Kay v Playup Australia Pty Ltd

MACFARLAN JA: I agree with Brereton JA save that I do not, because it is unnecessary to do so for the purposes of this appeal, express a view as to whether the doctrine of forfeiture is confined to proprietary or possessory rights and does not extend to mere contractual rights.

BRERETON JA: On 23 March 2018 the applicant Mr Ryan Kay, who had for the preceding 15 years worked in the online gambling industry, entered into a Share Sale and Purchase Agreement (“the SSPA”) with the respondent Playup Australia Pty Ltd, whereby he agreed to sell and Playup agreed to purchase, for a price of $1.6 million, his 100% shareholding in a company then known as Bestbet.com.au Pty Ltd, which operated an online gambling business. [1] Mr Kay, as Seller, gave various warranties as to the financial and other condition of Bestbet (“the Seller Warranties”), [2] including relevantly that the company had no liability for outstanding debts other than those disclosed under Sch 6 or in the ordinary course of business. [3] Mr Kay also agreed not to compete with Bestbet, or solicit any employee or customer of Bestbet, in Australia for a period of three years (“the Restraints”). [4]

Under the SSPA, the parties were obliged to complete the sale on the “Completion Date”, [5] which was defined as two business days after the Buyer received from the Northern Territory Racing Commission (“NTRC”) regulatory approval to operate the business under its existing NTRC bookmaker’s licence, or such other date as the parties agreed in writing. [6] The price of $1.6 million was payable in two components: the “Completion Amount” of $1 million, which itself was payable by an unconditionally non-refundable payment of $1 million upon exchange, and “Nil” on Completion (less any Adjustment, as later described); [7] and the “Deferred Payment” of $600,000, by 24 monthly instalments each of $25,000, commencing on the “monthly anniversary” of the Completion Date. [8] It was provided that if any Deferred Payment was not paid within seven days of its due date, time in this respect being of the essence, the Restraints and the Seller Warranties were “immediately void ab initio”, and the Deferred Payment became immediately due and payable. [9]

Playup received the requisite regulatory approval from NTRC on 18 May 2018, and two business days thereafter was 22 May 2018, which was therefore the Completion Date as defined. However, as Playup, as Buyer, had entered into possession of the business upon exchange, and the whole of the Completion Amount was paid on exchange, the usual features of completion, being payment of the balance purchase price and delivery of possession, had already occurred. The Seller was obliged to ensure, “on Completion”, that moneys accrued in respect of liabilities incurred before the Completion Date were adjusted on the Completion Date. [10] Otherwise, the obligations of the parties at Completion were set out in Sch 9. [11] Those of the Seller relevantly included to deliver to the Buyer:

The only obligation of the Buyer on Completion was to execute a written resolution of the directors of the Buyer resolving to approve the entry by it into, and the performance of its obligations under, the SSPA and the transactions contemplated under it. [20]

Neither Mr Kay nor Playup performed any of these completion obligations, and on no view did completion in fact take place, on 22 May. However, on 7 June 2018, Mr Kay delivered to Playup an executed Deed of Restraint, an executed “Form of Transfer” of Mr Kay’s shares in Bestbet, a further “Australian Share Transfer Form” in respect of Mr Kay’s shares in Bestbet, and Mr Kay’s resignation as a director and secretary of Bestbet. As the primary judge observed, these were the critical documents that Mr Kay was obliged to deliver at Completion, but he has never provided an updated list of all liabilities or an updated debtor list. Nor had he agreed to, let alone paid, the amount of any Adjustment; it was not until 16 July 2018 that Mr Kay agreed that the appropriate Adjustment was $10,707.32.

As at 8 August 2018, Playup had not paid any instalment of the Deferred Payment. On that day, Mr Kay – on the basis that the Completion Date was 22 May 2018, and its first “monthly anniversary” was 22 June – served a creditor’s statutory demand for $589,292.68, being the outstanding balance of the Deferred Payment, less the Adjustment of $10,707.32. On 13 August, Playup paid Mr Kay $19,242.24. [21] On 28 August, Playup paid a further $25,000. However, Playup did not apply to set aside the statutory demand, and on 10 September 2018 Mr Kay commenced winding up proceedings. On 11 September, in order to procure the dismissal of those proceedings and under protest, Playup paid the then outstanding balance of the Deferred Payment, being $520,050.44.

Playup then commenced proceedings for declaratory relief that the Restraints and the Warranties were not void. [22] It contended that:

Playup also contended that cl 4.3(b) was void as a penalty, and alternatively that it should be granted relief against forfeiture.

The primary judge substantially, though not entirely, accepted Playup’s principal argument, holding that on the proper construction of the Agreement, Playup’s obligation to make the Deferred Payment was dependent on Mr Kay agreeing to an appropriate Adjustment, and that cl 4.3(b) was therefore not engaged. [23] His Honour held that Mr Kay’s failure to agree the appropriate Adjustment until 16 July had the effect of suspending Playup’s obligation to commence paying the Deferred Payment until at least the first “monthly anniversary” of the Completion Date after that date, which was 7 August; and that as the first payment was made within 7 days of that date (on 13 August), there was no such default as to engage cl 4.3(b). [24] While seeing force in Playup’s submission that the first “monthly anniversary” was one month from the date of the agreed Adjustment – which would have been 16 August 2018 – his Honour observed that this was not expressly contemplated in the SSPA, and the question did not need to be resolved because the payment of $19,242.24 made on 13 August 2018 was within the seven-day grace period, referred to in cl 4.3(b), after 7 August. [25] His Honour would have rejected Playup’s alternative contentions that cl 4.3(b) was void as a penalty, or that it should be granted relief against forfeiture. [26]

In a supplementary judgment delivered on 5 July 2019, his Honour made the following orders:

Mr Kay seeks leave to appeal to this Court. Leave is required because, although the judgment is a final one, it is merely declaratory and the monetary value in issue is uncertain, so that it cannot be said that an appeal would satisfy either condition in (NSW) Supreme Court Act, s 101(2)(r). [27] However, the application for leave, and any appeal, were heard concurrently, and fully argued.

The proposed grounds of appeal raise the following issues:

By Notice of Contention, as amended at the hearing of the appeal, Playup seeks to uphold the judge’s decision on the grounds that:

Playup also seeks leave to cross-appeal from the rejection of its contention that cl 4.3(b), if enlivened, was unenforceable as a penalty, [33] and from the rejection of its claim for relief against forfeiture. [34]

It is convenient to group and address these issues as follows:

The primary judge held that although, as at 7 June 2018, Mr Kay had not complied with his obligations under cl 6.3 to “ensure that all money accrued up to the Completion Date, but not paid, in respect of liabilities … will be adjusted on the Completion Date”, nor his obligations under sch 9, cll 23.1.1.7 and 23.1.1.8 to deliver an updated list of liabilities and an updated debtor list, the parties nonetheless regarded the transaction as having “Completed” on 7 June 2018, and thereafter conducted themselves accordingly, so that “Completion” in fact took place on 7 June 2018; [35] and, further, that the parties’ exchange of correspondence between 22 May 2018 and 7 June 2018 constituted “an agreement in writing” between them, for the purposes of the definition of “Completion Date”, that the “Completion Date” would be the day when “Completion” actually took place, namely 7 June 2018. [36]

Under cl 4.3(a), the first instalment of the Deferred Payment was due on the first “monthly anniversary” of the Completion Date. Although the term “monthly anniversary” is a curious one, it is not in doubt that it meant the date of each following month that corresponded with the date of the month on which the Completion Date fell. The consequence of his Honour’s conclusion that the Completion Date was 7 June 2018 was that – subject to the question of interdependence, which is discussed below – the first “monthly anniversary”, on which payment of the first instalment of the Deferred Payment was due, was 7 July 2018, in respect of which the seven-day grace period expired on 14 July 2018.

The respondent sought to support his Honour’s conclusion on two bases. The first was that “Completion Date” meant the date on which Completion in fact took place, and that Completion did not take place until 16 August (when the Adjustment was agreed), or alternatively (as his Honour found) on 7 June 2018. The second was that (as his Honour found) the “Completion Date” was extended to (at least) 7 June 2018 by agreement.

In the SSPA, cll 4.2 and 4.3 relevantly provided:

Thus cl 4.3 used the term “Completion” in the context of obligations of the Buyer to pay the balance purchase price (albeit that it was amended to “$Nil”), while sub-cl 4.3(a) used the different term “Completion Date” to specify the time from which the obligation to pay instalments of the Deferred Payment was to be calculated. This is consistent with the different definitions of the two terms. In cl 1.1 of the SSPA, “Completion” was defined to mean:

“Completion” thus describes an event, while “Completion Date” defines a date.

Clause 5.1 of the Agreement provided:

The effect of that provision is to stipulate that the parties are obliged to complete on the Completion Date. It does not equate the “Completion Date” with “Completion”. The “Completion Date” is, in effect, that date on which the parties are obliged to complete. If they do not do so, that does not of itself alter what the “Completion Date” is, any more than, in the case of a contract that provides for completion on a specified date, failure to complete on the specified day somehow varies the contractual completion date. It may mean that a party is in default if it does not complete on that date.

There are further indicia that the terms describe different concepts. Under cl 2.2, the Seller was entitled to receive all dividends and distributions declared in relation to the subject shares before the Completion Date, while the Buyer was entitled to receive all such dividends and distributions declared on or after the Completion Date. Clause 3.3 provided that between the date of the contract and the Completion Date or termination, all profits and losses were to the account of the Buyer. Under cl 6.1, the Seller agreed to satisfy and discharge, and to indemnify the Buyer with respect to, all liabilities of the Company and the Business incurred or accrued before and on the Completion Date, while under cl 6.2 the Buyer was solely responsible to all creditors for, and indemnified the Seller in respect of, all debts and liabilities incurred after the Completion Date. Clause 6.3 provided:

Under cl 6.8 (which dealt with employee entitlements), pro-rata entitlements to wages and superannuation were to be allowed “for the period between their last payment date and the Date of Completion” (not a defined term, but synonymous with Completion Date), and the Seller indemnified the Buyer in respect of all liabilities incurred by the Buyer or the Company with respect to any unpaid superannuation entitlements or other employee claims “in respect to the period before the Completion Date”. Under cl 6.10, it was agreed that all moneys held in the TAB account were excluded from the agreement and were to be retained by the Seller, and that “The Buyer shall pay the balance of the TAB account to the Seller on the Completion Date”.

These provisions indicate that the Completion Date was the date by reference to which adjustments were to be made – regardless of whether or not Completion in fact took place on that date.

Further, cl 23.1.1.4 (in Sch 9) relevantly provided:

The term “Condition Date” is not defined and is an apparent error for “Condition Satisfaction Date”, which is defined, in cl 1.1, to mean “the Completion Date”. Under cl 3.1, the obligations of the parties to complete did not become binding “unless on or before the Condition Satisfaction Date each of the following conditions are fulfilled or waived in writing”. Those conditions included (by cl 3.2) the execution of a restraint by each Key Employee. Clause 23.1.1.4 thus supports the view that Completion might take place after the Completion Date had passed.

These considerations make clear that “Completion Date” and “Completion” are not interchangeable terms, but refer to two different concepts. The “Completion Date” is the date on which Completion was due to take place, and the effective date for Adjustments etc, even if Completion did not in fact happen on that date. “Completion” refers to the actual act of completion.

As has been mentioned, in the context that the Agreement defined “Completion Date” as being two business days after the NTRC approval “or such other date as the parties agree in writing”, Playup received regulatory approval in writing from NTRC to operate Bestbet’s business under Playup’s existing NTRC bookmaker’s licence on 18 May 2018, and two business days thereafter was 22 May 2018. Accordingly, 22 May 2018 was the “Completion Date”, unless (for the purposes of the definition of “Completion Date”) the parties agreed in writing on some other date. His Honour concluded that the correspondence between the parties between 22 May and 7 June constituted such an agreement, whereby it was agreed that the “Completion Date” would be the date on which Completion actually took place, namely (as his Honour found) 7 June 2018.

On 22 May 2018, Ms Robson (who was acting for Playup) wrote to Mr Price (who was acting for Mr Kay):

As to the source of Ms Robson’s instructions, his Honour recorded [37] that Mr Simic (of Playup) ultimately said that completion “was supposed to be deemed to occur on” 22 May 2018. That is entirely consistent with the view that it was with effect from the Completion Date that adjustments were to be made, regardless of when Completion in fact took place. Nothing in that communication remotely supports any view that there had been an agreement on any other date.

On 24 May 2018, Mr Kay wrote to Mr Arora (of Playup) about several outstanding matters, concluding:

On 25 May 2018, Mr Kay wrote to Mr Arora about “the March 23rd financials” of Bestbet, concluding:

On 28 May 2018, Mr Kay sent another email to Mr Arora, attaching financial statements for Bestbet and concluding:

On 29 May 2018, Mr Arora sent Mr Kay a “list of payments made in April and May for the bills accrued before 23rd March”. The attached list showed ten payments made by Bestbet to creditors since 23 March 2018 in respect of liabilities incurred by Bestbet prior to 23 March 2018. The amount related to liabilities incurred prior to 23 March 2018 was $11,778.05 inclusive of GST, or $10,707.32 excluding GST. Thus Mr Arora was proposing that there should be an adjustment in Playup’s favour for that amount, namely the GST inclusive figure of $11,778.05; Mr Kay ultimately agreed, on 16 July 2018, to the GST exclusive figure of $10,707.32.

On 30 May 2018, Mr Kay wrote to Mr Arora:

On 1 June 2018, Mr Price wrote to Ms Robson with reference to a number of issues, concluding:

On 4 June 2018 at 2.54pm, Mr Arora sent an email to Mr Kay:

Once again, that is entirely consistent with the view that the Completion Date was the date with effect from which adjustments were to be made, regardless of when Completion in fact took place. It is inconsistent with there being any agreement on any other Completion Date.

On 5 June 2018, Ms Robson replied:

On 6 June 2018, Mr Simic (of Playup) wrote to Mr Kay, raising several issues and concluding:

Again, far from indicating an agreement that the Completion Date had been extended, this communication manifests that the parties were proceeding on the basis that the contract was in default, because the Completion Date had already passed.

In the documents delivered by Mr Kay to Playup on 7 June 2018 by way of completion, the Deed of Restraint recited that “Completion Date means the completion date of the Share Sale Agreement, which occurred on 21 May 2018”; the “Form of Transfer” of Mr Kay’s shares in Bestbet was dated 24 May 2018; the further “Australian Share Transfer Form” in respect of Mr Kay’s shares in Bestbet was dated “blank/05/2018”; and Mr Kay’s resignation as a director and secretary of Bestbet was dated 21 May 2018.

On 7 June 2018, Mr Arora sent an email to Mr Simic and Ms Robson, reporting:

On the same day, Mr Price sent Ms Robson “by way of final settlement in this matter” copies of the documents which had earlier been delivered by Mr Kay, concluding:

Ms Robson did not respond; no party disputed that completion had then taken place; and thenceforth, the parties acted as if Completion had taken place, and directed their attention to the Deferred Payment. Mr Simic certified as correct the statement in the Form 484 signed by him on 15 June 2018 to the effect that Mr Kay ceased to be, and that he (Mr Simic) became, director and secretary of Bestbet on 22 May 2018.

Subsequently, on 13 September 2018, Mr Amirbeaggi (who was by this time acting for Playup), in a letter to Mr Price (acting for Mr Kay), wrote that “completion of the agreement” occurred on 22 May 2018. And in the winding up proceedings:

The primary judge said:

Then, after referring to some of the correspondence between 24 May and 7 June, his Honour continued:

I agree with his Honour’s conclusion that, despite the references in the aforementioned correspondence to 21 and 22 May 2018 as being the Completion Date or the date on which Completion took place, Completion in fact occurred – and was treated by the parties as having occurred – on 7 June 2018, when Mr Kay delivered the essential documents (including the share transfers and resignations), and after which there was no suggestion that Completion was yet to take place. It is true that Mr Kay did not then discharge all of his Completion obligations: in particular, he did not comply with his obligation under cl 6.3 to “ensure that all money accrued up to the Completion Date, but not paid, in respect of liabilities … will be adjusted on the Completion Date”, nor his obligations under cll 23.1.1.7 and 23.1.1.8 to deliver an updated list of liabilities and an updated debtor list. However, failure to perform an obligation performable on completion does not mean that completion has not taken place. There is no notion that completion if not perfect has not happened; the doctrine of merger exists to negate it, and even though not available here to deny Playup’s entitlement, post-completion, to the Adjustment (as any argument that it merged was waived), it nonetheless serves to illustrate that the failure of a party to perform an obligation on completion does not mean that completion has not taken place. It also follows that the contention raised by Playup, by amendment to its Notice of Contention made, by leave, at the hearing of the appeal, that Completion did not take place on 7 June 2018 (as his Honour found), but not until 16 July, when the Adjustment was agreed, must fail.

However, I am quite unable to agree that there was any agreement, for the purposes of the definition of “Completion Date”, that the “Completion Date” would be the day when “Completion” actually took place. Not only is there nothing in the correspondence which expressly says so, but as has been indicated above, the correspondence of 22 May, 4 June and 6 June, and the settlement documents delivered on 7 June, are quite inconsistent with there being any such agreement, as is the position adopted on behalf of Playup in the winding up proceedings. The various communications that indicate (prior to 7 June) that completion is still anticipated, and (on and after 7 June) that completion had taken place on that date, refer to Completion in fact, and say nothing about deferral of the Completion Date. The true position is that, once the Completion Date had passed, the parties continued to make arrangements for Completion to take place. This is no different from parties to a conveyancing transaction in fact proceeding to completion on a date after that specified in the contract as the date for completion, without varying the contractual date.

In my opinion there was no agreement to defer the Completion Date, which was 22 May 2018. Subject to the argument considered below about interdependence, it follows that the first “monthly anniversary”, on which the first Deferred Payment of $25,000 was due, was 22 June 2018, and that the seven-day grace period referred to in cl 4.3(b) expired on 29 June. It is not in dispute that, as at that date, the first instalment of the Deferred Payment remained unpaid.

The dispositive holding in the judgment of the primary judge was that Mr Kay’s failure until 16 July 2018 to ensure that the Adjustment was made suspended Playup’s obligation to pay the Deferred Payment until that date. [38] This holding was essential to the decision, as even if 7 June were the Completion Date, the first monthly anniversary of that date was 7 July, and the first Deferred Payment was not made within 7 days of that date.

Appeal grounds 3 and 4 challenge that conclusion, contending that his Honour erred in holding that Playup’s obligation to make the first of the Deferred Payments was dependent on Mr Kay stipulating the amount of the Adjustment, and that his Honour ought to have held that it was not so dependent. By its Notice of Contention, Playup contends that Mr Kay’s failure to deliver, prior to 13 August 2018 or at all, the documents necessary to give content to Seller Warranty 20.1 (in particular, an updated list of liabilities and an updated debtor list) had the effect of suspending the respondent’s obligation to pay the Deferred Payment until at least 13 August (when Playup commenced paying the Deferred Payment); and alternatively that his failure to ensure that the Adjustment was made on the Completion Date, and until 16 July 2018, had the effect of suspending the respondent’s obligation to pay the Deferred Payment until at least 13 August. These competing contentions raise the question whether Playup’s obligation to pay the Deferred Payment instalments was interdependent with Mr Kay’s obligations upon Completion to (a) ensure that the Adjustment was made, and (b) deliver the updated list of liabilities and updated debtor list.

In the SSPA, cl 4.3 [39] makes provision for payment of the “balance Completion Amount of Nil” by Playup to Mr Kay on Completion, subject to any Adjustment. Clause 6.3 [40] obliged the Seller, on Completion, to ensure that all money accrued up to the Completion Date, but not paid, in respect of liabilities be adjusted on the Completion Date.

Clause 1.1 provided that “Adjustment” has the meaning given to it under cl 6.11, which in turn provided:

Clause 6.7 provided:

Clause 4.3(a) [41] made provision for payment of the Deferred Payment, by instalments. It does not refer to any Adjustment.

Founding on the judgment of Leeming JA, with whom Basten and Ward JJA agreed, in Hillam v Iacullo, [42] the primary judge proceeded on the basis that clear words were required to discern a relation of independence, and in their absence a construction was to be favoured whereby obligations were interdependent.

Of course, ‘whether obligations are dependent or independent depends upon the intention of the parties’. [43] In ascertaining that intention, “the more closely the obligations are linked to the rights, the easier it will be to construe the instrument as granting merely qualified rights”. [44] Relevant considerations include the express provisions of the contract in respect of interdependence, the extent of any connection between the obligations, whether the respective covenants go to the whole consideration, whether breach of the obligation goes to the root of the contract, or whether breach may be compensated by damages. [45]

In Newcombe v Newcombe, [46] to which Leeming JA referred with apparent approval in Hillam v Iacullo, Jordan CJ, with whom Stephen and Maxwell JJ agreed, said:

The question of interdependency has often arisen in the context of leases, where it has consistently been held that, absent express provision, the lessee’s obligation to pay rent is not interdependent with any obligation of the lessor to repair. [47] In Bishop v Moy, [48] Ferguson J held that two covenants in a lease, one by the landlord (to repair the fencing within 24 months of the date of the lease), and one by the tenant (to pay an increased rent, being 150% of the initial rent, after the end of the second year of the lease), which appeared in different parts of the lease and contained no reference to one another, were not interdependent, regardless of whether there was some co-incidence in the dates referred to in each.

It is true that in Hillam v Iacullo, with reference to the observation of Professor Carter [49] that “… the approach today is to construe most obligations as dependent on prior or contemporaneous performance by the other party. Clear words are therefore necessary before a relation of independency will be found”, Leeming JA concluded (emphasis added): [50]

That does not amount to agreement with Professor Carter that clear words are required. Moreover, that observation must be seen in the context of his Honour’s insistence that the question remained one of ascertaining the intent of the parties, [51] and of the particular issue in that case, which his Honour analysed as follows: [52]

In my view, the indicia in the SSPA are strongly against interdependence of the Buyer’s obligation to make the Deferred Payment with the Seller’s obligation to make the Adjustment or to deliver the updated debtor list.

First, where interdependency was intended, it was stipulated. In cl 5 (which is entitled “Completion”), cl 5.3 provides:

Thus, interdependency is expressly stipulated in respect of obligations on Completion – but not otherwise. There is no similar provision in respect of obligations after Completion, and in particular the obligation under cl 4.3(a) to make the Deferred Payment.

Secondly, pursuant to cl 6.11, the Adjustment was to be made out of the “Completion Amount” – not out of the “Deferred Payment”; and the two were different concepts. “Completion Amount” was defined in cl 1.1 to mean:

In contrast, “Deferred Payment” was defined to mean “the amount of $600,000 payable in accordance with clause 4.3(a)-(b)”. Playup submitted that the subject matter of the Adjustment was the same subject matter as the Deferred Payment. But, to the contrary, the subject matter of the Adjustment was the Completion Amount, not the Deferred Payment. Consistently with this view, the first part of cl 4.3 of the SSPA relevantly obliged the Buyer to pay the Seller the “balance Completion Amount of Nil, … subject to any Adjustment”. In contrast, cl 4.3(a), which provided for payment of the Deferred Payment by way of equal monthly instalments of $25,000 for a period of 24 months “until the full deferred payment amount [which was $600,000] has been paid”, is not expressed to be subject to an Adjustment. Thus, in contradistinction to the first part of cl 4.3, which deals with payment of the Completion Amount, sub-cl 4.3(a), which deals with the Deferred Payment, contains no reference to any Adjustment.

Thirdly, the obligation to pay the instalments of the Deferred Payment was triggered by and ran from the Completion Date, not by and from Completion.

Fourthly, though any argument that the obligation to make an Adjustment merged on Completion was waived on the pleadings, the doctrine of merger nonetheless tends against the notion that post-completion obligations would be dependent on obligations to be performed upon Completion.

Fifthly, insofar as cl 6.3 imposed any obligation in respect of the Adjustment, it was in effect that the Seller will allow the relevant amount as an adjustment upon completion. It did not oblige Mr Kay to agree to the amount of any Adjustment. Although curiously worded, it may have imposed on him an obligation to pay or allow the objectively correct amount of the Adjustment out of the Completion Amount. It meant that on Completion, Playup was entitled to withhold from the Completion Amount the amount of the Adjustment to which it was entitled; and in circumstances where the balance purchase price payable by Playup on Completion was $Nil, it may have obliged Mr Kay to pay that amount on Completion. But it did not make agreement on the amount of any Adjustment a condition precedent to Completion. Mr Kay’s failure to tender the objectively correct amount might have entitled Playup to refuse to complete, but it did not do so.

As any argument that the right to an Adjustment merged on Completion was waived on the pleadings, Playup was entitled to retain the objectively correct amount of the Adjustment (whether or not the amount was agreed) out of the Deferred Payment. But it was not entitled to treat the obligation to make the Deferred Payments as suspended until Mr Kay had agreed upon the amount of the Adjustment.

Playup’s alternative contention was that Mr Kay’s failure to deliver, prior to 13 August 2018 or at all, the documents necessary to give content to Seller Warranty 20.1 had the effect of suspending the respondent’s obligation to pay the Deferred Payment until at least 13 August (when the first payment was made).

Seller Warranty 20.1 was in the following terms:

The submission focussed on the Seller’s obligation under cll 23.1.1.7 and 23.1.1.8 to deliver the updated list of liabilities and the updated debtor list. It was argued that these lists were necessary to give content to Seller Warranty 20.1. However, that is not so. First, cl 20.1 is addressed to the date of the Agreement, not the date of Completion, whereas the updated lists are as at the date of Completion. Secondly, by cl 6.1, the Seller agrees to satisfy and discharge all liabilities of the Company incurred or accrued before the Completion Date, and to indemnify the Buyer with respect to all claims in relation to such liabilities. Thirdly, under cl 7.3, the Seller indemnifies the Buyer in respect of all loss or damage suffered or incurred after Completion as a consequence of breach of any of the Seller Warranties, or failure by the Seller to discharge all debts due and payable by the Company which were incurred prior to Completion. Provision of the updated list of liabilities and the updated debtor list is not necessary to give content to any of those provisions: if an undisclosed or unpaid pre-Completion Date debt emerges, Playup is entitled to sue on the relevant indemnity, and the updated list of liabilities is irrelevant to such a claim.

There is no relevant connection between the Seller’s obligation to deliver the updated lists of liabilities and debtors, on Completion, and the Buyer’s obligation to pay instalments of the Deferred Payment, commencing on the monthly anniversary of the Completion Date. In the context of an agreement in which, where interdependency was intended, it was stipulated, there was no such stipulation. The subject matter of the two obligations is quite different: one is concerned with provision of a list of liabilities and a list of updated debtors, and the other with payment of part of the consideration. They arise, and are to be performed, at different times: one on Completion, while the other runs from the Completion Date, commencing on the monthly anniversary of that date. Once again, the doctrine of merger tells against an obligation to be performed upon completion being interdependent with one which is to be performed after completion.

Accordingly, Playup’s obligation (under cl 4.3(a)) to pay the Deferred Payment was not dependent upon Mr Kay’s obligation (under cl 6.3) on Completion to ensure that all money accrued up to the Completion Date, but not paid in respect to liabilities, is adjusted on the Completion Date, nor on his obligation to deliver an updated list of liabilities and an updated debtor list upon Completion. It follows that the obligation to pay the Deferred Payment was not suspended by Mr Kay’s failure to agree or make the Adjustment, or to deliver updated lists of liabilities and debtors. In those circumstances it is unnecessary to consider Playup’s argument that the first “monthly anniversary” was one month from the date on which the Adjustment was agreed – which would have been 16 August 2018.

Lest it be thought that this construction is productive of an unreasonable result because it leaves the Buyer exposed to considerable risk upon Completion, it must be borne in mind that the Buyer had been content to pay an unconditionally non-refundable deposit of $1 million, and had already taken possession of the business, in which circumstances the usual incidents of completion – namely payment of the balance purchase price, and delivery of possession – would be absent. For most intents and purposes the sale had already been implemented, and “Completion” involved, by and large, formalities.

By ground 1 of its proposed Cross-Appeal, Playup contends that his Honour erred in failing to hold that cl 4.3(b) is a penalty, at least insofar as it provides for avoidance of the Restraints and the Seller Warranties.

Clause 4.3(b) is as follows:

The classical statement of the law relating to penalties is to be found in the speech of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd (citations omitted): [53]

Observing [54] that the law relating to penalties had been discussed by the High Court in Ringrow Pty Ltd v BP Australia Pty Ltd, [55] Andrews v Australia and New Zealand Banking Group Ltd, [56] and Paciocco v Australia and New Zealand Banking Group Ltd, [57] his Honour adopted [58] the following summary, by McDougall J, with whom Gleeson JA agreed, in this Court in Arab Bank Australia Ltd v Sayde Developments Pty Ltd, [59] of the propositions which emerged from the reasons of the majority (French CJ, Kiefel, Gageler and Keane JJ) in Paciocco:

His Honour also referred to the following statement of Ward JA, with whom McColl and Gleeson JJA agreed, in Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd; Guan v Linfield Developments Pty Ltd: [60]

His Honour held that, although in light of his conclusions on the other issues the question did not arise, cl 4.3(b) was not a penalty: although (contrary to Mr Kay’s submission) cl 4.3(b) was not a primary but a collateral obligation, and the consequences of defaulting in respect of a Deferred Payment were severe, in circumstances where Mr Kay was assuming a considerable risk by allowing 37.5% of the total purchase price to remain outstanding to be paid by instalments over two years without security, and insisted on the provision included in cl 4.3(b) to guard against that risk, those consequences were not out of all proportion to the damage that Mr Kay might, when the contract was made, have anticipated from a relevant breach; nor were they “unconscionable” or “extravagant” in relation to such anticipated damage. Moreover, his Honour was of opinion that the words of cl 4.3(b) did not admit the conclusion that the only or predominant purpose of the clause was to punish Playup for failure to make a timely payment of the Deferred Payments. His Honour said:

Lord Dunedin’s second proposition describes the essence of a penalty as a payment of money stipulated as in terrorem of the offending party. In Ringrow Pty Ltd v BP Australia Pty Ltd, [61] the High Court said that the law of penalties, in its standard application, is attracted where a contract stipulates that on breach the defaulting party will pay an agreed sum which exceeds what can be regarded as a genuine pre-estimate of the damage likely to be caused by the breach, and in that context endorsed the principles stated by Lord Dunedin. What was involved in the present case was not the payment of a stipulated sum of money upon breach, but the deprivation of contractual rights – being the benefit of the Restraints and the Seller Warranties.

It was not submitted, at first instance or before us, that the doctrine of penalties was incapable of application because the provision in question was not one which stipulated that on breach the defaulting party would pay an agreed sum of money. That is consistent with the assumption in this Court, in Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (“Interstar”), [62] that the doctrine can apply to deprivation of rights or property, and the statement in Andrews v Australia and New Zealand Banking Group Ltd, [63] that the “penalty” need not be a requirement to pay a sum of money and that as a matter of principle there is no distinction in this context between a stipulation upon default for the transfer of property and a payment of money; such a distinction would elevate form over substance. The “standard application” of the doctrine, as described in Ringrow, is not its sole application, and Lord Dunedin’s statements of principle in relation to penalties are not complete or universal. [64] It is established, as Allsop P pointed out in Interstar, [65] that a stipulation may be penal in character, even though the penalty is not expressed in terms of the payment of money but in terms of transfer of property. In Wollondilly Shire Council v Picton Power Lines Pty Ltd, [66] Handley JA, with whom Clarke and Meagher JJA agreed, said:

In Interstar, in the context that it was held on other grounds that there was no penalty, Allsop P said:

The assumption that the doctrine may apply in respect of the deprivation of rights that have already accrued under the contract, such as provisions that have the effect of authorising retention or withholding payment of, or extinguishing a right to receive, remuneration already earned but unpaid, is supported by authority. [67] Further, although there is a real distinction between the doctrines of penalties and relief against forfeiture, they overlap in that some forfeitures may be penal in character, in which case relief is granted on the basis of the doctrine of penalties, rather than by way of relief against forfeiture, as was explained by Mason and Deane JJ in Legione v Hateley: [68]

In their supplementary reply submissions, counsel for Mr Kay, while arguing that “accrued contractual rights” are not susceptible to the doctrine of relief against forfeiture, accepted that they fall within the ambit of the doctrine of penalties. [69]

In my opinion, therefore, the deprivation of accrued contractual rights can amount to a penalty for the purpose of the doctrine of penalties. The benefit of the Restraints and the Seller Warranties are “accrued contractual rights”: the Restraints arise from the Deed of Restraint, and the benefit of the Seller Warranties is preserved after completion by cl 7.3.

A contractual provision may be said to be penal if its function is to operate in terrorem to induce performance (in respect of which phrase I respectfully agree with Staughton J’s observation, in Export Credits Guarantee Department v Universal Oil Products Co, [70] to the effect that it remains useful in identifying a true penalty, despite the dislike of the phrase expressed by Lord Radcliffe in Bridge v Campbell Discount Co Ltd), [71] or as a punishment for default, in the sense that it imposes an additional or different liability upon default. [72] The distinction of a penalty is twofold: first, it is collateral to the main promise and purpose of the contract; and secondly, it is intended to operate as a deterrent to failure to perform that main promise or purpose, by imposing an additional detriment on the obligor and conferring an additional benefit on the obligee in the event of default. [73]

As his Honour accepted, cl 4.3(b) was collateral to the main promise (being the promise to pay the Deferred Payments). The legitimate interest of Mr Kay was obtaining payment of each instalment of the Deferred Payment as and when it fell due. As his Honour also accepted, “the predominant, if not the sole purpose of cl 4.3(b) was to ensure that the Deferred Payments were made on time”. But it achieved that purpose by imposing an additional detriment in the event of default – not only acceleration of the instalment payments, but deprivation of the benefit of the Seller Warranties, and of the Restraints. In the context of a sale of a company carrying on a business, restraints are a fundamental aspect of protection of the goodwill of the subject business, so as to ensure that the purchaser actually gains the benefit of the business. Avoidance ab initio of the Restraints and the Seller Warranties is, as his Honour said, a severe consequence; it represents a significant undercutting of the subject matter of the sale. Those consequences were out of all proportion to Mr Kay’s legitimate interest in securing payment of each instalment as and when it fell due. In my judgment, if the purpose of cl 4.3(b) was to focus the mind of Playup on ensuring that the instalments were paid punctually, it sought to achieve that purpose by imposing such consequences that its operation was plainly in terrorem.

For Playup, Mr Kidd SC submitted that it pointed in favour of the provision being a penalty that it operated indiscriminately – not only in the case of a total failure to pay, but also in the event of any delay in payment beyond the seven-day grace period. As Lord Dunedin observed in Dunlop, [74] a presumption (though no more) arises that a provision is penal when “a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage.” Though not involving “a single sum of money”, this is an analogous case: the retrospective deprivation of the benefit of the Restraints and the Seller Warranties occurs regardless of whether there is a total failure to pay the Deferred Payment; or a delay of one day after the grace period in paying the very last instalment. While that consequence might not have been disproportionate in the former case, it would have been utterly disproportionate – or extravagant – in the latter. The penal effect of the provision is manifest on the facts of the present case, where notwithstanding that the Deferred Payment has now been paid in full – well in advance of the contractual date by which it was to be paid, but for acceleration – it would still deprive Playup entirely of the benefit of the Restraints and the Seller Warranties.

It is true that the provision was the result of negotiation, and that Mr Kay was insistent upon it, in the sense that it was a “deal breaker”. His Honour gave considerable weight to the view expressed by Lord Neuberger and Lord Sumption in Cavendish Square Holding BV v Makdessi; ParkingEye Ltd v Beavis, [75] to the effect that in the context of a negotiated agreement between properly advised parties of comparable bargaining power, there was a strong initial presumption that the parties themselves were the best judges of what is legitimate in a provision dealing with the consequences of breach. However, a provision that is otherwise penal in character does not cease to be so by reason that it was negotiated.

For Mr Kay, Mr Walker SC submitted that the parties had in substance agreed that there would be a different contractual regime in the event of default: the Seller would no longer be required to provide ongoing credit for 24 months, nor be exposed to credit risk, the Restraints, and the potential for a cross-claim for breach of the Seller Warranties. However, that is no more than a different way of saying that the parties agreed that in the event of default, the Buyer would incur a different and more burdensome detriment and the Seller obtain a different and more beneficial benefit: that is, a penalty.

Accordingly, in my opinion, cl 4.3(b), at least insofar as it operated to avoid the Seller Warranties and the Restraints, was a penalty. The consequence is that it is, and always has been, of no effect and unenforceable; there is no question of relief being discretionary. [76] It follows that cl 4.3(b) did not have the effect that the Restraints and the Seller Warranties were avoided by reason of Playup‘s default in timely payment of the Deferred Payment instalments. Cross-Appeal Ground 1 should succeed.

By ground 2 of its proposed Cross-Appeal, Playup contends that his Honour erred in failing to hold that Playup should be granted relief against forfeiture of the benefits of the Restraints and Sellers Warranties pursuant to cl 4.3(b).

His Honour held that, although in light of his conclusions on the other issues the question did not arise, and assuming that relief against forfeiture was available to restrain Mr Kay from exercising his contractual rights under cl 4.3(b), as a matter of discretion he would have refused to grant it. On this question, his Honour’s reasoning was:

In the light of the conclusion which I have reached on the question of penalty, it is unnecessary to resolve this issue. However, lest I be wrong on the question of penalty, it is desirable that it be addressed.

In a case where the object of the provision for forfeiture is to secure the payment of money, the discretion to grant relief against forfeiture is ordinarily exercised in favour of granting relief if the default is cured (with interest if appropriate). Relevant discretionary considerations include the gravity of the breach, whether it was wilful, whether there is a history of default and the risk of future defaults; whether reliance on the forfeiture is coloured by equitable fraud, accident, mistake or surprise; and whether the forfeiture would result in a windfall. In the present case, the circumstance that Mr Kay has received payment in full, accelerated, and as a result is now in a better position than would have been the case had there been no default, itself provides a powerful basis for concluding that, as a matter of discretion, relief against forfeiture, if available, should have been granted. This is accentuated by the circumstance that not granting relief would not only leave Mr Kay with every benefit to which he was entitled under the SSPA, and in a better position as a result of the acceleration, but would deprive Playup of a very significant part of the subject matter of the SSPA, namely the goodwill protected by the Restraints. And it is fortified by the circumstance that Mr Kay was in default of his obligation to ensure that the Adjustment was made on Completion – and remained in default until 16 July 2018 notwithstanding that Playup had, since 29 May, been seeking his agreement to the amount of the Adjustment, without response until 16 July – and in that way, contributed to the default which occasioned the forfeiture. His Honour does not appear to have had regard to those relevant considerations.

His Honour’s conclusion to the contrary was founded on the view that in the circumstances the forfeiture was the consequence of the operation of the terms of an agreement that Playup entered into, well advised, after detailed focus on the terms of the clause in question. But forfeitures typically result from the operation of the terms of an agreement (such as a lease or a mortgage). To my mind, it is of slight if any significance that the defaulting party was “well advised” when it entered the agreement, or that the negotiations had focussed on the term in question.

Assuming that relief against forfeiture was available, his Honour’s decision to refuse it as a matter of discretion was affected by error of the kind referred to in House v The King. [77] If relief against forfeiture were available, it should have been granted.

However, his Honour assumed without deciding that relief against forfeiture was otherwise available. By leave, both parties lodged supplementary written submissions, after the hearing of the appeal, addressing this question.

Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies cites three cases as supporting the proposition relied on by the respondent – that relief from forfeiture is available in respect of “accrued contractual rights” [78] – but they do not in fact provide authority for that proposition. In the first, Hodder & Tolley Ltd v Cornes, [79] Salmond J held that the benefit of the rights under a mail contract with the Crown, which included a provision that the defendant was prohibited from assigning the benefit of the contract without the permission of the Postmaster General, breach of which entitled the Crown to forfeit the benefit of the contract, had not been forfeited, because the contractual right to do so had not been exercised; no occasion arose for consideration of the doctrine of relief against forfeiture. In the second, Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd, [80] the Full Court of the Federal Court (Northrop, Gummow & Hill JJ) noted Hodder & Tolley and stated that where the benefit of a contract is assigned in breach of covenant against assignment, and the other party to the contract terminates the contract, “then the circumstances of the case may be such as to attract equitable intervention to relieve against forfeiture”. However the authority relied on for that was an article in which Professor Goode had stated “[t]here can be little doubt that a contractual term seeking to extinguish, on the ground of an attempted assignment, a right to payment already earned by performance would be struck down in equity as an unconscionable forfeiture”, [81] for which proposition Professor Goode cited Bysouth v Shire of Blackburn and Mitcham (No 2) – a case which involved not the doctrine of relief against forfeiture, but “the principle which subjects stipulations in contracts for penalties to equitable modification or adjustment”. [82]

In the third, SCI (Sales Curve Interactive) Ltd v Titus SARL, Rix LJ said: [83]

As to the statement “I am prepared purely for the sake of argument to assume that in the appropriate circumstances a forfeiture of rights is proscribed as much as a payment of money (although I think that assumption goes further than the law currently allows)”, both the immediate context and the case as a whole make clear that this was in reference to the law of penalties, not relief against forfeiture; his Lordship was prepared to assume that a forfeiture of rights could be a penalty, as I have concluded above. [84] Insofar as his Lordship also referred to relief against forfeiture, it was to point out that in Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade), [85] the House of Lords had distinguished between merely contractual rights (for which relief was not available), and contracts concerning the transfer or creation of proprietary or possessory rights (for which it was); and that in Sport International Bussum BV v Inter-Footwear Ltd, [86] the House of Lords had applied the ratio of The Scaptrade to “mere contractual licences” to use certain names and trademarks, and refused to give relief. In BICC Plc v Burndy Corporation, [87] the effect of The Scaptrade and Sport International was stated to be “to confine the court's jurisdiction to grant relief against forfeiture to contracts concerning the transfer of proprietary or possessory rights”. Accordingly, SCI v Titus does not support the availability of relief against forfeiture in respect of mere contractual rights.

In Milton v Proctor, [88] McHugh JA (as he then was) observed that in an extrajudicial paper, Sir Anthony Mason had said that there ‘are persuasive reasons for saying that the jurisdiction should extend to relief against the forfeiture of a contractual right, at least when that contractual right, if enforced, results in the acquisition of an estate or interest in land’, [89] but was not himself prepared to so extend the doctrine. Clarke JA, with whom Mahoney JA agreed, held that relief was not available from termination of a mere contractual licence, observing that The Scaptrade and Sport International Bussum “proceed upon the basis that a mere contractual licence does not create an interest in the land and present a formidable barrier to any claim to relief in respect of the termination of a contractual licence”. [90] In Westminster Properties Pty Ltd v Comco Constructions Pty Ltd, [91] Kennedy J, with whom Malcolm CJ and Pidgeon J agreed, described the extension of the doctrine of relief from forfeiture to mere contractual rights as a “radical broadening”. While observing that “it may be, in some respects, difficult to justify a line drawn between the forfeiture of personal property and the forfeiture of a chose in action”, and referring to Sir Anthony Mason’s observation in ‘Themes and Prospects’ (mentioned by McHugh JA in Milton v Proctor) (but noting that the reservation in that observation to rights that would establish an estate or interest in land was “significant”), Kennedy J then refused the invitation to “for the first time, radically extend the scope of the doctrine of relief against forfeiture”. [92] However, the contractual right in question in that case – in which a builder had terminated a building contract – was the proprietor’s alleged right to continued performance; it was not an accrued right.

The respondent drew attention to the judgment of Edelman J in Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6), [93] in which relief was sought from forfeiture of contractual rights effected by termination. His Honour declined to grant relief against forfeiture, but was content to proceed on the basis that it was not precluded merely because the subject matter was not a proprietary right. [94] In that respect, his Honour observed [95] that while there are authorities that can be read as supporting the proposition that relief against forfeiture is only available to protect a proprietary right (referring to The Scaptrade, Sport International, and Shiloh Spinners Ltd v Harding, [96] where Lord Wilberforce spoke of the jurisdiction to “relieve against the forfeiture of property”), other authorities suggested that the doctrine might not be so limited and might apply, for instance, to a contractual licence (referring to Chaka Holdings Pty Ltd v Sunsim Pty Ltd, [97] Milton v Proctor [98] and C J Rossiter, Penalties and Forfeiture: Judicial Review of Contractual Penalties and Relief Against Forfeiture (Law Book Co., 1992) p 201).

His Honour then identified four difficulties with confining the doctrine to proprietary rights, namely that:

However, because his Honour considered that other conclusions reached in the case precluded a grant of relief against forfeiture, the question was not decided. [103] On appeal, the Full Federal Court (Besanko, McKerracher and Beach JJ) said: [104]

Subsequently, Edelman J’s approach has been referred to, without disapproval, by Ward CJ in Eq in Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd, [105] (but it was not necessary to determine the question, because the subject matter was proprietary); by Darke J in Ayers Rock SkyShip Pty Ltd, [106] (assuming that relief was available in respect of the termination of an Operator Agreement, but not granting relief); and by the Victorian Court of Appeal (McLeish JA, Beach and Niall JJA agreeing) in JPA Finance Pty Ltd v Gordon Nominees Pty Ltd, [107] (assuming that relief was available in respect of the forfeiture of an option to acquire units in a unit trust). Indeed, the same approach was adopted by the primary judge in this case, although without express reference to Mineralogy. However, Edelman J’s views were not embraced by the Court of Appeal of England and Wales in Vauxhall Motors Ltd (formerly General Motors UK Ltd) v Manchester Ship Canal Co Ltd. [108]

The following comments may be made in respect of Edelman J’s observations.

First, it is correct that there are cases which have suggested, or assumed, that relief against forfeiture might be available in respect of a contractual licence. In NSW Rifle Association Inc v Commonwealth, [109] White J (as his Honour then was) likewise observed that a number of cases had held that there was jurisdiction to relieve against forfeiture of a contractual licence to occupy land. In Proctor v Milton [110] (the first instance decision of Milton v Proctor), as White J observed, [111] the licensee had a proprietary interest arising from an equitable estoppel. Relief was available because the licensee had not merely a contractual licence but also an equitable interest.

I do not accept the respondent’s submission that Chaka Holdings was intended to extend to bare licences. In that case, Young J (as he then was) relied on Legione v Hatelely, [112] which involved the forfeiture of a purchaser’s equitable interest in the subject matter; and on the first instance decision in Proctor v Milton, in which, as explained above, there was an equitable interest in addition to the mere contractual right. While Young J described Vinden v Vinden [113] as involving a “bare licence”, his Honour also noted that equity intervened because it would be unconscionable to deny the licensee a greater right because of her reliant expenditure; [114] this was another case of an equitable interest arising by estoppel, as Clarke JA observed in Milton v Proctor. [115] In any event, what Young J said was in the context that relief was refused in any event. In Federal Airports Corporation v Makucha Developments Pty Ltd, [116] Davies J followed Proctor v Milton and Chaka Holdings to hold that, in an appropriate case, relief from forfeiture could be granted in respect of a licence to occupy land if there were unconscionable conduct by the licensor, but expressly distinguished a “mere contractual or personal right”.

Accordingly, to the extent that there is authority extending relief against forfeiture to contractual licences in respect of real property, that is only so where the licensee has, in addition to their contractual rights, some estate or interest in the land which equity would protect. [117]

Secondly, I respectfully do not agree that the accepted jurisdiction to relieve against forfeiture in the case of termination of a contract for sale of land is anomalous. It is universally accepted that upon exchange of contracts, a purchaser acquires an equitable interest in the subject matter of the contract. Termination of the contract by the vendor effects a forfeiture of that interest, and it is in respect of that interest that relief is granted. [118] Again, there is more than a mere contractual right.

Thirdly, while it may be true that the cases do not explain why the doctrine should be confined to proprietary and possessory rights, and that one rationale of the doctrine (being that it is a constraint on the unconscionable exercise of a contractual power) is not tied to the existence of a proprietary or possessory right, that does not deny that the cases are against the application of the doctrine to merely contractual as distinct from proprietary and possessory rights. And while that may mean that the inquiry then becomes what is “proprietary” for the relevant purpose, it does provide an identifiable discriminator of the scope of the doctrine. [119] It makes sense that a doctrine that developed and has its most common application in the context of the forfeiture of interests in land (of lessees and mortgagors) has such a scope. In the words of Lord Wilberforce in Shiloh Spinners Ltd v Harding, [120] the jurisdiction is one to “relieve against the forfeiture of property”. To like effect, the jurisdiction was described in Esanda Finance Corp Ltd v Plessnig [121] as extending to relief against forfeiture of a possessory or proprietary right in personal property, a statement which was founded on BICC Plc v Burndy Corporation, [122] in which the effect of The Scaptrade and Sport International was said to be “to confine the court's jurisdiction to grant relief against forfeiture to contracts concerning the transfer of proprietary or possessory rights”. That description of the scope of the doctrine has recently been reaffirmed in Vauxhall Motors v Manchester Ship Canal, [123] in which Lord Briggs JSC, with whom Lord Carnwath, Lady Black and Lord Kitchin JJSC agreed, said:

While the jurisdictions that relieve against penalties and forfeitures are related, and in some cases overlap, there are important and fundamental differences. Both emphasise the primary object of the contract, and mitigate the consequences of ancillary provisions that take effect on default. However, in the doctrine of penalties, the focus is on the consequences of default: the question is whether the provision imposes a disproportionately additional burden in the case of default; if so it is ineffective and no question of discretion arises, nor is there any requirement to make good the default. In relief against forfeiture, the focus is on remediation of the default: if the default can be remedied, and the innocent party placed in the position in which it would have been absent default, then the defaulting party may, subject to discretionary considerations, be relieved from the forfeiture of a proprietary or possessory interest.

As it seems to me, there is no decided case in which relief against forfeiture has been granted in respect of a mere contractual right, accrued or not. All the cases that suggest that it might be available in that context assume its availability in the context that relief is otherwise refused. None of them purport categorically to determine the question. On the other hand, the decisions of the House of Lords in The Scaptrade, and in Sport International Bussum; of the United Kingdom Supreme Court in Vauxhall Motors v Manchester Ship Canal; of the Privy Council in Çukurova Finance International Ltd v Alfa Telecom Turkey; of the Court of Appeal of England and Wales in BICC Plc v Burndy Corporation; of the Full Court of the Supreme Court of Western Australia in Westminster Properties Pty Ltd v Comco Constructions Pty Ltd, and of this Court in Milton v Proctor, support the view, which in my judgment represents the current state of the law, that the doctrine is confined to proprietary or possessory rights, and does not extend to mere contractual rights.

It follows that relief from forfeiture is not available in respect of the operation of cl 4.3(b) of the SSPA on the Restraints and Seller Warranties.

My conclusions may be summarised as follows:

The Completion Date was not 7 June 2018 as the judge held, nor 16 July as the respondent contended, but 22 May 2018. Appeal grounds 1 and 2 should succeed, and Contention ground 3 should fail.

Playup’s obligation to pay the Deferred Payment was not suspended until Mr Kay agreed the amount of the Adjustment, as the judge held, or until 16 August 2018, as the respondent contended. Nor was it suspended by Mr Kay’s failure to deliver documents said to be necessary to give content to Seller Warranty 20.1. Appeal grounds 3 and 4 should succeed, and Contention grounds 1 and 2 should fail.

Clause 4.3(b) of the SSPA, at least insofar as it operated to avoid the Seller Warranties and the Restraints, was a penalty, and as such unenforceable and of no effect. It follows that cl 4.3(b) did not have the effect that the Restraints and the Seller Warranties were avoided by reason of Playup‘s default in timely payment of the Deferred Payment instalments. Cross-appeal ground 1 should succeed.

Although as a matter of discretion relief against forfeiture if available ought to have been granted, such relief is not available in respect of mere contractual rights in the nature of the Restraints and the Seller Warranties. Cross-appeal ground 2 should fail.

It is apparent from the above that the appeal and the cross-appeal give rise to substantial issues of principle, and the judgment below finally determined the rights of the parties. The result is that there is no substantial change to the outcome: in the events which have happened, the Restraints and the Seller Warranties are not avoided by cl 4.3(b), although the grounds for that conclusion are different from those relied on by the primary judge. However, the declarations made by the primary judge not only state the relevant legal rights, but include a ratio for the conclusion. On the above analysis, the ratios stated are incorrect. To minimise the possibility of future complications, it is preferable that the relevant rights of the parties are correctly stated. Accordingly it is preferable that leave to appeal and cross-appeal be granted, the appeal and cross-appeal allowed, the declarations made by the primary judge set aside, and declarations substituted that cl 4.3(b), insofar as it provides for avoidance of the Restraints and the Seller Warranties, is a penalty and unenforceable and of no effect; and that in the events which have happened, the Restraints and the Seller Warranties are not avoided by cl 4.3(b).

As to costs, his Honour’s decision that Mr Kay should pay 80% of Playup’s costs was founded on the view that Playup had failed on severable issues, in particular its claim for the return of moneys paid under protest (which was abandoned at the outset of the hearing), its case that cl 4.3(b) was a penalty, and its claim for relief against forfeiture. In the view I take, Playup should have succeeded on the penalty case, but should have failed on the primary case on which it succeeded before his Honour. The claim for relief against forfeiture would have involved little that was not involved in the penalty case. While the primary claim involved some additional issues and evidence, much overlapped. Ultimately, Playup was entitled to the relief it sought, that the Restraints and Seller Warranties were not avoided. Prima face, having regard to Playup’s ultimate success, but making some allowance for what should have been its failure on the primary case, I would not disturb the primary judge’s costs order; but as this was not argued I would reserve leave to apply for a different costs order. As the proceedings in this Court have ultimately resulted in no improvement in Mr Kay’s position, he should pay the costs of the appellate proceedings.

I propose that:

SIMPSON AJA: Like Macfarlan JA I reserve my opinion with respect to the application of the doctrine of relief against forfeiture to rights other than proprietary or possessory rights. That is because this appeal can be disposed of without resort to that part of the argument and it is therefore unnecessary to express a view. In all other respects I agree with Brereton JA.