Relief from Forfeiture: Is It Just for Property Contracts Any More?

Generally speaking the rights and obligations of parties to an agreement a governed by the words in the contract that binds them. If a party breaches those obligations the consequences are also usually spelled out in the contract, usually resulting in the termination of the contract and consequences that flow from that.

Courts, however, are granted power to sometimes go beyond the terms of a contract and look at what might be fair and just. This is law of equity and it grants courts the right to give certain relief in some limited circumstances.

Relief against forfeiture, is one such remedy a court may grant. This is most often seen in lease relationships, where a tenant for one reason or another breaches a term of a lease (usually nonpayment of rent) and a landlord moves to terminate the lease and lock the tenant out.

A court will grant relief from forfeiture where:

1. The essential bargain between the parties can be secured by some other way, other than just termination or forfeiture. For example payment of any unpaid rent plus payment of a further amount for a bond etc to ensure no ongoing breaches;
2. It is fair to grant that sought of relief. Often it is a situation where the failure to pay rent is not necessarily the tenant’s fault, for instance problems with the bank, cheques going missing the mail (if anyone still pays by cheque these days) or some other temporary cashflow issue outside of the tenant’s control; and
3. The plaintiff suffers no appreciable damage by granting the relief. Again, for instance bring rent up to date, plus payment of interest on the unpaid amount and some ongoing guarantee of future payment.

Traditionally, this type of relief has only been granted by courts in relation to contracts specific to real property (i.e. leases, easements etc.), but what about other types of contract that just involve commercial interests of relationships?

Right now, “the jury” or in the case the courts are still out on this one. At a time when Justice Edelman was still a judge of the Federal Court of Australia (now a Justice of the High Court of Australia) he considered this issue in his decision in Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6)¹, where:

1. It was noted none of the authorities he noted in that case explained why the doctrine was limited to only protect proprietary rights;
2. A second difficulty with restricting that relief to property contracts was in the meaning of “proprietary right”, and what comprises a “proprietary right”; and the extent to which contractual rights may be characterised as “quasi-proprietary”;
3. a third difficulty was the line of cases involving the termination of contracts for the purchase of land where relief from forfeiture was allowed, or considered, without any suggestion that such cases are beyond the scope of relief against forfeiture (in that where, under a contract for the sale of land, a vendor is said to be a trustee of property for a purchase, and the purchaser a beneficiary under the contract, the question then became whether that trust interest should be characterised as “proprietary”); and
4. a fourth difficulty was that one foundational reason for relief against forfeiture is not tied to the existence of a proprietary right, in that relief from forfeiture acts as a constraint upon the exercise of a contractual power.

On the other hand, in Kay v Playup Australia Pty Ltd2, Justice Brereton, in the NSW Court of Appeal, considered Justice Edelman’s decision and determined that he believed relief from forfeiture was not available in respect of purely contractual rights, unconnected with land. In that case though Justices Macfarlan and Simpson expressly declined to give a view on the issue.

So presently we have a single judge of Court of Appeal of new South Wales against the idea of relief against forfeiture extending to non-land contracts and a former Federal Court judge, now Justice of the High Court of Australia, in favour.

It is an issue that would greatly benefit from a consideration and determination in the High Court, but will we see the issue settled any time soon? Possibly not but if yours is a case where you think fairness and equity is a factor, it might be worth giving a run to an application for relief against forfeiture!

1 [2015] FCA 825

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific circumstances. It is intended for information purposes only and should not be regarded as legal advice. Further professional advice should be obtained before taking action on any issue dealt with in this publication.