Anozira Pty Ltd v Hunt
[2002] ACTCA 10
•12 December 2002
ANOZIRA PTY LTD v PETER ANTHONY URQUHART HUNT [2002] ACTCA 10 (12 December 2002)
CATCHWORDS
COMPANY LAW – application to set aside statutory demand – whether genuine dispute as to debt – debt founded on Deed – whether contentions that Deed procured by unconscionable
conduct or duress sufficient to raise triable issue.
Corporations Act 2001, s 459G, s 459H(1), s 459J
Cornick v Brains Master Corporation (1996) 14 ACLC 269
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
Universe Tankships Inc of Monrovia v International Transport Workers Federation and Others [1983] 1 AC 366
Equiticorp Financial Services Ltd (NSW) v Equiticorp Financial Services Ltd (NZ) Ltd (1992) 29 NSWLR 260
Barton v Armstrong [1976] AC 104
Pao On v Lau Yiu Long [1980] AC 614
Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40
Commercial Bank of Australia v Amadio (1983) 151 CLR 447
Louth v Diprose (1992) 175 CLR 621
Garcia v National Australia Bank Ltd (1998) 194 CLR 395
Atiyah, “Economic Duress and the ‘Overborne Will’” (1982) 98 LQR 197
ON APPEAL FROM THE MASTER OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
No. ACTCA 6 - 2002
No. SC 301 of 2002
Judges: Crispin P, Gray and Madgwick JJ
Court of Appeal of the Australian Capital Territory
Date: 12 December 2002
IN THE SUPREME COURT OF THE ) No. ACTCA 6 - 2002
) No. SC 301 of 2002
AUSTRALIAN CAPITAL TERRITORY )
)
COURT OF APPEAL )
ON APPEAL FROM THE MASTER OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:ANOZIRA PTY LTD
Appellant
AND:PETER ANTHONY URQUHART HUNT
Respondent
ORDER
Judges: Crispin P, Gray and Madgwick JJ
Date: 12 December 2002
Place: Canberra
THE COURT ORDERS THAT:
The appeal be dismissed with costs.
IN THE SUPREME COURT OF THE ) No. ACTCA 6 - 2002
) No. SC 301 of 2002
AUSTRALIAN CAPITAL TERRITORY )
)
COURT OF APPEAL )
ON APPEAL FROM THE MASTER OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:ANOZIRA PTY LTD
Appellant
AND:PETER ANTHONY URQUHART HUNT
Respondent
Judges: Crispin P, Gray and Madgwick JJ
Date: 12 December 2002
Place: Canberra
REASONS FOR JUDGMENT
THE COURT:
This is an appeal against a decision of the Master dismissing an application to set aside a statutory demand pursuant to s 459G of the Corporations Act 2001. The demand was made by the respondent on 6 May 2002 for payment of a debt of $90,000 said to be due under a deed of release dated 25 January 2002 (“the deed”). A similar demand was made by his wife, Kathleen Anne Mathews Hunt, for payment of a debt of $60,000 said to be due under the same deed. The appellant applied to have both statutory demands set aside and the applications were heard together. As the Master observed in his Reasons for Judgment the issues in both cases were common save for the quantum of the debt.
A number of procedural points were taken at the hearing of the application before the Master. The demand had given the address of the appellant’s solicitors in Melbourne rather than an address in the Australian Capital Territory for the service of any applications or affidavits. The demand had not been served on the appellant at the appropriate address. Furthermore, the deed of release had required service of a notice prior to the commencement of proceedings and that notice had been served by facsimile rather than in the manner specified in the deed. The Master rejected these contentions, observing that a statutory demand will be set aside on the grounds of a formal defect only if substantial injustice would otherwise be caused (see s 459J of the Corporations Act 2001) and that the provision in the deed requiring prior notice of future proceedings was of no application because a statutory demand is not a “proceeding” (see Cornick v Brains Master Corporation (1996) 14 ACLC 269). These findings were not challenged on appeal.
It was also argued before the Master that the demands should be set aside because there had been a genuine dispute about the existence of the debts to which they related. Such a dispute would have provided a valid ground for setting aside the demands (see s 459H(1) of the Corporations Act 2001) but the Master was not satisfied that the evidence established a genuine dispute. It is this finding that was challenged on the appeal.
The test to be applied in determining whether there is a genuine dispute for the purposes of s 459G was explained by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 in the following terms at 787:
In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the “serious question to be tried” criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit “however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be” not having “sufficient prima facie plausibility to merit further investigation as to [its] truth” (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341), or “a patently feeble legal argument or an assertion of facts unsupported by evidence” (cf South Australia v Wall (1980) 24 SASR 189 at 194).
In the present case the demands related to debts said to be payable pursuant to the deed and, as the Master observed, evidence of a deed would normally be sufficient to exclude any real dispute about the existence of the debt. However, the appellant contended that it had entered into the deed only by reason of economic coercion or duress and was entitled to have it set aside on the ground of unconscionability. These contentions must obviously be considered in the context of the evidence as to the course of dealings between the parties and the circumstances in which the deed was executed.
E Control Pty Ltd (“E Control”) was a company controlled by Messrs Graeme and James Green. The company had developed information technology systems which appeared to have a ready market. The directors had decided to float the company publicly and they desired to raise preliminary funds from private investors to fund the float and other activities. They decided to proceed by taking control of a public company, QCC Limited, which was apparently no longer trading, renaming it and issuing shares with a face value of $1.00.
On 7 May 2001, E Control wrote to the respondent indicating that the company intended to raise $10,000,000 in two “tranches” of $4,000,000 and $6,000,000 “whereby investors will receive 2½ times equity to their investment”. The letter explained that the $6,000,000 tranche had already been allocated to a major investment group and that the company was currently raising the balance of $4,000,000. It stated that investors would have the opportunity to provide loan funds which “have the option of being swapped to Convertible Notes for ordinary shares in the listed company at a ratio of 2.5 to 1, ie. a $100,000 loan will convert to 250,000 shares”. It informed the respondent that in order to participate he needed to complete an attached loan agreement form, have it signed and witnessed and return it with his remittance.
On 22 May 2001 the respondent and his wife completed the loan agreement forms that had been sent by E Control and lent the company sums of $60,000 and $40,000 respectively. Clause 2(c) of the agreement was in the following terms:
THAT The Lendor shall have the option by the giving of notice to E Control to acquire Convertible Notes for ordinary shares in the public listed company, which E Control has agreed to back into, to the value of the principal sum. The conversion for The Lender for each such share shall be FORTY CENTS ($0.40) for each $1.00 share.
The Australian Securities and Investment Commission (“ASIC”) subsequently indicated that it would not permit the issue of shares with a face value higher than the actual issue price. There is no evidence that the respondent or his wife was informed of this development.
E Control subsequently chose Omni Group Limited (“Omni”), a suspended public company under administration to revive as a publicly listed company in lieu of QCC Ltd. The Company was to be renamed ECSI Ltd and the appellant was to be the holder of slightly less than half the issued capital. The principal shareholders of the appellant were Graeme and James Green. Prior to the approval of the prospectus ASIC required that all investors including the respondent and his wife acknowledge that their loans could be converted to capital in Omni when re-listed as ECSI Ltd. In early October 2001 the respondent and his wife duly received draft forms of acknowledgement of agreements to accept an allotment of 150,000 and 100,000 ordinary shares respectively at an issue price of $0.40 per share in Omni Group Limited in full and final settlement of the sums of $60,000 and $40,000 owed to them by E Control. They executed the acknowledgements on 15 October 2001, adding the words “subject to Omni Group Ltd being the company through which E Control is floated” [sic]. Both subsequently deposed to the fact that they had believed the acknowledgement to be consistent with the conversion rate stipulated in clause 2(c) of the loan agreements of $0.40 for each $1.00 share.
The respondent and his wife received a copy of the draft prospectus for ECSI in early December 2001 and discovered that it provided for them to be issued with 150,000 and 100,000 shares respectively but that they were to have a face value of $0.40 rather than $1.00. There is no evidence that either had been aware of the proposed reduction until this time.
The respondent deposed to contacting Mr Weston, a director of the appellant, on 12 December 2001 and explaining that there had been an error in the prospectus. Mr Weston indicated that he understood the respondent’s position and would investigate the matter and respond to him shortly. The respondent subsequently sent an email to Mr Weston to confirm the conversation. That email included the following statements:
Those of us who invested in about May/June 2001 were to receive a 2.5 times equity position to compensate for the significant risks associated with investing in a company which may never actually float.
. . .
The agreement clearly was that any early investor, now called the E Control creditors, were to receive 2.5 shares for every one share issued to others at the float.
Accordingly, $100,000 invested by an E Control creditor was to convert to 250,000 shares at the float, where float investors were to purchase shares at $1.00 each, ie $100,000 x $1.00 x 2.5 = 250,000 shares.
However, where the float price is 40c, then $100,000 invested by an E Control creditor should convert to 625,000 shares at the float, ie $100,000 x 40c x 2.5 = 625,000.
If it were otherwise then the E Control creditor has received no extra benefit for its early faith in the company, whereas all the documents show that there was to be a 2.5 times benefit.
It seems that this can be fixed up most easily by either:
1Increasing the allocation of shares to the E Control creditors by a factor of 2.5; or
2Increasing the issue price for investors at the float from 40c to $1.00.
The respondent also deposed to the fact that Mr Weston returned his call on 12 December 2002 indicating that he had spoken to Mr Graeme Green, who was a director of the plaintiff, ECSI and E Control, and that “they” agreed that he had a valid point which would be rectified. The respondent said that he received various calls from Mr Weston between 17 and 19 December 2001 explaining that “they” were trying to correct the matter so that he would receive the benefit of the 2.5 times equity position as promised but that “they” were facing various difficulties. He said that on 20 December 2001 he received three telephone calls from with Mr Tony Vereker, a partner in the firm of Verekers who were acting for E Control, during which Mr Vereker advised him that ASIC had issued stop orders in relation to the float but acknowledged the respondent’s right and the right of his wife to receive a return of 2.5 times the amount of their loans. He indicated that Mr Graeme Green had suggested that E Control would pay the respondent and his wife $150,000 on 31 February 2004 in addition to providing shares with a nominal value of $100,000 and that Mr Green would personally guarantee the payment. The respondent said that he rejected this offer.
It should be noted that whilst Mr Weston subsequently filed a further affidavit in support of the application he did not dispute the respondent’s evidence as to the conversations between them. Furthermore, the appellant did not file any affidavit from Mr Vereker challenging the accuracy of the respondent’s evidence as to the conversations he had claimed to have had with him. Nor did he file any affidavit from Mr Graeme Green suggesting that Mr Vereker had not been authorised to make such an offer on his behalf.
In January 2002 the respondent instructed a solicitor Mr Richard Lustig, of Corrs Chambers Westgarth to act for him and his wife in relation to the matter. Mr Lustig wrote to the appellant’s solicitors by letter dated 8 January 2002. Since the appellant’s contentions were based largely upon the contents of this letter it may be appropriate to set out its terms in full:
We act on behalf of Kate Mathews Hunt and Peter Hunt and understand that you act on behalf of Omni Group Limited.
We are instructed to advise as follows:
1The Omni Group Prospectus incorrectly states that Kate and Peter are entitled to be issued with 100,000 and 150,000 Omni Group Shares respectively where in fact such amounts should be 250,000 and 375,000 Omni Group shares respectively.
2Our clients have drawn this error to the attention to two of the Omni Group directors (Mr Graeme Green and Mr Mal Weston) as well as the lawyers for E Control Pty Ltd.
3This error has been conceded by those persons.
4This error represents a misleading or deceptive statement for the purposes of s 728(1)(a)(i) of the Corporations Act.
5This error entitles ASIC to issue a stop order under s 739 of the Corporations Act.
6Our clients insist that their contractual rights are complied with.
7Alternatively, our clients are prepared to accept a payment of $60,000 and $90,000 respectively in satisfaction of the shortfall of shares (calculated at the Omni Group share offer price of 40c each) at the time of the allocation of the shares.
We have received unequivocal instructions from our clients that unless we receive written confirmation that the shortfall of shares or cash equivalent will be issued to our clients as contemplated by 5.00 pm on Thursday, 10 January 2002 then we will notify the ASIC New South Wales regional office in relation to this without further notice to you and request that ASIC issues a stop order in relation to the prospectus.
We are instructed that our clients will not insist on a supplementary prospectus being issued in this regard provided that this confirmation is provided to us as contemplated above and documented in such form as our clients may reasonably require.
Whilst our clients regret that they may have to take such action having regard to the likely consequences (particularly having regard to the previous ASIC stop orders in relation to the prospectus), we are instructed to proceed to do so in the absence of this confirmation, including advising ASIC that the same issue would also appear to apply in relation to various other persons named in the prospectus.
Our clients expressly reserve all their rights in relation to this matter.
In response to this letter the plaintiff offered payment to the respondent and his wife in the sums of $90,000 and $60,000 respectively within fourteen days of the issue of shares in ECSI, in addition to the foreshadowed allocation of shares with a face value of $0.40. The respondent and his wife accepted this offer and Verekers, acting upon the appellant’s instructions, prepared a draft deed of release. The final form of this document was settled after negotiations between Mr Lustig and Mr Anthony Vereker and the deed was executed on 25 January 2002.
The respondent subsequently had conversations with both Mr Weston and Mr James Green but neither of them expressed any concern about the circumstances that had led to the execution of the deed.
On 23 April 2002 the respondent and his wife issued a notice requiring payment of the amounts due under the deed within seven days. There was no response. The statutory demands were served on the appellant on 8 May 2002.
The applications to set the demands aside were filed on 28 May 2002 and on the same day Mr Weston swore an affidavit in which he claimed that the appellant was not indebted to the respondent or his wife and alleged that the plaintiff and Mr Green had executed the Deed of Release only because of threats by the respondent that he would further delay the public listing of ECSI unless paid the sum of $150,000. He asserted that the plaintiff was entitled to an order of rescission of the deed on the ground of the respondent’s “unconscionable conduct”. Yet on 19 June 2002 Mr Fussell, a solicitor then acting for the appellant, told Mr Opperman, a solicitor then acting for the respondent, that he had received instructions enabling him to advise Mr Opperman on an open basis that “they [that is, those controlling the applicant] intend to pay”. The fact that this statement was made by Mr Fussell on the appellant’s instructions was also not disputed.
In dismissing the applications, the Master stated that he was “satisfied from the evidence that the Hunts at all times believed that, on the basis of the original letter of offer, they would become entitled to a return on their investment of 2.5 to 1”. Mr Salmon QC, who appeared for the appellant on the appeal, submitted that this finding clearly indicated that the Master had applied the wrong test. It demonstrated that he had attempted to resolve an issue about the existence of the debt rather than simply attempting to determine whether there was a genuine dispute, the resolution of which should await a final hearing. As a consequence, the Master had acted upon the assumption that the respondent and his wife had both held such a belief when the respondent’s evidence had not been tested in cross-examination and was inconsistent with the acknowledgments made on 15 October 2001.
Whilst we agree that it was unnecessary for the Master to make a positive finding as to the belief of the respondent and his wife, it must be remembered that the appellant bore the onus of establishing that there was a genuine dispute about the debt. Hence, insofar as the allegations of duress and unconscionability were based upon a contention that the respondent and his wife had not believed they were entitled to the advantage claimed, it was incumbent upon the appellant to demonstrate that there was a triable issue as to the absence of any such belief.
Mr Salmon submitted that they could not have held such a belief because they knew that the prospectus provided for them to receive the same number of shares as had been agreed and knew that the value would ultimately be dependent upon market considerations rather than the face value. Hence the reduction in face value had been irrelevant. However, this argument appears to overlook the obvious fact that the agreements would, in effect, have enabled them to buy their shares at a 60% discount. The reduction in the intended face value of the shares, unaccompanied by any increase in the number intended to be allocated to them, meant that they had been deprived of the advantage vis a vis later investors that they had been promised.
There was nothing in the documents that had been admitted into evidence that was capable of raising a triable issue as to the absence of any bone fide belief in the entitlements claimed. The acknowledgments made on 15 October 2001 confirmed agreements by the respondent and his wife to accept 150,000 and 100,000 shares respectively at an issue price of $0.40 per share in full discharge of the debts of $60,000 and $40,000 owed to them by E Control. As previously mentioned, both gave evidence that they had thought that this was consistent with the agreed conversion rate of $0.40 for each $1.00 share. The real question is not whether that evidence should have been accepted but whether there was sufficient prima facie evidence as to the absence of any bone fide belief in the entitlements claimed to merit further investigation. The initial agreements clearly provided for a conversion rate of $0.40 for $1.00 shares and, whilst the acknowledgments and the applications for shares signed some seven days later refer to an “issue price” of $0.40 per share, neither document referred to the intended face value of the shares. Consequently, the form of the acknowledgements provides no basis for any suggestion that the respondent and his wife should have been alerted to the possibility that E Control may have been intending to deprive them of the benefit of their contractual entitlements by issuing them with the same number of shares at a lesser face value, let alone for an inference that they may have accepted such diminution in their rights, apparently without demur.
There was no evidence to suggest that the respondent or his wife had then been aware of any requirements imposed by ASIC that might have impeded the appellant’s ability to honour the agreements by issuing $1.00 shares to them at the agreed conversion rate.
Furthermore, as mentioned earlier, there was undisputed evidence that when the respondent subsequently protested that the share issue proposed in the draft prospectus would deprive him and his wife of the benefit of the 2.5 times equity position as promised, both Mr Weston and Mr Vereker acknowledged these entitlements.
Even if the Master could be said to have fallen into error by making a finding based on unchallenged and uncontradicted evidence as to the belief of the respondent and his wife, Mr Salmon’s submissions as to the absence of any such belief were unsupported by any evidence capable of establishing that there was a serious question to be tried.
Mr Salmon also submitted that the threat to contact ASIC contained in Mr Lustig’s letter of 8 January 2002 and the potential implications of a further stop order were sufficient to raise a triable issue as to whether the appellant had entered into the deed of release due to economic coercion or duress and was entitled to have it set aside on the ground of unconscionability. The letter clearly contained an explicit threat to ask ASIC to issue a stop order in relation to the prospectus if the claims of the respondent and his wife were not satisfied either by the issue of further shares or the payment of equivalent sums of money. It also threatened to advise ASIC that the same issue apparently might be relevant to other people named in the prospectus but seemed to imply that, if the respondent and his wife were to be assured of receiving their entitlements, they would not raise this possibility with ASIC. Nonetheless, these threats must be considered in the context in which they were made.
It may be noted that the letter began with assertions that the respondent and his wife were entitled to greater allocations of shares than those specified in the prospectus, that the “error” had been draw to the attention of two of the directors of Omni Group Ltd and that it had been conceded. If these assertions were true, and the appellant did not dispute them, it could not be said that the respondent acted unreasonably in threatening to contact ASIC with a view to preventing the issue of a prospectus substantially understating what he understood to be his share entitlement.
The letter does assert that the “error” constitutes a misleading or deceptive statement for the purpose of s 728(1)(a)(i) of the Corporations Act, but that statement is immediately followed by a statement that this would entitle ASIC to issue a stop order under s 739 of that Act and a breach of s 728 does provide a ground for the making of such an order. Accordingly, there is no reason to suppose that by asserting a breach of s728 Mr Lustig was intending to do anything more sinister than to indicate that there was a ground upon which ASIC could accede to any request by his clients to make a stop order if their demands were not met.
Furthermore, as the Master pointed out, ASIC was a statutory corporate regulator, investors were entitled to complain to it of perceived impropriety and any complaint was bound to be investigated and otherwise dealt with according to law. It is true, of course, that a threat to carry out a lawful act may constitute duress, though whether it does so will depend upon the nature of the demand. See, for example, Universe Tankships Inc of Monrovia v International Transport Workers Federation and Others [1983] 1 AC 366 per Lord Scarman at 401. In the present case, however, it is difficult to see how a threat to complain to ASIC or even to request a stop order could have been regarded as improper unless the respondent had acted in the absence of any bona fide belief that he and his wife were entitled to the share allocations claimed.
Mr Salmon’s primary submission was that there was a triable issue as to whether the deed of release should be set aside on the basis of economic duress. A transaction may be impugned on this ground if an apparent consent has been induced by illegitimate pressure exerted by one party upon another. See, for example, Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366 at 384 and 400. The test is a stringent one. It is not necessary that the will of the party who is subjected to the pressure be overborne but the pressure must have the effect of producing compulsion or absence of real choice. See Atiyah, “Economic Duress and the ‘Overborne Will’” (1982) 98 LQR 197; Equiticorp Financial Services Ltd (NSW) v Equiticorp Financial Services Ltd (NZ) Ltd (1992) 29 NSWLR 260 per Giles J at 296. In Barton v Armstrong [1976] AC 104 at 121 Lords Wilberforce and Simon pointed out that:
. . . 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 senses does not negate consent in law; for this the pressure must be one of a kind which the law does not regard as legitimate. 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.
Whilst these remarks were made during the course of a dissenting judgment, they were subsequently endorsed by a unanimous decision of the Privy Council in Pao On v Lau Yiu Long [1980] AC 614 at 635. They were also cited with approval by Giles J in Equiticorp Financial Services Ltd (NSW) v Equiticorp Financial Services Ltd (NZ) Ltd at 297.
On appeal from the last mentioned decision, the NSW Court of Appeal cited with approval remarks made by McHugh JA in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 45 in rejecting what was described as the “overborne will theory of duress”:
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.
See Equiticorp Finance Ltd (In Liq) v Bank of New Zealand (1993) 32 NSWLR 50 per Clarke and Cripps JJA at 149-150.
Mr Salmon relied upon the principle acknowledged by McHugh JA in Crescendo Management Pty Ltd v Westpac Banking Corporation at 45 that once the evidence establishes that the pressure exerted on a victim was illegitimate, the onus rests on the person who applied it to show that it had made no contribution to the victim’s decision to enter into the transaction. In the present case, however, the evidence did not establish either that any pressure exerted by the letter of 8 January 2002 was illegitimate or that it resulted in the deed being entered into under compulsion or in the absence of real choice.
The only evidence relating to the impact of the letter from Mr Lustig is contained in an affidavit from Mr Weston who states that he was made aware of the letter and that he then took part in discussions which resulted in a decision that led to the execution of the Deed of Release. Mr Weston asserted:
Mr Vereker, Mr Graeme Green and I were well aware that the (respondents) demands were entirely without foundation. Mr Graeme Green told me that rather than risk any further delay in the project which had occupied us for nearly 30 months, that he would authorise the execution of the deed and personally guarantee the debt.
This suggests that the decision to enter into the deed was influenced by Mr Green’s concern about further delay but it does not suggest that he or the other directors acted under compulsion or in the absence of any real choice.
In our opinion there was no evidence capable of establishing a triable issue as to the validity of the deed based on allegations of duress.
It is true, of course, that issues of unconscionability may arise in circumstances not involving any question of economic duress. A contract may be set aside when the evidence proves that one person has been placed at a special disadvantage visa vis another and that the latter has taken unfair or unconscientious advantage of the opportunity thereby created. See Commercial Bank of Australia v Amadio (1983) 151 CLR 447; Louth v Diprose (1992) 175 CLR 621; and Garcia v National Australia Bank Ltd (1998) 194 CLR 395. However, there is no evidence to suggest that the directors of the appellant were naïve, uneducated or lacking in commercial sophistication and, whilst they may have been in a poor bargaining position vis a vis the respondent, we do not accept that that amounted to a special disadvantage. Furthermore, the letter did not seek to take unfair or unconscientious advantage of the situation. It merely sought allocations of shares with an overall face value equivalent to that promised in the loan agreements or cash adjustments equal to the amounts by which the overall face value of the shares to be allocated to them fell short of the amounts promised.
In short, the uncontested evidence before the Master established that the respondent and his wife had accepted offers made to them by E Control, whether prudently or imprudently, involving an entitlement to have loan funds converted into shares, at a conversion rate of $0.40 for each $1.00 share. E Control subsequently failed to honour the obligations thereby incurred and, after repeated acknowledgments from the directors as to the existence of those obligations, made a further offer to compensate the respondent and his wife for its failure to do so. In our opinion the Master was right to dismiss any suggestion that the respondent or his wife had behaved unconscionably in accepting that further offer by entering into the deed or by the antecedent threat to complain to ASIC when their entitlements, which had not then been disputed, were not reflected in the draft prospectus. Furthermore, the assurance that the debt would be paid, made by the appellant’s solicitor after the application to set aside the demand had already been made, provided a strong ground for inferring that the debts were not genuinely in dispute.
The appeal must be dismissed with costs.
I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.
Associate:
Date: 12 December 2002
Counsel for the appellant: Mr B Salmon QC
Solicitor for the Appellant: Wood Fussell
Counsel for the Respondent: Mr B Meagher
Solicitor for the Respondent: Sparke Helmore
Date of hearing: 13 November 2002
Date of judgment: 12 December 2002
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