Esera v Samoa Realty & Investments Ltd [2007] WSSC 26 (20 April 2007)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

BETWEEN

FAATUTALA ESERA
of Vaimoso, Engineer.
Plaintiff

AND

SAMOA REALTY AND INVESTMENTS LIMITED
previously known as (Samoa Express Limited) a company
duly registered and carrying on business in Samoa.
Defendant

Counsel: T R S Toailoa for plaintiff
R Drake for defendant

Judgment: 20 April 2007

JUDGMENT OF SAPOLU CJ

Sale and purchase agreement

On 9 August 1993 the plaintiff and his wife, as purchasers, entered into a sale and purchase agreement with the defendant, previously known as Samoa Express Ltd, as vendor, for the purchase of a parcel of land containing approximately two acres and eighteen point three perches (2a.0r.18.3p) situated at Saleimoa. The agreement is headed "Conditional Sales Agreement" but it is really a standard form sale and purchase agreement used by the defendant in sale of land transactions.

Under the terms of the agreement, as confirmed by the plaintiff in his evidence, the plaintiff and his wife had paid a deposit of $4, 828 at the time the agreement was made leaving a balance on the purchase price of $12,087. So the total purchase price of the land was $16,915. This would mean that the deposit paid represented about 28.5% of the purchase price. The balance of the purchase price of $12,087 was to be paid by regular monthly instalments of $352.54 over a period of four years. The first of these monthly instalments was to be paid on 9 September 1993. There was also under the agreement a finance charge of $4,834.80 which the plaintiff explained in his evidence as interest of 10% on the balance of the purchase price.

In other words the purchase price of the land was $16,915. The deposit was $4,828. It was paid at the time of the agreement and represented 28.5% of the purchase price. The balance of the purchase price after the deposit was paid was $12,087 and it carried interest of 10% totalling $4,834 over the four year period of the transaction. The total of the balance of the purchase price plus the interest was $16,921 and was referred to under the agreement as the "Deferred Payment Price." This amount of $16,921 was to be paid by the tenth day of each month by monthly instalments of $352.54 over a period of four years, times for payment and performance being of the essence.

In the first page of the agreement, it is there provided, as far as relevant:

"In the event the purchaser fails to make any required payment, then this contract may be cancelled by the vendor and prior payments will be retained by the vendor in accordance with the terms and conditions fully set forth in the purchaser’s acknowledgement on the reverse side of this agreement. The foregoing notwithstanding, the vendor may grant a grace period up to 90 days if the purchaser does not make any required payment exactly on the date due. The penalty for late payment is $176.27 for each and every payment for each period they remain delinquent. Payments made by the purchaser will be applied first to late payment penalties then to the oldest instalment then due."

In the second page of the agreement which is headed "Additional Terms and Conditions of Agreement," clause 9 thereof provides as far as relevant:

"9 If the purchaser makes default in payment of any purchase or interest moneys payable under this agreement or fails to perform or observe any of the terms contained or implied in it and the default or failure continues for 30 days (the times for payment and performance being of the essence) then the vendor without prejudice to his other remedies may at his option exercise all or any of the following remedies namely:

"a. Enforce specific performance of this agreement including the payment of all moneys payable under it, in which case the whole of the unpaid purchase moneys shall be deemed to have become due and payable to the vendor notwithstanding the due date of payment may not have arrived.

"b. Rescind this agreement in which case all moneys paid by the purchaser to the vendor under this agreement shall be absolutely forfeited to the vendor as liquidated damages.

Monthly instalment payments

To meet the monthly instalment payments under the sale and purchase agreement towards the balance of the purchase price plus interest, the plaintiff executed on 19 August 1993 an "Authority for Automatic Payments" with the BWS bank to transfer the sum of $352.54 every month from his savings account with the bank to the account of the defendant in the same bank. The first of such transfers was to be made on 1 September 1993 and the final transfer to be made on 1 August 1997. The defendant was made aware of that arrangement. It appears from the undisputed evidence that the payments made by the plaintiff and his wife were regular up to September 1995. From that point onwards, there are discrepancies between the evidence given by the plaintiff and the evidence given by the governing director of the defendant. I will now refer first to the evidence given by the plaintiff and then to the evidence given by the defendant’s governing director and then attempt to resolve the discrepancies between the evidence from those two witnesses.

As it appears from the bank statements for the plaintiff’s savings account with the BWS which were produced in evidence by the plaintiff, the following transfers were made from the plaintiff’s savings account to the defendant’s account to meet the monthly instalment payments under the agreement:

1. For the month of September 1995, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 1 September 1995.

2. For the month of October 1995, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 29 September 1995. That transfer was reversed on the same date. So the total payment for October 1995 became in arrears.

3. For the month of November 1995, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 1 November 1995. That transfer was partially reversed by $12 on 8 November 1995. So the payment for November 1995 became in arrears by $12. It does not appear from the plaintiff’s bank statements that these arrears were subsequently paid.

4. On 17 November 1995 a sum of $352.54 was transferred from the plaintiff’s account to the defendant’s account. Presumably this was to cover the payment that was outstanding for the month of October 1995. This, however, did not include the penalty for late payment of $176.27 provided in the agreement.

5. For the month of December 1995, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 29 November 1995.

6. For the month of January 1996, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 29 December 1995.

7. For the month of February 1996, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 1 February 1996.

8. For the month of March 1996, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 1 March 1996.

9. For the month of April 1996, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 1 April 1996.

10. For the month of May 1996, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 1 May 1996.

11. For the month of June 1996, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 31 May 1996.

12. For the month of July 1996, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 1 July 1996.

13. For the month of August 1996, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 1 August 1996.

14. For the month of September 1996, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 30 August 996.

15. For the month of October 1996, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 1 October 1996.

16. For the month of November 1996, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 31 October 1996.

17. For the month of December 1996, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 29 November 1996.

18. For the month of January 1997, the sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account on 31 December 1996. This transfer was reversed on 7 January 1997 so that the instalment payment of January 1997 fell into arrears.

19. On 31 January 1997 another sum of $353.04 was transferred from the plaintiff’s account to the defendant’s account. Presumably, this transfer was to cover the instalment payment for January 1997 as the initial transfer for that month had been reversed. There was no transfer from the plaintiff’s account to the defendant’s account to cover the month of February 1997 so that the instalment payment for that month fell into arrears.

By letter dated 27 February 1997, the governing director of the defendant wrote to the bank to discontinue making transfers from the plaintiff’s account to the defendant’s account. It is not clear why the transfers were discontinued even though one can surmise at the reason. This was also done without the knowledge of the plaintiff. On 10 and 17 March 1997, the wife of the plaintiff made two payments of $150 each. These payments are confirmed by receipts issued by the defendant. There is no record of any further payments being made after those two payments. The evidence of the governing director of the defendant was that those were the last payments made by the plaintiff and his wife.

According to my calculations, as of March 1997 after the last two payments made by the wife of the plaintiff, the total amount paid by the plaintiff and his wife to the defendant was $19,237.10. This is made up of the deposit of $4,828, the transfers from the plaintiff’s account in the BWS to the defendant’s account which totalled $14,108.10, and the $300 paid by the wife of the plaintiff in March 1997. The total amount of the purchase price plus interest which the plaintiff and his wife had to pay under the agreement was $21,749.80. So as of March 1997 after the last two payments, the outstanding amount which the plaintiff and his wife had to pay to complete the purchase of the land was $2,512.10.

On the plaintiff’s evidence, it would also appear that as of March 1997 after the last two payments were made, the plaintiff and his wife had not paid the penalties for the late payments for the months of October 1995, January 1997 and February 1997 if one were to treat the two payments in March to have been intended for February. The arrears of $12 for the month of November 1995 had also not been paid. As only $300 was paid in March, the instalment payment for the month of February would be in arrears by $52.54. That would mean that no payment was applicable to March so that the total instalment payment for that month was also in arrears.

The plaintiff also testified that in late 1997 or early 1998, he went and met with the governing director of the defendant to find out the situation regarding their transaction. The response by the defendant’s governing director was that the plaintiff had defaulted in his payments. The plaintiff then asked to give him the total amount owing and he would pay it off but was told to come back the following week to see the governing director’s secretary. That was done but the plaintiff was told by the secretary to come back the following week. The plaintiff returned the following week and it was then that he was advised by another lady at the defendant’s premises that the land had been resold to a third party. It appears that the defendant had rescinded the sale and purchase agreement in June 1997 and resold the land in September 1997 to a third party.

The evidence which was given by the defendant’s governing director was that the plaintiff and his wife were regular with their monthly instalment payments from the time of the agreement in 1993 up to September 1995. After that time, the payments by the plaintiff and his wife fell into arrears at times and penalties for late payment were not met. In order to be clear about these arrears and penalties for late payment, it will be necessary to refer to correspondence which the defendant claims to have sent to the plaintiff and which the plaintiff denied receiving.

By letter dated 8 November 1995, the defendant’s governing director advised the plaintiff and his wife that their agreement was in arrears for a month and a half as the monthly transfer from the plaintiff’s savings account on 1 October 1995 for that month’s instalment payment was reversed by the bank on the same date. This letter also referred to the late payment charge of $176.27. It also mentioned that the payment of the outstanding instalment plus the penalty were requested to be made before 15 November 1995. The bank statements produced by the plaintiff, as earlier referred to, show that the transfer from the plaintiff’s savings account for the instalment payment for the month of October 1995 was made on 29 September 1993 but that transfer was reversed on the same date. On 17 November 1995, a sum of $352.54 was transferred from the plaintiff’s account to the defendant’s account to cover the outstanding payment for October. However, the penalty of $176.27 for late payment was not paid.

By letter of 4 March 1996, the defendant’s governing director advised the plaintiff and his wife that their agreement was in arrears for the month of February 1996 as the transfer payment for that month from the plaintiff’s account to the defendant’s account had not been paid. The penalty of $176.27 for that late payment was also claimed. As it appears from the bank statements produced by the plaintiff, there was a transfer of $353.04 made on 1 February 1996 from the plaintiff’s account to the defendant’s account. Evidently, that was for the instalment payment for the month of February 1996. There was no evidence that that transfer was subsequently reversed.

It is to be re-called that the transfers from the plaintiff’s savings account in the BWS to the defendant’s account in the same bank were automatic transfers made by the bank itself. This was pursuant to the "Authority for Automatic Payments" executed by the plaintiff with the BWS on 19 August 1993 before the monthly instalments payments under the sale and purchase agreement were to commence on 9 September 1993. The relevant bank statement for the plaintiff’s account shows that a transfer was made on 1 February 1996 from the plaintiff’s account to the defendant’s account evidently for the instalment payment for the month of February 1996. I am therefore not able to accept what is stated in the letter of 4 March 1996 from the defendant’s governing director that there was no transfer from the plaintiff’s account to the defendant’s account for the month of February. Accordingly, I find that the monthly instalment payment for February 1996 was not in arrears as claimed for the defendant in its letter of 4 March 1996.

In a letter dated 16 January 1997, the defendant’s governing director advised the plaintiff and his wife that the transfer for the month of January 1997 which was due on 1 January had not been received into the defendant’s account. The instalment payment for January 1997 was therefore one month behind and a penalty of $176.27 for late payment was also due. It was also advised in the same letter that the instalment payments by the plaintiff and his wife had been in arrears since October but it is not clear whether what was meant was October in 1995 or 1996.

The bank statements produced by the plaintiff show that a transfer of $353.04 was made on 31 December 1996 from the plaintiff’s account to the defendant’s account. However, that transfer was reversed on 7 January 1997. So what was said in the letter of 16 January 1997 from the defendant’s governing director that the transfer which was due from the plaintiff’s account on 1 January 1997 had not been received into the defendant’s account is confirmed by the bank statements produced by the plaintiff. Another transfer of $353.04 was made on 31 January 1997 from the plaintiff’s account to the defendant’s account. This transfer would cover the monthly instalment payment for January 1997 but not the penalty of $176.27 for late payment.

What was said in the letter of 16 January 1997 that the payments by the plaintiff and his wife had been one month behind since October is contradicted by the bank statements produced by the plaintiff. What is shown from the those bank statements is that even though the instalment payment for the month of October 1995 fell into arrears because the initial transfer for that month was reversed, there was a transfer of $353.04 made on 17 November 1995 from the plaintiff’s account to the defendant’s account. Evidently, that transfer covered the instalment payment for the month of October 1995. However, the penalty of $176.27 for late payment was not covered. For the following month of November 1997, the transfer of $353.04 made on 1 November 1995 from the plaintiff’s account to the defendant’s account was partially reversed by $12 so that the instalment payment for November 1995 fell into arrears by $12. But that is not the same thing as saying that the plaintiff and his wife were in arrears by one month as stated in the letter of 16 January 1997 from the defendant’s governing director.

If, however, what was meant by what was said in the letter of 16 January 1997 that the plaintiff and his wife were behind by one month since October is October 1996, then such statement is not supported by the bank statements produced by the plaintiff. The plaintiff’s bank statements show that the plaintiff’s instalments payments were not in arrears by one month since October 1996.

I have therefore found that the instalment payment for January 1997 was late, as claimed on behalf of the defendants, as it was paid on 31 January instead of on or before 1 January and that the penalty for late payment has not been paid. I have also found that the payments by the plaintiff and his wife were not behind by one month since October as claimed by the defendant.

In another letter dated 26 February 1997 from the defendant’s governing director, the plaintiff and his wife were advised that their agreement was in arrears for the months of January and February 1997 and that the total instalment payments of $705.08 plus total penalties of $353.54 for late payment had been charged to their account making the total sum due as $1057.62. It was also advised in the same letter that without further notice, the sale and purchase agreement would be cancelled if the payments due including the payment for March 1997 were not paid by 3 March.

As it would appear from the plaintiff’s bank statements, there was a transfer from the plaintiff’s account to the defendant’s account on 31 January 1997 which would cover the instalment payment for the month of January 1997. The two payments of $150 each made by the plaintiff’s wife on 10 and 17 March 1997 could have been applied to the instalment payment for the month of February 1999 even though those payments were late and did not cover the total monthly instalment payment of $353.54. The penalties for the late payments for January and February 1997 were not paid. As mentioned earlier, the two payments made in March 1997 were the last payments made by the plaintiff and his wife. This means the instalment payment for February 1997 was in arrears by $52.54 while the total instalment payment for March 1997 has not been paid.

So in terms of arrears on the monthly instalments payments when such payments ceased in March 1997, the payment for November 1995 was in arrears by $12, the payment for February 1997 was in arrears by $52.34, and the payment for March 1997 was in arrears by $352.54. So the total arrears for the monthly instalment payments as of March 1997 was $416.88.

In terms of unpaid penalties for late payment when the monthly instalment payments ceased in March 1997, penalties were not paid for late payments for the months of October and November 1995 and for the months of January and February 1997. However, there is also an element of over-payment. As the monthly instalment payment provided in the sale and purchase agreement was $352.54, the transfers of $353.04 from the plaintiff’s account to the defendant’s account represented an overpayment of .50sene on each transfer except the transfer made on 17 November 1995 which was for $352.04. For the seventeen months during the period from September 1995 to January 1997 when the transfers of $353.04 each were made from the plaintiff’s account to the defendant’s account, the excess payments come to $8.50. This is a small amount and can be credited towards the arrears for the monthly instalment payment or unpaid penalties for the late payments without any significant impact on the outcome of this case.

Expenses claimed by the defendant

In its statement of defence, the defendant claims that the expenses that it had incurred in relation to the sale and purchase transaction with the plaintiff and his wife together with the accrued interest of $10,406.47 at the rate of 24% per annum should be set off against the claim by the plaintiff.

The expenses claimed by the defendant for accounting and administration is $1,225 being $25 per month for forty nine months. For collection letters and phone calls, the sum of $1,200 is claimed being $75 per month for fifteen months. For special collection meetings and counselling, the sum of $3,200 is claimed. With respect, I find the expenses claimed by the plaintiff to be too high and not well supported by the evidence. I accept that the defendant must have incurred some expenses in relation to the agreement. But I do not accept that they are anywhere near as high as claimed by the defendant.

From August 1993 when the sale and purchase agreement was made to March 1997 when the last monthly instalment payments were made is a period of forty four months. I do not see what accounting and administration work was necessary after that time. But even if further accounting and administration work was done, the amount claimed of $1,225 is on the high side and, as I have said, it is not well supported by the evidence.

For the amount of $1,200 claimed for collection letters and phone calls, the defendant’s governing director testified that he sent and delivered many letters to the plaintiff and to his wife. The evidence given by the defendant’s governing director referred specifically to six such letters. These letters were produced in evidence and they are fairly brief. As it appears from what has been said earlier about these letters, the letter of 4 March '1996 from the defendant’s governing director to the plaintiff and his wife that their agreement was in arrears for the month of February 1996 was incorrect. Furthermore, the letter of 16 January 1997 from the defendant’s governing director to the plaintiff and his wife was also partly incorrect as the monthly instalment payments by the plaintiff and his wife were not in arrears by one month since October, that is, whether it was October 1995 or 1996. So for the six letters specifically referred to in the evidence given by the defendant’s governing director, one letter was incorrect, one letter was partly incorrect, and only four letters were wholly correct. The letters are also brief. Even if one adds on any reasonable phone calls which were made by the defendant, I still find the amount of $1,200 claimed for these expenses to be too high.

The amount of $3,200 claimed for special collection meetings and counselling is also not well supported by the evidence. The onus is, of course, on the defendant to satisfy the Court of the amounts of the expenses it claims. On the available evidence, the amount of $3,200 is too high even though the defendant’s governing director said he had some meetings with the plantiff’s wife.

Claims by the plaintiff

The plaintiff makes two claims in his first amended statement of claim. The first claim is that the rescission of the sale and purchase agreement by the defendant was wrongful. An order for specific performance of the agreement is therefore sought against the defendant as vendor. In the alternative, it is claimed that the retention by the defendant of all the moneys paid by the plaintiff under the agreement as liquidated damages is unconscionable. An order is therefore sought for the refund of all those moneys to the plaintiff. Exemplary damages are also sought in the sum of $10,000.

The second claim is that the defendant has been unjustly enriched by its retention of all the moneys paid by the plaintiff under the agreement. Damages are therefore claimed for the full amount of those moneys. Exemplary damages are also sought in the sum of $10,000.

Relevant law

The first part of the claim by the plaintiff is expressed as a claim for an order of specific performance of the sale and purchase agreement or contract of sale, or, alternatively, for an order for the refund of all moneys paid by the plaintiff and his wife under the sale and purchase agreement.

Though the claim is expressed in that way, what was really being sought is relief against forfeiture of the estate or interest of the plaintiff and his wife in the land under the contract of sale and an order for specific performance of the sale and purchase agreement or, alternatively, relief against forfeiture of all the moneys (deposit and part payments of purchase price) paid by the plaintiff and his wife under the agreement. It is under these two kinds of relief against forfeiture that I will consider the first part of the claim by the plaintiff. In doing so, it should be pointed out that there is quite a large body of law which underlies the first part of the plaintiff’s claim. It will not be necessary or even possible to refer to all of that body of law in this judgment, but I will refer to the essential parts which are relevant to this case.

(a) The purchaser’s interest under a contract for sale of land

For present purposes, it is important to note that under a sale and purchase agreement or contract for sale of land, what a purchaser acquires is an equitable estate or interest in the land. The extent of the purchaser’s estate or interest depends on the availability to the purchaser of the equitable remedy of specific performance to enforce the contract. For example, in Legione v Hateley [1983] HCA 11; (1993) 152 CLR 406, Mason and Dean JJ in their joint judgment stated at p.446:

"In this Court it has been said that the purchaser’s equitable interest under a contract of sale is commensurate only with her ability to obtain specific performance (Brown v Heffer (1967) 116 CLR 344, at p.349):

In the subsequent case of Stern v McArthur [1998] HCA 51; (1988) 165 CLR 489, Deane and Dawson JJ in their joint judgment stated at para. 2:

"As Dean J pointed out in Kern Corporation v Walter Reid Trading Pty Ltd [1987] HCA 20; (1987) 163 CLR 164, at p.191, it is not really possible with accuracy to go further than to say that the purchaser acquires an equitable interest in the land sold and to that extent the beneficial interest of the vendor in the land is diminished. The extent of the purchaser’s interest is to be measured by the protection which equity will afford to the purchaser. That is really what is meant when it is said that the purchaser’s interest exists only so long as the contract is specifically enforceable by him. Specific performance in this context does not mean specific performance in the strict or technical sense of requiring the contract to be performed in accordance with its terms. Rather it encompasses all of those remedies available to the purchaser in equity to protect the interest which he has acquired under the contract. In appropriate cases it will include other remedies, such as relief by way of injunction, as well as specific performance in the strict sense."

In the New Zealand text of Sale of Land (2000) 2nd ed by DW McMorland, the learned author states at 10.02, p. 299:

"In broad terms, the passing of the equitable estate to the purchaser depends upon the availability, at least at a theoretical level and without consideration of any defence which might be available to the vendor, of specific performance, or possibly of an injunction. There must be a contract, either directly for the sale of the land or for an option to purchase, such that the purchaser can take all of the necessary steps to obtain specific performance of that contract, the vendor cannot legally prevent those steps being taken, and the circumstances are such that, if the purchaser did take those steps, specific performance would not be unavailable for jurisdictional as opposed to discretionary reasons. It is the ultimate ability in equity to compel the vendor to transfer the estate or interest which gives the purchaser the equitable estate or interest."

Having explained that a purchaser under a contract of sale acquires an equitable estate or interest in the land, the extent of which estate or interest depends on the availability of specific performance to the purchaser to enforce the contract, I will now turn to the question of forfeiture.

(b) Forfeiture

At common laws, a purchaser may forfeit his equitable estate or interest in the land or the moneys he has paid under a contract for sale of land due to a premature termination of the contract by way of rescission or cancellation. These two kinds of forfeiture at common law are explained in Sale of Land (2000) 2nd ed by D W McMorland. In relation to forfeiture of the purchaser’s estate or interest in the land under a contract of sale, the learned author states at 12.62, pp. 475:

"The cancellation of the contract necessarily involves the return of the beneficial interest in the land to the vendor. This can be seen as the forfeiture of that beneficial interest, just as the premature determination of a lease by the lessor for breach of covenant involves the forfeiture of the lease hold estate"

The expression "beneficial interest" used in this passage encompasses the equitable estate or interest of the purchaser in the land under the contract of sale. In relation to the forfeiture of moneys paid by the purchaser to the vendor, the common law right of forfeiture by the vendor extends only to moneys paid as a deposit. The vendor’s right to forfeit does not extend to moneys paid by way of part payment of the purchase price. Such moneys would have to be repaid to the purchaser unless there is express provision in the contract that the vendor can forfeit such moneys. This was explained in Sale of Land (2000) 2nd ed by D W McMorland, where the learned author states at 12.59, pp. 470-471:

"At common law the right of forfeiture extended only to sums paid by way of deposit, and not to money paid only in part payment of the purchase price. In the absence of an express right in the contract to forfeit sums paid by way of part payment only, such sums had to be repaid to the purchaser if the contract was later cancelled."

Similarly, in Equity and Trusts in Australia and New Zealand (2000) 2nd ed by Dal Pont and Chalmers, the learned authors state at pp. 343-344:

"Where money is paid as the purchase price, in the absence of a forfeiture clause, the purchaser is entitled at common law to the return of the money advanced in part payment where the vendor terminates the contract, even if it is by reason of the purchaser’s default. Where the contract contains a forfeiture clause, the payer cannot recover moneys paid thereunder unless he or she can establish an entitlement in equity to relief against forfeiture."

In Clive Charles Garrath v Kozo Ikeda [2001] NZCA 316, Tipping J in delivering the judgment of the New Zealand Court of Appeal stated at para [42] with reference to forfeiture of a deposit:

"McMorland: Sale of Land (2nd edition, 2000) at 12.59 et seq, expresses the view that liability to forfeiture is ‘inherent’ in the nature of a deposit, and it is irrelevant that the 10% sum liable to forfeiture is large in absolute terms. Lexane Pty Ltd v Highfern Pty Ltd [1985] 1 Qd R 446 is cited as such a case."

I have referred only to some of the modern authorities which explain the vendor’s right of forfeiture at common law under a contract for sale of land. Such a right extends to the equitable estate or interest of a purchaser in the land and to the deposit paid by a purchaser to a vendor under the contract of sale. It does not apply to moneys paid by the purchaser as part payment of the purchaser price unless there is express provision in the contract of sale which gives the vendor a right of forfeiture.

(c) Relief against forfeiture

In equity the Courts have inherent jurisdiction to grant relief against forfeiture at common law and under a contractual provision which gives the vendor a right of forfeiture under a contract for sale of land. These two kinds of relief are sometimes referred to as relief against common law forfeiture and relief against contractual forfeiture. The basis of the Courts equity jurisdiction for intervention to grant relief against forfeiture is unconscionable conduct. This was explained in Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489 where Mason CJ stated at para. 19 of his judgment in [1988] HCA 51:

"But as [Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406] was to demonstrate, equity will relieve against an unconscionable exercise of legal rights. If the vendor’s insistence on rescission and forfeiture of the purchaser’s interest under the contract is in the circumstances of the case, unconscionable, there can be no unfairness in depriving the vendor of the benefit of rescission with the forfeiture of the purchaser’s interest entailed by rescission. That was the message conveyed by Legione. It was a message which confirmed the long-standing principle that, granted the existence of the preliminary condition for the exercise of the jurisdiction to relieve against forfeiture, the actual exercise of the jurisdiction depends upon the existence of circumstances which make it unconscionable for the vendor to insist on rescission and forfeiture of the purchaser’s interest."

In the same case Deane and Dawson JJ when referring to the basis of the equity jurisdiction to relieve against forfeiture stated at para 11 of their joint judgment:

"The general underlying notion is that which has long been identified as underlying much of equity’s traditional jurisdiction to grant relief against unconscientious conduct, namely, that a person should not be permitted to use or insist upon his legal rights to take advantage of another’s special vulnerability or misadventure for the unjust enrichment of himself."

The distinction between the grant of relief against the forfeiture of the purchaser’s estate or interest in the land under the contract of sale and the grant of relief against the forfeiture of instalments of purchase money paid by the purchaser under the contract as well as the distinction between a forfeiture and a penalty were explained in Legion v Hateley [1983] HCA 11; (1983) 152 CLR 406. In their joint judgment, Mason and Deane JJ stated at p. 445:

"A penalty, as its name suggests, is in the nature of a punishment for non-observance of a contractual stipulation; it consists of the imposition of an additional or different liability upon breach of the contractual stipulation (see, generally, O’Dea v All States Leasing System (W.A) Pty Ltd [1983] HCA 3; (1983) 152 CLR 359). On the other hand, forfeiture involves the loss or determination of an estate or interest in property or a proprietary right, e.g., a lease, in consequence of a failure to perform a covenant. When non-payment of rent or a fine is made the occasion for forfeiture of an estate or interest in property it may be proper to treat the forfeiture as being similar in character to a penalty because it is designed to ensure payment of the rent or fine. There is, however, a real distinction between ‘penalty’ and ‘forfeiture’ and it is unfortunate that the terms have been frequently used in a way which blurs it. The claims made by the purchasers in Steedman v Drinkle [1916] 2 AC 599 were for relief against the ‘forfeiture’ of instalments of purchase money. The relevant contracts, like the modern contract of sale, permitted the vendor to ‘forfeit’ instalments of purchase money. In this situation, despite the use of the word ‘forfeit,’ relief is granted on the footing that the contractual provision entitling the vendor to retain the instalments is in substance a penalty, or in the nature of a penalty, because it is designed to ensure payment of the entire purchase price and it exceeds the damage which he suffers by reason of the purchaser’s default.

"The respondent’s claim here is of a different kind to that involved in Steedman v Drinkle and Brickles v Smell. She seeks relief against forfeiture of her equitable interest as purchaser under a binding contract for sale. Forfeiture of the purchaser’s interest, usually the consequence of the vendor’s rescission for breach of an essential term, occurs under the general law regulating the right of vendor and purchaser. Such a forfeiture is to be distinguished from a contractual forfeiture which is designed to ensure performance of a principal obligation"

It would seem from the passage cited from the joint judgment of Mason and Deane JJ in Legion v Hateley that relief against forfeiture of instalments of purchase money paid by the purchaser under a contract for sale of land is relief against a contractual forfeiture. It arises where the purchaser has not observed a stipulation in the contract and a contractual provision, sometimes referred to as a forfeiture clause, which entitles the vendor to retain the instalments of purchase money is a penalty. Such a contractual provision is a penalty in the sense that it imposes an additional or different liability on the purchaser which exceeds the damage suffered by the vendor upon breach of a stipulation in the contract. On the other hand, relief against forfeiture of the purchaser’s interest in the land under the contract of sale is relief against a common law forfeiture. This usually arises as a consequence of the rescission by the vendor of the contract of sale for breach of an essential term.

The principles which are applicable to relief against the forfeiture of instalments of purchase money paid under a contract for sale of land are different from the principles which are applicable to relief against the forfeiture of a deposit even though to some extent there is an overlap between the two. I will deal with relief against forfeiture of a deposit later in this judgment.

There are two other important matters in relation to relief against forfeiture that I need to refer to because of their relevance to this case. The first of these matters is whether relief against forfeiture of a purchaser’s interest in land under a contract of sale and specific performance are available to a purchaser notwithstanding that he is in breach of an essential condition of the contract of sale as to time. The reason why this is relevant is because under clause 9 of the contract of sale between the plaintiff and his wife and the defendant, time for the making of payments due under the contract and for the performance of the terms of the contract is made of the essence of the contract.

This issue was also dealt with by the High Court of Australia in Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406. Gibbs CJ and Murphy J in their joint judgment stated at p. 429:

"A Court of equity will grant specific performance notwithstanding a failure to make a payment within the time specified by the contract if there is nothing to render such an order inequitable. The fact that time for the performance of the stipulated obligation is of the essence of the contract generally makes the grant of specific performance inequitable in such a case. However, if it is just to relieve against the forfeiture which is incurred when the vendor retains payments already made under the contract, it is difficult to see why it should be unjust to relieve the purchaser against the forfeiture of the interest in the property that results in exactly the same circumstances. No doubt where the parties have chosen to make time of the essence of the contract the grant of relief against forfeiture as a preliminary to an order for specific performance will be exceptional. Nevertheless on principle we can see no reason why such an order should not be made if it will not cause injustice but will on the contrary prevent injustice."

What is said in the above passage, particularly in the last sentence, is quite a broad proposition. Mason and Deane JJ in their joint judgment stated at p. 447:

"The critical question then is: Should specific performance ever be ordered when the purchaser is in breach of an essential condition? The argument in favour of a negative answer is forceful. If parties expressly or impliedly stipulate that performance of a term is essential to their bargain then it would ordinarily be unjust to the innocent party to require him to complete notwithstanding a breach of that term. Generally speaking equity expects men to carry out their bargains and ‘will not then buy their way out by uncovenanted payment’ (Shiloh Spinners Ltd v Harding [1973] AC 691, at p. 723)

"But if there be fraud, mistake, accident, surprise or some other element which would make it unconscionable or inequitable to insist on forfeiture of the purchaser’s interest under the contract because he has not performed in strict accordance with its terms there is no injustice to the innocent party in granting relief against forfeiture by means of specific performance with or without compensation. Cheney v Libby [1890] USSC 53; (1890) 134 U.S. 68 provides an illustration of an unconscionable rescission. There the Court ordered specific performance of a contract for the sale of land, time being of the essence, when the purchaser had failed on the due date to pay an instalment of purchase in dollars, the stipulated mode of payment."

In the later case of Ciavarella v Balmer [1983] HCA 26; (1983) 153 CLR 438, at p. 454, the High Court of Australia reaffirmed that it is only in exceptional circumstances that relief will be granted against forfeiture of the purchaser’s interest under a contract for sale of land where the purchaser has been in breach of an essential term which makes time of the essence of the contract.

The position which has been taken by the High Court of Australia in Legione v Hateley and reaffirmed in Ciavarella v Balmer has not been accepted in New Zealand and has been rejected by the Privy Council. This is explained in Sale of Land (2000) 2nd ed by D W McMorland at pp 476-477 where it is stated by the learned author:

"It has since been held in Australia that, in exceptional circumstances, the Court may grant relief after the contract has been validly cancelled by the vendor for failure to perform as at an essential time...It was held that the Court has jurisdiction in exceptional circumstances, where the order would prevent rather than cause injustice, or where the vendor is guilty of unconscionable conduct, to grant relief against forfeiture, even though the breach was of an essential time. It has subsequently been emphasised that the jurisdiction will not often be invoked successfully...

"This extension of the jurisdiction has received a mixed academic reception. It has also, ‘with respectful temerity,’ been found ‘unpersuasive’ in the New Zealand High Court after a full consideration of the jurisdiction question, though, even had the jurisdiction been accepted, the facts were well short of the level needed for relief. Strong preference was expressed for the traditional view that relief against forfeiture of the purchaser’s equitable interest is not available where the vendor has cancelled for breach of an essential time.

"More recently, the Priory Council, after a full consideration of the history of the jurisdiction, has strongly rejected the notion that there can be relief against cancellation on the ground of failure to comply with an essential time.

"However, the debate is probably sterile in New Zealand because the required level of unconscionability is not likely to be found unless the purchaser is in possession, in which case there is statutory jurisdiction to grant relief under ss..50 and 118 of the Property Law Act 1995."

The decision of the Privy Council which is mentioned in the passage just cited is Union Eagle Ltd v Golden Achievement Ltd [1997] UKPC 5; [1997] AC 514; [1997] 2 A11 ER 215. The reference to ss. 50 and 118 of the Property Law Act 1952 (NZ) is relevant because that New Zealand legislation is still applicable to Samoa. However, as the plaintiff in this case had never been in possession of the land, those provisions do not apply here. In Union Eagle Ltd v Golden Achievement Ltd (Hong Kong) [1997] UKPC 5 Lord Hoffman in delivering the judgment of the Privy Council stated in paras 13 and 14:

"‘[For] the past eighty years, the Courts in England, although ready to grant restitutionary relief against penalties have been unwilling to grant relief by way of specific performance against breach of an essential condition as to time. In Steedman v Drinkle [1916] 1 AC 275 Viscount Haldane said at page 279:

"‘Courts of Equity, which look at the substance as distinguished from the letter of agreements, no doubt exercise an extensive jurisdiction which enables them to decree specific performance in cases where justice requires it, even though literal terms of stipulations as to time have not been observed. But they never exercise this jurisdiction where the parties have expressly intimated in their agreement that it is not to apply by providing that time is to be of the essence of their bargain’

"‘This principle has never since been questioned in any case in England or the Privy Council, although it has been criticised in academic writings and certain Australian cases as both historically inaccurate and unduly rigid."

Further on towards the end of the judgment by the Privy Council, Lord Hoffman stated.

"In his dissenting judgment, Godfrey J.A. said that the case ‘cries out for the intervention of equity.’ Their Lordships think that, on the contrary, it shows the need for a firm restatement of the principle that in cases of rescission of an ordinary contract for sale of land for failure to comply with an essential condition as to time, equity will not intervene."

In the circumstances of this case, it is immaterial whether the traditional view reasserted by the Privy Council in Union Eagle Ltd v Golden Achievement Ltd (Hong Kong) that equity will not intervene to grant relief against the forfeiture of a purchaser’s interest in land under a contract of sale where the purchaser is in breach of an essential condition as to time or whether the view which was accepted by the High Court of Australia in Legione v Hateley that equity will intervene in exceptional circumstances to grant relief against forfeiture of a purchaser’s interest in land under a contract of sale is adopted. The outcome will still be the same. This is not an appropriate case to grant relief against forfeiture of the interest of the plaintiff and his wife under the contract of sale to be followed by an order for specific performance.

The second of the two important matters in relation to relief against forfeiture that I want to refer to is the distinction between what is a penalty and what is liquidated damages as that distinction is relevant to the question of whether relief against forfeiture should be granted in respect of moneys paid by a purchaser under a contract of sale. The distinction between a penalty and liquidated damages is explained in Sale of Land (2000) 2nd ed by D W McMorland where it is stated in 12.60 at p. 472:

"Where the contract makes provision for the forfeiture by the vendor of a deposit or of any other money paid, say by way of part payment of the purchase price, the Court has an inherent equitable jurisdiction to grant relief against that forfeiture...

"Under the inherent jurisdiction, the first question is whether the sum liable to forfeiture is a penalty or liquidated damages. This must be judged as at the time when the contract was made. The description of the sum in the contract as liquidated damages is not conclusive, equity is concerned with the substance rather than the form. To be liquidated damages, the sum must be a genuine pre-estimate of the vendor’s possible loss. If it is an arbitrary figure designed to frighten the purchaser into completing the contract, it is a penalty, which is unlawful and unenforceable. The relation which the nominated sum bears to the greatest loss that could have followed from a breach is one factor to be considered.

"If the sum is a penalty, relief is available even though the purchaser is no longer ready and willing and able to perform the contract.

"A contractual provision that sums paid only by way of part payment of purchase price should be liable to forfeiture is readily seen as a penalty and retention as unconscionable so that relief against forfeiture is commonly given . In these cases the vendor is seeking to forfeit, albeit by express agreement, sums which the law would otherwise require to be repaid to the purchaser. Given that the vendor also recovers the land, the total amount liable to forfeiture in such cases probably far exceeds any genuine pre-estimate of the vendor’s loss or the actual loss suffered."

The same view as regards the distinction between a penalty and liquidated damages and the consequences which follow when a contractual provision is held to be one or the other is also expressed in Equity and Trusts in Australia and New Zealand (2000) 2nd ed by Dal Pont and Chalmers where the learned authors state at p. 349:

"Terms may be included in a contract stipulating sums to be paid by way of damages in the event of breach of contract. These are known as liquidated damages clauses and, if enforceable, have certain procedural advantages...

"If the sum stipulated is a genuine pre-estimate of the loss, it is treated as enforceable. On the other hand, if the sum stipulated in the contract is not a genuine pre-estimate of the loss, Courts of equity will not enforce it on the ground that it is a penalty. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party. To this end, a penalty has been described ‘a punishment for non-observance of a contractual stipulation [consisting] of the imposition of an additional or different liability upon the breach of the contractual stipulation."’

(d) Deposit

I turn now to the question of forfeiture of a deposit paid by a purchaser under a contract for sale of land and relief against such forfeiture. The nature of a deposit and its being liable to forfeiture by the vendor in the event of a purchaser’s failure to complete a contract is explained in Sale of Land (2000) 2nd ed by D W McMorland. At para 7.01, p. 184 of that text the learned author states:

"A deposit fulfils two functions: it is part payment of the purchase price and it is an earnest for the future performance of the contract by the purchaser. As a part payment, it is credited to the purchaser on settlement. As an earnest, it is liable to forfeiture by the vendor in the event that the purchaser does not complete the contract. These two qualities are inherent in its nature whether the contract expressly so provides or not.

"A deposit is payable only if the contract expressly so provides. The contract may specify any amount agreed by the parties to be payable as the deposit, though the normal amount is 10% of the purchase price.

"If the deposit is an unusually large percentage of the purchase price with no good reason for it to be so, it may be possible to obtain relief from the forfeiture of all or part of the deposit."

In the important case of Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] 2 A11 ER 370 the Privy Council had to deal with the question of whether a deposit in excess of 10% of the purchase price paid by the purchaser under a contract for sale of land can be lawfully forfeited by the vendor when the purchaser failed to complete the transaction on the due date. In delivering the judgment of the Privy Council, Lord Browne-Wilkinson said at p. 373:

"In general a contractual provision which requires one party in the event of his breach of the contract to pay or forfeit a sum of money to the other party is unlawful as being a penalty, unless such provision can be justified as being a payment of liquidated damages, being a genuine pre-estimate of the loss which the innocent party will incur by reason of the breach. One exception to this general rule is the provision for the payment of a deposit by the purchaser on a contract for the sale of land. Ancient law has established that the forfeiture of such a deposit (customarily 10% of the contract price) does not fall within the general rule and can be validly forfeited even though the amount of the deposit bears no reference to the anticipated loss to the vendor flowing from the breach of contract.

"This exception is anomalous and at least one textbook writer has been surprised that the Courts of equity ever countenanced it: see Farrand Contract and Conveyancing (4th edn, 1983) p 204. The special treatment afforded to such a deposit derives from the ancient custom of providing an earnest for the performance of a contract in the form of giving either some physical token of earnest (such as a ring) or earnest money. The history of the law of deposit can be traced to the Roman law of arra, and possibly further back still: see Howe v Smith [1884] UKLawRpCh 142; (1884) 27 Ch D 89 at 101-102, [1881-5] A11 Er Rep 201 at 208-209 per Fry LJ. Ever since the decision in Howe v Smith the nature of such a deposit has been settled in English law. Even in the absence of express contractual provision, it is an earnest for the performance of the contract: in the event of completion of the contract the deposit is applicable towards payment of the purchase price; in the event of the purchaser’s failure to complete in accordance with the terms of the contract, the deposit is forfeit, equity having no power to relieve against such forfeiture

"However, the special treatment afforded to deposit is plainly capable of being abused if the parties to a contract, by attaching the label ‘deposit’ to any penalty, could escape the general rule which renders penalties unenforceable."

In Workers Trust and Merchant Bank, the Privy Council held that a deposit of 25 per cent of the purchase price was a penalty.

At p. 374, Lord Browne-Wilkinson after referring to the difficulties in applying the test of reasonableness to determining whether a deposit is a true deposit or not said:

"In their Lordships view the correct approach is to start from the position that, without logic but by long continued usage both in the United Kingdom and formerly in Jamaica, the customary deposit has been 10%. A vendor who seeks to obtain a larger amount by way of forfeitable deposit must show special circumstances which justify such a deposit."

Further on at p. 376, Lord Browne-Wilkinson went on to say:

"In the view of their Lordships, since the 25% deposit was not a true deposit by way of earnest, the provision for its forfeiture was a plain penalty. There is clear authority that in a case of a sum paid by one party to another under the contract as security for the performance of that contract, a provision for its forfeiture in the event of non-performance is a penalty from which the Court will give relief by ordering repayment of the sum so paid, less any damage actually proved to have been suffered as a result of non-completion."

Then further on at p. 376 His Lordship said:

"The Court of Appeal took a middle course by ordering the repayment of 15% out of the 25% deposit, leaving the bank with its normal 10% deposit which it was entitled to forfeit. Their Lordships are unable to agree that this is the correct order. The bank has contracted for a deposit consisting of one globular sum being 25% of the purchase price. If a deposit of 25% constitutes an unreasonable sum and is not therefore a true deposit, it must be repaid as a whole. The bank has never stipulated for a reasonable deposit of 10%: therefore it has no right to such a limited payment. If it cannot establish that the whole sum was truly a deposit, it has not contracted for a true deposit at all."

It is clear from Workers Trust and Merchant Bank that if a deposit in excess of the conventional 10% of the purchase price is found not to be a true deposit but a penalty, then equity will grant relief against forfeiture of the full amount of the deposit. That means the vendor must return the whole deposit paid to the purchaser less any damage he proves to have suffered due to the failure of the purchaser to complete the contract. It would not be correct for the vendor to retain 10% which is the conventional deposit and return the amount by which the deposit exceeds 10%. The whole deposit must be returned to the purchaser. This is where what is said by the Privy Council in Workers Trust and Merchant Bank is different from the practice in Australia and New Zealand. In these two jurisdiction, the practice is that if a deposit in excess of the customary 10% is found to be unreasonable and is therefore a penalty, the vendor is permitted to retain the normal 10% of the purchase price and return the excess to the purchaser: see Smyth v Jessep [1955] VicLawRp 53; (1956) VLR 230, Worsdale v Polglase [1981] 1 NZLR 722, Codot Development Ltd v Potter [1981] 1 NZLR 729n, Freedom v AHR Construction Pty Ltd [1987] 1 Qd R59. There is therefore a conflict in this regard between the position taken by the Privy Council in Workers Trust and Merchant Bank and what has been the practice in Australia and New Zealand. I do not propose to further prolong this judgment by exploring that conflict as it makes no difference to the outcome of this case.

(e) Exemplary damages

In respect of the plaintiff’s claim for exemplary damages, the trend of authorities throughout the common law world is that exemplary damages is not available for breach of contract. This is explained in detail in Paper Reclaim Ltd v Aotearoa International Ltd [2006] NZCA 27 where the New Zealand Court of Appeal comprising of Anderson P, Chambers and O’Regan JJ stated:

"[167] So far as we are aware, this Court has never granted or approved a grant of exemplary damages for breach of contract. Nor has it ever definitely pronounced on whether exemplary damages could be awarded for breach of contract, although in fairness, it should be noted that in Telecom Corporation New Zealand Ltd v Business Assocs Ltd CA 7/93 23 June 1993, State Insurance Ltd v Cedeneo Foods Ltd CA 216/97 6 August 1998, and Attorney-General v Gilbert [2002]2 NZLR 342 there are indications that in principle exemplary damages might be available. In none of those cases, however, did any party mount a full-on attack on the availability in principle of exemplary damages as a remedy for breach of contract. Mr Judd has advanced such an attack in this case. We are bound to deal with it.

"[168] Because there is no binding authority in this country, it is useful to review what the position is in other comparable jurisdictions.

"[169] Exemplary damages are not available for breach of contract in Australia. That position has been clear since Butler v Fairclough [1917] HCA 9; (1917) 23 CLR 78 and has recently been reaffirmed in Gray v Motor Accident Commission (1998) 196 CLR 1 at 6-7 and Hospitality Group Pty Ltd v Australian Rugby Union Ltd [2001] FCA 1040; (2001) 110 FCR 157 at [142]- [143]. See further Seddon and Ellinghaus Cheshire and Fifoot’ Law of Contract (8 Aust ed 2002) at [3.2]

"[170] The position is the same in the United Kingdom. The current position is summarised in Treitel The Law of Contract (11 ed 2003) at 935 as follows:

"As a general rule punitive damages cannot be awarded in a purely contractual action, since the object of such an action is not to punish the defendant but to compensate the claimant. Punitive damages are not available even though the breach was committed deliberately and with a view to profit. If the Court is particularly outraged by the defendant’s conduct, it can sometimes achieve much the same result by awarding damages for injury to the claimant’s feelings. In theory such damages are meant to compensate the claimant for mental suffering, rather than to punish the defendant. But in practice the distinction is often hard to draw and from the defendant’s point of view-to perceive. However, where the claimant has a cause of action both in tort and for breach of contract, he may be able to recover punitive damages by framing the claim in tort. For example, a landlord who unlawfully evicts his tenant is guilty both of a breach of contract and of a trespass; and punitive damages have been awarded in such a case.

"[171] To similar effect, see Beale (ed) Chitty on Contracts (29 ed 2004) at [26-109]...

[172] The question has also been examined in detail by the England and Wales Law Commission. In its 1997 report, Aggravated, Exemplary and Restitutionary Damages (Law Com No 247 1997), it recommended that exemplary damages should not be available for breach of contract: at 105 and 118-119. Its reasons for this recommendation were succinctly set out at 118...

[173] In Ireland the common law position is that exemplary damages are not available for breach of contract. The Irish Law Reform Commission has investigated and consulted on the topic of exemplary damages. Its final report, issued in 2000, Report on Aggravated, Exemplary and Restitutionary Damages (LRC 60-2000), recommended that the availability of exemplary damages should not be extended to cases of breach of contract: at [1.66]. The Commission considered that an extension of exemplary damages to contract cases would be at odds with the traditional concept of contract law as having an exclusively private law character: at [1.54]

"[174] The United States presents a confused picture. The Restatement (Second) of Contracts (1981) says at [355]"

"Punitive damage is not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable.

"[175] Notwithstanding that general rule, different state jurisdictions have recognised other circumstances in which exemplary damages may be awarded for a breach of contract...

‘[176] The Supreme Court of Canada has recently considered whether exemplary damages should be available for breach of contract. In Whiten v Pilot Insurance Co (2002) 209 DLR (4th) 257, the Court held that exemplary damages could be awarded in a breach of contract claim provided that the defendant’s conduct was such as to give rise to an ‘independent actionable wrong’ ...That independent wrong need not be a claim in tort. In that regard, the Court’s conclusion deviated from the position in the American Restatement.

[177] The Supreme Court’s position has been subject to some fairly trenchant criticism. For instance, Professor McCamus, in an article ‘Prometheus Bound or Loose Canon? Punitive Damages for Pure Breach of Contract in Canada’ (2004) 41 San Diego L Rev 1491 at 1504, said that the Court had given ‘no explanation for the proposition that although one single breach of duty suffices for punitive damages in the tort context, punitive damages in contract require two breaches of duty.’ Indeed, he went on, ‘it appears that no coherent justification can be offered for the latter requirement.’ Professor McCamus said that the decision failed to supply a convincing reason for making an extension of the scope of punitive damages in the contract context beyond cases of breach of contract that also constitute tortious wrongdoing: at 1519.

"[178] An even more damning view of the decision is Adjunct Professor Swan’s article ‘Punitive Damages for Breach of Contract: A Remedy in Search of a Justification’ (2003-04) 29 Queen’s LJ 596. He concludes that the Supreme Court’s judgment is ‘deeply disappointing’ at 644....

"[179]..."

The New Zealand Court of Appeal then states at [180]:

"[180] The clear trend of overseas authority is against the possibility that exemplary damages should be available in breach of contract cases. We are of the view that the position in New Zealand should conform with that trend. We are particularly influenced by the detailed reports undertaken by the law commissions in the United Kingdom and Ireland. Those reports were formulated following extensive consultation. We find their reasoning compelling and adopt it."

At [183] the Court left open the possibility that exemplary damages may be available in circumstances where the breach of contract also constitutes a tort for which exemplary damages are recoverable.

I have decided to follow the lead given by the New Zealand Court of Appeal Paper Reclaim Ltd v Aotearoa International Ltd [2006] NZCA 27 and hold that in the present case, exemplary damages are not available for breach of contract. Thus the plaintiff’s claim for exemplary damages for alleged breach of the contract for sale of land is not legally maintainable. There is no claim in tort and none would seem to be available on the evidence.

Discussion

Under the contract of sale between the plaintiff and his wife on one hand and the defendant on the other, the plaintiff and his wife were to pay the monthly instalments towards the balance of the purchase price by the tenth day of every month in which each instalment was due for payment. If payment of a monthly instalment was late, then a penalty was to be paid. Clause 9 of the contract provided that if the purchasers were to make default in the payment of any moneys payable under the contract or failed to perform any of the terms of the contract and such default or failure continues for 30 days, then the vendor may exercise any or all of his specified remedies, namely, specific performance, rescission, or resale of the land. Clause 9 also made the times for payment and performance of the essence of the contract.

As earlier pointed out, the last instalment payments made by the plaintiff and his wife were in March 1997. Those payments would have been applied to cover the instalment payment for the month of February 1997. But they were still short of the full amount of the instalment payment which should have been paid for February 1997. As also pointed out earlier, when the instalment payments ceased in March 1997, the plaintiff and his wife were in arrears, in whole or in part, with the instalment payments for the months of November 1995, February 1997, and March 1997.

The penalties for the late payments for the months of October 1995, November 1995, January 1997, and February 1997 were also not paid. If the formula provided in the contract that payments made by the purchasers were to be applied first to late payment penalties then to the oldest instalment then due were to be adhered to, then a complex result would have followed. It would mean that the plaintiff and his wife started to be in arrears with their instalments from about November 1995. However, the case for the defendant was not conducted on that basis.

So when the defendant’s governing director by letter of 26 February 1997 advised the plaintiff and his wife that if the instalment payments and penalties due were not paid by 3 March 1997, the contract would be cancelled, the plaintiff and his wife were already in default by that time. That default continued for more than 30 days. But the time for the making of payments under the contract was of the essence. In the circumstances of this case, the defendant was entitled to rescind the contract pursuant to its remedies provided under clause 9 of the contract because of the breach by the plaintiff and his wife of the essential condition as to time. The defendant was also entitled to resell the land which it did about September 1997 pursuant to its remedies under clause 9 of the contract.

In principle, equity will not intervene to grant relief against forfeiture of a purchaser’s interest in land under a contract for sale of land where the vendor has rescinded the contract because the purchaser has been in breach of an essential condition as to time: Union Eagle Ltd v Golden Achievement Ltd [1997] UKPC 5; [1997] AC 514; [1997] 2 A11 ER 215; [1997] UKPC 5; Sale of Land (2000) 2nd ed by D W McMorland at pp 476-477. On the other hand, even if one were to accept what was said by the High Court of Australia in Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406, 429, 447 and reaffirmed in Ciavarella v Balmer [1983] HCA 26; (1983) 153 CLR 438 at p. 454 that equity will, in exceptional circumstances, intervene on the ground of unconscionability to grant relief against forfeiture of a purchaser’s interest in land under a contract of sale not withstanding by the purchaser of an essential condition as to time, I am of the view that that qualification on the general principle does not apply here. In the first place, I do not believe that the defendant’s conduct in rescinding the contract was unconscionable. The defendant rescinded the contract because the plaintiff and his wife were in arrears and in breach of the essential condition as to time for payment. Secondly, this is not a case of "exceptional circumstances" as contemplated under Legione v Hateley. I should also note here that I have not formed any conclusive view on whether what is said in Legione v Hateley should be accepted as law in Samoa.

It follows that this is not an appropriate case for equity to grant relief against forfeiture of a purchaser’s interest under a contract of sale. It follows on from this that it will not be appropriate to grant an order for specific performance. There is also another difficulty. Specific performance as an equitable remedy is discretionary. It will not be granted if it is impossible for the defendant to perform the obligations required of him under the contract. A common example is where land has been transferred by the defendant to an innocent third party. This is what happened in this case. The land which was the subject of the contract of sale between the plaintiff and his wife on one hand and the defendant on the other, had been resold by the defendant to a third party before this matter came to Court. This is probably the reason why counsel for the plaintiff did not strongly pursue the claim for specific performance during the trial.

For those reasons the claim for specific performance is disallowed.

In respect of the claim for the refund of the moneys paid by the plaintiff and his wife under the contract of sale, I will deal first with the moneys paid by way of monthly instalment payments towards the purchase price and then to the deposit. Under clause 9 of the contract of sale, if the contract is rescinded by the vendor for breach by the purchasers, all the moneys paid by the purchasers to the vendor would be absolutely forfeited to the vendor as liquidated damages. According to my calculations, when the plaintiff and his wife seized to make instalment payments and the land was subsequently resold by the defendant to a third party, the total amount of the instalment payments the plaintiff and his wife had paid was $14,409 which included interest. If all of that money is to be forfeited to the defendant while at the same time it had recovered and resold its land, then obviously the amount to be forfeited would far exceed any loss suffered by the defendant.

In principle, a contractual provision which stipulates that moneys paid by way of part payment of the purchase price should be liable to forfeiture would be a penalty and not liquidated damages if it is not a genuine pre-estimate of the loss suffered by the vendor. It is therefore not enforceable and equity will grant relief against forfeiture. The use of the label ‘liquidated damages’ will not be conclusive.

In this case, I am of the view that the stipulation in clause 9 of the contract of sale that upon rescission of the contract all moneys paid by the purchasers to the vendor shall be forfeited to the vendor is clearly a penalty. It is therefore not enforceable by the vendor. Relief against forfeiture of the instalment payments should be granted to the purchasers as it would be unconscionable for the vendor to retain those moneys and at the same time recovered its land and resold.

In respect of the deposit, I am inclined to follow the approach stated in Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] 2 A11 ER 370 at 373 by Lord Browne-Wilkinson in delivering the judgment of the Privy Council in that case. Under that approach, when considering whether a deposit is a penalty or a true deposit, one starts from the position that the customary deposit under a contract for sale of land is 10% of the purchase price. If the deposit is in excess of 10% then it is for the vendor to show special circumstances which justify such a deposit. If the vendor cannot justify such an excessive deposit, then relief will be granted against forfeiture of any part of the deposit. The whole deposit will have to be returned to the purchaser less any damage that the vendor shows he has suffered.

My experience of land transactions in Samoa is that the customary deposit required of a purchaser is 10% of the purchase price. That is also the normal deposit in land transactions in jurisdictions like England, see Workers Trust and Merchant Bank, New Zealand, see for example Sale of Land (2000) 2nd ed by D W McMorland at para 7.01, p. 184, and Australia, see for example Equity and Trusts in Australia and New Zealand (2000) 2nd ed by Dal Pont and Chalmers at p. 345. The deposit paid by the plaintiff in this case under the contract of sale was 28.5% of the purchase price. This was well in excess of the customary deposit of 10%. The defendant has not shown any special circumstances to justify such an excessive deposit. In my respectful view, the deposit of 28.5% was clearly a penalty and not a true deposit by way of earnest. Relief against forfeiture should therefore be granted. The whole deposit should be returned to the plaintiff less any damage the defendant has shown that he has suffered.

If on the other hand, one is to apply in this case the practice in Australia and New Zealand that the vendor is permitted to keep only 10% of the purchase price and return the excess deposit to the purchaser, then the defendant would keep 10% of the purchase price of $16,915 and return the excess deposit to the plaintiff.

I must point out that some of the recent cases in Australia have departed from the usual practice in that country and have followed the approach adopted in Workers Trust and Merchant Bank. See, for example, Manufacturers House Pty Ltd v Ashington No 147 Pty Ltd [2005] NSWSC 767: Commissioner of Taxation v Alexander Robertson Guy [1996] 438 FCA 1. New Zealand may also be moving in the same direction. See the judgment of the Court of Appeal in Clive Charles Garnatt v Kogo Ikeda [2001] NZCA 316 at para [39].

In relation to the cross-claim by the defendant for damages, I do accept that the defendant had incurred some expenses. But I am not satisfied that they were near the amounts claimed. I have already explained why and I do not need to repeat that explanation here. However, I had not explained why I do not accept the claim of $10,406.47 for accrued interest at the rate of 24% per annum.

I have already decided that the stipulation in clause 9 of the contract of sale which provides that upon rescission by the vendor of the contract of sale all moneys paid by the purchasers under the contract would be forfeited to the vendor as liquidated damages is a penalty and therefore not enforceable by the defendant as vendor Relief against forfeiture of the moneys paid under the contract should therefore be granted. That means those moneys which consist of monthly instalment payments should be returned to the purchasers who are the plaintiff and his wife. The claim for interest by the defendant must be in relation to the non-payment or late payment by the plaintiff and his wife of moneys due under the contract. But if those moneys had been paid and the defendant had still rescinded the contract, I would have ordered those moneys to be returned to the plaintiff and his wife by granting relief against forfeiture. So if the defendant would not have been permitted to keep such moneys, then he should not be permitted to claim interest on them. The interest claim relates to money which if had been paid, the defendant would not have been permitted to keep after rescission of the contract. It would therefore be odd to allow the defendant to claim interest on such moneys.

After careful consideration, I have decided to allow the defendant to keep $1,700. That seems to me on the evidence adduced to be a reasonable amount to cover the expenses incurred by the defendant. The balance of $17,537.10 of the total moneys, which come to $19,237.10, paid by the plaintiff and his wife under the contract of sale should be returned to them.

As for the plaintiff’s claim for exemplary damages, I have decided to disallow this claim on the basis of what is said by the New Zealand Court of Appeal in Paper Reclaim Ltd v Aotearoa International ltd [2006] NZCA 27 that the clear trend of authorities in other common law jurisdictions is that exemplary damages should not be available in breach of contract cases. It is also not easy to see where the defendant could have been in breach of the contract of sale in this case so as to justify a claim for exemplary damages.

Conclusions

1. The plaintiff’s claim for specific performance of the contract for sale of land with the defendant is disallowed.

2. The plaintiff’s claim for the refund of all the moneys paid under the contract of sale with the defendant is allowed on these terms:

According to my calculations, the total amount of the moneys paid by the plaintiff and his wife to the defendant under the contract of sale was $19,237.10. I would allow the defendant to keep $1,700. The remainder of the total moneys which would be $17,537.10 is to be refunded to the plaintiff.

3. The plaintiff’s claim for exemplary damages is also disallowed.

4. In view of the conclusions already stated, it is not necessary to deal with the plaintiff’s alternative claim in unjust enrichment.

5. Parties to file memoranda as to costs in 10 days if agreement cannot be reached on costs. However, I should note that in many respects this is truly a test case. All the important issues touched upon in this case have not been the subject of any previous Court decision in this country.

CHIEF JUSTICE

Solicitors
Toa Law for plaintiff
Drake & Co for defendant