Relief Against Forfeiture

25 Sep Relief Against Forfeiture

In the decision of Tanwar Enterprises Pty Limited v Cauchi [2003] HCA 57 (“Tanwar”) the High Court explored the use and limitations of equitable intervention to modify strictly legal rights (i.e. rights founded in contract).

The Facts

In both cases the facts revolved around Contracts for the sale of land which were terminated by the Vendors for non performance.

In Tanwar, there had been a history of an inability by the purchaser to complete on the date designated in the Contract. The parties reached an agreement, which was documented in a Deed, pursuant to which the Purchaser acknowledging that the Deed represented the final arrangement to complete the transaction.

On the date of settlement, the 25th of June 2001, settlement was arranged and the parties attended at the Office of State Revenue. The Purchaser was unable to complete  because the foreign funds which were financing the purchase had not yet arrived.

Even though the funds did arrive the following day, the Vendors instructed that the Contracts be terminated. The purchaser then commenced proceedings on the basis that it was unconscientious of the Vendors to use their legal right to terminate the Contracts upon the failure of the Purchaser to complete on the 25th of June 2001.

The Law

In Tanwar, the purchaser was unsuccessful in establishing that the vendor acted unconscionably and that the delay in settlement was an accident and that as a consequence equity should intervene to relieve against forfeiture of the deposit..

Justice Kirby, in Tanwar, provided a summary of the legal authority applicable in Australia in relation to relief against forfeiture:-

1. Subject to statute, a party of full capacity, is bound by legal obligations assumed in a valid agreement with another.
2. Equitable relief may be granted against forfeiture in established cases. The mere fact that time is essential does not exclude equity’s jurisdiction to afford relief.
3. Equitable relief may be granted to a party where an exercise of legal rights are shown to be a result of fraud, mistake, accident or surprise or otherwise unconscionable in all the circumstances.
4. In deciding whether it would be unconscientious conduct for a party to take advantage of forfeiture consequent on a breach of an essential time stipulation the following considerations have been taken into account:-
   • * Did the conduct of the vendor contribute to the purchaser’s breach?
   • * Was the purchaser’s breach (a) trivial or slight, and (b) inadvertent and wilful?
   • * What damage or other adverse consequence did the vendor suffer by reason of the purchaser’s breach?
   • * What is the magnitude of the purchaser’s loss and the vendor’s gain if the forfeiture is to stand?
   • * Is specific performance with or without compensation an adequate safeguard for the vendor?
5. In deciding whether relief against forfeiture should be granted, consideration should be given to any exceptional circumstances, to the disadvantages suffered by the party which is typically kept from exercise of its legal rights in its property pending determination of the dispute.

In addition to the above the High Court conceded that a court may relieve a defaulting purchaser against forfeiture even in cases where time was of the essence:-

1. the purchaser must be able to explain the default;
2. the purchaser must show that it occurred as a result of an event for which he is not responsible or by accident;
3. the purchaser must produce evidence of real hardship if relief were not to be granted;
4. the purchaser must be able to compensate the vendor for any loss that may have been caused;
5. there must be some aspect of the vendor’s conduct which involves an element of oppression or imposition, such that can be described as unconscionable;
6. the purchaser must show that the circumstances are exceptional.

If you need further information or have any queries please contact Alexandra Tzavellas.