A Little Company Limited v Gregory Raymond Peters

[2007] NSWSC 833

CITATION:	A Little Company Limited v Gregory Raymond Peters [2007] NSWSC 833
HEARING DATE(S):	23-26 July 2007
JUDGMENT DATE :	3 August 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Rein AJ
DECISION:	See [60]-[62].
CATCHWORDS:	Contract for sale of shares and guarantee - whether vitiated by economic duress or unconscientious taking of advantage
CASES CITED:	Australia and New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149; [2005] NSWCA 344 Barton v Armstrong [1973] 2 NSWLR 598 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 Re Hooper & Grass’ Contract [1949] VLR 269 Wardley Australia Ltd v McPharlin (1984) 3 BPR 9500
PARTIES:	A Little Company Limited (Plaintiff) Gregory Raymond Peters (First Defendant) Catherine Marie Peters (Second Defendant)
FILE NUMBER(S):	SC 5789/03
COUNSEL:	J E Robson SC; A Lo Surdo (Plaintiff) C Harris SC (Defendants)
SOLICITORS:	Foulsham & Geddes (Plaintiff) Picone & Co (Defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Rein AJ

3 August 2007

5789/03 A Little Company Ltd v Gregory Raymond Peters & 1 Ors

JUDGMENT

1 HIS HONOUR: As at April 2003, the plaintiff (“the Company”) owned all of the shares in Storage Plus Group Pty Ltd (“Storage Plus”). Storage Plus operated a self storage business at 87-103 Epson Road, Rosebery (“Epson Road”), and was in occupation of those premises as lessee under a lease with the owner of that property.

2 By Share Sale Agreement of 13 May 2003 (“the Agreement”), the plaintiff agreed to sell to Mr Gregory Raymond Peters (“Peters”), the first defendant, all of its shareholding in Storage Plus for a total consideration of $2 million. Mrs Catherine Marie Peters (“Mrs Peters”), the second defendant, guaranteed the obligations of Peters under the Agreement. The consideration for the share purchase was payable in instalments and included the release of a bank bond given by Mr Ronald Anthony Ooi Thean Yat (“Ooi”) in support of the obligations of Storage Plus on the lease (noted as having a value of $610,000). Ooi held 80 per cent of the shares in the plaintiff and a Mr Djadjang Tanuwidjaja who is known as “Duncan” (and to whom I shall refer as “Duncan”) held 20 per cent of the shares in the plaintiff. On 14 May 2003 Peters paid the Company a deposit of $10,000 in accordance with the Agreement. He paid a further $20,000 on 7 August 2003.

3 Mr J Robson SC and Mr A Lo Surdo appear for the Company and Mr C Harris SC appears for both Peters and Mrs Peters. There is no dispute that Peters did not meet the obligations imposed on him by the Agreement, other than pay the two amounts totalling $30,000, or that his failure to meet the time specified for payment and then extended time constituted a default entitling the plaintiff to terminate the Agreement. The plaintiff’s claim for the amount owing under the Agreement including interest from both Peters and Mrs Peters is resisted on one basis only, namely that Peters’ entry into the agreement was procured by a threat by the plaintiff through Ooi and Duncan to place Storage Plus in liquidation. Mr Harris in submissions sought to promote a separate case on behalf of Mrs Peters that was contrary to his statement in opening. Mr Robson took objection to that argument and justifiably so in my view: T36.10-38, T160.54-T161.5.

4 Ooi, who lives in Singapore, had studied in Australia and was a friend of Mrs Peters. As at 1999, Peters was involved in a number of storage businesses and he had a plan to develop a new storage business at Epson Road (a plan which he had had for quite some time). Ooi agreed to invest in the business. Initially it was proposed that Ooi would take up 90 per cent of the shares in Storage Plus and Peters 10 per cent, but Peters at a very late stage told Ooi that he could not invest the $260,000 required for 10 per cent of the capital. Peters, it was then agreed, would be employed and he would also be sole director of Storage Plus but he would own no shares in Storage Plus. His remuneration was to be $125,000 per annum, probably expressed as a management fee.

5 As a consequence of Peters’ withdrawal as a shareholder Ooi arranged for Duncan to take up 20 per cent of the shares in the Company. Ooi was the sole director of the Company and the Company took up 100 per cent of the shares in Storage Plus.

6 As at 1999 Peters had had extensive experience in self storage and he had also been a builder and developer: see T27.39-40, T51.14, T52.17, T55.37-41, T58.15-21.

7 On 30 October 1999 Storage Plus entered into a lease of Epson Road. Peters had told Ooi that the owner of Epson Road required guarantees from the directors of the lessee company, and Peters agreed that he would be the only one to provide the guarantee: see Exhibit “1” pp 3, 19. Peters executed the lease on behalf of Storage Plus and guaranteed the obligations of Storage Plus.

8 On 30 August 1999, Ooi had arranged a bank guarantee for $610,000 in favour of the landlord of Epson Road as a rental bond. That was required by the Epson Road lease, a copy of which is found at pp 2-42 Exhibit “A”. Subsequently a further lease was entered into for additional space. The annual rental for the areas originally leased was $1.4 million and with the additional area it was in the order of $2 million per annum. According to Peters, Storage Plus was earning $250,000 per month in storage fees by early 2003: see T50.35.

9 In late 2002 Ooi, having become concerned about Peters’ conduct of the business, asked a company accountant (Mr Ong) to examine the books and records of Storage Plus. Mr Ong reported to Ooi, who then in December 2002 told Mrs Peters that he was very unhappy with irregularities which had been uncovered. One of the matters which Mr Ong reported was the use of funds of Epson Road for Manly, another storage business in which Peters was involved, with which Storage Plus was not connected (and this was a matter which Ooi mentioned to Mrs Peters: see para 13 of Mrs Peters’ affidavit of 16 March 2004) but there was also concern about cash receipts and contra deals engaged in by Peters on behalf of Storage Plus.

10 As a result of what Peters was told by Ooi and/or Mrs Peters he understood that Ooi (and Duncan) wanted to get out of the Storage Plus business and Peters commenced looking at ways of continuing the business. Mrs Peters says that Ooi had wanted to sack Peters (Mrs Peters’ affidavit paras 13-15), although this was denied by Ooi (see para 15 of Ooi’s affidavit of 26 June 2004).

11 In February 2003 Peters on behalf of Storage Plus entered into an agreement with TGBN Pty Ltd, a business broker, for the sale of the Storage Plus business at a price of $3.2 million: see p 85 Exhibit “A”. Advertisements were placed (see p 84 (top right hand corner)) and material which had been prepared by Peters was circulated by TGBN (see pp 102-112 Exhibit “A” 18 February, pp 114-124 April). It seems that the $3.2 million was for 80 per cent of Storage Plus: see p 124 of Exhibit “A” and Peters’ evidence at T64.8-10. A number of responses were received following the advertisement: see Tab 6 Exhibit “A”.

12 Agreement was reached by Peters with Ooi that the Company would sell all of its shares in Storage Plus to Peters for $2 million. There is a dispute as to how precisely that agreement was reached.

13 As at February 2003 Peters, according to answers given by him in cross examination, had the following perception of the business of Storage Plus:

(a) the Storage Plus business was worth more than the $2.8 million that the Company had invested in it as it had been built up by Peters (Peters’ XX T62.25-40);

(b) he had a real prospect of finding an investor in circumstances where the business was valued at $4 million (Peters’ XX T62.35-45 and T64.10-40);

(c) if he could find an equity investor for $3.2 million it would be very profitable for him as it would enable him to pay out the Company’s interest for $2 million and leave him with a “handsome” profit (and 20 per cent interest in Storage Plus) (Peters’ XX T64.8-15);

(d) he had formed the view that the business had “turned the corner” and “had great potential” (Peters’ XX T58.55; see also T59.7-45 and T60.20);

(e) it was a good deal for him (Peters’ XX T64.40);

(f) the deal was dependent upon Peters’ being in control of the shares in Storage Plus (Peters’ XX T66.36-45 and T67.3-8).

14 The Company also relies on a further matter which is that the landlord of the premises at which the Storage Plus business was being conducted had a “… DA approved for 750 units on that site … and wanted to get the building back” and that Peters was happy to accommodate by looking for a property to relocate the business: Peters’ XX T65.45-54, T83.41-50 and T86.18-30. This evidence was retracted by Peters later however. I will treat that concession as in dispute.

15 TGBN advertised the sale of the Storage Plus business in the Sydney Morning Herald in February and March 2003: part of subpoenaed documents packet 1; Exhibit “A” p 84.

16 Fourteen expressions of interest were received before the execution of the agreement: part of subpoenaed documents packets 1 and 2; Exhibit “A” p 89.

17 On 26 March 2003, Peters and Duncan signed an internal memorandum which appears to set out the terms of an agreement in principle for the sale of the shares to Peters or his nominee: part of subpoenaed documents packet 7; Exhibit “A” p 113.

18 On 14 April 2003, Foulsham & Geddes, Solicitors (“FG”) for the Company furnished to Peters the Agreement in duplicate: Exhibit “A” p 125 – that draft had Mrs Peters as a purchaser with Peters, but her presence as a purchaser was removed subsequently.

19 On 15 April 2003, Picone & Co (“PC”), Solicitors wrote to FG indicating that they had been instructed to act for Peters in relation to the Agreement: Exhibit “A” p 137.

20 On 22 April 2003, PC wrote to FG indicating that they hoped to be in a position to exchange contracts during the course of the following week and suggesting an amendment to the draft of the Agreement: Exhibit “A” p 138.

21 From 23 April 2003 to 13 May 2003, letters were exchanged between the solicitors in relation to the draft Agreement. The Company’s submissions draw attention to the following exchanges:

(a) 1 May 2003, PC to FG: “Our client is anxious to proceed …” (Exhibit “A” p 140);

(b) 8 May 2006, PC to FG: “… our client is negotiating with a new investor to take up 50% of the shareholding in the company …” (Exhibit “A” p 143);

(c) 13 May 2006, PC to FG: “… This payment of $480,000 is to come from our client’s investor … If this matter is to proceed, and it can only proceed with the involvement of the investor …” (Exhibit “A” p 149).

22 The defendants’ submissions draw attention to the fact that there was pressure being exerted by the Company through its solicitors in the period April to 13 May, particularly in early May, and more importantly that there was communicated in the correspondence a threat, which I shall describe in more detail.

23 On 13 May 2003, the Company entered into the Agreement. Peters executed the Agreement as purchaser and Mrs Peters as guarantor of her husband’s obligations under the Agreement: affidavit of Mr Geddes, sworn 17 November 2003, annexure A, pp 5-14. Mrs Peters also signed an “Acknowledgment of Legal Advice by Proposed Guarantor.” In it, Mrs Peters acknowledges having been advised by her solicitor, Mr Picone, of the nature and extent of her obligations under the guarantee and that after receiving that advice she “freely and voluntarily signed the loan documents.”

24 It was Peters’ evidence that whilst he was not particularly happy to pay $2 million for the Company’s shares in Storage Plus, he signed the Agreement because:

(a) it was his belief that the business was worth considerably more than that and had a future value of $4 million (Peters’ T62.55);

(b) he had a real prospect of finding an investor in circumstances where the business was valued at $4 million (Peters’ T62.10-20);

(c) if he could find an equity investor for $3.2 million it would be very profitable for him as it would enable him to pay out the Company’s interest for $2 million and leave him with a 20 per cent interest in Storage Plus (Peters’ T62.46);

(d) he was intending (hoping) to sell 80 per cent of the business for $3.2 million (Peters’ T64.5-15);

(e) it was a good deal for him and he would make if he had “pulled it off, it would have been brilliant” a “handsome profit” (Peters’ T64.12-17 and T64.34-40);

(f) the deal was dependent upon Peters being in control of the shares in Storage Plus (Peters’ T66.36-45, T67.3-8); and

(g) the $2 million consideration was to be paid on terms over a period of 18 months and he was willing to take the risk that he would find an equity investor over that time (Peters’ T82.47-83.3);

(h) I set out three passages from Peters’ oral evidence (T50.36-53, T59, T121-T122):


“Q. It was your opinion, at the time you signed the agreement, that the business could and would operate profitably?
A. In the future, yes.

Q. And you recognised, I am using the words of your counsel again, that there would be a real prospect of success?
A. I would hope so.

Q. I will ask the question again. You recognised that there would be a real prospect of success on 13 May when you signed the agreement?
A. I hoped there would be, yes.

Q. And that's why you signed it?
A. You would have to say yes, wouldn't you?”

…

HIS HONOUR

Q. Just so that I understand what you are saying, was it as you got closer to May that your opinion is more clearly to that effect, or less clearly?
A. It is like watching grass grow, self storage. It just slowly grows every month. That facility to this day still runs and operates. It grows all the time. They are always building more and more units in that old facility. Yes, I had a lot of faith in that business, I really did.

Q. Mr Robson was trying to ascertain when it was that you had that robust view of its future, and you have said you can't be sure if it was late 2002. What I want to know is
A. 2003 wasn't it.

Q. He put to you late 2002, early 2003 I thought?

ROBSON: That's right.
…

Q. Just to be fair to you, Mr Peters, I just want to suggest this to you - I may have put this earlier - but what had happened was in 2001, I suggest that you said to Duncan, "I want to buy your shares in Storage Plus, I will pay you $600,000"?
A. I say no to that.

Q. Well, you agree you had discussions with him about it?
A. Yes, I do.

Q. And you agree that $600,000 was discussed?
A. I believe that's the amount, yes.

Q. And indeed you knew he had 20 per cent?
A. I did at that.

Q. And my arithmetic is not terribly good but if 600,000 was 20 per cent, that would value it at $3 million at that time?
A. Yes.

Q. And in your view at that time, it was worth about $3 million?
A. Well, that's what capital had been put in. Well, close enough to that.

Q. And that would have given you, if I may respectfully say, what had ultimately been your desire to get a percentage of the company?
A. Correct.

Q. And if you could have done that, you would have paid $600,000?
A. Correct.

Q. And later on when you had discussions with Duncan in relation to the sale about which we are now concerned, he said to you, didn't he, because you were discussing price - sorry, you were discussing a purchase price?
A. Correct.

Q. Because you wanted to buy and they wanted to sell?
A. A willing buyer and a willing seller.”

25 From 13 May 2003 to 12 November 2003, communications were exchanged between FG and PC in relation to Peters’ compliance with his obligations under the Agreement (Exhibit “A” pp 163-196), including the following:

(a) 17 July 2003, FG to PC: indicating the terms upon which the Company would be prepared to extend the time for compliance by Peters with clause 5(b) of the Agreement.

(b) 21 July 2003, PC to FG: noting that “the request for delay was made necessary by virtue of the requirements of the investor who was taking over half the company …”.

(c) 30 July 2003, PC to FG: “When the agreement was first entered into, the provisions of same were acceptable to our client’s then investor. That investor has subsequently withdrawn and has been replaced by a new investor …”.

(d) 7 August 2003, PC to FG: enclosing a cheque in payment of Peters’ obligations under the Agreement.

(e) 25 August 2003, PC to FG: noting that there is a balance to be paid of $880,000.

(f) 29 August 2003, PC to FG: “Our client is anxious to proceed, but unable to do so by 30 August 2003 … The amount of $480,000 is coming from the proceeds of sale of a self storage facility at Cardiff near Newcastle owned by one of our client’s companies … There has been a delay in settlement which will now not take place until on or about 15 September 2003. The cash payment of $480,000 cannot be made until after that time, but it will be made.”

(g) 18 September 2003, PC to FG: “… there have been further delays in relation to the sale of the Cardiff self storage facility … our clients are putting in place a funding facility which will provide sufficient funds to meet settlement requirements … either way, funds will be available in approximately [two – semble] weeks to proceed to completion.”

(h) 8 October 2003, PC to FG: “… Ooi was informed that there was a delay in funds being available on the mortgage that has been negotiated and that there will be some little delay in settlement.”

(j) 13 October 2003, PC to FG: “… our client has organised a finance facility but funds will not be available for a week or two. We can assure you that our client will complete at the earliest possible opportunity …”.

26 In none of these communications is any mention made by or on behalf of Peters and Mrs Peters that they had executed the Agreement and Guarantee due to any pressure exerted upon them to do so by or on behalf of the Company. That assertion was not made until after the commencement of these proceedings and in a cross-claim filed on 16 March 2004. Peters agreed that there was no complaint made in writing by him or by his solicitors on his behalf in this regard, although as the plaintiff’s submissions point out, this was after many attempts were made to elicit a proper response in cross-examination: see Peters’ XX T41.15-T49.55.

27 After his purchase of the shares, Peters was, notwithstanding his expectations, unable to find a buyer willing to enter into the purchase from him of 80 per cent of the shareholding. The Storage Plus business ran into further difficulties and on advice it was placed in administration by the Company. The Storage Plus business was ultimately sold to the owner of Epson Road for $400,000. Storage Plus was at that time indebted to the owner of Epson Road for unpaid rent.

28 It is accepted by all parties that on objective analysis the shares in Storage Plus were not worth $2 million as at 14 May 2003.

29 Mr Robson identified four factual matters on which the veracity of Peters depended:

(1) the manner in which the $2 million figure came to be agreed;

(2) whether Ooi/Duncan made a threat to put Storage Plus into liquidation;

(3) whether Peters told Duncan that he had a buyer for $4 million;

(4) whether Peters acted (in entering the agreement) because of threats of the Company or whether the claim is a matter of recent invention.

30 Mr Robson attacked Peters’ credit in written submissions which I shall set out:

“7.3 The plaintiff’s version of events should [not] be accepted for the following reasons:

(a) the Court has had the opportunity of examining Mr Peters’s demeanour whilst under cross-examination. His answers, in the whole, lacked the degree of candour to be expected of a witness and Mr Peters’s was at times evasive and argumentative. Further, his evidence was, at times contradictory. For example:

(i) he asserted that the contents of the information memorandum dated 18 February 2003 [Ex A 7 (TB 7).] were true yet said that the contents were a “ploy” used in the marketing campaign. [Peters’s XX TP 62.10-34.] Also, Mr Peters’s said that he “pulled an investor [being Ron and Duncan] in at $2.8 million with nothing. I thought it was going to be easier for me to value the business up at $4 million to try and raise two.” The use of the word “ploy” is, of its nature, pejorative and bespeaks of underhand and less than honest conduct;

(ii) notwithstanding the fact that Mr Peters asserted that the contents of the information memorandum dated 18 February 2003 were true:

(a) he conceded that where it refers to him as owning and operating three storage facilities, it was not true. [Peters’s XX TP 53.33-56.46.] The same question was asked a number of times and each time Mr Peters gave a slightly different response but all to the effect that what was circulated in the information memorandum was untrue. [Peters’s XX TP 53.40-56.40.] Further, in giving these responses, Mr Peters showed a propensity to be less than honest and frank especially when it was clear that he had no proprietary interest in any of the storage facilities in issue. When he was asked to explain why it contained an untruth he said that the reference to “owns and operates” is a “fairly common cliché.” [Peters’s XX TP 56.5-7.] Mr Peters’s is here seeking to dress-up a patent fabrication as a cliché; and

(b) Mr Peters had no recollection of there being any plan at that time to enter contracts for the design, construction, set up and establishment of a new facility in the southern of Sydney, and that it did not proceed. [Peters’s XX TP 56.45 and Ex A 105 (TB 105).] It is likely that this was also part of Mr Peters’s marketing ploy and that there was never any such proposal at that time.
It is submitted that the facts contained in this and the preceding sub-paragraph are indicative of a man who is prepared to be economical with the truth where he perceives that he can obtain a commercial or other advantage;


(iii) Mr Peters was adamant and insistent that in correspondence between at least his solicitors and the solicitors for Little there was mention made of the threat or oppression he felt to enter into the Agreement. [Peters’s XX TP 43.10-12, 46.50-56, 48.3-7] Ultimately, he conceded that no such complaint was made in correspondence before the commencement of the proceedings. [Peters’s XX TP 48.46-52.] This is a concession that should have been made much sooner than it was and is again, in our submission, indicative of a person who is prepared to say anything if he considers that he will derive a benefit from it regardless of the truth;

(iv) despite having initially admitted with some candour that he was willing to sell an 80% interest in the SPGPL business to an equity investor for $3.2 million, Mr Peters attempted to later resile from this admission, only to resile yet again when pressed by your Honour; [Peter’s XX TP 61.26-56, TP 62.36-40, TP 63.31-36, TP 64.7-8.]

(v) Mr Peters was asked questions by the Court regarding the second advertisement that appears in Ex A 4. He answered those questions with some commitment. It became apparent thereafter that the advertisement bore no relationship to the facts in issue. What this demonstrates, in our submission, is yet a further example of the willingness by Mr Peters’s to adduce whatever evidence he considers may advance his case regardless of its relevance or veracity;

(vi) His evidence in relation to his knowledge of the existence of the development consent was wholly unsatisfactory. Having clearly stated that he was aware of the existence of a development consent, he later sought to recant – when it was obvious that it was not in his interest; [Peters’s XX TP 65.35, 66.8 and 107.1-5.]

(vii) Having initially admitted in cross-examination that he new the difference between a DA and a consent, he later resiled and when asked by his Honour why he did so he was non-responsive. [Peters’s XX TP 108.4-50.]”

31 I think there is much force in these submissions and I take them into account in coming to the view that I do. In relation to (v), I would not accept the submission that his evidence of itself demonstrates unreliability because it was Peters’ position during the cross examination that he had lowered the price for the on sale of shares from the $3.2 million for 80 per cent of the shares. Peters spoke of there being a number of drafts of material sent out to prospective investors. No material in which the amount sought was less than $3.2 million was ever identified as having been sent out before the Agreement was entered into.

32 Although in cross examination Mr Harris challenged Ooi’s account of some matters, in submissions he said nothing about the respective credit of the witnesses: see T321.57-T322 and paras 14 and 15 of his written submissions. He submitted that the reference to “alternate action” and “such other action as it may be so advised” in the letters from the Company’s solicitors (on 2 May, 7 May 2003, see pp 141-142 Exhibit “A”) were intended by Ooi to refer to liquidation or administration which is “the meaning Peters took from that correspondence”.

33 Ooi, who speaks English perfectly well, was overall a careful witness and he is an obviously intelligent man. Whilst I had some doubts as to Ooi’s veracity in particular in respect of:

(a) his evidence concerning the reason why Storage Plus was to have Peters as sole director only until after execution of the lease, (and his lack of recall of BSL Consultants Pte Ltd, the company that it can be inferred was providing advice to him on the corporate structure – see evidence of Mr Ellice-Flint in that connection and p 58 of Exhibit “1”) and his intention to become a director of Storage Plus (see T206-T209);

(b) his evidence concerning the absence of a clear intention as at May prior to execution of the Agreement to appoint an administrator to Storage Plus if the transaction with Peters did not proceed (see T235-T240);

(c) his evidence that it was not unusual for a 100 per cent shareholder to have no representation on the Board (T208);

I did not form the view that he was an inherently unreliable witness.

Did Ooi/Duncan threaten Peters with liquidation of Storage Plus?

34 I am not persuaded that prior to May Ooi threatened Peters that Storage Plus would be placed in liquidation (or administration) or that he instructed Duncan to do so. I say that for these reasons:

(1) Ooi did not instruct his solicitor to make an explicit threat to that effect even in May when Peters was clearly delaying in completing. I think he was careful not to do so then and I think it is likely he would have been careful before that date;

(2) Peters was not a reliable witness;

(3) Peters never complained at any time prior to the commencement of proceedings against him that such a threat had been made;

(4) Peters asserted that Mr Ellice-Flint communicated that threat – which Mr Ellice-Flint denied, and I have every confidence in Mr Ellice-Flint as a witness of truth;

(5) there is much material that indicates reasons for Peters acting as he did that are not connected with such a threat.

35 Peters’ case is not limited to Ooi. So far as Duncan having made such a threat is concerned, the evidence is confused. Mrs Peters said that he stated that that was Ooi’s intention “if you do not buy him out”. In her affidavit she fixed that conversation at a Chinese restaurant in Crows Nest, but in cross examination she retreated from any certainty as to the time and she agreed that the negotiations had proceeded as set out in Duncan’s affidavit. There is a problem too in that neither party addressed the note of 26 March (p 113 Exhibit “A”). I do not think that Duncan was shown to have been obviously untruthful but his command of English was somewhat limited. His evidence that Peters was “upbeat” about finding an investor was entirely consistent with Mr Ellice-Flint’s evidence and with much of Peters’ own admissions in cross examination. Peters, as cross claimant, bears the onus of proof and I am left unpersuaded that Duncan did tell Peters that Ooi would put Storage Plus “into liquidation”, which are the words Mrs Peters attributes to him in her affidavit in relation to the restaurant meeting and which Peters says were said to him in February 2003 (“he’s going to put it into liquidation” and “No he wants $2 million or he’s going to wind it up”: see para 23 of Peters’ affidavit). As at February Ooi had not yet sought advice about his options.

36 I accept Mr Harris’s contention that on the balance of probabilities Ooi had before 13 May decided that if Peters did not proceed to execute the Agreement he would put Storage Plus into administration. I draw this from Exhibit “6” and would put the date at which he formed that intention as early May 2003. I do not accept Mr Harris’s contention that Mr Woodgate had advised Ooi to threaten Peters that if he did not sign the agreement then Storage Plus would be placed in administration – and even if Mr Woodgate’s fax is taken to mean that, as I have noted, even in May, Ooi did not give instructions for his solicitor to write such a letter. Nor do I accept Mr Harris’s contention that Peters understood the reference to alternative action in correspondence to mean liquidation or administration. Peters relied on these documents to indicate a pressure of time (see T133.41-T134.39) but did not offer any evidence of what he thought was meant by alternative action in his affidavit or oral evidence. I accept that Peters may well have understood that the consequence of not proceeding with the share agreement by the deadline was very likely placement of Storage Plus into administration, but that is a quite different matter.

37 It is clear that Peters had decided in principle to buy the shares in Storage Plus well before 13 May. He had signed a document which might be described as a memorandum of understanding that stated a suggested price of “2 million dollars no greater than 2.25 million”: see p 113 Exhibit “A”. That document indicated that a signed agreement would be executed within 30 days of agreement on price. Peters gives no evidence in his affidavit of when the price of $2 million was agreed but it is clear from the evidence of Duncan that it had occurred by the end of March or early April (see also Exhibit “A” pp 125-137). In those circumstances, where Peters had clearly indicated an intention to proceed with the transaction, his solicitors were writing in connection with the proposed sale by 15 April and indicating a likely exchange before the end of April 2003 (see p 138 Exhibit “A”), I do not think that what occurred after that is of much significance. Ooi on behalf of the Company was entitled to be concerned that the sale agreement should be executed and was entitled by correspondence sent on its behalf to put a deadline on execution.

The manner in which the $2 million came to be agreed

38 As I have noted, Peters did not provide any detail about the note of 26 March in his affidavit. In cross examination Peters said that he offered $1.4 million without any pressure being applied. There is undisputed evidence that Peters offered or agreed to pay Duncan a commission of $125,000 and 5 per cent of the shares in Storage Plus if Ooi agreed to a price of $2 million, which rather suggests a lack of dissatisfaction on the part of Peters with that price. There is a dispute between Ooi on the one hand, and Peters and Mrs Peters on the other, as to whether Ooi said to them that he wanted $2 million in his visit to Sydney in early January 2003. Mrs Peters was not challenged on her version in cross examination but she did in cross examination agree with Duncan’s version as to how the $2 million was arrived at, and she does not dispute that she said to Duncan “I wish Ron could get the full $3,000,000. I hate to see him lose money.” I am not satisfied that the $2 million was not arrived at willingly by Peters and his confidence of obtaining a buyer for an amount well in excess of that strengthens my view that it was not unwillingly arrived at, as does Peters’ evidence at T121-T122 which I have set out earlier at [24](h). I accept that Peters would have preferred to pay less but there are few buyers who would not prefer to pay less than the price which a seller is willing to accept. A further relevant matter is that Peters sought the advice of Mr Ellice-Flint on capital gains tax (see Annexure “A” to Mr Ellice-Flint’s affidavit) suggesting that he had a real anticipation that he would make a profit on purchase and re-sale of the shares in Storage Plus as at late April 2003, and after the price of $2 million had been agreed.

Whether Peters mentioned a seller for $4 million

39 Duncan said that Peters had told him that he had a buyer interested at $4 million. From a negotiating point of view it would seem unlikely that Peters would mention that fact even if true, and Mr Harris submitted that it is most unlikely that Duncan would not tell Ooi about that if he had become aware of it, particularly where Duncan would benefit by a sale for $4 million. On the other side of the coin – Peters did have a view that the business was worth or would be worth $4 million, and he did have a reason to persuade Duncan that he was serious and would be able to proceed.

40 The introduction of a commission is a complication too because it might explain why Duncan did not tell Ooi about the $4 million. Duncan’s account in cross examination of what he thought of Peters’ claim to have a buyer for $4 million was a convincing one, namely what he and Ooi were interested in was $2 million from Peters – what Peters could get or said he could get elsewhere was uncertain and in effect a matter for Peters. I took this as evidence that Duncan was sceptical about Peters’ promises and projections which I think was appropriate given Peters’ own evidence about “ploys”, the form of the marketing documents created by him, and the concerns that Ooi, and I assume Duncan, had about Peters’ style of doing business.

41 I am inclined to accept Duncan’s version of events but I do not think this factual issue is of any importance in the outcome in the case.

42 Although in my view Peters has failed to make out the factual basis for his claim, I will consider the matter on the basis that, contrary to my conclusions, the threats asserted to have been made were made.

Legal principles to be applied

43 In Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 45-46 McHugh JA (as he then was) said that the rationale of the doctrine of economic duress:

“is that the law will not give effect to an apparent consent which was induced by pressure exercised upon one party by another party when the law regards that pressure as illegitimate: Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366 at 384 per Lord Diplock. …

The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress. …

It is unnecessary, however, for the victim to prove that the illegitimate pressure was the sole reason for him entering into the contract. It is sufficient that the illegitimate pressure was one of the reasons for the person entering into the agreement. Once the evidence establishes that the pressure exerted on the victim was illegitimate, the onus lies on the person applying the pressure to show that it made no contribution to the victim entering into the agreement: Barton v Armstrong (at 633; 120) per Lord Cross.”

44 In Australia and New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149; [2005] NSWCA 344, the Court of Appeal examined in detail the law relating to what had been termed economic duress. The Court (Beazley, Ipp and Basten JJA) regarded the phrases “economic duress” and “illegitimate pressure” as inherently vague and said that “duress” should be limited to situations where there is threatened or actual unlawful conduct. The Court went on to say:

“[66] … The threat or conduct in question need not be directed to the person or property of the victim, narrowly identified, but can be to the legitimate commercial and financial interests of the party. Secondly, if the conduct or threat is not unlawful, the resulting agreement may nevertheless be set aside where the weaker party establishes undue influence (actual or presumptive) or unconscionable conduct based on an unconscientious taking advantage of his or her special disability or special disadvantage, in the sense identified in Commercial Bank of Australia Ltd v Amadio [(1983) 151 CLR 447].”

45 Peters does not assert any threatened or actual unlawful conduct, nor does he assert any special disability, but rather relies on what is said to be an unconscientious taking advantage (by requiring payment of $2 million for the shares which was not based on any estimate of the value of the shares but rather on what the Company and in reality Ooi had sunk into the business) of a special disadvantage, that is his having guaranteed the lease of Storage Plus.

46 A further matter which is important to Peters’ case is that he submits that it does not matter that he may have entered into the agreement even if no threats of winding up had been made and in this regard he relies upon Barton v Armstrong [1973] 2 NSWLR 598 and in particular the passage at 632-633 where Lord Cross (in whose speech Lord Kilbrandon and Sir Garfield Barwick concurred):

“If Barton had to establish that he would not have made the agreement but for Armstrong's threats then their Lordships would not dissent from the view that he had not made out his case. But no such onus lay on him. On the contrary it was for Armstrong to establish, if he could, that the threats which he was making and the unlawful pressure which he was exerting for the purpose of inducing Barton to sign the agreement and which Barton knew were being made and exerted for this purpose in fact contributed nothing to Barton's decision to sign. The judge has found that, during the ten days or so before the documents were executed, Barton was in genuine fear that Armstrong was planning to have him killed, if the agreement was not signed. His state of mind was described by the judge as one of ‘very real mental torment’, and he believed that his fears would be at an end when once the documents were executed. It is true that the judge was not satisfied that Vojinovic had been employed by Armstrong, but if one man threatens another with unpleasant consequences if he does not act in a particular way, he must take the risk that the impact of his threats may be accentuated by extraneous circumstances for which he is not in fact responsible. It is true that, on the facts as their Lordships assume them to have been, Armstrong's threats may have been unnecessary; but it would be unrealistic to hold that they played no part in making Barton decide to execute the documents. The proper inference to be drawn from the facts found is, their Lordships think, that, though it may be that Barton would have executed the documents even if Armstrong had made no threats and exerted no unlawful pressure to induce him to do so, the threats and unlawful pressure in fact contributed to his decision to sign the documents and to recommend their execution by Landmark and the other parties to them. It may be, of course, that Barton's fear of Armstrong had evaporated before he issued his writ in this action, but Armstrong, understandably enough, expressly disclaimed reliance on the defence of delay on Barton's part in repudiating the deed.”

47 Barton is a case in which Armstrong had threatened Barton with death if he did not have Landmark company enter into an agreement with him.

48 In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, the High Court affirmed the decision of the Supreme Court of South Australia which had set aside a mortgage granted by Mr and Mrs Amadio over their property in support of an overdraft for a company controlled by their son. The bank had been selectively dishonouring cheques on the account to preserve the appearance of solvency. The son told the parents that the mortgage was limited to $50,000 and for six months only, which was not the case, and the bank knew that the mortgagors had been misinformed.

49 In Amadio, Mason J (as he then was) said of the willingness of equity to decline to enforce a transaction:

“But relief on the ground of ‘unconscionable conduct’ is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage, eg a catching bargain with an expectant heir or an unfair contract made by taking advantage of a person who is seriously affected by intoxicating drink. Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position.”

50 The passage just referred to is set out at [43] of Karam, and is that to which reference is made in [66] of Karam set out at [44] above. There is also set out in Karam the following:

“[60] In Australian Competition and Consumer Commission v C G Berbatis , Gleeson CJ (at 64 [12]) stated that it was ‘the inability of a party to judge his or her own best interests that was said by McTiernan J in Blomley v Ryan (1956) 99 CLR 362, and again by Deane J in Commercial Bank of Australia Ltd v Amadio , to be the essence of the relevant weakness’. Gummow J and Hayne J adopted a similar position in considering the concept of “special disadvantage” as a necessary factor in establishing unconscionable conduct, as identified by Mason J in Commercial Bank of Australia Ltd v Amadio . Their Honours stated (at 77 [55]–[56]):


‘[55] It will be apparent that the special disadvantage of which Mason J spoke in this passage was one seriously affecting the ability of the innocent party to make a judgment as to that party's own best interests.

[56] In the present case, the respondents emphasise that point and stress that a person in a greatly inferior bargaining position nevertheless may not lack capacity to make a judgment about that person's own best interests. The respondents submit that the facts in the present case show that [the tenants] were under no disabling condition which affected their ability to make a judgment as to their own best interests in agreeing to the stipulation imposed by the owners for the renewal of the lease, so as to facilitate the sale by [the tenants] of their business. Those submissions should be accepted.’

A similar approach was adopted by Callinan J (at 115 [184]).”

51 The principal questions which need to be addressed in the light of Karam are:

(1) Was Peters labouring under a special disadvantage?

(2) If so, did the Company unconscientiously take advantage of that special disadvantage in procuring and/or proceeding with the impugned transaction?

52 It is clear that:

(a) Peters had far more knowledge about the earnings and outgoings of Storage Plus than Ooi or Duncan.

(b) Peters had extensive experience in and knowledge of the self storage business over a long period (which Ooi and Duncan did not have).

(c) He had excellent relations with the landlord of Epson Road and was aware of plans of the landlord to redevelop the site.

(d) He had a good understanding of the potential of the site for the business of Storage Plus and for the landlord.

(e) He had a far better knowledge of the likely interest in the market for purchase of shares or an interest in Storage Plus because he had engaged the brokers and had been dealing with enquiries.

(f) He believed that he could sell a majority share of the business to one of the parties who had expressed interest in purchasing.

(g) He was able to make projections of the likely return of the Storage Plus business.

(h) He knew the terms of the lease and was, I infer, aware of the payment situation.

53 It is true that Peters had signed the guarantee of the lease and was therefore potentially at risk if Storage Plus was placed in administration and no alternative lessee could be found, but his entry into the guarantee of the lease had occurred four years earlier and he makes no complaint about having done so. I do not regard the fact that Peters had signed the guarantee as a factor which placed him under a special disadvantage within the meaning of Amadio and reiterated in Karam. He was able to make his own judgment as to whether he had more to gain by entering into the agreement with the prospect of on-sale at a profit (or even at no profit) or not, and facing the prospect of having to meet a liability under the guarantee beyond that for which he was already liable (according to Mr Woodgate’s advice there was already $410,000 of rent outstanding). Further, he had lawyers acting for him during the negotiations and he had access to accounting advice had he wanted it.

54 It follows that on the basis of Karam, Peters cannot succeed on his claim even if the threats were made.

55 There is a further reason why, in my view, Peters’ claim ought be rejected. In my view, the Company was not acting unconscientiously in doing what it was legally entitled to do. It was, as Mr Harris conceded, entitled to put Storage Plus into administration: see T322.39-43. It probably had little choice but to do so if Peters did not take up the shares given the advice the Company had received about Storage Plus’s parlous financial position (which it believed, on Ooi’s evidence at T241.18, was a consequence at least in part of the misconduct of Peters), and see Exhibit “B”, a copy of a fax sent by Mr Woodgate to Ooi. I cannot see any reason why the Company was not entitled to indicate in express terms that unless it received from Peters a price for the shares satisfactory to it, it would place Storage Plus into administration. Ooi, having bona fide formed the view that Peters had been siphoning off money from Storage Plus into another business with which Peters was connected, was entitled to ask whatever price for the shares in Storage Plus he wanted. Ooi, having provided the bond, was entitled to offer the shares on behalf of the Company to Peters or to accept an offer from Peters in order to avoid the risk of having to lose the bond. In Wardley Australia Ltd v McPharlin (1984) 3 BPR 9500 at 9502, it was held that “it is not economic duress to threaten to exercise neither more nor less than the existing legal rights of a party” even if that party was driving a hard bargain: per Rogers J at 9502. In Re Hooper & Grass’ Contract [1949] VLR 269 at 272 Fullagar J drew the distinction between threatening to exercise a legal right in order to extract a promise and threatening to withhold that to which the other party was legally entitled.

56 The question of causation was addressed by both parties. The Company submitted that the material to which I have already referred explained why Peters wanted to enter into the Agreement. The Company submits that Peters executed the Agreement because he saw it as an ideal opportunity to acquire equity in a business that he had always wanted (Peters’ XX T111.6-46, 112.26-53 and Mrs Peters’ XX T157.36-57), a business which he had built, which he considered, as at January 2003 was “getting better and the type of business as grass grows improves” (Peters’ XX T34-37), which Mrs Peters as at January 2003 had formed the view had “rounded the corner … was on a good financial path for future development … things were looking rosy” (Mrs Peters’ XX T154.16-23), and which Peters considered to have a value of some $4 million which he was acquiring for only $2 million. In effect, says the Company, it was for Peters with his view of matters a commercial opportunity that he could not afford to pass up. I think there is ample evidence that even absent the alleged threat it is likely that Peters would have proceeded with the purchase. Mr Harris argued however that on the authority of Barton v Armstrong, even if I were to conclude that even absent any economic duress Peters would have signed the agreement, that fact would not matter – provided the threat was one of the factors that led to the agreement having been entered into.

57 There may be some room for doubt as to whether the approach taken in Barton, which was a case of common law duress, is applicable to the second category of case identified in Amadio, but accepting that it is, I do not think that it would assist Peters. First the threat, assuming it to have been made, was to do the very thing that Peters would have understood would occur even if it had not been made – that is he must have appreciated that if he did not purchase the shares, Storage Plus would be placed in administration. The enunciation of the threat therefore was of little moment. In Barton, the threat was of such a serious nature that the Court was prepared to accept in the absence of contrary evidence that it had continued in effect. The question of special disadvantage, unconscionable conduct and causation are very much linked. Here there is evidence that Peters had a number of reasons for wishing to buy the shares which are of a kind that undermine the proposition that the threat is what motivated his purchase or at least provided any motivation beyond what he ought reasonably to have appreciated.

58 The Company through its submissions sought to undermine further Peters’ contentions about pressure. In his affidavit he claimed that in his statement to Ooi and Duncan he made reference to the fact that he was seriously exposed on his guarantee of rent. The Company’s submissions drew attention to evidence from Peters himself that suggested that he was not faced with potential liability because of the guarantee to the landlord, since he had become aware as at February 2003 that the landlord was seeking to redevelop the site and had a development application in place to achieve that: T65.45-54, T83.41-50, T85.30-56, T106.15-50, T107.1-5. Peters also gave evidence of his excellent relations with the landlord, and that he believed “there would be a deal to be had which would favour us all”: T84.34-47; see also T99.12, T99.23.

59 Whilst I think the submissions of the Company go too far in submitting that Peters had no risk, and it should be noted that Peters did seek to resile from his evidence that he knew a development application had been approved (and see also Exhibit “2”), I was on his evidence left in doubt as to whether as a result of his knowledge of development plans and the intentions of the landlord and his excellent relations with the landlord, (and the fact that the amount of Ooi’s bank guarantee for $610,000 was in excess of the rent then owing), and even if acting prudently he should have had such a concern, Peters in fact did have a real concern that the existence of the guarantee would lead to him being financially exposed should Storage Plus be placed in administration.

Conclusion

60 It follows that the Agreement is not voidable or vitiated by any unconscientious conduct on the part of the Company and that the Company is entitled to judgment against Peters for breach of the Agreement and against Mrs Peters as guarantor.

61 The amount owing under the Agreement was $1,970,000. It was agreed that interest on that amount as at 23 July 2007 was $754,644.93 accumulating at $539.73 per day. This totals $2,725,184.60, and with interest until 3 August 2007 inclusive, is $2,728,962.71. And therefore that is the amount for which judgment should be entered.

62 The Company is also entitled to an order for its costs of the proceedings.

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