In Andrews v Australia and New Zealand
Banking Group, the High Court of Australia has
considered an important question of contract law: is the jurisdiction to grant
relief against a penalty clause confined to a sanction triggered by an event
that can be characterised as a breach of contract, or does it
extend to a sanction triggered by other events? The Supreme Court of India had
occasion to consider exactly this question about two years in BSNL v
Reliance, but unfortunately did not do so. We have commented on that decision here.
Simplifying the facts
for the purposes of analysis, customers of the ANZ Banking Group [“ANZ”]
challenged certain payments that they were required to make for banking
services. This fell into, mainly, three classes: a late payment fee [“Late
Payment Fee”], payable if a customer is late in making a scheduled payment;
“honour” fees payable by a customer who overdraws his account and interest on
these fees [“Honour Fee”]. At first instance, Gordon J. found that the
Late Payment Fee was payable as a consequence of breach of contract by the
customer (in not making the scheduled payment), but that the Honour Fee was
not. The question was
whether this meant that no relief could be granted against the payment of the
Honour Fee. In English law, this was traditionally the position, established by
the speeches delivered in the House of Lords in Export Credits
Guarantee Department v Universal Oil Products [1983] 1 WLR 399. The
result was that a sanction triggered by an event that was not a breach of
contract did not attract the penalty rules.
The High Court of
Australia rejected that analysis in an instructive judgment, of which the
following is a brief summary. The word “condition”, like “rescission”, has a
variety of meanings in contract law. One meaning, of course, is an important or
fundamental term of a contract the breach of which entitles the other party to
withhold further performance and terminate the contract. Used in this sense,
condition is contrasted with warranties and innominate terms. But the word
“condition” is not used in this sense in the cases in which the penalty rules
were established. In those cases, there was typically a bond, which would
be forfeited on the happening or non-happening of a certain event. That event
was called a “condition”. It could be a promise by the other party (in which
event the bond would be forfeited on breach) but it could also be
an event that was not a promise by the other party. In Campbell v
French, Lord Kenyon gave this example: a bond to be forfeited if the “Pope
of Rome visits London tomorrow” is perfectly good, since the event is,
although unlikely, not impossible. The example demonstrates that “condition”,
in this sense, did not mean “promise” and that relief granted against
forfeiture, naturally, could not have been confined to a breach of promise. As
the High Court points out, equity granted relief provided the non-performance
of the condition secured by the bond could be compensated by an award of money.
If the bond secured a money condition, the court of equity intervened by
ordering the defendant to pay the principal amount, interest and costs; if it
secured a non-money condition, the court of equity would direct an issue
of quantum damnificatus to assess the loss. In neither case
was there any basis for the suggestion that equity would intervene if the bond
secured a promise but would not intervene if it secured something else. The
High Court points out that the emergence of assumpsit did not
introduce the breach limitation, because the relief granted by the common law
courts in this actionmirrored the relief granted by the courts of
equity but did not substitute it. In other words, the equitable relief retained
its identity; the common law courts simply gave relief too.
One question that
arises from the judgment of the High Court of Australia is this: if the penalty
rules are not limited to a breach of contract, when do they not apply? The High
Court gives a tentative answer to this, by pointing out that it would be
necessary to examine whether the Honour Fee was payable as a security for
the performance of an obligation or as the price of “further accommodation”
by the ANZ Group. Professor Peel points out in a case note in the Law
Quarterly Review ((2013) 129 LQR 152) that this
distinction “seems simply to move
some of the problems associated with the breach limitation to a different place”.
The Indian law on this point remains unresolved. In BSNL
v Reliance, Mr Gopal Subramanium argued that clause 6.4.6 was a payment
triggered by an event other than breach and that the penalty rules did not,
therefore, apply. As we have discussed in our post, the Supreme Court did not
decide this point. Section 74 opens with the words “when a contract is
broken”, suggesting that it does not apply to an event other than breach.
However, as the authors of the 2nd edition ofPollock and
Mulla point out at page 328, section 74 does not exhaust the equitable
jurisdiction of the court to relieve against penalty clauses. That jurisdiction
was exercised with respect to some stipulations before section 74 was amended
in 1899, and nothing in the amendment suggests that it was taken away. The
question, therefore, remains open and one hopes the Supreme Court will answer
it when the opportunity next arises.
SOURCE : http://indiacorplaw.blogspot.in/
No comments:
Post a Comment