O'Dea v Allstates Leasing System (WA) Pty Ltd

152 CLR 359
45 ALR 632

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(Decision by: Murphy J)

Between: O'Dea
And: Allstates Leasing System (WA) Pty Ltd

Court:

Judges: Gibbs CJ

Murphy JWilson J
Brennan J
Deane J

Subject References:
Contract

Hearing date: Perth, 23 August 1982,  25 August 1982
Judgment date: 17 February 1983

Canberra

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Decision by:
Murphy J

The respondent lessor relies on certain terms of the contract (or lease agreement) which purport to apply on the occurrence of breach by the lessee. For trivial as well as serious breaches, at any time during the lease period, the combined operation of cll. 1(a) and 12 is to accelerate instalment payments, making the outstanding balance of the entire rental due. Further, the vehicle may then be repossessed without notice, with no provision for rebate of future instalments; and if it is then sold the lessee is not entitled to any surplus received in excess of the appraisal value. These provisions permit the lessor to recover grossly in excess of any genuine pre-estimate of its loss. They are a trap for an unwary or unfortunate lessee. They are unenforceable because, by modern standards, they are unconscionably harsh.   

Where a contract provides that failure to comply strictly with conditions on an obligation to pay a certain sum, results in an obligation to pay a higher sum, that obligation is treated as an unenforceable penalty unless the increase can be shown to be a genuine pre-estimate of the damage sustained by the non-performance of the conditions. Suppose a second contract states that the obligation is to pay the higher sum, but that it will be satisfied if the lower sum is paid strictly in accordance with the conditions. To describe the contractual right to pay the lower sum as an indulgence is a misdescription; to treat the first contract as penal and the second as non-penal is to elevate form above substance. Similar considerations apply to accelerated payment of a whole sum on occurrence of breach in payment of instalments. In such a case, Lamson Store Service Co. Ltd. v. Russell Wilkins & Sons Ltd. (1906) 4 CLR 672 , a majority of this Court (Griffith C.J. and Barton J., O'Connor J. dissenting) preferred form to substance. In this case, the Supreme Court of Western Australia felt constrained to follow the Lamson Case. The Lamson Case should be overruled.   

The appeal should be allowed. I agree with the proposed order.