether those words and actions have caused another to alter his position. [my emphasis] 1. Their Honours' emphasis on a party's alteration of position (though in their dissenting judgment) is instructive. An alteration of position can extend to a decision not to act. (In the context of the change of position defence in the law of restitution, this was confirmed in Australian Financial Services and Leasing Ltd v Hills Industries Ltd (2014) 253 CLR 560; [2014] HCA 14. For cases on this point, see J Edelman and E Bant, Unjust Enrichment (2nd ed, 2016, Hart Publishing) at 338 fn 48.) 2. In the present context, such a change of position may be found in the failure of Linfield, the subsequent interest-holder to take steps to protect its position under the Development Agreement as a result of the conduct of ACFM, the earlier interest-holder. 3. Gavan Duffy and Starke JJ continued their analysis by noting (at 197) that the holders of the earlier interest (namely, Mr and Mrs Lapin) had "reinforced the apparent absolute ownership of Olivia Sophia Heavener by neglecting the well-known method of protecting their rights and interests by means of a caveat". Accepting that it is well-established now that the mere failure to lodge a caveat does not necessarily constitute disentitling or postponing conduct, it is not immediately apparent why a failure by an earlier interest-holder to protect his or her rights (and thereby contribute to an impression that land is unencumbered, leading to the creation of a subsequent interest in that land) can constitute disentitling conduct, but conduct contributing to the adoption of a false premise (as in the present case) which causes a subsequent interest-holder not to protect its existing rights cannot. The latter involves positive conduct (as distinct from mere omission in the former) and in both situations the subsequent interest-holder has altered his or her position. If the question of priority is to involve, among other things, critical consideration of the earlier interest-holder's conduct, it is not readily apparent why one should exclude, from the Court's analysis of all the circumstances, positive conduct which materially affects the position of the later interest-holder. 4. On appeal to the Judicial Committee of the Privy Council (see Abigail v Lapin (1934) 51 CLR 58; [1934] UKPCHCA 1), where the Lapins were held to have engaged in disentitling conduct, Lord Wright (delivering the judgment of the Board) said the following (at 68): Apart from priority in time, the test for ascertaining which encumbrancer has the better equity must be whether either has been guilty of some act or default which prejudices his claim … [my emphasis] 1. Later in the judgment, his Lordship emphasised the role of representations (at 71): It is true that in cases of conflicting equities the decision is often expressed to turn on representations made by the party postponed … But it is seldom that the conduct of the person whose equity is postponed takes or can take the form of a direct representation to the person whose equity is preferred: the actual representation is, in general, as in the present case, by the third party, who has been placed by the conduct of the party postponed in a position to make the representation, most often as here because that party has vested in him a legal estate or has given him the indicia of a legal estate in excess of the interest which he was entitled in fact to have, so that he has in consequence been enabled to enter into the transaction with the third party on the faith of his possessing the larger estate. 1. In Latec, although Kitto J (at 276) referred to conduct of the earlier owner that had led the later interest holder to acquire his interest on the supposition that the earlier interest did not exist, this was described as an "instance" (see the words "for instance") where the earlier interest will be postponed to the later. His Honour was there directing attention to the circumstances raised in Latec and speaking of cases where a claim to enforce the earlier interest is opposed on a specific ground (namely, where conduct contributes to the creation or acquisition of a later equitable interest), unlike the present case where the claim to enforce the earlier interest (that of ACFM) is not opposed on that same ground. 2. In Breskvar v Wall (1971) 126 CLR 376; [1971] HCA 70, a case involving unregistered interests in Torrents Title land, Barwick CJ formulated what he described as well-established principles relating to such priority disputes as follows (at 388): The creation of the appellants' interest is prior in point of time. … The priority of the creation of that right will only be lost by some conduct on the part of the appellants which must have contributed to the assumption, false as the event proved, upon which the holder of the competing equity acted when that equity was created. [my emphasis] 1. On their face, these remarks might be taken to suggest that disentitling conduct must be such as to lead to the creation or acquisition of the subsequent interest. Read in context, however, these remarks should not be taken as intending to establish some general proposition concerning priority disputes between equitable interests; they were directed to the circumstances of the case, which was an illustration of one situation in which the merits between competing interests were unequal. 2. Insofar as ACFM and Linfield both place reliance upon the judgments in Heid v Reliance, those judgments must be understood in context. This was another case in which the owner of property deposited certain indicia of title (namely, a completed memorandum of transfer containing an acknowledgment of payment accompanied by the certificate of title) with a third party, enabling that third party to present itself as the true owner. No member of the High Court treated such a scenario as exhaustive of the circumstances in which an earlier equitable interest will be postponed to a later one. Gibbs CJ quoted approvingly (at 334) from Rice v Rice and cited (at 333) Rimmer v Webster as governing "cases such as the present", thereby recognising that the Court was presented with a factual scenario which was but one category of case in which conduct may be disentitling. Similarly, the joint judgment of Mason and Deane JJ described (at 339) situations in which an owner arms a third person with the indicia of title as a "common illustration of conduct on the part of the owner of an equity which postpones his interest" (my emphasis added). 3. While the joint judgment of Mason and Deane JJ in Heid v Reliance involves a proposed formulation (at 341) of the general principles to be applied in cases involving a competition between equitable interests, that formulation does not in terms confine disentitling (or postponing) conduct to conduct which leads to the creation or acquisition of the later interest. It should be noted that their Honours say (at 342) that "[i]t may be that an equitable interest will not be postponed to an equitable interest created later in time merely because there is a causal nexus between an act or omission on the part of the prior equitable owner and an assumption on the part of the later equitable owner as to the non-existence of the prior equity. Fairness and justice demand that we be primarily concerned with acts of a certain kind - those acts during the carrying out of which it is reasonably foreseeable that a later equitable interest will be created and that the holder of that later interest will assume the non-existence of the earlier interest" (my emphasis). As Senior Counsel for Linfield correctly noted in oral submissions, the second sentence in that paragraph makes perfect sense in the context of the facts their Honours were dealing with in that case. Furthermore, their Honours' remarks must be viewed in light of their explicit preference (at 341) for a "more general and flexible principle" in resolving priority disputes. Finally, their Honours referred approvingly (at 341) to Kitto J's judgment in Latec in which his Honour said that cases involving conduct contributing to the acquisition of a later interest on the supposition that an earlier interest does not exist "was just one 'instance' of a case when the merits are unequal". 4. Heid v Reliance does not stand for any general proposition that only conduct leading to the creation or acquisition of a later interest will qualify as disentitling conduct. On the contrary, the approach of the joint judgment of Mason and Deane JJ confirms the longstanding position of courts of equity that all the circumstances must be taken into account and that strict, technical rules are inappropriate in this context. 5. Does the rationale underlying the priority rules preclude the doctrine of disentitling conduct extending to situations in which conduct contributes to a failure by a subsequent interest-holder to protect its existing rights? The answer to that question is complicated by the difficulty that the authors of MGL note has attended attempts to identify the doctrinal basis on which the usual principle of temporal priority does not apply in certain cases (see [8- 030]-[8-090]), the authors suggesting that the cases can be reconciled (at [8-060]) on the basis that estoppel in pais is the true basis of the cases under consideration other than those falling in two particular categories (neither of which is here applicable on the facts of the present case), and referring to what was said (at 341) in Heid v Reliance in the joint judgment of Mason and Deane JJ, namely: To say that the question involves general considerations of fairness and justice acknowledges that, in whatever form, the relevant test be stated, the overriding question is '…whose is the better equity, bearing in mind the conduct of both parties, the question of any negligence on the part of the prior claimant, the effect of any representation as possibly raising an estoppel and whether it can be said that the conduct of the first or prior owner has enabled such a representation to be made …' 1. To the extent that estoppel in pais is viewed as one basis for the postponement of priority of an earlier equitable interest, the underlying object of postponing an interest would be prevention of the detriment or harm "which would flow from the change of position if the assumption" leading to the creation or acquisition of the later interest "were deserted" (Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 674-675; [1937] HCA 58). The holder of a prior interest would be bound "by the natural consequences of [its] acts" (Lapin v Abigail at 198 (Gavan Duffy and Starke JJ)), this latter proposition being equally apt if equitable fraud more generally is viewed as underlying the principles relating to priority between equitable interests. 2. Whichever of the rationales be accepted as the basis for the principles as to the resolution of priority disputes between competing equitable interests, those principles seem to me better served (and certainly not undermined) by the recognition that disentitling conduct includes conduct leading to a failure by a subsequent interest-holder to protect its pre-existing rights, and is not limited to situations in which an act or omission of the earlier interest-holder contributes to an assumption leading to the creation or acquisition of the later equitable interest. 3. It is clear that the identification of the better equity turns upon all the circumstances of the case. While a court is bound by precedent and principle, the courts "do not treat the competition of priorities of equities as turning on precise categorisations" (Cranston at 30). As Ormiston JA said (at [77]) in Moffett v Dillon [1999] 2 VR 480; [1999] VSCA 32: Merits, in equity, are those matters which impinge, broadly speaking, on the conscience of those who seek its aid or are otherwise subject to its jurisdiction. So priority is to be resolved against the holder of the prior equity only if the other party can establish the first holder's want of 'merits' or comparative lack of 'merit'. That is essentially a negative inquiry into behaviour on the part of the holders of each of the equitable interests as to whether they can be shown to have been obtained or enforced in a manner which is so unconscionable or otherwise inequitable so as to deprive the holder of the earlier interest of the priority to which it is otherwise entitled, whether that behaviour be evidenced by fraud, unfairness, negligence, the wrongful creation of particular assumptions by representations or the like or in a number of other ways which reflect on the behaviour of the holders of each of the interests. 1. The primary judge expressly recognised (at [81]) that the present matter was not an example of "the usual case where conduct by the holder of the prior interest (ACFM) has led the holder of the later interest (Linfield) to acquire its interest in ignorance of the prior interest". Nevertheless, after concluding (at [82]) that ACFM's conduct caused Linfield to act on a false premise and thereby suffer detriment, his Honour held (at [85]) that ACFM's conduct amounted to disentitling conduct. I am not persuaded that his Honour erred in so concluding. 2. In particular, ACFM had allocated, in the Structure Paper, the task of documentation of the new development agreement to its own lawyers. What emerges clearly from the evidence is that ACFM, having in effect assumed responsibility for drafting the new development agreement to be put in place as part of the proposed funding arrangements, then washed its hands of any responsibility for that task; and did so in circumstances where it was seeking to put in place, and did put in place, a loan arrangement under which its mortgage over the Auburn land was to secure not only the Auburn borrowings, but also the Kensington project (which was by then already in default and in respect of which it presumably had a relatively strong negotiating position), without affording to Linfield an opportunity to negotiate terms in a new development agreement or otherwise that might protect its position against the exposure to debts relating to the Kensington project with which it was not involved. 3. The lack of clarity from ACFM as to the position vis-à-vis the proposed funding and as to the progress towards entry into a new development agreement clearly placed Linfield at an increasing disadvantage from (not least) a timing point of view as to the making of a decision whether and when to take steps itself to exercise the Call Option (and for that purpose to obtain alternative finance). In those circumstances, the conduct of ACFM can be seen to have caused Linfield to act (by not taking action at an earlier time to protect its existing rights) on a false premise (namely, that ACFM would not advance funds without arrangements being put in place for a new development agreement on terms no less favourable to Linfield than the existing one) until it was too late from a practical point of view for Linfield to act otherwise so as to protect its position. 4. The primary judge made reference to the common law doctrine of estoppel by convention (see [80]; [85]) and was satisfied that a conventional estoppel was made out, though not in terms addressing the elements of estoppel by convention which were summarised by Brereton J in Moratic Pty Ltd v Gordon (2007) 13 BPR 24,713; [2007] NSWSC 5 at [32]) as follows: [I]t is necessary for a plaintiff to establish (1) that it has adopted an assumption as to the terms of its legal relationship with the defendant; (2) that the defendant has adopted the same assumption; (3) that both parties have conducted their relationship on the basis of that mutual assumption; (4) that each party knew or intended that the other act on that basis; and (5) that departure from the assumption will occasion detriment to the plaintiff. 1. The parties have made some submissions on the question whether there was in fact a conventional basis for the purpose of the second element referred to above (see [207]; [211]ff above). However, in light of the conclusion that ACFM's conduct was sufficient to amount to disentitling conduct, in the sense relevant to the enquiry as to competing equities (and thus that ACFM did not in all the circumstances have the better equity) it is not necessary to consider further the question of what role conventional estoppel (traditionally viewed as a rule of evidence – see On Equity at [12.100]; R Derham, "Estoppel by Convention, Part II" (1997) 71 Australian Law Journal 976 at 981-984; Labracon Pty Ltd v Cuturich (2013) 17 BPR 32,497; [2013] NSWSC 97 at [149]-[151] (Lindsay J)) might otherwise have played in determining Linfield's claim for specific performance of the obligations imposed on SXG under the Development Agreement. Grounds 4 and 5 – Relief 1. In essence these grounds raise the issue as to whether conditions should have been imposed on the grant of relief following the determination that ACFM had engaged in disentitling conduct. ACFM submissions 1. ACFM relies upon the discretionary nature of an order for specific performance and submits that conditions should have been attached to that order. It disavows any suggestion that there is a general equitable discretion to apportion losses between the holders of competing equitable interests. 2. ACFM emphasises that if it had not provided the funds for the purchase of the Property SXG would not have been able to complete the purchase on 5 August 2014. It says that Linfield did not have the funds (either itself or from any financier) to complete the purchase if the Call Option had been exercised before completion and argues that if the purchase had not been completed then Linfield would not have been in a position to recoup its expenditure in connection with the land. 3. Thus it argues that it provided Linfield with something that it would not otherwise have had: the opportunity to assert (as against SXG) its rights under the Development Agreement to exploit the Auburn land. It emphasises that, once it became apparent, by about April 2014, that SXG could not provide the balance of the purchase price in accordance with its obligations under the Development Agreement then an alternative source of funding was required in order for the Sale Contract to be completed and that Linfield knew that such alternative funding could not be obtained without security being given over the land. It submits, as noted earlier, that in that scenario Linfield inevitably had to be "worse off" than if SXG had performed its obligations (since had SXG done so it would have obtained the land not subject to encumbrance). 4. ACFM argues that if specific performance were to be granted, but made subject to ACFM's equitable security interest in the land, then Linfield can still exploit the development in essentially the same commercial position as it knew must follow as a result of SXG reneging on providing the purchase price. In response, Linfield points to the fact that, in its defence at first instance, ACFM did not contend that, if specific performance were to be granted, it ought be conditional on compensating ACFM for advancing $20,360,364 to complete the purchase of the Auburn land. It says that the first time that ACFM advanced this contention was from the bar table on the last day of the hearing. 5. ACFM says that the effect of the primary judge's findings and orders is that ACFM is indemnifying Linfield for the consequences of Linfield entering into the Development Agreement with SXG and SXG not honouring its obligations under that agreement, when ACFM had nothing to do with SXG's failure to provide the purchase price and no involvement with the Auburn project until after Linfield had already lost the commercial benefit of acquiring the land without security over it. It submits that equity will not assist Linfield to acquire the legal fee simple in the Auburn land to the exclusion of ACFM's security interest in the land, when the transfer of the legal estate to SXG could not, to the knowledge of Linfield, have occurred without the advance of funds by ACFM, secured by a mortgage, in order for SXG to complete the Sale Contract to purchase the property. 6. ACFM argues that if Linfield is to have the benefit of estoppel (i.e., if ACFM is precluded from departing from the parties' understanding under the Structure Agreement) then Linfield must also take the burden of being similarly bound. ACFM argues that on the basis of the findings of a conventional estoppel the appropriate remedy was to require that the land be vested in the ACSP Fund, with ACFM as first mortgagee, and that the parties should negotiate in good faith for a new development agreement. It says that insofar as the primary judge found (at [86]), that ACFM should not now be permitted to resile from the basis on which the parties had been dealing with each other, then neither should Linfield be permitted to do so. It maintains that the parties were never proceeding on the basis that ACFM would provide unsecured finance for the acquisition. 7. ACFM says that, in the event that its mortgage does not have priority, it will be in a position akin to a person who has preserved property or a fund for the benefit of secured creditors. It refers to Stewart v Atco Controls Pty Ltd (in Liq) (2014) 252 CLR 307; [2014] HCA 15 at [11]-[23]; Universal Distributing Co Ltd (In Liq) (1933) 48 CLR 171 at 174 for the proposition that the costs and expenses incurred by such a person are to be met from the fund or property in priority to secured creditors. Linfield's submissions 1. Linfield takes issue with various of the propositions put by way of submission by ACFM in relation to these grounds of appeal. 2. It does not accept that the transfer could not have occurred without the advance of funds by ACFM and says that this assumes a matter that was not in issue in the proceedings at first instance because Linfield's ability to obtain alternate funding was not put into issue by ACFM's pleadings. In that regard it points to the evidence given by Mr Lin in cross-examination that he had instructed his commercial adviser, Mr Tanevski, to make enquiries with the major four banks to see what type of funding they could provide for the project. Since Linfield objected to, and ACFM was not permitted to pursue, this line of enquiry in cross-examination of Mr Lin the results of those enquiries are unknown. In response to this, ACFM says that this issue is not determinative of the grounds of appeal, emphasising its submission that if Linfield is permitted to obtain the land free of any encumbrances then it will have obtained the benefit of a property that has been preserved by ACFM's funding for more than two years in circumstances where Mr Lin accepted that, if Linfield had been able to acquire the land by exercise of the Call Option it would have needed to take out an interest bearing loan with a financier secured by a mortgage. 3. Linfield relies on the finding that it was kept in the dark as to what was in reality going on ([55]-[56]; [65]) and submits that had ACFM frankly informed Linfield at an earlier point in time that it did not intend to honour or act in accordance with the terms of the Structure Paper, then Linfield could have taken further steps to arrange or finalise alternate finance. Related to this is the submission that ACFM manoeuvred itself into a situation where it was able to advance the moneys in circumstances where Linfield had no option to try to source the funds itself, since the $45 million facility provided by ACFM was granted, and the advance for the Auburn land was made, without the prior knowledge of Linfield. 4. Next, Linfield cavils with the proposition that it is essentially in the same position as it would have been once SXG reneged on the purchase price. It points out that at the date of the advance for the Auburn land, the Guan entities were already in default of the Kensington facility. It argues that the advance for the Auburn land enabled ACFM to improve its overall security position since ACFM's security is collateral to the obligations of the Guan entities in relation to the Kensington project. Linfield submits that it can be inferred that the terms of the renegotiated loan agreement were the product of the weak negotiating position of the Guan entities who were already in default of their loan obligations whereas it would have been in a much stronger negotiating position with a potential financier given that it held all of the intellectual property and knowhow relating to the development of the Auburn land and could independently exercise its Call Option. Further, it argues that Linfield was denied the opportunity of negotiating towards a commercial position in terms of the Structure Paper. 5. Linfield points to the lack of evidence advanced to prove that ACFM has not or would not receive interest or other compensation from having advanced the loan to SXG whether as a result of ACFM's sale of the Kensington properties which were secured under the joint facility or by ACFM taking action in respect of the various personal and corporate guarantees. In that regard I note that after judgment in this matter was reserved and in the context of submissions as to the proposed orders in the event that ACFM were to succeed on part or all of its appeal, ACFM's solicitors advised Linfield's solicitors in an email dated 5 December 2016 that the amount payable under the Loan Agreement and General Security Deed, as at 2 December 2016, was $28,546,121, calculated by reference to a 12% interest rate in the facility up to 6 October 2014 and thereafter at increasing rates of interest up to 48%. 6. Finally, Linfield submits that ACFM's denial of Linfield's entitlement to acquire the Auburn land pursuant to its exercise of the Call Option in January 2015 has resulted in the development project being delayed for almost two years and argues that it should not be required to compensate ACFM by way of an effective "holding fee" or charge for any loss suffered by ACFM because of the stance ACFM took in opposing orders for specific performance. Determination 1. His Honour did not suggest that it would not have been open to him, in the exercise of his discretion, to impose conditions on the grant of relief. Rather, his Honour reached the conclusion that there was no occasion for equity to ameliorate the consequences of ACFM's disentitling conduct (that is, its loss of priority) because ACFM was the author of its own misfortune (at [116]). 2. As to the power in an appropriate case to attach conditions in a case such as the present, this can be seen as an application of the maxim that one who seeks equity must do equity. It is recognised that questions of priority do not turn on "technical rules" as such (Cash Resources at 586). The same can be said as to the court's discretion when awarding relief in the context of disentitling conduct by the holder of the prior equitable interest. 3. There is both academic and judicial support for the imposition of conditions in an appropriate case. In On Equity (at [8.360]), the authors refer to Australian Guarantee Corporation (itself referred to with apparent approval in Richardson v Aileen Pty Ltd; Application by D J Hughes [2007] VSC 104 (at [55] fn 31) where Tomkins J said (at 140-141): [W]e would not go so far as to conclude that because of its delay CFC must forfeit the priority to which it otherwise is entitled. That does not, however, conclude the matter. CFC is seeking equity in the form of a declaration that its interest be accorded priority over another equitable interest earlier in time. Those who seek equity must do equity. … CFC, as a condition of the declaration that its interest has priority, is to ameliorate the disadvantage AGC suffered from CFC's acquiescence and delay in challenging AGC's priority. … AGC will be put in the position it would probably have achieved but for the delay by requiring CFC, as a condition of the declaration of priority in its favour, to pay $54,917.87 to AGC out of the proceeds of the sale of the land. AGC should also receive its proportionate share of the interest earned from the time of the sale of the land on the net proceeds of sale. 1. In Australian Guarantee Corporation, reliance was placed on what Edward Nugee QC sitting as a Deputy Judge in the High Court in England said in Re Berkeley Applegate (Investment Consultants) Ltd (In Liq) [1989] Ch 32 at 50-1, accepting that the authorities established as a general principle that where a person seeks to enforce a claim to an equitable interest in property the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property (though noting that it was a discretion which would be sparingly exercised). 2. Insofar as complaint has been made that such a discretion "effectively amounts to a jurisdiction to apportion the loss as between the holders of the two equitable interests in question, the existence of which is likely to make it virtually impossible to settle any dispute as to priorities of equitable interests without going to court" (see AJ Oakley, "Judicial Discretion in Priorities of Equitable Interests" (1996) 112 Law Quarterly Review 215 at 219), it has also been said that "the same criticism can arguably be levied at the entire law of equitable priorities" (see GE Dal Pont, Equity and Trusts in Australia (6th ed, 2011, Lawbook Co)). 3. In the present case, as adverted to earlier, ACFM disavowed any attempt at seeking an apportionment of loss, basing its argument on the perceived inequity of Linfield obtaining title to the land, by virtue of the order for specific performance, without paying interest on the funds used to acquire it or the additional sum paid to the vendor on completion. 4. I consider that, as the primary judge implicitly accepted, in an appropriate case a court of equity can properly impose conditions requiring a claimant obtaining priority as a result of disentitling conduct of the holder of the prior interest to "do equity" vis-à-vis the holder of that prior interest. 5. Turning then to whether the exercise of the primary judge's discretion miscarried when his Honour refused to impose conditions on the making of the order for specific performance, this requires that ACFM establish error in the sense explained in House v The King (1936) 55 CLR 499; [1936] HCA 40. 6. No error of principle in the exercise of his Honour's discretion was pointed to by ACFM and insofar as it challenged his Honour's findings of fact in relation to the characterisation of its conduct I have already concluded that the findings were open to his Honour on the evidence before him. That said, I have concluded, with all due respect to the primary judge, that the discretion miscarried. I consider that the result, which in effect would enable Linfield to acquire the land without recognising the benefit to it of ACFM's advance of the funds necessary to complete the purchase of the land (in which it acquiesced insofar as it did not, prior to completion, act to prevent those funds being advanced by ACFM), is such as to fall within the class of case considered in House v The King where, although no error of the kinds there described is manifest, nevertheless the result is so unreasonable as to bespeak such an error. 7. The reason for this conclusion is that the evidence does not support a conclusion that Linfield was itself in a position as at 5 August 2014 to pay the price payable had it exercised the Call Option at that stage. Mr Lin acknowledged as much. Therefore, had SXG not been put in funds by ACFM to complete the purchase of the land at that time, Linfield would have been required to obtain finance in order to do so and would necessarily have incurred interest on any such borrowed funds (whether the financier be ACFM or another lender). In order for it to complete the purchase as SXG's attorney under the power of attorney granted to it under the Development Agreement (had it exercised the Call Option prior to completion) Linfield would also have had to pay the additional sum due on completion over and above the purchase price stipulated in the Sale Contract having regard to the delay in completion. 8. True it is that Linfield may have been in a stronger negotiating position vis-à-vis the Guan appellants when arranging finance through ACFM or another lender at that stage (which at least to some extent weakens the force of ACFM's submission that Linfield must inevitably have been worse off once SXG reneged on its obligation to purchase the properties). However, the evidence makes clear that some such borrowings would have been necessary and it is likely that any financier would have required security over the Auburn land in respect of those borrowings. 9. Not only did the position Linfield was prepared to accept under the Structure Paper proposal involve ACFM being granted security over the property for the finance it was proposed that ACFM would provide, but also the separate discussions between Mr Lin and ACFM as to the possibility of the latter funding Linfield's acquisition of the property if it were to exercise the Call Option prior to completion contemplated that ACFM would be paid interest on the funds advanced by it and would have security over the property. Therefore, even though there is force in Linfield's submission that, by reason of ACFM's conduct, it had little or no choice but to acquiesce (to the extent that it did) in completion taking place on 5 August, Linfield nevertheless benefited by the funding provided by ACFM. 10. In those circumstances, the primary judge's refusal to "ameliorate" the position of ACFM because of the disentitling conduct in which his Honour found ACFM had engaged was in my opinion unreasonable. It is understandable that the primary judge may have considered that ACFM should not profit to Linfield's disadvantage as a result of its conduct. However, it is difficult to see why Linfield should be put in a better position than it would, on any view of the matter, have been had it been given the opportunity it says it was denied of securing funding elsewhere for the purpose of exercising its Call Option prior to completion. ACFM Appeal – Appropriate relief 1. That leads to the question as to what conditions should be imposed, in re-exercising the discretion, on the grant of relief. In the circumstances, I consider that it is appropriate that Linfield be required to pay not simply the price payable on exercise of the Call Option but also that it bear the additional sum of $360,364.14 which was required for completion to occur on 5 August 2014 (and which was funded by ACFM) plus interest on the amount advanced by ACFM for an appropriate period. Though its principal position was that the judgment and orders made by the primary judge should be upheld, Linfield appears to have accepted that if interest were to be ordered to be paid by it then the appropriate rate would be 12% per annum (as sought in the alternative orders proposed by ACFM – see below at [291]). There is however a dispute as to the period for which interest should be paid by Linfield. Linfield also appears to accept that it would be appropriate for it to pay ACFM's reasonable costs incurred in relation to land tax, insurance rates and utility charges in relation to the land but again it disputes the period for which it should be responsible for those amounts. Proposed orders and opposing submissions 1. On the second day of the hearing, ACFM handed up the proposed orders it would be seeking in the event that it succeeded in the appeal. Relevantly, on the scenario corresponding with the conclusions I have reached above, and leaving aside for the moment the question of costs, the orders it sought were as follows: (5) … (a) Set aside orders 4, 5 and 11 of the declarations and orders made on 31 March 2016; (b) Order that the first respondent pay to the appellant the sum of $360,364.17 [sic] plus interest on the sum of $20,360,364.17 [sic] at 12% from 5 August 2014 to date together with the appellant's reasonable costs incurred in relation to land tax, insurance rates and utility charges incurred from 5 August 2014 to date in respect of the Land; (c) Declare that the first respondent is entitled to receive from the second respondent on payment of the sum of $20,000,000 million a transfer of the Land in registrable form free from any mortgage, charge or encumbrance other than the first respondent's Caveat No. AJ792023 [sic]. [Note, there appear to be some typographical errors in these orders as the evidence of the cheques advanced on completion is that the total sum paid was $20,360,364.14 and the title search included in the appeal books lists the relevant caveat as AI792023] 1. Linfield, as adverted to above, sought to limit the period in respect of which interest and other sums referred to in the proposed order 5(b) be paid to the period between 5 August 2014 (the date of completion of the Sale Contract) and 4 February 2014 (the 10th business day after exercise of the Call Option on 20 January 2015, when SXG was required under the Development Agreement to deliver an executed transfer in respect of the property), as reflected in its amended draft order 5: (5) … (a) Set aside orders 4 and 5 of the declarations and orders made on 31 March 2016; (b) Order that the first respondent pay to the appellant the sum of $360,364.17 [sic] plus interest on the sum of $20,360,364.17 [sic] at 12% from 5 August 2014 to date 4 February, 2015, together with the appellant's reasonable costs incurred in relation to land tax, insurance rates and utility charges incurred from 5 August 2014 to date 4 February, 2015 in respect of the Auburn Land; (c) Declare that the first respondent is entitled to receive from the second respondent (through its receivers and managers) on payment of the sum of $20,000,000 million a transfer of the Auburn Land in registrable form free from any mortgage, charge or encumbrance other than the first respondent's Caveat No. AJ792023 [sic]. [amendments shown in revision mode] 1. SXG proposed its own revised set of draft orders, relevantly seeking to add the following words in parenthesis after the words "first respondent is" in ACFM's proposed order 5(c): "subject to any valid interest claimed in Caveat No. AJ242196 lodged by Mr Nassif". 2. As to the period for which Linfield should pay interest to ACFM on the funds advanced to SXG and holding costs paid in respect of the Auburn land, Linfield raises the following matters. It notes that in January 2015, ACFM and SXG, through its receivers and managers appointed by ACFM, refused to accept that Linfield was entitled to exercise the option. It says that its requests for a payout figure pursuant to ACFM's mortgage in January 2015 went unanswered and therefore it remained unaware of the payout amounts. It says that the submission that Linfield was entitled to specific performance subject to terms was first raised by ACFM on the final day of the hearing (pointing among other things to the lack of such a statement in ACFM's defence) (see T 32.25 - 34.50). (ACFM disputes this and says that its position was first raised during argument concerning relevance objections on the third day of the nine day hearing, the primary judge having earlier declined to hear an oral opening from ACFM.) 3. Further Linfield says that Mr Lin attempted to negotiate a new development agreement after 5 August 2014 and was informed by Mr Chen that he should speak to Ms Guan directly, which Linfield submits was pointless as title to the Auburn land was to be transferred to a new entity (see transcript of 1.12.2016 at T 71.5). 4. Linfield argues that it is inequitable for it to have to bear all liabilities in respect of the land after 4 February 2015 when the reason for the delay since then has been the opposition of ACFM and the Guan interests both to the transfer of the Auburn land to it and to the "honouring" of the Structure Paper; and in the context of the refusal by ACFM to provide any payout figure. 5. ACFM maintains that it is impossible to say that the "reason for the delay" in Linfield obtaining title to the Auburn land is attributable to ACFM, pointing to the position that Linfield itself took, namely that it had priority over ACFM's interest such that it was not obliged to pay anything other than the option fee to secure the property. ACFM refers in this regard to a letter dated 22 January 2015 in which Linfield stated its position as follows: It cannot, therefore, be in dispute that our client's rights under the Development Agreement, including, of course, our client's rights under Clause 18 with respect to the Call Option, came first in time and were in place many months before ACFM could have acquired any rights or interest in the Land pursuant to the instruments it relies upon ... It follows that any rights of the receivers and managers (and any rights of ACFM) operate inter partes as between SXG on the one hand and the receivers and managers/ACFM on the other hand. They do not impact or bear upon our client's client pre-existing rights to acquire the land pursuant to the Call Option... (and to other correspondence). 1. ACFM's position is that, assuming an order of the kind in the proposed order 5 is made, neither the position taken by ACFM nor that taken by Linfield in 2015 was entirely correct, the practical effect of which has been an impasse or stand-off with neither party being more obviously at fault. It argues that it cannot be said that, had ACFM disclosed to Linfield in February 2015 the amount owing under the Loan Agreement, Linfield would have taken any different position since Linfield's primary position has always been that the amount owing is irrelevant because Linfield has priority (noting that Linfield's proposed orders in the event that ACFM's interest were found to have priority indicate that it still resists paying the full amount actually owing under the Loan Agreement). 2. ACFM submits that Linfield's refusal to recognise ACFM's interest (which interest arose as a result of steps taken by ACFM to preserve the subject of the Call Option) ought not be rewarded through permitting Linfield to have, in effect, interest free finance from ACFM and to be free of any liability incurred as a result of preserving the Auburn land (in the form of "holding costs"). ACFM notes that if Linfield had acquired the land in February 2015, it would have had to pay interest and holding costs from that time to date and points out that Linfield does not contend that it could have paid the $20 million Option Fee without borrowing that money and to the evidence on that topic which was that it did need to borrow that money. Determination 1. I consider that there is force in ACFM's argument that the delay in the transfer of the property to Linfield was caused or contributed to by both parties adopting opposing positions that led to the impasse between them. ACFM maintained that it had priority and did not, at least clearly, put the position that it would not oppose an order for specific performance subject to conditions being imposed on such an order until towards the close of the hearing at first instance. Linfield, on the other hand, maintained an entitlement to have the property transferred to it free of any encumbrances and, though seeking a payout figure, did not indicate that it would be prepared to pay out ACFM's mortgage at least insofar as it was limited to the moneys advanced on completion. However, the delay since the primary judgment seems to me largely, if not wholly, to be attributable to ACFM's appeal, which was not limited to the issue as to whether an order for specific performance should have been made subject to conditions. 2. Moreover, while it can be accepted that, once SXG reneged on payment of the purchase price, Linfield would have had to pay interest on borrowings and holding costs in relation to the land even if ACFM had not stepped in to fund the acquisition as it did, the delay in the transfer of the property to Linfield that has occurred as a result of the refusal by SXG, through its receivers and managers, to provide an executed transfer will necessarily have delayed any proposed development of the site such that as a practical matter it can be inferred that Linfield is now likely to incur greater holding costs than would otherwise have been the case. 3. In all the circumstances I consider that the appropriate period for which Linfield should bear the interest and holding costs is from 5 August 2014 through to 14 March 2016, when judgment was handed down in its favour. To that point, it may be accepted that ACFM was in the position of preserving the subject matter of dispute, when incurring holding costs and the like. Thereafter, however, the delay was largely if not wholly due to its appeal and ACFM did not approach the appeal (prior to the hearing of the appeal) on the basis that the principal outcome it sought was simply the amelioration of its position in relation to interest, holding costs and the like. 4. Insofar as the amendment put forward by SXG is concerned, this apparently relates to a caveat lodged by Mr Nassif. Linfield notes that Mr Nassif was notified of the first instance proceedings and did not participate in the proceedings; that the primary judge referred to this caveat at [119], noting that it had been lodged after the exercise of the option and that he had been told it related to a right of first refusal in respect of the property; and that primary judge had pointed out that a right of first refusal does not constitute a caveatable interest in land (referring to Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510 (at [119]). Linfield says that it is incumbent on SXG (through its receivers) to issue a lapsing notice and take all steps necessary to have the caveat removed if it does not automatically lapse. It submits that his Honour's finding and the orders which accommodate that issue ought not be disturbed. I agree. 5. Finally, in relation to the orders proposed by ACFM, and the amendments suggested by Linfield, proposed order 5(c) does not in terms take into account that SXG Holding is now the registered proprietor of the Auburn land. I can only assume that Linfield's consent to the registration of the transfer to SXG Holding involved an agreement on the part of SXG Holding as to what would follow if, as I have concluded is the case, Linfield was entitled to receive an executed transfer of the Land in its favour. In the event that some further order is required to effect the necessary transfer of the land to Linfield, I would grant Linfield liberty to apply on 3 days' notice for such an order, with brief submissions as to why it is necessary and should be made. ACFM Appeal – Costs 1. In the event that its appeal were to be allowed, ACFM sought an order that Linfield pay its costs of the appeal and of the hearing before the primary judge. 2. Linfield's position, to the contrary, was that in the event that the Court made an order of the kind proposed in either version of order 5 (which is what I propose should occur) then the costs of the hearing at first instance should not be disturbed having regard to the position that ACFM took from the date the Call Option was exercised and the manner in which ACFM ran the hearing at least up until the final day. (I apprehend that this is a reference to the time at which Linfield says ACFM first raised the possibility that orders might be made for specific performance but attaching as a condition the payment to it of interest and/or holding costs.) As to the appeal costs, Linfield submitted that if an order in terms of the proposed order 5 were to be made then ACFM would not have enjoyed substantial success on appeal, and Linfield would seek 75% of its costs of the appeal. 3. As to costs as between Linfield and ACFM, I would propose that there be no variation to the cost orders made at the trial. Linfield succeeded at trial in obtaining orders for the transfer of the property to it, albeit unencumbered and without imposition of the conditions that I now propose should be imposed on the order for specific performance. It has in large part retained the benefit of that judgment. ACFM's position in its pleaded defence, though modified in the course of the hearing at first instance, was to deny the entitlement to specific performance at all. In those circumstances I would not interfere with the primary judge's cost orders as between those parties. 4. As to the costs of the appeal, I accept the submission made for Linfield that it has in substance succeeded in defending the appeal. ACFM has, nevertheless, succeeded in obtaining an order for the payment of the interest and holding costs. I consider that to reflect the different measures of success each party has had ACFM should pay Linfield 75% of Linfield's costs of the appeal. Guan appeal 1. I now turn to the appeal by Ms Guan, Shuangling International Development Pty Ltd and Shuang Sheng Pty Ltd (the Guan appellants). They pressed their appeal from the primary judge's decision on four only of the grounds contained in their notice of appeal filed on 14 June 2016. In particular, they did not press challenges to the finding that Linfield had not abandoned the Development Agreement thus discharging them from any liability as guarantors (grounds 1-4), nor the findings as to estoppel (ground 5) and repudiation (grounds 6-9). 2. The grounds of appeal that were pressed went to the Guan appellants' contention that cl 18.8 constituted a penalty and was void or unenforceable or that SXG was otherwise entitled to relief against forfeiture of its interest in the Auburn land (grounds 10-13). Those grounds are as follows: 10. The primary judge ought to have held that: a. clause 18.8 of the Development Agreement constituted a penalty, and was thus void; and/or b. SXG was entitled to relief against forfeiture of its interest in the property. 11. Contrary to the findings recorded at paragraph [94] of the Judgment, the primary judge ought to have held that: a. the transfer of the property required by clause 18.8 was unrelated to the damage which might be suffered by Linfield; b. clause 18.8 might be triggered by any breach of the Development Agreement; c. the said transfer constituted an additional detriment for SXG, in circumstances where Linfield retained the right to sue for damages, pursuant to clause 18.6(d) of the Development Agreement, d. with the result that clause 18.8 constituted a penalty. 12. The primary judge: a. erred in concluding that the question as to whether clause 18.8 constituted a penalty was to be assessed only by reference to the circumstances pertaining at the date of entry into the Development Agreement; b. ought to have held, by reference to Ringrow Pty Limited v BP Australia Limited [2005] HCA 71; (2005) 224 CLR 656, that the question of penalties ought be considered by reference to the actual value of the property at the time of transfer, and not merely its value as at the date of entry into the Development Agreement; c. further or in the alternative, ought to have held that the increase in value of the property after 20 December 2013 was relevant to the assessment of clause 18.8 as a penalty at that earlier point of time; d. erred in not making any findings about the value of the property after 20 December 2013; e. erred in not accepting and acting upon the uncontradicted evidence of SXG's expert (Mr Sukkar) as to the true value of the property as at June 2014 and November 2014. 13. The primary judge also erred in discounting the evidence of SXG's expert because he used the 'highest and best use' analysis, when the expert also used/incorporated a comparison method of valuation and sought to identify the property's market value. 1. The primary judge noted (at [92]; [95]) that whether a provision is a penalty is a question of construction in a wide sense, having regard to its terms and the inherent circumstances of the contract, judged at the time of the making of the contract. As adverted to earlier, his Honour saw nothing extravagant, oppressive or unconscionable about the terms or operation of the Call Option ([91]; [94]). His Honour considered (at [91]) that, on their face, the Call Option provisions did not appear penal in character on the basis that they appeared to be designed to ensure that if the Call Option were exercised Linfield would be in the same position that SXG would have been in, but no better. 2. The Guan appellants contend, to the contrary, that cl 18.8(b) is a penalty that is void both at common law and in equity. They argue that, at common law, a contractual provision amounting to a penalty is void and unenforceable, without the need for the discretionary intervention of equity (referring to the judgment of Gageler J in Paciocco v Australia and New Zealand Banking Group Ltd (2016) 333 ALR 569; [2016] HCA 28 (Paciocco (HCA)) at [122]), though noting that his Honour observed (at [124]) that this is comparatively rare. 3. Insofar as the Guan appellants invoke the doctrine of penalties at common law, they argue that this is a case where there has been breach of a "non-promissory primary contractual obligation" (referring to what was said by Gageler J in Paciocco (HCA) at [126]), namely a breach by SXG of its responsibility to ensure that it did not commit an Event of Default (as defined in cl 18.1). 4. As to the claim that the clause amounts to a penalty in equity, the Guan appellants note that in Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30, the High Court made clear that in equity the penalty doctrine is not conditioned on an anterior breach of contract (approving the reasoning of Brereton J in Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2007] NSWSC 406 at [74]). In Andrews, the High Court said (at [10]) that: … 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. The first party is relieved to that degree from liability to satisfy the collateral stipulation. 1. For present purposes, however, little turns on the distinction between penalties at common law and in equity, since the principles as to what constitutes a penalty do not relevantly differ according to whether or not the doctrine has been triggered by an anterior breach of contract (Arab Bank Australia Ltd v Sayde Developments Pty Ltd [2016] NSWCA 328 at [73]-[74]). 2. The nub of the dispute in the present case is as to the primary judge's finding that the Call Option was not penal in its operation. Before turning to the arguments on that issue (grounds 10-11) it is convenient first to address the issues raised by grounds 12 and 13 of the notice of appeal, since they are logically anterior to the conclusions challenged in grounds 10 and 11 of the notice of appeal. Grounds 12 and 13 1. As to ground 12 of the grounds of appeal, the Guan appellants first take issue with the conclusion by the primary judge that the assessment of whether the clause was a penalty was to be undertaken only by reference to the circumstances pertaining as at the time of entry into the contract (see [92]; [102]-[103]) (grounds 12(a)-(c)). 2. In this regard, the Guan appellants refer to what was said in Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656; [2005] HCA 71, a case involving forfeiture of an interest. They contend that the High Court considered (at [21]) that a "forfeiture case" required a different approach from that employed in "typical penalty cases" and that one relevant comparison would be between the price payable by the party in default to the innocent party on retransfer of the property and the actual value of what was transferred. They place weight on what was said at [22], namely that: In assessing extravagance and oppressiveness, it is necessary to be able to compare the price to be paid and the value of what is to be transferred as a result of the option's having been exercised. 1. The Guan appellants also invoke the statement of principle in MGL (at [18-220]) to the effect that relief against forfeiture directs attention to the forfeiture, "how it occurred, its effects, and the propriety of allowing it to stand". They argue that in a case where the alleged penalty is constituted by a transfer of assets, the relevant time for assessment of the value of the assets is the time of the proposed transfer. 2. Further, the Guan appellants submit that even if regard is properly had only to circumstances as at the time of entry into the contract, it is nevertheless permissible for the court to have regard to events subsequent to that time, referring to what was said by Lord Woolf in Philips Hong Kong Ltd v The Attorney General of Hong [1993] 1 HKLR 269 at 280, namely that: The fact that the issue has to be determined objectively, judged at the date the contract was made, does not mean what actually happens subsequently is irrelevant. On the contrary, it can provide valuable evidence as to what could reasonably be expected to be the loss at the time the contract was made. 1. The Guan appellants also make a number of complaints as to the primary judge's treatment of the valuation evidence including: that his Honour made no findings, and did not accept and act upon the evidence of their valuer, Mr Sukkar, as to the true value of the property after 20 December 2013 (grounds 12(d) and (e)); and that his Honour discounted their valuer's evidence on the basis that he had used a "highest and best use" analysis, when Mr Sukkar had also used a comparison method of valuation (ground 13). 2. The Guan appellants complain that the primary judge rejected the reasoning of Mr Sukkar in relation to the December 2013 valuation for three reasons: first, because his Honour regarded the other expert, Mr Rowlands, as "significantly more experienced" than Mr Sukkar ([100]) and an impressive expert witness; second, because his Honour rejected some of the critical assumptions relied upon by Mr Sukkar ([101]) without explaining why this was so and, if regard be had to the November 2014 valuation, without explaining how the rejection of those assumptions impacted on the valuation; and, third, because his Honour criticised Mr Sukkar's reliance upon the highest and best use methodology (see [98]-[100]). Determination 1. As to the relevant time at which the assessment as to whether the clause is penal should be made, there was no error by his Honour. It is clear that whether a stipulation amounts to a penalty is a question of construction to be decided upon the terms and inherent circumstances judged as at the time of the making of the contract (Dunlop Pneumatic Tyre Company Limited v New Garage & Motor Company Limited [1915] AC 79 at 86; Arab Bank at [74]). 2. Insofar as the Guan appellants have contended that the High Court in Ringrow at [21] considered that a "forfeiture case" required a different approach from that employed in "typical penalty cases", it may be that they are not here using forfeiture in a technical sense; that is, as referring to the equitable doctrine of relief against forfeiture, since Ringrow itself was not a case of relief against forfeiture (Ringrow at [5]; [9]); it was a case of relief against penalties. Nevertheless, the submission does raise the issue as to the application of the penalties doctrine when invoked in the context (as in Ringrow) where it is not the transfer of money but rather of money's worth (real property) which is the subject of the impugned stipulation. 3. As the High Court noted (at [21]) in Ringrow, there are cases in which the penalties doctrine has been applied in such a situation. MGL notes (at [18-100]) that "the analysis typical in the case of a secondary stipulation whose subject is money must be adjusted before being applied in a case of a secondary stipulation about particular items of property". But there is a difficulty here. As also pointed out in MGL (at [18-220]) the penalty doctrine "focuses attention exclusively on the penal stipulation and its purpose" whereas the doctrine of relief against forfeiture "calls attention to the forfeiture, how it occurred, its effects, and the propriety of allowing it to stand". In circumstances where the former doctrine is sought to be applied in factual circumstances that also might attract the latter doctrine, a tension arises. The penalties doctrine requires characterisation of an impugned stipulation by reference to the circumstances as at the time of entry into the contract (Dunlop at 86; Paciocco (FCAFC) at [95]; [103]; [147]; [148]; [173]; [187]; Paciocco (HCA) at [62]; [169]; Arab Bank at [74]) but the forfeiture doctrine focuses upon the nature of a forfeiture which occurs ex hypothesi after the time of entry into the contract. 4. The question then becomes: if the penalties doctrine is applied where the alleged additional burden which is imposed on a party is a transfer of property (forfeiture in the looser sense used by the Guan appellants) rather than money, does the traditional approach to timing apply? In other words, is the Court confined to looking at the circumstances and value of the relevant property only as at the date of entry into the contract? 5. In Ringrow, assuming that the penalties doctrine applied and also assuming certain factual findings were made out, the High Court noted (at [21]) that "one relevant comparison [in assessing whether the impugned stipulation was penal] would be between the price payable … on retransfer … and the actual value of what is transferred". Applying that approach to the facts, the Court suggested (at [21]) that "a suspicion would arise that what was retransferred might be worth more than the price to be paid for it". However, the Court immediately recognised (at [21]) that "a mere difference is not enough, let alone a suspicion of a difference" as the comparison called for "something 'extravagant and unconscionable' in the value of what is transferred compared to the price to be received". 6. In my opinion, the approach in Ringrow applies to the present case. Even assuming that it is permissible (when applying the penalties doctrine) to look in hindsight to the actual value of the Auburn land at the time when the impugned stipulation is to operate, or to look prospectively at what its value would then likely be, it is not sufficient that the impugned stipulation be lacking in proportion – it must be "out of all proportion" (Ringrow at [32]). That is not the case here, for the reasons I explain in dealing with grounds 10(a) and 11(a)-(d) below. 7. Furthermore, the remarks in Ringrow must now be viewed in light of the decisions of Andrews and the Paciocco (HCA). Those decisions emphasise the importance of characterising a penal stipulation as at the time of entry into the contract. In Arab Bank, McDougall J (with whom Gleeson JA and Sackville AJA agreed) identified (at [74]) the following proposition as having been confirmed by the majority in Paciocco (HCA): The analysis is to be made at the time, and taking into account the circumstances applicable, when the contract was made; not at the time of breach; the analysis is prospective, not retrospective (or as is said in some judgments, is ex ante, not ex post). 1. In light of this, any contention that the primary judge erred in concluding that the question as to whether the clause constituted a penalty was to be assessed by reference to the circumstances pertaining at the date of entry into the Development Agreement must be rejected. Whether his Honour could properly have taken into account events beyond that date would depend on whether, as the authors of MGL postulate, the analysis typical in the case of a secondary stipulation whose subject is money should here have been adjusted before being applied in a case of a secondary stipulation about particular items of property. I note that both Arab Bank and Paciocco (HCA) were penalty cases in which a stipulation concerning money was impugned. They were not cases in which a stipulation required the transfer of real property pursuant to a call option. 2. In any event, even if the primary judge could be said to have erred in looking only to the circumstances pertaining at the date of entry into the Development Agreement and no later (grounds 12(a)-(b)), I am not convinced that the impugned stipulation in this case was out of all proportion to any legitimate interest that Linfield had in enforcement of the Development Agreement (grounds 10-11). 3. Accordingly, grounds 12(a)-(b) are not made good. 4. As to the complaints made in relation to the primary judge's non-acceptance of Mr Sukkar's valuation evidence, I note that Mr Sukkar valued the Auburn land as at December 2013 at between $21.7 million and $24.1 million; as at June 2014 at between $28.4 million and $31.2 million; and as at November 2014 between $35.85 million and $39.6 million. The primary judge was not satisfied on the evidence that, as at 20 December 2013, the value of the Auburn land was more than $20 million (at [97]). His Honour reached that conclusion on the basis of Mr Sukkar's concession in cross-examination that reasonable minds could differ as to the risk factor rate to be chosen and that Mr Sukkar had accepted that a reasonable and competent valuer could equally have chosen a rate of 25% (which would have brought the valuation of the land down to between $19.7 million and $22.3 million) (at [97]). 5. As to the first of the complaints made by the Guan appellants, I do not read the primary judge's reasons as amounting to a rejection of Mr Sukkar's opinions on the basis of a comparison of the respective experts' experience. His Honour certainly noted (at [100]) that Mr Rowlands was significantly more experienced than Mr Sukkar but, as I read his Honour's reasons, the preference for the former's opinion as to the value of the land at December 2013 was based on his Honour's conclusion as to the more appropriate methodology for valuing the property and the concession made by Mr Sukkar that a reasonable and competent valuer could equally have chosen a risk factor rate that would have led to a much reduced valuation. 6. As to the second of the complaints, the primary judge identified (at [101]) a number of matters in respect of which Mr Sukkar's report rested on critical assumptions (time for development approval, number of units that might be approved, the adoption of a 22% risk factor, the internal rate of return, the existence of pre-sales, and the impact of flooding and the easement). His Honour said (at [101]) he was not satisfied that there was a proper foundation to accept several of those assumptions. 7. True it is that the primary judge did not proffer reasons for his lack of satisfaction as to each of the matters listed as included in those critical assumptions. It is relatively clear, however, that the basis on which his Honour expressed a lack of satisfaction was that, as at December 2013, there were "numerous uncertainties that pertained to the development, including the absence of development approval" ([98]). His Honour went on to say (at [98]) that: "[i]nnumerable possibilities and countless combinations and permutations relating to design, layout, density and cost remained to be resolved". His Honour also explained why he was not satisfied as to the appropriate level of risk factor (namely that reasonable experts could conclude otherwise). In those circumstances the complaint as to adequacy of reasons cannot be sustained. As to the complaint in relation to the lack of explanation for a finding as to the impact of his Honour's view as to those assumptions on the valuation at November 2014, this did not arise if (as I consider to be the correct view) the question whether the clause was penal in nature was to be assessed as at the date of entry into the Development Agreement. 8. Finally, as to the third of ACFM's complaints (namely, the criticism of Mr Sukkar's reliance upon the highest and best use valuation methodology), the fact that Mr Rowlands accepted that the methodology was a permissible one to adopt is not determinative of the issue. The primary judge explained why, as at December 2013, he did not consider it appropriate for such a methodology to be used. I am not persuaded that this was an incorrect conclusion to be reached on the evidence, bearing in mind that it was supported by Mr Rowlands' view as to the essential weakness in that methodology. 9. As to Mr Sukkar's reliance on comparable developments to reach an 'as is' site value (on the assumption there was no development approval), again this was a question of weighing the expert evidence. 10. While the primary judge's reasons were brief, it was not necessary for the purposes of the enquiry before him that the primary judge determine a precise value for the land as at December 2013; nor was his Honour asked to do so in the context of any assessment of damages (as the Guan appellants point out). What is relevant is that there was evidence on which his Honour could reasonably conclude that, as at the time of entry into the Development Agreement, the price at which the Call Option was exercisable (if exercised prior to the grant of development approval) was not so "extravagant and unconscionable" or "out of all proportion" in the relevant sense such as to warrant a conclusion that the Call Option was penal in its operation. Grounds 10 and 11 Guan appellants' submissions 1. Going back to the penalty issue, the Guan appellants point to the fact that the relevant clause (variously identified as cl 18.6 or cl 18.8) might have been triggered by any breach of the Development Agreement, however trivial, subject only to the Default Notice procedure. They argue that the transfer of the property required by that clause was unrelated to the damage that might be suffered by Linfield on the occurrence of such an event of default. 2. They further argue that where the Call Option was exercisable under cl 18.8(b) (that is, before completion of the Sale Agreement) this was in circumstances where Linfield had security under cl 9 for whatever sums might be payable to it under the Development Agreement and where Linfield retained any accrued right to sue for damages against SXG and the Guarantors pursuant to cl 18.6(d). The Guan appellants refer to the analysis by Kiefel J (as her Honour then was) in Paciocco (HCA) (at [21]) as to the history of equity's intervention in this area and emphasise that historically it was the availability of compensation which generated the equity upon which the court intervened. They argue that in the present case the ability to appropriate SXG's interest as registered proprietor was an additional right conferred on Linfield independent of any claim for damages and argue that the availability of compensation was such that equity could properly intervene. 3. Reference is made to Luu v Sovereign Developments Pty Ltd (2006) 12 BPR 23,629; [2006] NSWCA 40 where Bryson JA considered (at [31]) that a special condition which required that, on default, the purchase price be augmented by 10% had no discernible connection with damages or pre-estimate of damage flowing from the default; his Honour there noting that the same sum was payable on the occurrence of defaults different kinds, some of which might occasion only trifling damage. 4. The Guan appellants place considerable weight on the value of the Auburn land for development purposes and on the comparison between the option price payable prior to completion and how the option price was to be calculated if the Call Option were exercised after development consent had been obtained (cl 18.8(c)). They point to the significant development contemplated by the Development Agreement and argue that at the time of entry into the Development Agreement the parties must have contemplated that a substantial period might elapse before the development approval was granted and that the value of the Auburn land might increase in the meantime. They refer in this regard to the uncontradicted evidence of Mr Sukkar to the effect that the market was rising as at December 2013. 5. The Guan appellants point to the lack of a mechanism, in circumstances where the Call Option was exercised prior to completion of the Sale Contract, to compensate SXG for the loss of the true value of its interest in the land as amounting to the imposition of an additional detriment on SXG and the extraction of a corresponding additional (potentially windfall) benefit for Linfield. Linfield's submissions 1. Linfield emphasises the high hurdle that it has been recognised must be met in order to set aside a commercial bargain, because it is an exception to freedom of contract (referring to what was said by Middleton J in Paciocco (FCAFC) at [400]-[401]). In that case, Allsop CJ referred (at [147]) to "the prospective assessment of compensation commensurable with the interest of the obligee protected by the bargain" (see [95], [103], [148] and [187] of his Honour's reasons). Thus Linfield submits that it is not a question of proving damage from a particular breach after the event, that being the basis on which it says the Guan appellants proceeded before the primary judge. 2. Linfield also emphasises that the relevant contractual provision will not be a penalty (at law or in equity) unless it is established by the party contending that it is a penalty that the provision was "extravagant and unconscionable" in amount in comparison with the greatest loss that could be conceivably proved (Dunlop at 86-87), namely something that is "out of all proportion" to the potential loss (Ringrow at [32]; reaffirmed Paciocco (HCA) at [32], [54], [57], [69], [154] and [156]). 3. Linfield argues, by reference to Mr Sukkar's valuation of the land as at December 2013, that the price payable on exercise of the Call Option prior to completion of the Sale Contract was not "out of all proportion" to Linfield's greatest potential loss. It points to its obligations as at the date of the grant of the Call Option (to pay $1,000,000 by way of Deposit Loan for the deposit; to advance a further loan up to a maximum of $5,000,000 if called upon to do so within a specified period; and to incur expenses incurred in the preparation of the development application and conduct of the project (which were estimated at $2,068,078 – see Mr Lin's affidavit 11 December 2015 at [68])). Thus Linfield argues that, accepting the top end of the range of values assessed by Mr Sukkar ($24,100,000) as at December 2013, Linfield's prospective loss on the happening of the insolvency event was that it would be obliged to pay $20,000,000 on exercise of the Call Option together with the above expenditure (an amount of up to $3,968,078); or, if the lower end of the range were to be taken, the difference would be an amount of $6,368,078. 4. Linfield argues that there was thus no potential windfall gain to it as a consequence of the Call Option rights as at the date of entry into of the Development Agreement. Linfield points out that the analysis becomes even less favourable to it if Mr Sukkar's risk rate factor is increased to 25% and if the "highest and best use methodology" is not adopted. 5. Linfield argues that the penalty doctrine is not concerned with whether SXG was or would be adequately compensated "for the loss of its rights as owner" (referring to the Guan appellants' submissions at [47]; [49]); rather, the question is whether the clause provides an additional stipulation which is out of all proportion to Linfield's maximum conceivable loss. In that regard, it submits that opinions expressed by Mr Lin and others as to the value of the Auburn land after entry into the Development Agreement are irrelevant. 6. Linfield argues that the formula in cl 18.8(b) (operative where there was no development application approved) required Linfield to pay to SXG the purchase price and absorb each of the expenses referred to above, which it submits reinforces the non-penal nature of the clause. 7. Linfield asserts that the obvious commercial objective of the Call Option was, relevantly, to protect Linfield by ensuring that it did not lose the valuable opportunity of the benefit of the Auburn land after expenditure of a significant amount of money and the events which triggered the option (as set out in cl 18.6(b)). It points out that not any breach would trigger the Call Option; rather, the events which would trigger the option pursuant to cl 18.6(b) were an Insolvency Event or an Event of Default incapable of remedy or which, if capable of remedy, SXG did not remedy). Further, it says that a right to sue a company in administration or liquidation is not a remedy. 8. As to the Guan appellants' submission that there is no nexus between such other losses (beyond its entitlements and accrued rights to damages preserved by cl 18.6(d)) as Linfield might suffer and the receipt of the Auburn land at a pre-arranged fixed value, Linfield argues that it had a legitimate interest in the acquisition of the Auburn land in order to earn its contracted profit share consequent upon a development of the land and submits that it was this interest that the Call Option was designed to protect. Determination 1. In recent years there has been a divergence between our ultimate appellate Court and that in the United Kingdom as to the scope and nature of the penalties doctrine and the relief available following a determination that a clause is penal (see the decisions of the High Court in Andrews and Paciocco (HCA) and the decision of the Supreme Court of the United Kingdom in Cavendish Square Holding BV v Talal el Makdessi; ParkingEye Limited v Beavis [2016] AC 1172; [2015] UKSC 67). 2. The historical origins of judicial intervention in respect of penalties have been traced both in academic writing (see, for example, AWB Simpson, "The Penal Bond with Conditional Defeasance" (1966) 82 Law Quarterly Review 392; Edith Henderson, "Relief from Bonds in the English Chancery: Mid-Sixteenth Century" (1974) 18(4) American Journal of Legal History 298; Sir John Baker, An Introduction to English Legal History (4th ed, 2002, Oxford University Press) at 325-326; Chris Rossiter, "Relief Against Penalties" in P Parkinson, ed, The Principles of Equity (2nd ed, 2003, Lawbook Co) at 291-296; MGL at [18-005]-[18-020]) and in various judgments (see, for example, Austin v United Dominions Corporation Ltd [1984] 2 NSWLR 612 at 625-628; Citicorp Australia v Hendry (1985) 4 NSWLR 1 at 39-40; AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 186-190; 197-200; 201-203; [1986] HCA 63; Andrews at [33]-[45]; Paciocco (HCA) at [16]-[25] (Kiefel J)). 3. In the present case, the Guan appellants contend both that the relevant clause is properly characterised as a penalty (grounds 10-13) and, in the alternative, that SXG was entitled to relief against forfeiture of its interest in the Auburn land (ground 10(b)). 4. While the two areas of law have undeniable historical and conceptual similarities (see generally, MGL at [18-215]-[18-225]), there remains a "real distinction" between the respective doctrines (Legione v Hateley at [32]). 5. Generally speaking, all cases involving a question of penalties require consideration of three broad issues: first, whether the penalties doctrine is engaged; second, whether the impugned stipulation is penal; and, third, the consequences of a determination that a stipulation is penal. By contrast, in a case involving the doctrine of relief against forfeiture, it is necessary first to identify whether relief is sought pursuant to statute (for example, under s 129 of the Conveyancing Act 1919 (NSW)) or the general law and, if the latter, whether the provision for forfeiture is either meant to secure performance of a primary stipulation or whether reliance on the forfeiture by the party entitled to its benefit is coloured by fraud, accident, mistake or surprise (Shiloh Spinners Ltd v Harding [1973] AC 691 at 722). There then follows a series of questions: first, as in the context of penalties, as to the availability of compensation capable of restoring the status quo ante; second, whether the plaintiff is in fact ready, willing, and able to perform its side of the bargain and to pay the required compensation; third, whether there exists any equitable defence or other discretionary reason why relief should be refused; and, finally, the question of the appropriate relief arises (see generally, MGL at [18-270]). In both situations, the burden rests with the party in the position of the Guan appellants to demonstrate that the impugned stipulation was a penalty (or, alternatively, constituted an impermissible forfeiture of property) in respect of which equity will grant relief. 6. Despite the invocation of the doctrine of relief against forfeiture in ground 10(b) of the grounds of appeal, the Guan appellants largely approached their challenge to the primary judgment by reference to the doctrine of penalties. The conclusion that I have reached in relation to the claim for relief against penalties (set out below) is that the clause is not penal in operation for the reason that the option price is not out of all proportion to the legitimate interests of Linfield intended to be protected by the impugned stipulation (in particular to the maximum conceivable loss that it might be expected could be suffered as a result of the occurrence of an Insolvency Event). As to the claim for relief against forfeiture, I do not accept that compensation is available to make good the loss to Linfield of the development opportunities which the Call Option was clearly intended to preserve, such as to call into operation the forfeiture doctrine. 7. Turning first to whether the penalties doctrine is engaged at all, at first instance in Paciocco v Australia and New Zealand Banking Group Limited (2014) 309 ALR 249; [2014] FCA 35 (Paciocco (FCA)), Gordon J, then in the Federal Court, proposed (at [15]) a framework for resolving a case involving penalties, which is, with respect, a useful point of reference. Her Honour posited (at [15] in questions 3 and 4) the anterior analysis, namely the "identification of those criteria by which the penalty doctrine is engaged" (Andrews at [15]); the relevance of that being that at common law the penalties doctrine is engaged where there is an anterior breach of contract whereas the equitable doctrine of penalties can apply where the primary stipulation to which a penalty is collateral consists of the occurrence or non-occurrence of an event which is neither a breach of contract nor another event which it is the responsibility or obligation of the party subjected to the penalty to avoid (see Paciocco (HCA) at [119] Gageler J). 8. In Paciocco (HCA), the reasons of Gageler J (at [118]-[127]) lend support to an interpretation of Andrews as envisioning a common law penalties doctrine, applicable in most circumstances, modified by a flexible equitable doctrine in certain circumstances. Such an interpretation is consistent with that adopted by Gordon J in Paciocco (FCA) at first instance (at [13]-[32]) and with the approach adopted in this Court in the recent decision of Arab Bank, a case in which the alleged penalty was triggered by a breach of contract (though I note the criticism of such an approach - see, for example, J Carter et al, "Contractual Penalties: Resurrecting the Equitable Jurisdiction" (2013) 30 Journal of Contract Law 109). 9. In circumstances where there is no express obligation in the Development Agreement for SXG to avoid the commission of an Insolvency Event (though implicitly it was one that the parties did not want to occur) and where the Call Option (exercisable in the circumstances contemplated in cl 18.8) is more comfortably seen as a stipulation, collateral to a primary stipulation in favour of Linfield, in the sense considered in Andrews, imposing on SXG (on the Guan appellants' case) an additional detriment on the failure of the primary stipulation to the benefit of Linfield then the penalty doctrine in equity is engaged. 10. Turning then to the question whether cl 18.8 is a penalty (which corresponds to question 5 of the framework proposed (at [15]) in Paciocco (FCA)), it should be noted that the principles for determining whether a clause constitutes a penalty (as distinct from the principles relating to the consequences of amounting to a penalty) do not relevantly differ depending upon whether the penalties doctrine is engaged at law or in equity (see Arab Bank at [73] and [74]). 11. Relevantly, Lord Dunedin's proposition that "the essence of a penalty is a payment of money stipulated as in terrorem of the offending party" (Dunlop at 86) remains a useful starting point (see also, Legione v Hateley at [32]). In Andrews, the Court described (at [10]) a penalty as being "in the nature of a security for and in terrorem of the satisfaction of" a primary stipulation (see also Paciocco (HCA) at [51]-[56] (Kiefel J); [165] (Gageler J); [259] (Keane J); cf Cavendish at [28]; [31]; MGL at [18-025]). In Paciocco (HCA), Gageler J described (at [166]) a penalty as being a stipulation that had "no purpose other than to punish". To similar effect in the same case, Keane J identified (at [253]) the "real objection" to a penalty clause as a matter of public policy as being that "it is no part of the law of contract to allow one party to punish the other for non-performance". 12. The High Court has endorsed the continuing relevance of the decision in Dunlop on numerous occasions (see, for example, Ringrow at [12]; Arab Bank at [71]-[73]). That said, in Paciocco (HCA), Kiefel J (as her Honour then was) noted (at [32]) that Lord Dunedin's proposed "tests" (Dunlop at 87-88) were "couched in the language of their time and were intended as guidance only" and that tests "tend, over time, to encourage literal application" (see also the warning sounded at [18-070]) in MGL). Similarly, Gageler J denied that the Dunlop propositions were "rules of law" (Paciocco (HCA) at [143]; [147]). 13. Characterisation is "a legal question which does not depend upon an evidentiary inquiry into the parties' motivation or subjective intention, purpose or calculations" (Paciocco (HCA) at [243] (Keane J)). In Andrews, the High Court described (at [75]) the critical issue determined in Dunlop as being "whether the sum agreed was commensurate with the interest protected by the bargain". In Cavendish, the correct approach for identifying a penalty was said (at [48]) to be as follows: The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The innocent party can have no proper interest in simply punishing the defaulter. His interest is in performance or in some appropriate alternative to performance. In the case of a straightforward damages clause, that interest will rarely extend beyond compensation for the breach, and we therefore expect that Lord Dunedin's four tests [in Dunlop] would usually be perfectly adequate to determine its validity. But compensation is not necessarily the only legitimate interest that the innocent party may have in the performance of the defaulter's primary obligations. [my emphasis] 1. Earlier, in Paciocco (FCAFC), Allsop CJ had adopted a similar approach in the Full Court of the Federal Court. In remarks quoted (at [151]-[153]) with approval by Lord Mance in Cavendish, Allsop CJ said the following (at [103]): The object and purpose of the doctrine of penalties is vindicated if one considers whether the agreed sum is commensurate with the interest protected by the bargain: Andrews (HC) at [75]; Dunlop at 91-93; Clydebank at 15-17, 19 and 20; Public Works Commission v Hills at 375-376. This is not to say that the enquiry is unconnected with recoverable damages; but the question of extravagance and unconscionability by reference, as Lord Dunedin said in Dunlop, to the greatest loss that could conceivably be proved to have followed from the breach, is to be understood as reflecting the obligee's interest in the due performance of the obligation: Public Works Commission v Hills at 375-376. One only needs to reflect on the facts of Dunlop and the justification for the payment that was found to be legitimate to appreciate these matters. 1. The different approaches of the High Court to this question in Paciocco (HCA) may be summarised as follows. Kiefel J (as her Honour then was), with whom French CJ agreed (at [2]), identified (at [29]) the test as being "whether a provision for the payment of a sum of money on default is out of all proportion to the interests of the party which it is the purpose of the provision to protect" and noted that this interest "may be of a business or financial nature". Gageler J framed the enquiry (at [166]) in terms of whether the impugned stipulation "is properly characterised as having no purpose other than to punish", stating that this compelled "a more tailored" enquiry than the legitimate interest approach adopted in Cavendish. His Honour expressly noted (at [166]) that this was not to say that the differently framed enquiries "might not lead to the same result". Keane J stated (at [270]) that "the question to be addressed in order to distinguish a penalty from a provision protective of a legitimate interest" was "whether the sum or remedy stipulated as a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party's interest in the performance of the contract". Nettle J, though in dissent as to the application of the relevant principles, took a broadly similar approach to that of Keane J. His Honour said (at [319]) that "the Andrews and Cavendish formulations accord with Dunlop" and viewed (at [322]) the matter as turning on whether the case was a straightforward case in which the Dunlop tests would be perfectly adequate to resolve the issues on appeal, or whether the case "should be seen as one of the more complex types of cases referred to in Cavendish which necessitate considerations beyond a comparison of the agreed sum and the amount of recoverable damages". His Honour concluded (at [334]) that there was "no reason why the matter should not be determined in accordance with the Dunlop tests" and proceeded on that basis. 2. With that in mind, it is necessary, first, to identify the interests which are sought to be protected by the impugned stipulation; and, second, to ask whether the impugned stipulation was a stipulation collateral or accessory to another stipulation (the primary stipulation) which imposed an additional detriment upon SXG to the benefit of Linfield in the sense that (consistently with Andrews) it was in the nature of a security for and in terrorem of the satisfaction of the primary stipulation in a manner that (consistently with Paciocco (HCA) and Cavendish) was out of all proportion to the interests of Linfield intended to be protected by the primary stipulation. 3. As the judgments in both Cavendish and Paciocco (HCA) make clear, in identifying the legitimate (or "commercial" - see Paciocco (HCA) at [172]-[176] (Gageler J)) interests of Linfield in the present case, one is not precluded from looking beyond Linfield's interest in compensation for loss caused directly by the failure of the primary stipulation. 4. The submissions by the Guan appellants that a breach founding an Event of Default might be trifling and might not cause SXG to lose control over the Auburn land and that, conversely if SXG's breach was repudiatory, Linfield would be entitled to loss of bargain damages, do not in my opinion properly take into account that if (as here occurred) there was an Insolvency Event (or, which did not occur, a non-remediable event of default), then Linfield would be in the position where it might lose the opportunity to develop the land and share in the profits of that development (in circumstances where it had already invested considerable funds and effort towards the proposed development). The loss of that opportunity would not be recoverable as damages arising from the fact that SXG had failed to avoid the commission of an Insolvency Event, nor could it be assumed that such loss would be readily quantifiable. 5. In the circumstances, I am not persuaded that his Honour erred in concluding that the Call Option was not penal in its operation. In my opinion it was not disproportionate (or "out of all proportion") to the protection of Linfield's legitimate interests in relation to the proposed development, even though with the benefit of Linfield's efforts in progressing the proposed development application at the time of entry into the Development Agreement it might readily have been appreciated that the value of the land might increase in the period between that date and the date on which any development approval were to be granted (at least to some extent). Contrary to the submission made by the Guan appellants, the impugned stipulation does secure Linfield's interest in the project in the sense that Linfield would not then lose the benefit of the opportunity to progress the development project and to obtain the benefits from a successful development project, which opportunity it would necessarily lose if the project were not able to be pursued through no default of its own but through SXG's insolvency. The fact that it might choose instead to sell the property for reward is not to the point. 6. As I have concluded that the impugned stipulation does not constitute a penalty, the issues as to what consequences would flow had it been identified as penal and as to the divergent views taken in Australia (see Andrews and Paciocco (HCA)) and England (Cavendish) do not arise. For completeness, however, I note that insofar as the Guan appellants contend (at ground 10(a)) that, were the clause properly characterised as a penalty, it would have been "void", this is not the case (cf Citicorp Australia Ltd v Hendry at 39-40 (Priestley JA); Integral Home Loans at [8] (Brereton J)). A penal clause is not void ab initio; rather, it is unenforceable (AMEV-UDC at 189, 191-2 (Mason and Wilson JJ); 195, 203 (Deane J); Jobson v Johnson [1989] 1 WLR 1026 at 633 (Nicholls LJ); Andrews at [10]; Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd (2014) 45 VR 79; [2014] VSCA 32 at [55]; Paciocco (HCA) at [122] (Gageler J); [330] (Nettle J)). In equity, the pre-Judicature position was stated (at 357) concisely by Ashburner (see W Ashburner, Principles of Equity (2nd ed, 1933, Butterworth)) as follows: Relief was granted before the Judicature Act in two ways. First, the court … recalled the penalty, if it had been exacted. Secondly, the court restrained the prosecution of an action at law … to recover the penalty 1. Pomeroy provides (at 593) some further explanation (see John Norton Pomeroy, A Treatise on Equity (2nd ed, 1892, vol 1)): The original practice in such cases was for the court of equity to retain the bill, direct an issue to ascertain the amount of damages, and to grant relief upon payment of the damages thus assessed by the jury. … While the two jurisdictions at law and in equity were kept distinct … the form of the remedy in which relief was obtained against a penalty was that of a suit brought by the debtor party to procure the agreement to be surrendered up and cancelled … upon payment of the debt or damages; and this decree would often be accompanied by an injunction restraining an action at law upon the agreement brought or threatened by the creditor party. 1. The modern position in Australia is confirmed (at [10]) in Andrews: If compensation can be made … for the prejudice suffered by the failure of the primary stipulation, the collateral stipulation and the penalty are enforced only the extent of that compensation. The first party is relieved to that degree from liability to satisfy the collateral stipulation. 1. This approach was recognised earlier in the dissenting judgment of Deane J in AMEV-UDC at 195: [It] was a fundamental doctrine of equity that relief in Chancery against the enforcement of a penalty was only available where the quantum of the damage for which the impugned payment would be compensatory could be ascertained and upon the terms that the claimant did equity by paying the amount of the true damnification. … The equitable jurisdiction did not … cease to exist and the terms upon which equitable relief against penalties would be granted remain directly applicable in those comparatively rare cases in which the party asserting unenforceability is constrained to seek positive relief (whether primary or ancillary) which is purely equitable in character, such as an order for reconveyance. In such a case … such relief should be refused unless the plaintiff … submits to the terms on which equitable relief is available and does, or undertakes to do, equity by paying the amount of the actual loss suffered. 1. Thus if the impugned stipulation were to have been properly characterised as penal it would be "unenforceable at common law" (Paciocco (HCA) at [122] (Gageler J)) except (assuming that compensation is available) to the extent that equity would permit "scaling"; and if positive relief which was purely equitable in character were to be sought in respect of that penal stipulation then, as Deane J noted (at 195) in AMEV (to which Gageler J in Paciocco (HCA) at [124] referred with apparent approval), it would (or might) be necessary for the obligor to submit to any terms on which equitable relief were to be made available. In any event, this issue does not presently arise. 2. For the reasons set out above, the Guan appellants' appeal should be dismissed with costs. Conclusion and orders 1. I therefore propose the following orders: In proceedings 2016/104216 (the ACFM appeal) 1. Appeal allowed in part. 2. Set aside orders 4 and 5 of the declarations and orders made on 31 March 2016 and in lieu thereof: 1. Order that the plaintiff (Linfield Developments Pty Limited) pay to the sixth defendant (Australia Capital Financial Management Pty Limited) the sum of $360,364.14 plus interest on the sum of $20,360,364.14 at 12% p.a. from 5 August 2014 to 31 March 2016, together with the sixth defendant's reasonable costs in relation to land tax, insurance rates and utility charges incurred from 5 August 2014 to 31 March 2016 in respect of the Land; 2. Declare that the plaintiff is entitled to receive from the first defendant (Shuangxing Development Pty Ltd (in liq) (receivers and managers appointed)), through its receivers and managers, on payment of the sum of $20,000,000, a transfer of the Land in registrable form free from any mortgage, charge or encumbrance other than the plaintiff's Caveat No. AI792023. 1. Order that the appellant pay the first respondent 75% of the first respondent's costs of the appeal. 2. Grant liberty to the first respondent to apply on 3 days' notice for any further order necessary to effect the transfer of the Land to it. In proceedings 2016/104679 (the Guan appeal) 1. Appeal dismissed with costs. 1. GLEESON JA: I agree with Ward JA. ********** 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. Decision last updated: 17 May 2017