Alanbert Pty Ltd v Bulevi Pty Ltd
[2000] NSWSC 261
•6 April 2000
CITATION: Alanbert Pty Ltd v Bulevi Pty Ltd [2000] NSWSC 261 revised - 3/07/2000 CURRENT JURISDICTION: Equity FILE NUMBER(S): SC 4528/97 HEARING DATE(S): 5 & 6 August, 14 & 15 October, 2, 4 & 17 December 1998, 9, 12, 15, 16 & 24 March, 29 April, 25 May and 10 & 22 June 1999 JUDGMENT DATE: 6 April 2000 PARTIES :
Alanbert Pty Limited (P1)
Bernoth Realty Pty Ltd (P2)
Cecil Alan Bernoth (P3)
Bulevi Pty Ltd (D1)
Davhand Pty Ltd (D2)JUDGMENT OF: Hamilton J
COUNSEL : C A B Fairbairn (P1-3)
R K Weaver (D1 & 2)SOLICITORS: John Saroff & Company (P1-3)
Watson Mangioni (D1 & 2)CATCHWORDS: CONTRACTS [126] - General contractual principles - Discharge - Frustration - Commercial frustration - Rezoning not achieved - EQUITY [52] - General principles - Duress - What constitutes - TRADE AND COMMERCE [92], [94] - Misleading or deceptive conduct - Particular classes of conduct - Real estate transactions - Joint venture for subdivision of land - Whether representation made in absolute terms that further subdivision would be achieved - Proceedings, evidence and procedure - Pleading - Necessity for reliance on Trade Practices Act s 51A to be pleaded or particularised. LEGISLATION CITED: Fair Trading Act 1987 s 42
Frustrated Contracts Act 1978
Supreme Court Act 1970 s 94
Trade Practices Act 1974 (Cth) s 52CASES CITED: Adelaide Petroleum NL v Poseidon Ltd (1988) ATPR 40-901
Australian Competition and Consumer Commission v IMB Group Ltd (1999) ATPR 41-704
Caratti v DFC of T (1993) 93 ATC 5,192
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40
Cummings v Lewis (1993) 41 FCR 559
Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696
Dimskal Shipping Co SA v International Transport Workers Federation [1992] 2 AC 152
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 11 ACSR 642
Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82
Gould v Vaggelas (1985) 157 CLR 215
Mahlo v Westpac Banking Corporation Ltd [1999] NSWCA 358
Phoenix Court Pty Ltd v Melbourne Central Pty Ltd, (1997) ATPR (Dig) 46-179
Scolio Pty Ltd v Cote (1992) 6 WAR 475
Westpac Banking Corporation v Cockerill (1998) 152 ALR 267
Carter and Harland, Contract Law in Australia (3rd Ed, 1996) [2001]
Mason and Carter, Restitution Law in Australia [1210]DECISION: Plaintiffs' claim to set aside deed for duress not made out; defendants' claims for misleading or deceptive conduct and negligence not made out; defendants' claim for payment for extra work established.
IN THE SUPREME COURT
HAMILTON J
OF NEW SOUTH WALES
EQUITY DIVISIONTHURSDAY, 6 APRIL 2000
4528/97 ALANBERT PTY LIMITED & ORS v BULEVI PTY LIMITED & ANOR
JUDGMENTHis Honour:
1 These proceedings arise from transactions concerning vacant land (“the land”) at Hilltop in Wingecarribee Shire with potential for subdivision into two hectare (five acre) lots. The land was owned by the plaintiff, Alanbert Pty Limited (“Alanbert”), a company controlled by Cecil Alan Bernoth (“Bernoth”). Bernoth was also the controller of Bernoth Realty Pty Limited (“Bernoth Realty”), a company which conducted a real estate agency in Mittagong. Bernoth, who was aged over 80 at the time of the trial, had been a real estate agent and valuer for many years. The defendants are two companies, Bulevi Pty Limited (“Bulevi”) and Davhand Pty Limited (“Davhand”) associated with Mr Wayne Lawrence (“Lawrence”). Lawrence was a builder and real estate developer of considerable experience.THE CONTRACTUAL HISTORY
2 The land was Lot 1 DP 46882 and Lot 112 DP 733130, totalling in area 89.29 hectares (220.63 acres). In the late 1980s, Bernoth had applied to the Wingecarribee Shire Council (“the Council”) for approval to subdivide the land. At that time the land was not zoned so as to permit subdivision into two hectare lots. In September 1988 Bernoth obtained a geotechnical report from Nolan & Associates relating to Lot 112 (“the first Nolan report”). It made various observations about the nature of the land and concluded “that most of Lot 112 is suited for sub-division into 2 hectare allotments.” It also expressed the view that “some of the conclusions of the Water Resources Commission, relative [sic] to previous water pollution, are believed to be incorrect.” This was material because the Water Resources Commission was opposing the subdivision. Any relevant water authority (including the Water Resources Commission) will hereafter be referred to as “the water authority”. In November 1990 Bernoth obtained a further report from Nolan & Associates in effect supporting a revised subdivision plan in respect of Lot 112 (“the second Nolan report”). On 14 December 1990 the Council approved a subdivision into some 12 lots of about five acres each and a residual lot of some 166½ acres. This was originally known as Lot 16, but ultimately became known as Lot 13, and will be so referred to. The reason for this large residual lot was that the Council was not prepared at that stage to rezone the part of the land which comprised Lot 13. The prospects of the further subdivision of Lot 13 occupied a great deal of the debate in these proceedings.
3 Bernoth and Lawrence met in 1992. In 1992, 1993 and early 1994 the possibility of their carrying out the subdivision in conjunction was the subject of verbose and copious negotiations. Indeed, these qualities continued to characterise their intercourse, parts of which will require closer examination. On 19 November 1993 a contract was exchanged for the sale by Alanbert to Bulevi of the land for the price of $325,000 (“the November 1993 contract”). The November 1993 contract showed a deposit of only $5,000 and a balance of purchase price of $320,000, but in fact Alanbert was paid $100,000 at about that time. Stamp duty was never paid on the November 1993 contract. There was a deal of debate as to whether the November 1993 contract was a sham, in the sense of not being intended by the parties to have legal effect as a contract, and was exchanged only to put Alanbert in funds and to permit it to represent to its creditors that it had succeeded in entering into a transaction of sale of the land. There was also much debate as to whether the $100,000 was paid in November 1993 as a loan on the one hand, or a deposit or part payment of purchase money on the other.
4 Those questions do not need to be determined, nor do a number of others which were agitated during the trial. On 2 March 1994 two contracts were exchanged between the parties which are undoubtedly operative, and effected the sale of the land by Alanbert to Bulevi and Davhand (“the March 1994 contracts”). One of the March 1994 contracts was in respect Lot 112. That showed a purchase price of $245,000 and a deposit of $70,000, leaving a balance of $175,000. The purchaser under that contract was Bulevi only. The second of the March 1994 contracts was in respect of Lot 1. The purchase price stipulated was $80,000 and the deposit recorded $30,000, leaving a balance of purchase price of $50,000. Both Davhand and Bulevi were purchasers under that contract. There is now no dispute that the $100,000 which had already been paid to Alanbert upon the exchange of the November 1993 contract was to be treated as deposit moneys or part purchase moneys under the March 1994 contracts. Physically, the March 1994 contracts appear very confused; what purport to be the original contracts (Exs 7 and 8) differ in the way the pages are made up from the copies annexed to an affidavit of Bernoth and marked “C” and “D” respectively, and, for instance, Special Condition E(b) (see below) appears only in the contract in relation to Lot 1. Furthermore, there were complicated negotiations after exchange as to the form and content of the March 1994 contracts, partly between the parties direct, and partly involving Elliot Tuthill as Davhand and Bulevi’s solicitors. However, the trial was ultimately conducted on the basis that there was no substantial dispute between the parties as to the content of the March 1994 contracts.
5 The general effect of those contracts was stated by Lawrence as follows in an affidavit March 1994:6 It is certainly common ground that each of the March 1994 contracts was subject to the following Special Condition E(b):
“(i) Alanbert to sell lot 112 in DP 733130 to Bulevi alone for $245,000.00.
(ii) Alanbert to sell lot 1 in DP 46882 to Bulevi and Davhand for $80,000.00.
(iii) Both purchases to be considered secured by the advance of $100,000.00 by Bulevi and Davhand to Bernoth in November 1993 in partial discharge of Alanbert’s liability to the National Australia Bank.
(iv) Bulevi and Davhand to pay all development costs of the subdivision.
(v) On the sale of blocks 1 to 9 of the subdivision of the property the sum of $25,000.00 per block was to be paid to Alanbert.
(vi) Alanbert was to receive incentives on sales procured by Bernoth Realty over $96,000.00.
(vii) Bernoth Realty was to be the sole agent for a period of 12 months and be entitled to commissin in accordance with special condition K in the second contract.
(viii) The vendor was to receive lots 11 & 16 (later to be known as Lot 12) of the proposed subdivision on registration.”
That summary of the contractual arrangements is probably uncontroversial, save that Alanbert would say that the $100,000 in (iii) was to be treated as a deposit or partial payment of purchase price under the March 1994 contracts and, in the end, this is not really disputed.
7 After the March 1994 contracts were entered into progress was slow. Six sales were not effected and the work did not commence. There was wordy argument (both contemporaneous and subsequent) concerning the reasons for this, but, again, I am not called on to adjudicate upon these. The land was transferred to the purchasers by transfers dated 3 November 1994. In February and March 1995 there were further negotiations between Bernoth and Lawrence concerning the non commencement of the works and also arising from the fact that, as Bernoth informed Lawrence, Bernoth was tight for cash. On 30 March 1995, at Lawrence’s request, a document (“the March 1995 agreement”) was signed by Bernoth on behalf of himself, of Alanbert and of Bernoth Realty as follows:
“E(b) Within a period of 6 months from date of exchange of contracts, the Purchasers undertake to carry out all subdivision requirements as set out by the Wingecarribee Shire Council, letter dated 14/12/90; and lodge a plan of subdivision with the NSW Land Titles Office showing 11 new lots to be created (subdivision of Lot 14) and a residue Lot 15 having an area of 71.39 ha. Clause (b) will only take effect when deposits have been taken for the sale of 6 blocks of land, and exchanged.”
It is equally common ground that the March 1994 contracts were also subject to the following term:
“a) The purchasers are indebted to Alanbert Pty Limited for $225,000-00.
b) This debt is payable from the proceeds of the proposed Lots 1 - 10; ie. $25,000 per lot.
c) Notwithstanding the contract of sale dated 2nd March 1994, that portion of the land shown as Lots 11 & 16 [undisputedly later referred to as 12] will be transferred to Alanbert Pty Limited at no cost to Alanbert Pty Limited.”
The March 1994 contracts contain provision for the payment of commision and incentives to the plaintiffs in respect of lots sold by them.
8 The purpose of the loan was to assist Bernoth in meeting interest payments. The advance by monthly instalments of $2,000 commenced with a payment on 31 March 1995. (A total of $28,000 was ultimately advanced.) Furthermore, at about that time the defendants started to carry out the road works for the subdivision, although six lots had not been sold. There was a written variation of the March 1995 agreement signed by Bernoth on 12 May 1995 as follows:
“1 Agree to pay all costs and interest at 15% on the $2,000 loaned to me each month. Those funds are to be paid out of the $225,000 owing to me and my company Bernoth Realty Pty Ltd, and Alan Bert [sic] Pty Ltd.
2 Alan Bert [sic] Pty Ltd, Bernoth Realty Pty Ltd, and Alan Bernoth agree to pay all interest and costs that may be incurred on the said property from the date of registration of the land until such time as 6 Lots are sold. This interest is to be calculated at 15% or any other rate so determined with adjustment in interest rate and the interest to be calculated on the value of the 6 Lots. Payment for interest and other costs shall be deducted from $225,000 owing to my companies. If Bulevi Pty Ltd, and Davhand Pty Ltd, have to incur any legal costs because of myself or my companies [sic] actions those costs will also be met out of the $225,000 fully.
3 I acknowledge the payment of the first $2,000 and agree not to deposit the $2,000 until an agreement is signed and executed by myself and my companies. The cost of the agreement shall be met by myself and my companies. The agreement will consist of what has been mentioned above. In reference to the $2,000 being loaned to me will in no way have any bearing on the existing agreement. The loaning of $2,000 per month is a completely separate issue.”
9 It seems clear that it was contemplated between the parties that the subject matter of the March 1995 agreement would be incorporated in a formal document (clause 3). What is not clear, despite the fact that the advances of $2,000 per month and the works had commenced, is whether there was a firm agreement between the parties in terms of the March 1995 agreement and, if so, whether that agreement was maintained between the parties or subsequently abandoned by them. It seems from the provision as to non banking of the cheque that it may not have been intended to have immediate effect, but this provision was not observed. In any event, the evidence shows that on 11 July 1995 Lawrence forwarded Bernoth a form of deed for execution. That appears to have contained a provision for interest at 15 per cent compounding. Bernoth replied in a letter on 12 July 1995 as follows:
“I agree to alter paragraph 2 of the agreement that was signed on 30/3/95 to read as follows: Agree to pay all interest and costs that occur on 6 lots of land until settlement from the time of coverts [sic] and road base has been layed [sic] in the subdivision. And that time will start when the builder gives notice in writing.”
10 A deed bearing date 17 August 1995 was finally executed by Bernoth, Bernoth Realty and Alanbert, as well as by Bulevi and Davhand (“the August 1995 deed”). The circumstances of its actual execution are unclear. Bernoth did protest about the August 1995 deed before its execution. On 7 August 1995 he wrote to Lawrence. The relevant terms of the letter are as follows:
“As a compromise gesture, I am willing to pay 12% interest (being the costs [sic] paid by you ) on monies borrowed by you in respect to the road construction.”
That letter also complains of the dishonour of the July cheque for $2,000. The circumstances of this are not entirely clear, but it may have been because of dissatisfaction on Lawrence’s part as to the inconclusiveness of the contractual arrangements concerning the advances.
11 According to Bernoth, Lawrence thereafter again threatened orally to stop the road works if the deed were not signed. Despite the protest in his letter of 7 August, Bernoth, as already recounted, executed the August 1995 deed on behalf of himself and his two companies. His affidavit account of his reasons was as follows:
“2 Signing of the Deed. The said document exceeds by far the intentions of the agreement signed 30/3/95. Only a fool would agree to sign such a deed. For example, Item 6 is repugnant and objectionable.
I most certainly never said I would sign such Deed prior to receiving the next $2000. I pointed out to you that there were several items to which I took great exception. You subsequently ignored my objections and resubmitted the same Deed by fax. I repeat only a fool would sign such a document.
3 Your ultimatum that if I dont [sic] sign the Deed within 48 hours, that you will stop the road works and claim damages against our companies, is viewed as an unwarranted threat and indeed coercion .
The said variation was not understood by me at the time, and my signature was obtained by coercion. Your attitude was ‘Sign here …… or else!’
4 You said that if I don’t sign the Deed, this will be an indication that I want ‘the road works stopped’. This is not the intention, I resent your clumsy efforts to put words into my mouth.
The road construction is a matter for yourself and the road contractors. If you choose to stop work, you will only be putting yourself to a ‘great deal of cost’, not me.”
12 The material terms of the August 1995 deed are as follows:
“76 On 17 August 1995, I signed the Deed as requested by Mr Lawrence. At the same time I signed the Deed I believed that I had no other choice but to sign the Deed as I had already conveyed the land to Mr Lawrence’s companies on 3 November 1994, and I believed the only possible way for me to recover the balance of purchase monies due to Alanbert and to have Lots 11 and 12 transferred to Alanbert was to have the subdivision completed, so that Lots 11 and 12 could be re-conveyed, the lots sold, and the balance of purchase monies paid.”
“ WHEREAS:
A Bulevi and Davhand are the registered proprietors of the land contained in Folio Identifiers 1/46882 and
B Bulevi and Davhand are taking steps to have the land subdivided for the purpose of the sale of individual lots in the subdivision (called ‘the development’).
C The parties acknowledge the pre-existing agreement that after the land has been sub-divided Bernoth Realty is entitled to have Lot 11 from the new sub-division transferred to its name and Alanbert is entitled to have Lot 16 [later called Lot 12] from the new sub-division transferred to its name.
D The parties acknowledge the pre-existing agreement whereby the works on the sub-division would not be commenced until Bernoth Realty had arranged for contracts for six of the new lots to be unconditionally exchanged.
E Bernoth, Bernoth Realty and Alanbert wish works on the sub-division to be commenced immediately notwithstanding the fact that contracts for six lots have not been exchanged.
F The parties acknowledge the pre-existing agreement whereby Bulevi and Davhand will pay to Bernoth Realty and Alanbert the total sum of two hundred and twenty five thousand dollars ($225,000.00) from the sale proceeds of the lots.
G Bernoth has requested financial assistance from Bulevi.
NOW THIS DEED WITNESSES AS FOLLOWS:
1 Alan Bert [sic] Pty Ltd, Bernoth Realty Pty Ltd, and Alan Bernoth agree to pay interest at 15% p.a. and the interest is to be calculated on the sale value of the first six lots sold. That interest will be paid starting from 30th July, 1995 up to the date of sale and settlement of each lot. The interest is to be capitalised each month until settlement has taken place. Payment for the interest shall be deducted and the balance of the $25,000.00 owing to Bernoth will be paid. Then the interest will be calculated on the remaining five lots and as each lot is sold the same process will happen.
2 Bulevi shall lend Alan Bernoth the sum of $2,000.00 per month with a maximum of $50,000.00 and Alan Bernoth, Bernoth Realty Pty Ltd, and Alanbert Realty Pty Ltd, agree to pay 15% interest monthly with the interest being capitalised monthly. And those funds that are advanced shall also be repaid out of the first six sales from the $25,000 of each sale until all monies have been repaid. Payment of the said $2,000 per month will continue until the following events occur.
a) Bernoth Realty and or his companies nominees have secured exchanges of contracts for the sale of six lots.
b) Alan Bernoth advises in writing that he no longer needs such loan monies.
c) The said $2,000 per month will be part set of [sic] in respect to the sum of $225,000 owing to Alan Bernoth and his companies.
3 Bernoth and companies acknowledges the first payment made on 30th March 1995 …”
13 The most controversial feature of the August 1995 deed was that it provided for the interest on the monthly advances of $2,000 to be compounded, ie, the interest was to be capitalised each month and the principal sum on which the interest for the succeeding month was calculated was to include accumulated interest. This was not the regime set out in the March 1995 agreement upon a fair reading of it. The definition of the principal on which interest was to be paid and the date of commencement of interest were clearer in the August 1995 deed, but it is not entirely easy to say to what extent they were different from or more onerous for the plaintiffs than the March 1995 agreement.
14 On 30 August 1995 Bernoth again wrote to Lawrence:15 In cross examination, Bernoth admitted shortage of cash during 1993, 1994 and 1995, but denied that his companies would have gone to the wall in 1993 without Lawrence’s payment of $100,000. As to the execution of the August 1995 deed, he said:
“4. Fax from you, 6/8/95. This related to the deed. In its then present form it was unacceptable.
You made the matter very clear to me that if I did not sign the deed, you would call a halt on the roadworks construction.
You subsequently agreed that this stoppage would not be in your best interests, and certainly not in mine.
Under the circumstances, I had no option but to sign the deed. The modified version of such document was therefore signed under my Companies [sic] seals on 16 August 1995. I have yet to receive a copy of it.”
I have already said that the circumstances of the execution of the August 1995 deed are unclear. But it would seem from the letter that execution took place on 16 rather than 17 August 1995, and alterations were made to an earlier draft after Bernoth’s protest of 7 August 1995, although it does not appear what they were.
16 In 1996 there were further contractual discussions between Bernoth and Lawrence. Lawrence deposed as follows:
“Q. And you agreed, by way of the deed you signed, that you would pay interest on those amounts?
A. Yes.
Q. You sought, at one stage, to have that interest reduced?
A. Yes.
Q. And Mr Lawrence refused, didn’t he?
A. Yes.
…………
Q. Nevertheless, you agreed, in writing, to pay 15 per cent interest, didn’t you?
A. Yes.
Q. There was nothing stopping you going elsewhere and borrowing money, was there?
A. No.
Q. And you willingly entered into the agreement to pay that amount of money to Mr Lawrence?
A. Yes.”
A further admission that he entered into the August 1995 deed “willingly” was made later in cross examination. The plaintiff in re examination sought to explain away his express concessions of willingness. In cross examination he at one stage sought to assert that he was not aware of the contents of the deed at the time of execution.
“28 In or about July 1996 I had a conversation with Bernoth to the following effect:
Bernoth: ‘I want to rearrange the access to Lot 12 by increasing the road frontage and redefining the boundary.’
Lawrence: ‘That’s going to take a lot more money because not only do we have to extend the road, do further clearing, but we will have to put in further power poles to get electricity to the lot.’
Bernoth: ‘How much do you think the extra work would cost?’
Lawrence: ‘I don’t know off the top of my head. I will let you know.’
I then estimated the cost of resiting the roadway and telegraph poles and ascertained that the work required by Bernoth would cost approximately $14,800.00. I then sent Bernoth a letter setting that costing. A copy of that letter is annexed hereto and marked ‘L’. I then had a further conversation with Bernoth to the following effect:
Lawrence: ‘You’ve seen that pricing on the road extension’.
Bernoth: ‘Yes, that’s O.K. Go ahead.’
The work was done and paid for by Bulevi and Davhand. Despite requests to Bernoth for the $14,800.00 to be reimbursed, Bulevi and Davhand have received nothing in reduction of that amount.”
The relevant part of annexure “L” was as follows:
“As we have previously stated, regarding the title deeds, we are still awaiting from you your answer regarding the outstanding moneys, namely:
1. $10,000 for boundary change and extra work.
2. $1,000 - Gordon Spring for lopping of trees for your powerline.
3. $3,800 for the electricity department for which they carried out work, requested by you.”
Bernoth initially denied there was any such conversation, or that he agreed to pay for these “extras”, but in cross examination, in effect, admitted that he had. However, Lawrence’s version does not contain a stipulation that these moneys were to be at interest, and Bernoth’s response in cross examination that they were to be at compound interest is quite equivocal.
PRECONTRACTUAL REPRESENTATIONS
17 There were, as I have already said, negotiations between Bernoth and Lawrence prior to the November 1993 contract and the March 1994 contracts. Lawrence deposed:18 Bernoth denies a conversation in those terms. He says that prior to 10 November 1993 he had a conversation with Lawrence to the following effect:
“When first discussing with Bernoth the viability of the subdivision I had a conversation with him to the following effect:
Lawrence: ‘It would cost too much money to put the roads in to serve the 13 lots’.
Bernoth: ‘Yes but once you put the roads in you will then be able to subdivide the back lot and that would justify the costs of the roads’.
Lawrence: ‘Are you sure that lot 13 can be further subdivided?’
Bernoth: ‘Yes. There won’t be any trouble. I’ll be able to get it through. Slowly, slowly, catchee monkey’.
I then approached the Wingecarribbee Shire Council and enquired as to whether or not I could lodge an application on behalf of Bulevi & Davhand for lot 13 to be subdivided. I was informed by an officer of that Council whose name I do not now recall and verily believed [sic] that the Council would not consider an application to further subdivide 13 until the current subdivision had been completed.”
19 Bernoth deposed that on 8 December 1993 at Lawrence’s request he sent him a further copy of the “feasibility study” of 15 February 1993. After he had done that he recalls having a conversation with Lawrence as follows:
“I said: ‘There is a good demand for 5 acre lots at Hilltop’.
Lawrence said: ‘I would dearly love to buy a 5 acre subdivision’.
I said: ‘This a good opportunity for you to get a 5 acre subdivision’.”
On 15 February 1993 he undoubtedly prepared and sent to Lawrence a “feasibility study” concerning the subdivision of the land. That proceeded on the basis of the sale of ten small lots only for $988,000 gross against development expenses of $428,006. It showed a profit of some $200,000. It did not contain any allowance for holding costs, nor did it contain any discussion of the possible further subdivision of the balance of the land, or refer to its sale in globo, or bring its value into account as part of the profit. On 6 May 1993 Bernoth prepared a further document, which was described in his oral evidence as “a proposal, or a valuation … that was put to Mr Lawrence”. This “proposal or valuation” also provided, under the heading “Gross realization”, for the sale of ten small lots, and for the sale of “Residue 167 ½ acres (future 5 acre sub) Englobo [sic]” at a price of $400,000. This showed a profit in excess of $500,000, allowing for 6 months holding costs on the construction cost and a purchase price of $402,000, $77,000 greater than that ultimately paid. And certainly on 10 November 1993 Bernoth wrote to Lawrence a letter which contained the statement:
“The 166½ acres has excellent potential for further rezoning into ‘5 acre’ lots.”
20 The following events after the March 1994 contracts were entered into may throw light on the accounts given by the witnesses as to what representations were made or not made in the precontractual negotiations, and whether, if made, they were relied on. There was a further “valuation” by Bernoth of 19 January 1995, which proceeded by reference to the sale of ten two hectare lots (Lots 1 - 10) and also of the residual lot. On 6 March 1995 Bernoth wrote to Lawrence a letter purporting to be “an analysis of the report of valuation 19th January 1995”. The letter referred to:
“Lawrence said: ‘What do you think are our chances for the further subdivision of Lot 13?’
I said: ‘Well that depends upon the successful completion of the present subdivision’. ‘Following completion of that, Council may allow a further subdivision of Lot 13 it all takes time’.”
21 The evidence shows no demur by Lawrence to any of the communications in [20] made by Bernoth; Lawrence made no response to the effect that he had been promised that Lot 13 was certainly further subdivisible or subdivisible into five acre lots, or that it was on such a basis that he had entered into the March 1994 contracts, or become involved in the subdivision project at Hilltop. In oral evidence, he made concessions that detracted from his assertions of reliance on an absolute assurance of the subdivisibility of Lot 13. Questioned about Bernoth’s letter of 7 June 1995 (see [20]), Lawrence said:
“The sale of the residue area (67.93 ha or 166.523 acres) for $260,000-00. This land adjoins the ‘5 acre zoning’. One could reasonably expect that it will be rezoned to permit a further subdivision of 5 acre lots (2 ha).”
On 7 June 1995 Bernoth wrote to Lawrence concerning a conversation he had had with Lawrence’s surveyor. That letter included the following:
“I also questioned him further with regard to the likelihood of a further release of five-acre lots on the residue of the said property. He advised that it was unlikely at the present point in time. However, bear in mind the fact that my company owned about 400 acres in that area in 1980. Since then, we ran an orchestrated strategy plan. Bit by bit we pressed Council for more land release. This was done by four separate stages which involved rezoning. So that I still maintain that when the road work of the existing development is completed and houses were built, there is a strong possibility of being able to persuade Council of the need to agree to a further rezoning for five-acre lots in that area. This will take some time, but it is all a matter of strategy.”
Bernoth subsequently sent Lawrence a further document dated 16 July 1995 headed “Potential selling prices after road and clearing complete”. This again proceeded by reference to sales of only Lots 1 - 10 and Lot 13 (then called Lot 15), the price of the last being reduced from $260,000 to $190,000. That document also contained the following under the heading “Cash surplus”:
“This leaves Lot 15 (residue Lot of 67.39 ha) to be sold late [sic]. As now the Council says no further 5 acre lots allowed.
They can’t stop development. Bit by bit there has been a ‘piece-meal’ policy adopted by Council. Release Stage 1…. Stage 2…. Stage 3…. Stage 4 etc. When the subdivision is completed, houses are being built, the Council must see things in a different light.
(There will be a new Council elected September 1995)
Without any further major expense you could, if you wish, sell the 67.39 ha February 1996 for say $190,000-00. But my gut feeling is that within say two years it will be worth much much more than $190,000-00.”
On 19 December 1995 Bernoth again wrote to Lawrence referring to the “feasibility survey” forwarded on 16 July 1995 and again referring to the possibility of selling Lot 13 in globo, by reference to offers said to have been made for it of $280,000 and $312,000.
“Q. It says there is a strong possibility of being able to persuade council?
A. Yes.
Q. That’s the extent of his assurance to you?
A. It confirms the assurance that I continually was assured all the time that I could get the future subdivision.
HIS HONOUR: Q. But it is put in terms of a strong possibility rather than an absolute assurance?
A. Oh, yes. He couldn’t give an absolute assurance. He just supported the fact that it could be done because he did the original one first off.
Q. Do you take what is said in that letter to be essentially what he was always saying to you? Please look at it carefully before you answer that question?
A. Yes.”
Questioned about the representation of “ excellent potential” for subdivision in Bernoth’s letter of 10 November 1993 (see [18]), Lawrence said:
“Q. I suppose the nub of this is that there was, of course, a re-zoning, this further subdivision could not occur without a re-zoning?
A. That is correct, it had to be re-zoned.
Q. As an experienced person dealing in real estate, was it not in your mind that there is always some element of risk as to whether or not a council will carry out a re-zoning?
A. There is definitely a risk in re-zoning. There is not a guarantee that you will get a re-zoning but I was assured by Alan that he was well communicated [sic] with the council, he got the first subdivision through and he could do the second subdivision for me no matter what, but there was a risk there and that’s why it went on to say there was additional security ‘if you feel uncomfortable’ and that’s why I was supposed to get the 100 per cent finance on the subdivision, so my only risk was my money I put in to build the roads, my risk wasn’t the purchase of the subdivision plus all the other things that went with it, because my risk had been lowered because I had a first mortgage and that way I was covered if I never got the rear lot.”
Whilst the last answer is convoluted, these answers clearly acknowledge that Lawrence entered into the transaction on the basis of and making provision for the possibility of rezoning being refused.
22 The works in respect of the original subdivision, which were commenced between April and August 1995 were completed in time for the plan of subdivision to be registered in May 1996 and all the ten lots for sale were sold by mid 1997. By 1996 it seemed plain that the Council’s attitude towards rezoning Lot 13 so as to permit subdivision into two hectare lots had hardened, or at least that its obduracy was ongoing. Lawrence realised at this time that the prospects of subdivision into two hectare lots were dim, at least for the foreseeable future. One factor in the Council’s attitude appears to be the result of continuing pressure by the water authority not to allow subdivision of land within the catchment area. Lawrence then attempted to have Lot 13 subdivided into two lots under the existing zoning, although that zoning requires a minimum lot area of 100 acres. This application for subdivision into two lots has been refused. The defendants have refused to transfer Lots 11 and 12 to the plaintiffs, and those lots have been sold by a mortgagee under a mortgage granted by the defendants. The proceeds were credited to the defendants.
THE CLAIMS
23 The plaintiffs in these proceedings have made and maintained the following claims. To simplify matters, they have asked that any monetary claim of any of the plaintiffs, if established, should result in judgment in favour of the plaintiffs generally, and has equally conceded that any judgment to be entered against any of the plaintiffs may be entered against all the plaintiffs severally.24 Bulevi and Davhand cross claim, on the other hand, as follows:
1 The August 1995 Deed : The plaintiffs claim to have the August 1995 deed set aside on the ground that its execution was procured by economic duress. They concede that, if the August 1995 deed is set aside as they seek, then they will remain bound by the March 1995 agreement relating to interest. If the August 1995 deed is not set aside, the interest payable by the plaintiffs to Bulevi and Davhand will be calculated on a compound rather than a simple interest basis. Furthermore, as already noted, the formula which defines the principal upon which interest is to be calculated is different.2 Balance Purchase Money : The plaintiffs claim the payment or credit of the $225,000 purchase money under the 1994 contracts, less any payments which have been made to date. The defendants do not deny the plaintiffs’ entitlement to the balance purchase moneys.
3 Commission and Incentives : The plaintiffs claim the payment of commission and incentives as provided for under the March 1994 contracts. The defendants do not contest the plaintiffs entitle ment to the appropriate sums.
4 Claim for Payment of Value of Lots 11 and 12 : Since Lots 11 and 12 were sold by the mortgagee, they cannot now be transferred to the plaintiffs. As I understand it, Bulevi and Davhand concede that Alanbert should be credited with the proceeds of those lots upon sale. There may, however, be a dispute as to whether the credit should be of the proceeds, or of some other figure claimed by the plaintiffs as representing the “value” of the lots.
The defendants’ concessions in respect of claims 2, 3 and 4 may need to be read subject to the defendants claim of frustration, in [24.1].
25 In relation to the plaintiffs’ duress claim, the precise form of the duress alleged in the pleadings is of some importance (see Westpac Banking Corporation v Cockerill (1998) 152 ALR 267). After alleging the defendants’ requirement for compound interest, Bernoth’s protest in his letter of 7 August 1995 and the execution of the August 1995 deed, the second further amended statement of claim alleges:
1 Frustration : The defendants claim that the March 1994 contracts should be declared to have been frustrated. I am not entirely clear as to the further consequences that the defendants say would flow if this relief were granted.2 Interest and Loan Moneys : The defendants claim the $28,000 lent to Alanbert by instalments of $2,000 per month and interest under the August 1995 deed or, alternatively, under the March 1995 agreement. The interest to which they are entitled is not interest only on the $28,000, but on a principal sum specified by the August 1995 deed or alternatively, the March 1995 agreement.
3 Misleading or Deceptive Conduct : The defendants claim damages for conduct said to be misleading or deceptive in breach of the Trade Practices Act 1974 (Cth) (“the TPA”) s 52 and/or the Fair Trading Act 1987 (“the FTA”) s 42.
4 Negligence : The defendants also claim damages for negligent misstatement.
5 Claim for $14,800 : The defendants claim $14,800 which they allege was agreed to be paid for additional works and that that sum should form part of the principal on which interest should be calculated at 15 per cent compound under the August 1995 deed.
26 The form of pleading is also of some importance in relation to the defendants’ misleading or deceptive conduct and negligence claims. In relation to their claims 3 and 4, the defendants by their amended cross claim allege:
“41 Alanbert, Bernoth Realty and Mr Bernoth, in order to ensure payment of the balance purchase monies and to ensure that the Second and Third Contracts were performed by Bulevi and Davhand, in the face of the refusal of Bulevi and Davhand to complete the subdivision requirements, were obliged to sign the Deed under undue pressure and did so under protest.
42 Alanbert and Mr Bernoth claim that the Deed should be set-aside [sic] on the basis that at the time it was made the Deed was:
(i) an unjust bargain in that it was harsh and unconscionable; and/or
(ii) entered into it unjust circumstances created by an inequality in bargaining power between the parties; and/or
(iii) entered into it circumstances where Alanbert & Mr Bernoth had no other choice but to enter into the Deed in order to ensure that Bulevi and Davhand performed their obligations pursuant to the Second and Third Contracts, and, as such were obliged to enter into the Deed under economic duress.”
“20 Bernoth then assured Lawrence that Bernoth could procure Council approval to further subdivide Lot 13 into approximately 25 five acre lots.
21 Because of Bernoth’s long experience as a vendors’ agent and valuer in the area and his success in securing approval for the existing subdivision, Lawrence relied upon Bernoth’s assurance referred to in 21 [sic] above and Lawrence agreed with Bernoth that Bulevi and Davhand would purchase the subdivision property from Alanbert.
……
40 In 1996, contrary to Bernoth’s assurances to Lawrence referred to above, the Wingecarribee Council advised Lawrence that it would refuse the further subdivision of Lot 13. As a result of the inability to further subdivide Lot 13 the subdivision is no longer financially viable and Bulevi and Davhand have suffered loss and damage as a result.”
And further:
“49 The second third [sic] cross defendants provided advice to the cross claimants in their professional capacity as licensed proerty valuers, real estate agents and stock and station agents and members of the Australian Institute of Valuers and Land Administrators.
50 That advice was as follows:
(a) that Lot 13 could be further subdivided into 25 five acre lots;
(b) that the second defendant would procure the consent of the Wingecarribee Council to the proposed further subdivision of Lot 13; and
(c) that the first and second cross claimants would stand to make a profit in excess of two million dollars on the further subdivision of Lot 13.
51 In giving the advice referred to above, the second and third cross defendants owed a duty of care to the cross claimants.”
27 The course that has been followed at the trial by the parties is that the many questions of calculation or account that arise from various of these claims and the quantification of any damages should be the subject of a reference to a Master, or should otherwise be determined as directed by the Court after the delivery of judgment on the substantive questions.
28 The questions which arise for decision in this judgment are as follows:
1 Should the August 1995 deed be set aside as having been executed under duress?2 Were the contractual arrangements between the parties frustrated as alleged by the defendants?
3 Were the plaintiffs guilty of misleading or deceptive conduct in trade or commerce in breach of s 52 of the TPA or s 42 of the FTA?
4 Were the plaintiffs guilty of actionable negligence by reason of any statement or misstatement made by Bernoth to Lawrence?
5 Did the plaintiffs promise to pay the defendants $14,800 for the additional works?
THE WITNESSES
29 The principal witnesses in the case were Bernoth and Lawrence. Bernoth, as I have already stated, was a gentleman of more than 80 years of age when he gave evidence. He had some problem of deafness, and it was at times difficult to tell whether this contributed to his apparent obtuseness in answers to questions. He was, in any event, an unimpressive witness. On a number of occasions he denied recollection of matters it might be thought he would have recollected and persisted in the denial until confronted with documentary material. He has dwelt on the transaction and the litigation over a period of time, and it may be that he has convinced himself of the truth of various matters that do not accord with the facts. I do not believe that he attempted deliberately to give the Court untrue evidence, but I have formed the view that his recollection of the events that had occurred over the years was not good. Whilst I do not reject his evidence generally, his testimony on any subject matter must be approached with great caution.
30 Lawrence was a more satisfactory witness. His evidence was on many subjects clearer and his recall apparently better than Bernoth’s. However, there are important regards in which I take the view that the passage of time and his involvement in the course of this embattled matter mean that the versions of facts and actions that he now gives do not accord with the situation at the time. As in so many cases, it becomes of the greatest importance to look at the evidence of disputed facts in the light of undisputed facts, and particularly of what documentary evidence there is that casts light on the actuality of the disputed subject matters.
CONCLUSIONS: DURESS
31 The law concerning the setting aside of transactions on the ground of economic duress was stated by McHugh JA (as his Honour then was) in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 45 - 6 as follows:
“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. As his Lordship pointed out, the consequence is that the ‘consent is treated in law as revocable unless approbated either expressly or by implication after the illegitimate pressure has ceased to operate on his mind’ (at 384). In the same case Lord Scarman declared (at 400) that the authorities show that there are two elements in the realm of duress: (a) pressure amounting to compulsion of the will of the victim and (b) the illegitimacy of the pressure exerted. ‘There must be pressure’, said Lord Scarman ‘the practical effect of which is compulsion or the absence of choice’.
The reference in Universe Tankships Inc of Monrovia v International Transport Workers Federation and other cases to compulsion ‘of the will’ of the victim is unfortunate. They appear to have overlooked that in Director of Public Prosecutions for Northern Ireland v Lynch [1975] AC 653, a case concerned with duress as a defence to a criminal proceeding, the House of Lords rejected the notion that duress is concerned with overbearing the will of the accused. The Law Lords were unanimous in coming to the conclusion, perhaps best expressed (at 695) in the speech of Lord Simon of Glaisdale ‘that duress is not inconsistent with act and will, the will being deflected, not destroyed’.
Indeed, if the true basis of duress is that the will is overborne, a contract entered into under duress should be void. Yet the accepted doctrine is that the contract is merely voidable.
In my opinion the overbearing of the will theory of duress should be rejected. A person who is the subject of duress usually knows only too well what he is doing. But he chooses to submit to the demand or pressure rather than take an alternative course of action. 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.
In their dissenting advice in Barton v Armstrong [1973] 2 NSWLR 598; [1976] AC 104, Lord Wilberforce and Lord Simon of Glaisdale pointed out (at 634; 121):
‘... in life, including the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act. Absence of choice in this sense does not negate consent in law: for this the pressure must be one of a kind which the law does not regard as illegitimate. Thus, out of the various means by which consent may be obtained - advice, persuasion, influence, inducement, representation, commercial pressure - the law has come to select some which it will not accept as a reason for voluntary action: fraud, abuse of relation of confidence, undue influence, duress or coercion.’
In Pao On v Lau Yiu Long [1980] AC 614, the Judicial Committee accepted (at 635) that the observations of Lord Wilberforce and Lord Simon in Barton v Armstrong were consistent with the majority judgment in that case and represented the law relating to 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.”
McHugh JA’s judgment has been frequently cited with approval, including, at appellate level, in the NSW Court of Appeal in Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 11 ACSR 642; in the Western Australian Full Court in Scolio Pty Ltd v Cote (1992) 6 WAR 475 and Caratti v DFC of T (1993) 93 ATC 5,192; and in the House of Lords in Dimskal Shipping Co SA v International Transport Workers Federation [1992] 2 AC 152.
32 To answer this question, it is necessary to make some findings in relation to the course of dealings between the parties. It is probably unnecessary to find whether or not the parties did intend the November 1993 contract to have legal effect, this being the subject of contest between them. However, in this regard I accept Lawrence’s version that the exchange of contracts took place to provide Bernoth with evidence that he had a sale of the land to present to his bank, but without intention that the contract should operate between them. $100,000 was paid into Bernoth’s bank account on 19 November 1993. This was not provided for under the November 1993 contract. Negotiations were proceeding between the parties for them to enter into a joint venture arrangement in relation to the subdivision of the land, but in my view the negotiations had not then been concluded. I accept that Lawrence was at that stage prepared to make an advance of $100,000 to Bernoth, as a loan, secured by a mortgage, and against the likelihood that a contract or arrangement would ultimately be entered into between them, as undoubtedly it was. It is significant that neither the $5,000 deposit nor the stamp duty on the contract was paid. If it were necessary to do so, I should find that the parties did not intend the November 1993 contract to create legal relations between them.
33 The March 1994 contracts were undisputedly entered into in that month. The legal relation of vendor and purchaser was thereby created between the parties, but as already indicated negotiations continued long afterwards as to what were finally to be taken as the terms of those contracts, although this was finally settled between the parties, as has already been stated. It is clear that in March 1994 it was anticipated that six lots would be sold quickly, the subdivision works would then be undertaken, and the balance of the lots promptly sold. The contemplation was that that would all occur within the space of months, rather than two or three years. As already observed, six early sales did not take place, probably because the land continued to be virgin bush, and the works were not commenced; wrangling instead ensued and a large amount of time was consumed.
34 Fresh negotiations took place early in 1995 to break the deadlock which had occurred and to provide the plaintiffs with moneys they needed for interest payments. At that time Lawrence became willing to commence to carry out the works, but only if he was provided with firm security. When no security was forthcoming, Lawrence required the payment of interest by the plaintiffs, both upon the sums agreed to be lent to the plaintiffs, and upon the moneys whch would have to be borrowed to carry out the works. Again, negotiations between the parties were diffuse. And whether there was intention immediately to create legal relations by the March 1995 agreement is uncertain. Lawrence did commence work after that document was signed on 30 March 1995, but negotiations continued between the parties as to the terms on which interest was to be paid. It is clear that that document was in any event an interim document which was at most to have effect until superseded by a permanent document. Alternatively, it was regarded as not creating legal relations at all, but as a document which gave Lawrence some evidence of the general outline of the arrangement between them until a final document was entered into. It is not necessary to come to a final conclusion between those alternatives, because it is my view that, if ever there was an intention that that document should create legal relations between the parties, all parties thereafter abandoned the contract thereby created. By July 1995 the plaintiffs and the defendants are negotiating with each other for some different arrangement as to the interest to be payable upon the $2,000 per month instalments (which are then being paid despite the lack of final documentation) and the cost of the works. Bernoth (although he avowed at the trial that he regarded the March 1995 agreement as binding if the August 1995 deed were set aside, is the one who in July 1995 is proposing 12 per cent interest as a compromise. On the probabilities, I find that Bernoth did not at that time regard the March 1995 agreement as binding. Equally, Lawrence did not do so, and felt at liberty to demand that compound, as opposed to simple, interest be payable under the arrangements. Neither party in the course of those negotiations suggested that the priocess they were carrying on was negotiation for variation of an already binding agreement, rather than for the conclusion of an original agreement on this subject matter.
35 I find, therefore, that the defendants were not bound by an agreement that provided for simple interest when in July Lawrence required that the contemplated deed should contain a provision for compound interest, and a different definition of the principal upon which the interest was to be calculated. Bernoth’s protests were that the proposed deed was inequitable, not that it was contrary to an agreement which existed between the parties and ought be adhered to. It seems likely that the reason for Lawrence’s dishonouring of the cheque for the July instalment of $2,000 was to bring to a head the situation where he had already commenced work in the spirit of the March arrangement without the terms of that arrangement having been settled. And, indeed, that action and the negotiations consequent upon it led to the execution of the August 1995 deed setting out the terms .
36 It is against this background that I have come to the conclusion that the plaintiffs have not made out a case of duress. In doing so, I have not relied on Bernoth’s admissions in cross examination that he executed the deed willingly; I am not convinced that he intended those admissions. But I am of the view that neither did Bernoth act under pressure or compulsion in the way the law requires for duress to be established, nor could Lawrence be said to have behaved illegally or unlawfully or in any way to have applied illegitimate pressure in insisting on the execution of the August 1995 deed containing the terms it did for compound interest or as to the basis of calculation of the interest. Both were experienced businessmen. Both had been bargaining for the terms on which the work would commence so that the subdivision could proceed. Bernoth conceded that his companies at material times from 1993 to 1995 had cash liquidity problems, but denied that even in November 1993 they would have gone to the wall but for Lawrence’s $100,000 loan. There is no evidence that Bernoth’s business or companies would have gone to the wall had the work on the subdivision been suspended in August 1995. There is no evidence that there was then no other alternative for him. I do not accept that he was unaware of the terms of the August 1995 deed at the time of execution. The bargain driven may have been a hard one, but he accepted it as a commercial solution at the time. Lawrence was not acting in breach of an existing contract by taking the course he did. In my view, no case of economic duress is made out and there is no case for the August 1995 deed to be set aside.
CONCLUSIONS: MISLEADING OR DECEPTIVE CONDUCT
37 For conduct to breach ss 52 or 42 of the TPA or FTA respectively, it must be conduct in trade or commerce. No submission was put to me that the relevant conduct was not in trade or commerce. Furthermore, although there is no evidence of any of the plaintiffs conducting a business of the purchase and resale or development of land at the times material to this suit (other than their engagement in the transaction), Bernoth conceded that he had previously engaged in speculative land dealings. More importantly, although the plaintiffs had held the land for many years, the project of subdividing it for resale in joint venture with another venturer appears to me to mean that the conduct engaged in was in trade or commerce. As to the issue of whether the impugned conduct was misleading or deceptive, the relevant facts must be looked at in light of the history of the transaction. There is no doubt that Bernoth was keen for Lawrence to enter into the transaction, on the basis that this would both provide Bernoth with some immediate cash to ameliorate his liquidity difficulties, and give the prospect of further cash upon the sale of the of the subdivided lots or through the medium of the two lots to be transferred back to the plaintiffs. However, I also find that Lawrence was not as reluctant as he claimed to enter into the transaction, and I do not accept that he did so only because of the persistence of Bernoth. I accept Bernoth’s evidence that Lawrence said to him that he was interested in being involved in a five acre subdivision, and accept that this was the truth. Lawrence also claimed that he was reluctant from the start to enter into the transaction because he foresaw from the extent of the works that it would not in reality be profitable unless the residual Lot 13 were subdivided into small lots. Turning, as I think important, to the contemporaneous documents, they do not indicate to me that this is so. Whilst Bernoth’s initial “feasibility study” was not comprehensive (because it does not make provision for some of the inevitable or likely expenses of the subdivision, such as interest on the money expended on the subdivision works), even allowing for the omissions, it seems to me that it suggests the likelihood of a profit from the venture upon the sale of 10 lots only (allowing for the return of two lots to the plaintiffs). Even interest on the whole of $400,000 odd subdivision costs over a two year period at 15 per cent would add $120,000 to the cost and leave some profit. And that was far beyond what was anticipated. In my view it was the anticipation of both the co-venturers that all the lots would be sold in a matter of months rather than years after the subdivision works were carried out (and, indeed, they were sold over about a 12 month period once the works had after delay been carried out). But the additional attraction always was that the residual lot offered the possibility of additional profit (estimates of its value in globo range between $130,000 and $400,000); if it could be subdivided there was the prospect of even greater profits.
38 I am of the view that both men entered into the transaction on this basis, namely, that it would be profitable if the subdivision yielded only 12 small lots (two to be returned to the plaintiffs) and one large lot which at least could be sold in globo. In my view it is against that background that Lawrence’s allegation that an absolute assurance by Bernoth that Lot 13 would be subdivided into smaller lots must be viewed, whether it is to be taken as a representation that those lots would assuredly be in the order of five acres each, or whether an assurance that they would be in a range of five to 25 acres, or whether it be taken as simply an assurance that some further subdivision of Lot 13 would be carried out. Both the pleading and Lawrence’s evidence in chief speak in terms of absolute assurance.
39 The absolute assurances that Lawrence says that Bernoth gave were all oral, such as that set out in [17] above. It is in my view significant that, even at the times when it is suggested that Bernoth was most desperate and keenest to persuade Lawrence to enter into the transaction, no such absolute assurance appears in the writings that were created. What written assurances or representations there are are in lesser terms, the highest probably being that Lot 13 possessed “excellent potential for further subdivision”: see [18]. The use of the word potential is significant. “Potential” as a noun is defined in the Macquarie Dictionary (3rd Ed, 1997) as “a possibility or potentiality”; and “potentiality” is defined as follows:
“1. potential state or quality; possibility; latent power or capacity. 2. something potential.”
The word used is a word of possibility. This is also inherent in the expression which I find that Bernoth used in relation to the manner in which the subdivision of Lot 13 might be brought about, “slowly, slowly, catchee monkey”. This phrase I take to mean that the process had to be slow and cautious, and that the monkey had to be caught, at present being at large. The underlining of “ excellent ” as qualifying “potential” is emphatic. This I take to be a modest piece of puffery in the negotiation between two men who were experienced businessmen and experienced in land transactions. The strength of the adjective does not destroy the notion contained in the noun that the result was a possibility only. None of the written statements, before or after contract, is in absolute terms. Lawrence admits in cross examination knowledge of the possibility that rezoning would not be achieved. I am not prepared to accept in the face of Bernoth’s denials and particularly in the face of what is contained in documentation, that never brought a written response or demur from Lawrence, that Bernoth ever gave any absolute assurance orally. I reject Lawrence’s evidence to that effect. I find that there was no absolute assurance by Bernoth to Lawrence that the subdivision would be achieved.
40 It must be remembered that the case was pleaded and put at trial as one of absolute assurance that the subdivision would be achieved. As I have found that that representation was not made, questions do not arise as to the reasonableness of Bernoth’s basis for the making of that representation or any other (eg, the representations made in writing before the March 1994 contracts as to subdivision potential), either on the basis stated in the well known passage in Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 88, or by reference to s 51A of the TPA or s 41 of the FTA. It should be noted that these sections were not adverted to in the cross claim, either in terms, or by reference to their content, nor is there any evidence of particulars indicating reliance on the sections: see the decicions in the Federal Court per French J in Adelaide Petroleum NL v Poseidon Ltd (1988) ATPR 40-901 at 49,700; per Goldberg J in Phoenix Court Pty Ltd v Melbourne Central Pty Ltd, (1997) ATPR (Dig) 46-179 at 54,431 - 4; and per Drummond J in Australian Competition and Consumer Commission v IMB Group Ltd (1999) ATPR 41-704 at 43,020 - 2; cf Cummings v Lewis (1993) 41 FCR 559.
41 However, because a submission was put concerning the first Nolan report and the second Nolan report, I should say something concerning that. It was put that Bernoth’s failure to reveal these reports and their contents to Lawrence before the transaction (said to amount to concealment) was significant, since they were inconsistent with the absolute assurance on which the cross claimants’ case was based. With that submission, I am unable to agree. The Nolan reports related only to Lot 112, the land which was in fact subdivided into Lots 1 to 12, as Lawrence in cross examination acknowledged. The water authority’s objections to subdivision at the time of the Nolan reports were overcome with the aid of the Nolan reports themselves, and the design of the subdivision as finally approved to take account of the objections. In other words, the water authority’s objections did not prevent the subdivision which Bernoth achieved in 1990. I do not think it unreasonable in those circumstances for Bernoth to have and express the view, not that there was a certainty, but that there was a distinct or high possibility of the achievement of a further subdivision of Lot 13. Nor do I think that the fact that the reports were not given to Bernoth leads to the conclusion that Bernoth gave an absolute assurance, with which they were inconsistent.
42 I find, therefore, that there was no conduct of Bernoth that breached the relevant sections of the TPA or the FTA. This makes a finding on the causal connexion between the conduct and any damage which the defendants suffered unnecessary. However, I should say that if I were required to determine this question I should decline to find that there was a causal connexion by reason of any reliance of Lawrence upon any representation made. The profit available from the subdivision in fact carried out in my view motivated Lawrence to enter into the transaction, combined with the possibility of a “windfall” profit should further subdivision of Lot 13 become possible. In the end, he made the concessions in cross examination set out in [21] above. In my view they reflect the true state of his mind, not only as to the nature of the representations made, but so far as any reliance upon any representation was concerned, ie, the rezoning may or may not come to pass and his situation was covered if it did not. What destroyed the profitability was the delays. I do not ignore that it is the law that the representation does not have to be the sole motivation for or cause of entering into the transaction: Gould v Vaggelas (1985) 157 CLR 215. (I have also adverted to the recent decision of the Court of Appeal in Mahlo v Westpac Banking Corporation Ltd [1999] NSWCA 358.) But even bearing that principle in mind, I should not be prepared to find that there was reliance.
CONCLUSIONS: NEGLIGENCE
43 For the reasons outlined above in connexion with the claim relating to misleading or deceptive conduct, I find that there was not any negligent misstatement made by Bernoth. Equally, were it necessary, I should decline to find any causal connexion between any relevant statement of Bernoth and Lawrence entering into the transaction or suffering any damage. But there is an additional problem for the defendants so far as a cause of action in negligence is concerned. The duty of care is said to arise from the fact that Bernoth was a valuer and real estate agent with long experience in the relevant district. However, he was not engaging in making any of his statements to Lawrence as a valuer engaged by Lawrence or, indeed, in the guise of an expert valuer at all. Nor was he making the statement in the guise of an estate agent. He was an owner of land who, although he could be correctly characterised as a valuer and an estate agent with experience in the district, was engaging in a commercial negotiation with an experienced developer concerning their entry together into a joint venture relating to land, being a transaction which included the purchase of the land by the defendants from the plaintiffs. I find that none of the plaintiffs owed any duty of care to the defendants in respect of any relevant statement written or oral made by Bernoth to Lawrence.
CONCLUSIONS: FRUSTRATION
44 In respect of the defendants’ claim that the March 1994 contracts were frustrated, the modern doctrine of frustration may be taken to be, as stated by Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 728 - 9:
“… that frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do.”
This formulation was approved in the High Court of Australia in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; and see generally Mason and Carter, Restitution Law in Australia [1210]; Carter and Harland, Contract Law in Australia (3rd Ed, 1996) [2001]. In the case of partial frustration, the consequences are now regulated by the Frustrated Contracts Act 1978. It is said that the March 1994 contracts have become impossible of performance, at least in part, or that their commercial purpose has been frustrated, because at least part of their purpose was the further subdivision of Lot 13.
45 Quite apart from other difficulties that this submission may have, it follows from the findings that I have made that it cannot be said that the purpose for which the March 1994 contracts were entered into, or any part of it, was the effecting of a further subdivision of Lot 13. It was always recognized that for the further subdivison of Lot 13 to be effected, rezoning would have to take place, and that it was at least a possibility that this would not occur. In those circumstances, the refusal by the Council to allow any further subdivision, or at least to allow any such subdivision to date, cannot be the basis of a frustration of the March 1994 contracts. There has been no frustration.
CONCLUSIONS: THE $14,800 CLAIM
46 Lawrence claims that he expended the sum of $14,800 on additional works as set out in [16] on the basis that the plaintiffs would pay for that work. Although this was denied for a time, in the end Bernoth in effect conceded in cross examination that he did make such a promise and that the evidence that Lawrence gave concerning this was correct. I accept that evidence. In those circumstances it is plain that the defendants are entitled to payment of or a credit for $14,800 in respect of that matter. However, insofar as it is suggested that that $14,800 should form part of the principal in respect of which interest should be calculated at 15 per cent compound, it does not seem to me that that proposition is correct. I have upheld the August 1995 deed. That defines the sums in respect of which compound interest is to be calculated. I do not find it stipulated in Lawrence’s account of the agreement concerning the $14,800, or the concession made by Bernoth concerning it, that there was any agreement that the compound interest regime should apply to that sum. In fact, I do not find that there was any stipulation that any interest should be paid in respect of that sum. Any question that arises as to the award of interest upon it must therefore be dealt with under the provisions of s 94 of the Supreme Court Act 1970.
SUMMARY OF CONCLUSIONS
47 The conclusions that I have come to are therefore as follows:48 At one time the plaintiffs also claimed a right to be able to maintain a mortgage over certain property, I take it Lot 13. I am not clear as to whether this claim is still maintained. This matter may also be addressed when the short minutes are brought in.
(1) The August 1995 deed ought not be set aside.(2) The March 1994 contracts have not been frustrated.
(3) The defendants’ claims for damages for misleading or deceptive conduct and for negligence fail.
(4) The plaintiffs are entitled to the balance of the purchase moneys under the March 1994 contracts in the sum of $225,000.
(5) The plaintiffs are entitled to commissions and incentives owing under the March 1994 contracts.
(6) The plaintiffs are entitled to the value of Lots 11 and 12 as at the time of their sale by the mortgagee.
(7) The defendants are entitled to the $28,000 lent to the plaintiffs by monthly instalments in 1995 and 1996.
(8) The defendants are entitled to interest under the August 1995 deed.
(9) The defendants are entitled to $14,800 in respect of the additional work that they did as agreed with the plaintiffs but not to compound interest on it.
In the case of the items mentioned in conclusions (4) to (9), allowance will have to be made for payments which have been made or credits which have been or ought be given. This will require a quite complicated process of calculation. It may also require discrete enquiries, as for instance, as to the value of Lots 11 and 12 at the relevant time. The defendants concede that they ought pay the plaintiffs the proceeds of sale of the lots. The plaintiffs, on some basis that I do not fully understand, claim some greater sum. The case has always been conducted on the basis that all these matters should be the subject of reference to a Master, or determination in some other appropriate fashion after delivery of my substantive judgment. These matters can receive further consideration at the time that short minutes are brought in to give effect to the conclusions which I have announced, as can the question of costs.
…oOo…
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