Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd

BATHURST CJ: This is an appeal brought by Auburn Shopping Village Pty Ltd (Auburn Village) against orders of the Chief Judge in Equity dismissing its claim for specific performance of an agreement (the Sale Agreement) with Nelmeer Hoteliers Pty Ltd (Nelmeer) for the sale and purchase of 15 poker machine permits (the PMPs) and instead making declarations that Auburn Village had repudiated the Sale Agreement and that the Sale Agreement had been validly terminated by Nelmeer.

As the only issues raised in this appeal related to the refusal by the primary judge to grant relief against forfeiture of an interest held by Auburn Village in the PMPs upon the termination of the Sale Agreement by Nelmeer, the facts can be set out relatively briefly.

The Sale Agreement which gave rise to the present dispute between the parties had its genesis in an option for the purchase of the PMPs (the Option) contained in a lease executed on 6 May 2010 between Auburn Village as lessor and Nelmeer as lessee of licensed premises described as “The Tavern, Auburn Shopping Village” (the Lease). For present purposes, the relevant provisions of the Lease were additional clauses 1.22 and 1.24, which, so far as they are relevant, are in the following terms:

There was no issue between the parties that the Option was exercised. Although it does not seem to be formally required by the Lease, the parties entered into the Sale Agreement for the sale and purchase of the PMPs. The Sale Agreement contained the following provisions:

The “Lease” referred to in the Sale Agreement is the Lease of “The Tavern, Auburn Shopping Village” which I have referred to at [3] above. The PMPs referred to in Schedule 1 of the Sale Agreement were the PMPs which were the subject of the Option in the Lease.

On the morning of 20 February 2017, which was the completion date under the Sale Agreement, the solicitors for Auburn Village carried out a search of the Personal Property Securities Register (the PPSR) established under the Personal Property Security Act 2009 (Cth) and discovered what was described, in an email to Mr Nelson Simon Meers, a director of Nelmeer, as “numerous personal property security interests registered against” Nelmeer, and required releases of the security interests as against the PMPs. Ultimately, at the time of the commencement of the proceedings at trial, Auburn Village contended four securities should have been removed: one claimed by Meerfam Pty Ltd (Meerfam), two claimed by Westpac Banking Corporation (Westpac), and one claimed by Druin Pty Ltd (Druin).

Correspondence between the solicitors for Auburn Village and Mr Meers thereafter ensued. It is unnecessary to set out this correspondence in detail, except to note that the primary judge found at [33]-[34] that, by 22 February 2017, Nelmeer had put Auburn Village on notice that “it denied any obligation to transfer [the PMPs] free of encumbrance”, and that “Auburn Village’s position was to the contrary”.

On 8 March 2017, Mr Meers sent an email to Auburn Village, attaching a “Deed Poll of Warranty” from Nelmeer, which stated that the PMPs were unencumbered, letters from Meerfam and St George Bank, on behalf of Westpac, stating that they had no security interest in the PMPs, and a notice to complete to Auburn Village, which required completion on or before 22 March 2017. On 15 March 2017, the solicitors for Auburn Village demanded by letter that the notice to complete be withdrawn, and asserted that Auburn Village was entitled to be satisfied that title to the PMPs would be delivered “free from encumbrances”.

On 17 March 2017, the proceedings were commenced. Auburn Village sought interlocutory relief restraining Nelmeer from acting on the notice to complete. Orders were made by consent on 20 March 2017 restraining Nelmeer from acting on the notice to complete.

On 7 April 2017, the solicitors for Nelmeer wrote by letter to the solicitors for Auburn Village setting out their views as to why the claims made by Auburn Village were “untenable”. The letter stated that there was no express or implied term in the Sale Agreement obliging Nelmeer to transfer the PMPs “free of all encumbrances” and rejected Auburn Village’s claim of estoppel. The letter pointed out that Westpac had confirmed that it had no interest in the PMPs. In relation to the encumbrance claimed by Druin, the letter noted that any interests Druin had in the PMPs had ceased to exist on 3 January 2012 and that the encumbrance had now been removed from the PPSR.

Accordingly, the letter asserted that Nelmeer had fully performed any terms which Auburn Village claimed formed part of the Sale Agreement in relation to the encumbrances by the completion date and thus could not have been in breach of the Sale Agreement at that date or any time thereafter. The letter claimed that Auburn Village was in breach of the Sale Agreement by failing to complete on 20 February 2017.

The letter contained what was described as a “proposal”. It was in the following terms:

On 10 April 2017, the solicitors for Auburn Village responded by letter, stating that Auburn Village was prepared to settle the purchase of the PMPs under the Sale Agreement. The letter stated Auburn Village’s position as follows:

However, that letter was superseded by another of the same day, withdrawing that proposal for settlement. So far as they are relevant, the following comments were made:

The orders and declarations referred to in the second-last paragraph of these comments included declarations that Nelmeer had “not done all things necessary on its part to [do] to complete the Sale Agreement”, and that Nelmeer was in breach of an express term or an implied term of the Sale Agreement that it would convey the PMPs “free of all encumbrances”.

On 11 April 2017, the solicitors for Nelmeer wrote to the solicitors for Auburn Village asking it to reconsider its position and stating that its original proposal remained open until 5:00pm on 12 April 2017. No response was received to that letter. On 20 April 2017, the solicitors for Nelmeer wrote to the solicitors for Auburn Village in the following terms:

On 21 April 2017, orders were made by consent which varied the orders made on 20 March 2017 to permit Nelmeer to file and serve a cross-summons. On 26 April 2017, a cross-summons was filed by Nelmeer which sought, among other things, declarations that Auburn Village had repudiated the Sale Agreement and that Nelmeer had validly terminated it as a consequence.

The primary judge identified at [57] the seven issues which arose in the case, as originally presented, as follows:

The primary judge decided all these issues favourably to Nelmeer. None of her Honour’s conclusions on these issues have been challenged on the appeal. The grounds of appeal in this proceeding concern a claim for relief against forfeiture which was made in closing submissions at trial by Auburn Village in response to the cross-summons filed by Nelmeer. To understand the basis for this claim, it is necessary to set out her Honour’s reasoning on the repudiation and termination issues noted at [18] above.

Her Honour noted at [194] that, by 10 April 2017, “Auburn Village’s position was that it would not settle the Sale Agreement pending determination of its damages claim (unless there was consent by Nelmeer to the declaratory relief and orders [Auburn Village] sought in that regard, leaving only the arithmetical calculation of the loss to be determined by the Court)”. Her Honour thus concluded that the case was close to one where an “inference of repudiation may more readily be drawn, namely where a party persists in its interpretation of the contract in face of communication from the other pointing out its error”.

Her Honour concluded at [195] that the “underlying premise” of Auburn Village’s position, that the PMPs were “encumbered by reference only to the notations on the PPSR”, was “untenable”. Her Honour also noted that, by 7 April 2017, Auburn Village had accepted that the PMPs were no longer encumbered by any security interest precluding them from being transferred under the Sale Agreement. While her Honour accepted that, at the time, there was a “bona fide dispute as to the true construction of the Sale Agreement”, she did not accept that this provided a basis for Auburn Village to refuse to complete. Her Honour therefore concluded at [198] that Auburn Village’s refusal to complete the Sale Agreement pending determination of its asserted claim for damages amounted to repudiation.

Having established a repudiation of the Sale Agreement by Auburn Village, the primary judge accepted that all that Nelmeer was required to do to terminate the Sale Agreement was to communicate its election to do so. The primary judge concluded at [206] that Nelmeer had, at least by the time of the issue of the cross-summons on 26 April 2017, made such an election.

It was against the background of these findings that the claim for relief against forfeiture arose for consideration. Her Honour referred to her judgment in Australian Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd [2017] NSWCA 99 at [357], with which McColl and Gleeson JJA agreed, which stated that, if relief against forfeiture was sought under the general law, it was necessary to determine “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”: see also J D Heydon, M Leeming and P G Turner, Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (LexisNexis, 5th edn, 2015) at [18-270] (MGL).

Her Honour said that there were two matters which required consideration. First, whether “equitable relief against forfeiture can apply to the subject matter of the present case”, which comprised the PMPs, and second, whether “the case is more appropriately analysed from the perspective of the decision in [Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57] – that is, whether it is a case concerning equity’s jurisdiction to grant relief in respect of a party’s unconscientious reliance on strict legal rights”.

Her Honour proceeded on the basis that relief against forfeiture could apply to the forfeiture of non-proprietary rights, referring to the discussion of that issue by Edelman J in Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) [2015] FCA 825 at [981]-[990]. However, she stated that this conclusion did not dispose of the objection by Nelmeer that relief against forfeiture was inapplicable in any event, since Auburn Village never had a legal interest in the PMPs which was “liable to be determined on the occurrence of some event”.

Her Honour concluded that the gravamen of Auburn Village’s complaint was that “Nelmeer has elected to terminate the Sale Agreement and that as a consequence Auburn Village is unable to secure a transfer to it of [the PMPs] in accordance with that agreement”. Her Honour concluded that the focus was more appropriately approached from the perspective of the decision in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 (Tanwar Enterprises), the focus being on what Lord Wilberforce in Shiloh Spinners Ltd v Harding [1973] AC 691 at 723 called the “special categories of fraud, accident, mistake or surprise”.

Her Honour stated that the present case was not one of fraud or surprise. Her Honour stated that “Auburn Village’s decision not to complete the contract was the product of its own interpretation of the Sale Agreement and certain assumptions as to the nature of the PPSR”. Her Honour stated that Nelmeer neither caused nor contributed to either understanding. Her Honour also stated that it was not a case of accident, since it was clearly within the contemplation of the parties that there was a possibility that Auburn Village’s construction may have been incorrect.

So far as mistake was concerned, her Honour noted that the authors of MGL at [18-255] cited Pitt v Holt [2013] 2 AC 108 (Pitt v Holt), a case concerning the jurisdiction of equity to grant relief in respect of voluntary dispositions, as authority for the proposition that “mistake in the context of relief against forfeiture may come about ‘with or without such conduct by the party who would benefit from the forfeiture’”. Her Honour referred to the statement by Lord Walker in Pitt v Holt at [122] that “a causative mistake of sufficient gravity” was necessary and that the test for relief will ordinarily be satisfied “only when there is a mistake either as to the legal character or nature of a transaction, or as to some matter of fact or law which is basic to the transaction”.

Her Honour accepted that “the mistake ultimately arose out of Auburn Village’s own (erroneous) construction of the Sale Agreement”, but concluded that it was “not unconscientious for Nelmeer to rely upon its legal right [to terminate] in the face of Auburn Village’s mistake”.

Her Honour emphasised that, “on any view, the mistake was of Auburn Village’s own making”. Her Honour stated that the majority in Tanwar Enterprises at [58] “expressly excluded mistake from the cases in which it would be necessary to point to a vendor as having caused or contributed to the purchasers’ breach”. However, her Honour stated that she did not consider the majority in Tanwar Enterprises to suggest that the vendors’ conduct was irrelevant in the case of mistake. He Honour stated that the present case was “not one in which the vendor has expressly or impliedly acquiesced in the mistake or otherwise caused or contributed to it”.

Her Honour referred to the correspondence between Auburn Village and Nelmeer which I have set out at [10]-[16] above. Her Honour stated that there was no “requisite unconscientiousness” in the circumstances by 10 April 2017. In those circumstances, her Honour declined to grant the relief sought.

Auburn Village submitted, referring to Jabetin Pty Ltd v Liquor Administration Board (2005) 63 NSWLR 602; [2005] NSWCA 92 at [87], that the PMPs were a “species of property” distinct from a hotel licence. It submitted that since cl 32(a) of the Lease contained an acknowledgement that “the Liquor Licence is the property of [Auburn Village]” and the definition of “Liquor Licence” included “poker machine entitlements” issued in respect of that licence, Auburn Village had a subsisting interest in the PMPs. Both in written submissions and at the hearing, it was said that this subsisting interest extended not only to the 15 PMPs existing at the time of the Lease which were the subject of the Sale Agreement, but also to any further PMPs acquired by Nelmeer. Auburn Village also submitted that cl 32(d) meant that Auburn Village had a clear “equitable proprietary interest in [the PMPs]” which was confirmed upon exercise of the Option granted under cl 34 of the Lease leading to the Sale Agreement.

It is convenient to point out a misapprehension about the effect of cl 32(a) in these submissions at the outset. While cl 32(a) acknowledges that “the Liquor Licence is the property of” Auburn Village and that the definition of “Liquor Licence” includes “poker machine entitlements” issued in respect of the licence, the PMPs are not “poker machine entitlements”. The PMPs identified in Schedule 1 to the Sale Agreement are “Liquor Act poker machine permits”, which are a species of statutory proprietary entitlement distinct from a “poker machine entitlement”, although both arose under the Gaming Machines Act 2001 (NSW) as in force at the time of entry into the Lease. Only “poker machine entitlements” are included in the definition of “Liquor Licence” and are thus acknowledged as the property of Auburn Village under cl 32(a). By contrast, cl 32(c) acknowledges that the “Poker Machine Permits” remain the property of Nelmeer. This phrase is defined to have the same meaning as “Liquor Act poker machine permits” under the Gaming Machines Act 2001 (NSW) and includes the PMPs identified in Schedule 1 to the Sale Agreement. Clause 32(a) does not of itself recognise or create any interest in the PMPs.

Senior counsel for the appellant submitted that Auburn Village’s subsisting interest in the PMPs grounded a claim for relief against forfeiture of a “subsisting equitable interest” on a basis which is similar to that on which relief against forfeiture is granted to lessees, mortgagees or conditional purchasers. He submitted that, in those circumstances, it was not necessary for Auburn Village to establish what he described as the “discretionary grounds” referred to in Tanwar Enterprises at [58] and Shiloh Spinners at 723, namely, “fraud, accident, mistake or surprise”. It was submitted that the consequences of forfeiture suffered by Auburn Village were “substantial” compared with the consequences to Nelmeer if relief was granted, and that “forfeiture by termination had occurred in circumstances of a legitimate difference of opinion” over the effect of notations on the PPSR, even if Auburn Village’s concerns were “misplaced”.

In making those submissions, senior counsel for Auburn Village accepted that the Sale Agreement was “produced” by a valid exercise of the Option, but rejected the proposition that the rights conferred by the Option were subsumed in the Sale Agreement. In that context, he placed reliance on cl 5.4 and cl 5.6 of the Sale Agreement, stating that what was “kept alive” by those clauses was the “nature of the optioned poker machine permits as a subsisting legal or equitable interest”.

Alternatively, in speaking notes handed up at the hearing, senior counsel for Auburn Village submitted that, “unlike a simple sale/purchase agreement standing alone … here there is a pre-existing legal framework – the validly-exercised option in the hotel lease – that itself is capable of specific performance and where the considerations set out in [Stern v McArthur (1988) 165 CLR 489 at 522-530; [1988] HCA 51] ought to apply”. He submitted that “the nature of the subsisting interest that one has under an option” meant that the Sale Agreement, which arose from the exercise of the Option, “is different from simply a sale contract, which the existing cases seem to have said is in a category distinct from leases, mortgages and conditional purchases”. In these circumstances, it was also submitted by Auburn Village that “the right to make [the time for] completion essential” under the Sale Agreement conferred by the general law was part of “security for completion rather than a stand-alone legal right”. No authority was cited for this proposition.

Alternatively, Auburn Village submitted that it was entitled to relief against forfeiture on two of the “discretionary grounds” referred to in Tanwar Enterprises at [58], namely, surprise and mistake. No reliance was placed in the submissions on either fraud or accident.

In relation to surprise, Auburn Village referred to the consent orders made on 20 March 2017, which I have noted at [9] above, and which restrained Nelmeer from acting on the notice to complete which it had issued on 8 March 2017. It contended that, against the background of those consent orders, the terms of the encumbrance held by Druin as disclosed on the PPSR, the conduct of Nelmeer up to and including its letter of 7 April 2017 and Nelmeer’s overt acts, including taking steps to remove the encumbrance held by Druin, Nelmeer’s letter of 20 April 2017 “constituted the requisite surprise or other unconscientious conduct” entitling Auburn Village to relief against forfeiture. Auburn Village submitted that Nelmeer was acting on its notice to complete by sending the letter of 20 April 2017 to Auburn Village, and that this constituted surprise because “one reasonably does not expect action contrary to the consent orders in place”, but rather, that one would have expected that there would have been an application to discharge the consent orders which would have given Auburn Village the opportunity to respond.

So far as mistake was concerned, Auburn Village contended that the primary judge had found at [258] that there was “a mistake causative of [Auburn Village’s] conduct” arising from its “view as to the nature and effect of PPSR registration and the requirements of the Sale Agreement in relation to the status and removal of entries in the PPSR”. It submitted that the primary judge should also have found that a relevant mistake included Auburn Village’s view of its right to have “compensation for delayed completion” by Nelmeer be determined by the Court in the proceedings which were on foot. In those circumstances, Auburn Village submitted that it was “unconscientious or unconscionable” for Nelmeer to treat Auburn Village’s mistaken view of the facts and law as a basis for repudiation.

Senior counsel for Auburn Village clarified that one of the relevant mistakes which was made by Auburn Village was the “linking of completion of the Sale Agreement with the outcome or by resolution or determination of the existing proceedings”, namely, the determination of Auburn Village’s claimed right to “compensation for delayed completion” by Nelmeer. He stated that part of the relevant context was that “both sides are dealing, not only with completion of the contract but an offer to settle the proceedings”. He accepted that the submissions on mistake were not put in this fashion before the primary judge.

Finally, senior counsel for Auburn Village submitted that there were no “closed categories” in respect of which equity will grant the relief sought by Auburn Village, and that relief should be granted in the present case even if the claim for relief did not fall within one of the categories referred to in Tanwar Enterprises at [58]. However, no other precise basis on which relief in the present case was said to be appropriate was articulated, apart from identifying Nelmeer’s conduct in terminating the Sale Agreement to be “unconscientious” in the circumstances as a whole.

Senior counsel for Nelmeer submitted that the decision of the primary judge was an exercise of discretion which could only be challenged on the grounds described in House v The King (1936) 55 CLR 499 at 504-505; [1936] HCA 40. He stated that the submissions put before the primary judge related to the forfeiture of the interest of Auburn Village in the PMPs which arose under the Sale Agreement, rather than any interest in the PMPs which arose under the Option. He submitted that there was no suggestion in the Court below that there was any “subsisting interest” of the nature of that referred to by Auburn Village in its submissions on the appeal. He submitted that it followed that the primary judge could not be in error in failing to deal with a submission which was not put to her at trial.

Senior counsel for Nelmeer described the submissions of Auburn Village which asserted that it had a “subsisting interest” as “deeply flawed”. He submitted that cl 5.6 of the Sale Agreement provided no assistance to Auburn Village because it was concerned only with clarifying that the Sale Agreement was not intended to vary the terms of the Lease. He also submitted that the purpose of cl 5.4 was to clarify that, even though a transfer of ownership would be effected by the Sale Agreement, the PMPs would remain “in place” until the expiration of the Lease, subject to cl 5.6 providing that this arrangement did not involve a variation of the Lease.

Senior counsel for Nelmeer also submitted that the Option was “spent” once it was exercised by Auburn Village. He pointed to the fact that the Option only related to the PMPs identified in Schedule 1 to the Sale Agreement and not any other “poker machine permits” which were subsequently acquired by Nelmeer, which would be covered by cl 32(c) of the Lease. In these circumstances, he submitted that the submission that the claim for relief against forfeiture should follow “conventional proprietary interest analysis” was not correct.

Senior counsel for Nelmeer further submitted that there was no basis in principle or authority to differentiate between a “contract of sale simpliciter” and a “contract of sale pursuant to the exercise of an option”. He submitted that a “powerful reason of principle” that such a distinction should not be drawn is the “general notion of coherence in the law”. He pointed to the difficulty involved in the argument that there be relief against forfeiture in circumstances where Auburn Village did not challenge the findings of the primary judge that it had repudiated the Sale Agreement or that Nelmeer had validly terminated the Sale Agreement.

In relation to mistake, senior counsel for Nelmeer submitted that there was “no mistake at all”. He submitted that Auburn Village were clear in their correspondence that they were not prepared to settle until the issue of “compensation for delayed completion” by Nelmeer was resolved. So far as the question of unconscientious reliance on the notice to complete was concerned, he submitted that Nelmeer had made it clear on 20 April 2017 that it was not relying on the notice to complete, which was in any event “spent”, but rather, on the repudiation of the Sale Agreement by Auburn Village. He also referred to the finding by the primary judge that, by 7 April 2017, Auburn Village had accepted that the PMPs were no longer encumbered by any security interest.

In relation to surprise, senior counsel for Nelmeer submitted that no argument based on this category was put to the primary judge. He referred to the statement by the majority in Tanwar Enterprises at [58] that it was necessary “to point to the conduct of the vendor as having in some significant respect caused or contributed to the breach” of an essential term. He submitted that Nelmeer had made it clear in its correspondence why the contention of Auburn Village was misconceived, and referred to the finding by the primary judge at [259] that Nelmeer had not “expressly or impliedly acquiesced in the mistake or otherwise caused or contributed to it”.

In Jabetin Pty Ltd v Liquor Administration Board (2005) 63 NSWLR 602; [2005] NSWCA 92 at [87], Mason P, with whom Sheller and Hodgson JJA agreed, stated that “a poker machine entitlement is a species of property capable of being owned, disposed of and made the subject of a trust”. It follows that a “poker machine entitlement” is property in respect of which a person can hold an equitable interest. While Mason P did not directly address the status of “Liquor Act poker machine permits” such as the PMPs, both parties implicitly assumed that “Liquor Act poker machine permits” were also property in respect of which a person can hold an equitable interest.

In the present case, it seems that the Option granted by cl 34 of the Lease conferred a subsisting equitable interest in the PMPs on Auburn Village since, regardless of whether an option is considered to be an “irrevocable offer” or a “conditional contract”, it is clear that the grantee of an option holds an equitable interest in the property which is the subject of the option and that this interest is commensurate with their rights to specific performance of the agreement granting the option. In cases where options have been treated as or considered to be in the nature of “irrevocable offers”, this was made clear in a well-known passage in the judgment of Street J in Mackay v Wilson (1947) 47 SR (NSW) 315 at 325, where his Honour made the following remarks:

By contrast, in Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 76; [1974] HCA 49, after an extensive review of the authorities dealing with the question of whether an option was in effect an “irrevocable offer” or a “conditional contract”, Gibbs J came to the view that the option in that case, which was in similar terms to the one contained in the Lease, was in substance a conditional contract, being “a contract to sell … upon condition that the grantee gives the notice and does the other things stipulated in the option”. He stated that it gave the grantee “the right, if he performs the stipulated conditions, to become the purchaser”. He also stated at 75 that “it is clear that the option itself creates an equitable interest in the land to which it relates”.

However, in the present case, any subsisting equitable interest in the PMPs conferred by the Option was “spent” following the exercise of the Option by Auburn Village and the entry by the parties into the Sale Agreement.

Auburn Village relied on cl 5.4 and cl 5.6 of the Sale Agreement in contending that the Option was not “spent” or “subsumed” by the Sale Agreement. However, cl 5.4 simply recognises the fact that the PMPs were attached to Nelmeer’s hotel licence, and made it clear that, in those circumstances, Nelmeer as licensee held the PMPs attached to its licence on trust for Auburn Village pending expiration of the Lease, when Nelmeer’s licence reverted to Auburn Village. Further, cl 5.6 merely makes it clear that the Sale Agreement was not intended to vary the Lease and that the Lease would prevail to the extent of any inconsistency with the Sale Agreement. Neither provision does the work for which Auburn Village contends.

In these circumstances, Auburn Village had no subsisting interest in the PMPs under the Option, as distinct from the Sale Agreement, after the exercise of the Option. Once the Option had been exercised and Auburn Village and Nelmeer had entered into the Sale Agreement, it could not be re-exercised. Indeed, by the time the events the subject of these proceedings took place, the time for the exercise of the Option had expired.

Auburn Village also sought to rely on cl 32(a) of the Lease, which provided that the “Liquor Licence” was its property. Clause 32(a) plainly reflected the position that, irrespective of the fact that Nelmeer is referred to as the “business owner” in the Liquor Licence, the Liquor Licence was intended to remain the property of Auburn Village. Clause 32(a) must also be read subject the distinction between “poker machine entitlements” and “Liquor Act poker machine permits”, which I have noted at [33] above, and to cl 32(c) and cl 32(d) of the Lease, which expressly provide that the PMPs and any future “poker machine permits” acquired by Nelmeer were its property.

It follows that cl 32(a) provides no support to the contention of Auburn Village that the Lease, apart from the Sale Agreement, gave it a subsisting equitable interest in the PMPs. Even if cl 32(a) of the Lease did confer some interest in the PMPs on Auburn Village, that interest would not have been affected by termination of the Sale Agreement since it would have conferred an interest which was entirely separate from any interest under the Option or the Sale Agreement.

In the alternative, Auburn Village also submitted that a contract of sale entered into as a result of the exercise of an option was to be treated differently to an “ordinary” contract of sale in some way, at least for the purposes of relief against forfeiture. There is no authority to support that proposition and it is wrong in principle. Upon the exercise of an option, whether it is described as an “irrevocable offer” or a “conditional contract”, any interest the purchaser has in the property is commensurate with their ability to obtain specific performance of the resulting contract or to protect its interest under the contract by injunction or otherwise: Brown v Heffer (1967) 116 CLR 344 at 349; [1967] HCA 40; Legione v Hateley (1983) 152 CLR 406 at 446, 456-457; [1983] HCA 11; Stern v McArthur (1988) 165 CLR 489 at 522; [1988] HCA 51 (Stern v McArthur); Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 612; [1988] HCA 16 (Bahr v Nicolay).

In Bahr v Nicolay at 645-646, Brennan J emphasised the difference in the nature of the equitable interest in property held by a person either as a grantee of an option in respect of that property, or under a provision of an agreement which provided for entry into a further contract of sale, before and after the exercise of the option or entry into the further contract. In these circumstances, prior to repudiation and termination, the only interest that Auburn Village had in the PMPs was an equitable interest commensurate with its right to specific performance of the Sale Agreement. On the termination of the Sale Agreement by Nelmeer, which Auburn Village now accepts as being valid, that interest was extinguished.

Auburn Village sought to equate the present case with the traditional class of case in which relief against forfeiture would be granted, namely, when the “provision for forfeiture has been made to secure the payment of money and the party in default seeks relief upon the basis of payment of the amount owing together with the appropriate compensation”. It has been said that, in this class of case, “the very nature of the transaction” is such that equity would grant relief: Stern v McArthur at 527; see also Shiloh Spinners at 722-723. The present case does not fall within that class. In Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514 at 520, Lord Hoffman, in a passage approved by the majority in Tanwar Enterprises at [54], made the following remarks:

For these reasons, the only subsisting equitable interest in the PMPs which Auburn Village had was one which arose under the Sale Agreement and the primary judge was correct in limiting the inquiry to whether Auburn Village had established one of the “special heads” of “fraud, accident, mistake or surprise”. These categories were described in Tanwar Enterprises at [58] as identifying “in a broad sense the circumstances making it inequitable” for Nelmeer to rely on its termination of the Sale Agreement.

As I indicated at [37] above, Auburn Village relied on the categories of surprise and mistake in this Court. The relevant surprise which was identified was that Nelmeer was alleged to have acted on the notice to complete contrary to the consent orders made on 20 March 2017, as I noted in more detail at [38] above. One difficulty with this argument is that, in fact, Nelmeer did not rely on the notice to complete to terminate the Sale Agreement. Rather, as the letter from the solicitors for Nelmeer of 20 April 2017 made clear, it was relying on the repudiation of the Sale Agreement which, as the primary judge found, it was entitled to do. As I have noted at [19] above, this finding was not challenged on appeal.

Further, as was pointed out in Tanwar Enterprises at [58], in the case of the category of surprise, it is “necessary to point to the conduct of the vendor as having in some significant respect caused or contributed to the breach” of the relevant contractual stipulation. There was no such conduct in the present case. The letter of 7 April 2017 from the solicitors for Nelmeer made the position of Nelmeer abundantly clear. It viewed the claims made by Auburn Village as “untenable”, and explained in some detail why it held this view. By contrast, Auburn Village continued to insist that it was not prepared to settle under the Sale Agreement in accordance with its terms unless its asserted claim for “compensation for delayed completion” was accepted. As I have noted at [22] above, this was what constituted the repudiatory conduct which the primary judge found entitled Nelmeer to terminate the Sale Agreement. If Auburn Village was “surprised” that its repudiation was accepted, that surprise was not caused or contributed to by Nelmeer.

So far as mistake is concerned, although it may not be necessary to demonstrate that the mistake was “caused or contributed to” by the vendor as it is for surprise, it is still necessary for Auburn Village to show that, by reason of the mistake, it was “unconscientious” for Nelmeer to exercise its right of termination. Auburn Village identified its mistake in two ways: first, its mistaken view of its right to “compensation for delayed completion” and second, “linking of completion of the Sale Agreement with the outcome or by resolution or determination of the existing proceedings”.

Setting aside the fact that the second way in which the mistake was identified was not put before the primary judge, it must be remembered that this case did not involve the making of a mistake which amounted to a breach of an essential term, but rather, a refusal to complete the Sale Agreement according to its terms: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 634, 659; [1989] HCA 23; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 at [44]. In repudiating the Sale Agreement, Auburn Village maintained the position that it was not required to complete until its claim for “compensation for delayed completion” was met, by determination in the proceedings which were on foot if necessary, and maintained that position up to the time that judgment was delivered by the primary judge.

In these circumstances, accepting that Auburn Village had a mistaken view of the Sale Agreement, it was not caused or contributed to by Nelmeer, which clearly enunciated the contrary position in the letter from its solicitors of 7 April 2017 and in the subsequent correspondence. The mere fact that Auburn Village had a mistaken view of its obligations under the Sale Agreement does not lead to the conclusion that it was “unconscientious” for Nelmeer to exercise its legal right to terminate.

Nor did Nelmeer contribute to the second way that the mistake is identified, namely, that completion of the Sale Agreement was “linked” to the outcome of the proceedings. Nelmeer had consented to the orders made on 20 March 2017 which restrained it from acting on the notice to complete. The primary judge found, and it is not disputed, that Auburn Village had accepted that the PMPs were no longer encumbered by 7 April 2017. Notwithstanding, Auburn Village continued to decline to settle under the Sale Agreement unless its claim for “compensation for delayed completion” was accepted, and the primary judge found that this amounted to a repudiation of the Sale Agreement. Irrespective of Auburn Village’s belief, there was nothing “unconscientious” in the circumstances in Nelmeer accepting Auburn Village’s repudiation and terminating the Sale Agreement.

There are two further difficulties with the second way in which Auburn Village identified its mistake in its claim for relief. First, there was no evidence that Auburn Village laboured under the mistake in question as distinct from believing that it was simply not legally required to complete under the Sale Agreement. Second, relief against forfeiture is a discretionary remedy: MGL at [18-330]. It could not be said that the primary judge erred in the exercise of discretion by refusing to grant relief on a ground which was not raised before her Honour.

In these circumstances, the primary judge was correct in refusing to grant Auburn Village relief against forfeiture. The appeal should be dismissed with costs.

BEAZLEY P: I have had the advantage of reading in draft the reasons of the Chief Justice. I agree with his Honour’s reasons and proposed order.

PAYNE JA: I have read the judgment of the Chief Justice in draft. I agree with the order proposed by his Honour and with his reasons.