Merrion Pty Ltd v Loustas
[2017] VSC 95
•14 March 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S CI 2016 05330
| MERRION PTY LTD (ACN 141 640 128) | Plaintiff |
| v | |
| ARTHUR LOUSTAS AND OTHERS (according to the attached schedule) | Defendants |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 9 February 2017 |
DATE OF JUDGMENT: | 14 March 2017 |
CASE MAY BE CITED AS: | Merrion Pty Ltd v Loustas and ors |
MEDIUM NEUTRAL CITATION: | [2017] VSC 95 |
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CONTRACT – Dispute between builder and owners – Entitlement of builder to transfer of land pursuant to Deed of Settlement – Enforceability of Deed of Settlement – Whether Deed entered into under duress or unconscionable conduct – Terms of Deed upheld in favour of builder.
PRACTICE AND PROCEDURE- Whether proceeding can be decided on a summary basis – Whether real prospect of success – Civil Procedure Act 2010 (Vic) s 63(1).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A T Schlicht | Jeremy Johnson & Associates |
| For the First Defendant | Mr G J Parncutt | Kiatos & Co |
| For the Second Defendant | No appearance | |
| For the Third Defendant | Mr M C McKenzie | Bowlen Dunstan & Associates Pty |
| For the Fourth Defendant | Mr W G Stark | Allen & Macaulay |
HER HONOUR:
On 28 December 2016 the plaintiff, Merrion Pty Ltd (‘builder’) issued this proceeding. In its originating motion, the builder seeks, among other things, the following orders:
3.An Order that the fourth defendant remove its caveat over the following properties:
(a)All that piece of land more particularly described in Certificate of Title Volume 11834 Folio 387;
(b)All that piece of land more particularly described in Certificate of Title Volume 11834 Folio 394;
(c)All that piece of land more particularly described in Certificate of Title Volume 11834 Folio 400.
4.An order that the second and third defendants execute transfers of land to the plaintiff in respect of the following properties:
(a)All that piece of land more particularly described in Certificate of Title Volume 11834 Folio 387;
(b)All that piece of land more particularly described in Certificate of Title Volume 11834 Folio 394;
(c)All that piece of land more particularly described in Certificate of Title Volume 11834 Folio 400.
5.An order that the first defendant execute a consent to the transfers of land to the plaintiff of the aforementioned properties.
6. An order that the defendants pay the plaintiff’s costs of this proceeding.
The properties referred to in the Originating Motion are three lots in a subdivision of a property at 405 High Street, Northcote (‘property’).
The background to this proceeding can be summarised as follows:
(a) the second and third defendants, Mr Peter Sier and Mr Vincent Sier (‘owners’) are the owners of the property, upon which the builder has constructed a substantial medium density, mixed use development (‘project’) pursuant to a contract with an entity controlled by the owners, 405 Plaza Pty Ltd (‘developer’);
(b) the first defendant, Mr Arthur Loustas, is the plaintiff in a proceeding in which he claims an interest in the property pursuant to an alleged joint venture agreement with the owners (‘Loustas proceeding’). The relevance of the Loustas proceeding to the current application is that during the course of that proceeding, the owners have provided certain undertakings to this Court which impose conditions and limitations upon their ability to deal with the property (‘undertakings’);
(c) the project has not been without its difficulties. Not only is it the subject of litigation in the Loustas proceeding, which has been on foot since 2011, but apparently the project was only able to proceed with a substantial injection of funds from the fourth defendant, 405 High Street Pty Ltd (‘405 High’), the members of which are a syndicate of investors (‘syndicate members’). The terms upon which the syndicate members will recoup their investments will be, according to a joint venture agreement dated 21 July 2012 (‘JVA’), by the transfer of eight specified units in the property to the syndicate members;
(d) the sale of a number of units of the property were settled in the week commencing 12 December 2016. This enabled the owners to pay out the loan owed to the first mortgagee on 16 December 2016, thus obtaining the benefit of a discount of the payout figure of approximately $1.5 million;
(e) over the course of the project, disputes emerged between the owners and the builder concerning the builder’s entitlement to payments for variations, and extensions of time. These were resolved, in the first instance, by a Deed of Settlement dated 31 May 2016 (’31 May Deed’), in which, among other things, the developer agreed to pay an additional $600,000 to the builder on account of variations, with that amount to be paid in priority to the builder from the proceeds of sale of the apartments, with the builder ranking only behind the first mortgagee;
(f) the plan of subdivision for the property was registered on 18 November 2016, and the building surveyor granted Certificates of Occupancy for the property on 7 December 2016, thus enabling the owners to commence to settle the sales of the apartments. This took place after the parties entered into a deed (‘7 December Deed’) which quantified the amount said to be owed to the builder after taking into account liquidated damages payable by the builder. The parties agreed that they expected that the sum payable to the builder would be in excess of $1.3 million, and Mr Vincent Sier agreed to grant a mortgage over the property to the value of $1.3 million to secure the payment to the builder;[1]
[1]The builder does not rely upon the 7 December Deed, presumably because Mr Peter Sier is not a party to the 7 December Deed.
(g) the building superintendent engaged by the developer issued a Certificate of Practical Completion to the builder on 12 December 2016. The Certificates of Occupancy and the Certificate of Practical Completion were issued in contentious circumstances. The issue of the Certificate of Practical Completion triggered the entitlement of the builder to be paid the balance of the sum owing to it under the contract. It appears that the builder expected that the amount owing to it (said by the builder to be in excess of $1.6 million) would be paid in part from a drawdown on the owners’ loan with its financier (‘first mortgagee’), and partly from the proceeds of the sale of the units. However, the evidence is that on 13 December 2016, a representative of the first mortgagee told the director of the builder that the amount set aside for the payment to the builder had been credited to the owners’ account with the first mortgagee, and was thus not available for drawdown by the builder;
(h) on 13 December 2016 there were two meetings held between the owners and representatives of the builder to resolve the question of payment to the builder of the amounts outstanding under the contract. These meetings culminated in the execution of a Deed of Settlement later that day (’13 December Deed’); and
(i) notwithstanding the terms of the 13 December Deed, no action was taken by the owners to comply with their obligations under the 13 December Deed, namely, to apply to the Court to vary the undertakings to facilitate the transfer of the three units in the property referred to in the Originating Motion (‘three lots’) to the builder. At a directions hearing in the Loustas proceeding held on 16 December 2016, three days before the time specified for compliance with the terms of the 13 December Deed, the solicitor for the builder appeared and expressed concern about the owners’ conduct, on the basis that the transfer of the three lots was necessary to enable the builder to raise finance to fund payments to its subcontractors.
The terms of the 13 December Deed are of some significance, as the builder bases its entitlement to relief in this proceeding upon the terms of the 13 December Deed.
Clause 2.1 of the 13 December Deed provides that the sum payable to the Builder is $1,466,687. Clause 3.1 provides that payment was to be made by 19 December 2016.
Other relevant clauses of the 13 December Deed follow:
2.3 Obligations of Contractor to facilitate settlement of lots
The Contractor shall do all things reasonably required of it to assist the First Owner and the Second Owner to settle pre-sold lots including, without limitation:
(a) providing access to the building as reasonably required; and
(b) Rectification of defects within a reasonable timeframe.
3.2 Transfer of lots
If and when the Supreme Court of Victoria agrees to any sale or dealing in respect of the lots set out in Item 3 of Schedule 1 (the Properties) the First Owner and the Second Owner agree to:
(a)Execute contracts of sale for the lots set out in Item 3 of Schedule 1 (the Properties) to the Contractor or its nominee substantially in the form set out in Schedule 2 to this Deed;
(b)Apportion the Settlement Sum amongst the Properties as the sale price for each of the Properties in proportion with the respective value of the Properties;
(c)Insert the values of the Properties in each contract of sale as the deposit with the balance payable at settlement as ‘Nil’;
(d)Note that payment of the deposit and the purchase price for each lot has been made in full; and
(e)Do all other things necessary to ensure that the contracts of sale for each of the Properties are complete, binding and enforceable.
3.3 Satisfaction of Settlement Sum
Execution of contracts of sale referred to in clause 32 and settlement of those contracts is in full satisfaction of the Settlement Sum owing to the Contractor.
3.4 Condition precedent not satisfied
If the Court does not agree to any sale or dealing as envisaged by clause 3.2 by the Settlement Date the Contractor may in its sole discretion do one or more of the following:
(a)Extend the Settlement Date in writing to the First Owner and the Second Owner; and/or
(b)Commencement [sic] enforcement action against the First Owner and the Second Owner in respect of the Settlement Sum.
Clauses 4.1 and 4.2 provide for broad ranging releases and indemnities in favour of both parties. Clause 4.4 also provides as follows:
4.4 Default
If a party (defaulting party) defaults on their obligations outlined in clause 2 or 3, then any non-defaulting party shall be at liberty to apply to the Court or any other court of relevant jurisdiction for final orders or such other orders as may be necessary to give effect to the terms of this Deed and or the Consent Orders and shall be entitled to:
(a) the costs of that application on an indemnity basis;
(b)tender to the Court or such other court of relevant jurisdiction (as the case may be), without further proof or authentication, this Deed as conclusive evidence of the irrevocable consent of the defaulting party to such application.
Clause 5 provides a mechanism for dispute resolution between the parties. Arguably, the builder has not complied with its obligations under this clause, but no point to this effect has between taken by the owners.[2]
[2]No doubt the builder would argue that it is seeking urgent interlocutory relief.
Clause 7 contains mutual warranties, including, in clause 7.2:
7.2 No Reliance
Each party warrants to the other that, as at the date of this Deed:
(a)its execution of this Deed has been properly authorised by all necessary corporate or other action by it;
(b)it has full corporate authority or statutory power, as the case may be, and lawful authority, to execute and deliver this Deed and to perform or cause to be performed its obligations under this Deed;
(c)this Deed constitutes a full and binding legal obligation upon it; and
(d)has not suffered an Insolvency Event.
Under the hearing ‘General’, the 13 December Deed contains the following relevant clauses:
10.1 Entire Deed
This Deed together with the Consent Orders constitutes the entire agreement between the parties in connection with its subject matter and supersedes all previous agreements or understandings between the parties in connection with its subject matter.
…
10.3 Time of Essence
(a) Time is of the essence of this Deed.
(b)If the parties agree to vary a time requirement, the time requirement, the time requirement so varied is of the essence of this Deed.
(c)Any agreement to vary a time requirement must be in writing.
…
10.6Severability
A term or part of a term of this Deed that is illegal or unenforceable may be severed from this Deed and the remaining terms or parts of the term of this Deed continue in force.
…
10.8Void, unlawful, etc.
Any prohibited, unlawful, void or unenforceable provision will be replaced immediately by an allowable, lawful, effective and enforceable provision which so far as possible achieves the same economic benefit or burden for all the parties concerned as the prohibited, unlawful, void or unenforceable provision was intended to achieve.
…
10.15 Further assurance
Each party to this Deed shall do, sign and execute all Deeds, schedules, acts, documents and things as may reasonably be required by the other parties effectively to carry out and give effect to the terms and intentions of this Deed.
The three lots are lots 105, 112 and 204 on the plan of subdivision. On 22 December 2016, 405 High lodged caveats over the titles of eight of the lots in the property, including lots 105 and 204, with the grounds of claim being an agreement with the registered proprietors dated 27 July 2012, presumably being the JVA.
As noted above, the terms of the 13 December Deed are significant. On its face, the terms of the 13 December Deed, and in particular, clause 4.4(b), amounts to consent on the part of the owners to the application in paragraph 4 of the Originating Motion, that is, that the three lots be transferred to it. However, the builder faces a number of hurdles, as follows:
(a) first, the owners, or at least Mr Vincent Sier, contend that the owners entered the 13 December Deed under duress, and as such, the 13 December Deed ought to be set aside;
(b) consistent with Mr Sier’s contentions above, the owners have taken no steps to be released from the undertakings;
(c) notwithstanding some anomalies in the documents relied upon by 405 High, being the contracts of sale with the individual syndicate members, on the face of the contracts of sale, the equitable interests of the syndicate members in lots 105 and 204 pre‑date the equitable interest of the builder in respect of two out of the three lots. Accordingly, it would not be appropriate to grant the relief sought in paragraph 3 of the Originating Motion, in that there is certainly a serious question to be tried regarding the priority of the interests as between the syndicate members and the builder, and I accept that the balance of convenience favours the syndicate members at this point. That much appears to be conceded by counsel for the builder. However, he submitted that, subject to the Court granting appropriate relief with respect to the undertakings, there is no impediment to the Court ordering that lot 112 be transferred to the builders. Further, the Court could give effect to the 13 December Deed by ordering that the owners transfer unencumbered lots of a value equivalent to lots 105 and 204 to the builder; and
(d) on 21 December 2016, a further caveat was lodged over lots 112 and 204 by Beringo Pty Ltd, claiming an interest as chargee ‘pursuant to a charge in writing dated 18 November 2016 with the registered proprietor’. While there was no evidence on this point, it was said from the bar table that Beringo Pty Ltd is an entity associated with Mr John Adams, a partner of Mr Vincent Sier’s law firm. The caveat is signed by Adams Maguire Sier, and the existence of the caveat is consistent with the evidence of Mr Vincent Sier, concerning the interests of other parties, where he deposed that ‘It] included John Adams who had supplied a further $1M to the project and who was expecting that on the sale of units his funds would be repaid’.
In my view, subject to the question of whether the 13 December Deed ought to be set aside on the basis that it was procured by duress or unconscionable conduct, the terms of the 13 December Deed would entitle the builder part of the relief it seeks: that is, the transfer of lot 112, subject to any claims by Beringo Pty Ltd pursuant to any charge. First, the terms of clause 4.4 provide for the 13 December Deed to be conclusive evidence of a defaulting party’s consent to enforcement action. Further, clause 10.6 provides that any term of the 13 December Deed which is unenforceable (such, as is likely, as the promise to transfer lots 105 and 204) is severable. Further, clause 10.3(a) provides that ‘time is of the essence’. While Mr Vincent Sier has asserted that the past conduct of the builder has caused delays to the development of the property, and thus financial loss, the terms of the releases in clause 5 are extremely broad ranging, such that they would extend to delay claims. Finally, while Mr Sier complains of defects in the construction on the property, I doubt the 13 December Deed, having regard to the evident commercial intent of the parties, can be construed as allowing the owners to resile from their obligation to promptly transfer the properties by reason of any defects. Indeed, clause 2.2 imposes an obligation upon the builder to rectify any defects ‘within a reasonable time frame’.
However, notwithstanding the terms of clause 10.8, which provides that any ‘prohibited, unlawful, void or unenforceable provision’ (such as the promise to transfer lots 105 and 204) ‘will be replaced immediately by an allowable, lawful, effective, and enforceable provision which so far as possible, achieves the same economic benefit’ as the unenforceable clause, I do not consider that I ought to in effect re‑write the terms of the 13 December Deed to compel the owners to transfer alternative lots to the builder. No such relief is claimed in the Originating Motion. Further, having regard to the state of the evidence concerning the disposition of units in the property by the owners, I could not be satisfied that lots which are referred to in various schedules exhibited to affidavits relied upon by the builder as being unsold or otherwise unencumbered are in fact available to be transferred. Accordingly, the only term of the 13 December Deed which is arguably enforceable at the current time is the agreement to transfer lot 112.
The question remaining is whether, given the allegations made in Mr Sier’s affidavit and by others on behalf of the owners to the effect that the owners entered into the 13 December Deed by reason of duress or other unconscionable conduct on the part of the builder, I should give the builder part of the relief it seeks, or whether the proceeding should go to a full trial on that question. Prior to turning to that question, I should for completeness state that I find the other grounds of opposition to the builder’s application are unpersuasive. In particular:
(a) the submissions made on behalf of the owners (including those parts of the affidavits relied upon by the owners which are in effect submissions) to the effect that they should not be released from their obligation under the 13 December Deed to approach the Court to vary the undertakings to permit the transfer of the three lots on the basis that this would be disadvantageous to other unsecured creditors is irrelevant to the question of whether the 13 December Deed is enforceable; and
(b) the allegations made on behalf of the owners to the effect that there are many defects at the property, and the contention that ‘in any event there is substantial material challenging the quantum demanded by the builder and reference to other agreements and circumstances associated with the builder’s alleged failure to complete the works promptly, and in a proper and workmanlike manner’ are also largely irrelevant.
Further to paragraph 15(a) above, much was made in the affidavits and submissions filed on behalf of the owners of the interests of other unsecured creditors of the project, and it was said that the terms of the 13 December Deed ought not be enforceable because its terms place the builder in a more advantageous position than other unsecured creditors. However, it seems to me that this contention is more relevant to the question of whether the owners ought to be fully or partially released from their undertakings than the question of whether the 13 December Deed is binding as between the owners and the builder. If the owners and the developer subsequently become insolvent, the 13 December Deed may be ultimately vulnerable to being set aside as a voidable preference, but that is not a question relevant to its enforceability.
Further to paragraph 15(b) above, the question of whether there are defects and the cost of rectification is also irrelevant to the enforceability of the 13 December Deed. The builder is required to rectify defects by reason of its obligations under clause 2.3(b) of the 13 December Deed, and remains bound by the warranties in favour of the owners by reason of s 8 of the Domestic Building Contracts Act 1995 (Vic). The owners are only the beneficiaries of these statutory warranties in the unsold units: the beneficiaries of these warranties in respect of those lots where the purchasers have settled on the contracts of sale are the purchasers.[3] Further, the submission to the effect that ‘there is substantial material challenging the quantum demanded by the builder’ sits oddly with the submission in Mr Vincent Sier’s affidavit that he seeks an order of the Court ‘recognising the agreement with the contractor that the amount owing to it was $1,426,102.60’.
[3]Section 9 of the Domestic Building Contracts Act 1995 (Vic).
Finally, as noted above, the 13 December Deed contains wide-ranging releases, such that, if it is otherwise enforceable, any issue concerning delays and the like fall away.
I do not propose to deal with the informal applications by the owners and 405 High to release them from the undertakings to facilitate the completion of the sales to the syndicate members. This course of action is opposed by Mr Loustas (who is otherwise supportive of the builder’s application). Any such application should be made in the Loustas proceeding, on proper notice to the parties affected. The only relevance of the undertakings is whether, if I am prepared to make the orders sought by the builder in paragraph 4 of the Originating Motion, I should also make orders compelling the owners to make an application to vary the undertaking to facilitate the transfer of lot 112 to the builder.
At the hearing of the application on 9 February 2016, the parties relied upon extensive affidavit evidence. Given my conclusions in paragraph 15 above, much of the affidavit evidence relied upon by the owners in particular, but not exclusively, was irrelevant, and, in some parts, inadmissible to an egregious degree. While there was no dispute concerning the admissibility of evidence at the hearing, that may have been as a result of the limited time available for the hearing. However, I have been alert to issues of admissibility during the course of preparing these reasons. A summary of the evidence, in order of the date of filing, is set out in the following paragraphs.
The originating motion was accompanied by an affidavit of Mr Arthur Visedo, a director of the builder. As well as deposing to formal matters, he exhibited the 13 December Deed, and exhibited and verified an affidavit sworn by Mr Alex McKellar, the builder’s former solicitor, on 16 December 2016 and filed in the Loustas proceeding (‘McKellar affidavit’). In paragraph 9 of the McKellar affidavit, Mr McKellar deposes as follows:
I am informed by Mr Arthur Visedo, the sole director of the Contractor, that:
(a)the Contractor became involved in the project after a previous contractor engaged by the Principal became insolvent;
(b)the project involves the construction of 39 apartments and 4 retail spaces;
(c)the Contractor carried out the remaining work in the project and Practical Completion of the works (as that term is defined in the building contract) was achieved approximately one week ago;
(d)the finance for the project is exhausted;
(e)the Principal has no assets and cannot pay any further amounts to the Contractor;
(f)the balance payable to the Contractor under the contract exceeds $1,600,000;
(g)the Contractor owes a substantial portion of that sum to subcontractors it engaged in connection with the project;
(h)the Contractor is presently unable to fund payments due its subcontractors;
(i)the Contractor is likely to be able to meet its obligations to subcontractors over the short to medium term;
(j)certain subcontractors have indicated to Mr Visedo that they intend to return to the site and remove equipment installed by them unless they are paid; and
(k)certain subcontractors have indicated to Mr Visedo that they will be unable to pay staff and suppliers leading up to the Christmas break unless they are paid for work carried out on this project.
Mr Visedo also deposed that the matter was urgent, as the builder wished to use the three lots to raise finance to pay subcontractors engaged by the builder to work on the project.
The owners relied upon three affidavits, each filed on 2 February 2017, being the affidavits of Mr Vincent Sier, Mr Gary Squire, the building superintendent for the project, and Mr Kenneth Stout, an accountant and corporate advisor engaged by the owners and the developer to assist them in the completion of the project. Tellingly perhaps, no affidavit was filed by Mr Peter Sier, the other owner, notwithstanding he attended the second meeting with the builders on 13 December 2016, and executed the 13 December Deed.
Mr Vincent Sier deposed, in summary, as follows:
(a) in response to paragraph 9 of the McKellar affidavit (extracted in paragraph 21 above), he deposed that the builder has not carried out all of the work required to achieve practical completion;
(b) he disputed that the amount owed to the builder was in excess of $1.6 million, rather that it was $1,366,004 subject to an adjustment pursuant to the 31 May Deed. He deposed that
After verification of the amounts paid by the owners and received by the builder this was agreed at $1,466,687.00 on the morning of 13 December 2016 at Dandenong;
(c) at paragraph 4 of his affidavit, Mr Sier deposed as follows:
In relation to paragraph 10 of the McKellar Affidavit, the Contractor has put undue and unconscionable pressure on the Principals and made false and either untrue or misleading statements as to the state and stage of construction in order to induce the Principals to enter into the agreement dated 13 December 2016 (‘the 13 December Agreement’). This Agreement gives the Contractor both a considerable financial windfall and advantage and takes away the Contractor’s obligations to attend to future defects and imposes an obligation on the Principals to pay all money immediately instead of retaining some money on retention to cover future defects and liabilities as required by the D & C Contract. This now seeks to put the Contractor in a position of a secured creditor which they were not in prior to this agreement. By the 13 December Agreement the Contract unfairly takes the transfer of three apartments worth approximately $1,650,000.00 over which caveats have now been lodged despite the fact that on the morning of 13 December it was agreed that the amount owing was $1,466,687.00 as verified by the Building Superintendent.
(d) he deposed that the builder has continually failed to meet completion deadlines, causing the owners to incur penalties, including the deadline of 31 August 2016 imposed by the 31 May Deed;
(e) on 7 December 2016 he was contacted by Mr Nadinic on behalf of the builder, and at a meeting that day between him, the building superintendent, and Mr Nadinic, Mr Nadinic said that the Certificates of Occupancy would not be issued until the question of liquidated damages was settled. Mr Sier executed the 7 December Deed, and the Certificates of Occupancy were issued later that day. The owners commenced arranging settlements for the following week;
(f) on 8 December 2016 he received an email from the first mortgagee with a much higher payout figure than he expected, which he attributed to the builder’s delays;
(g) on 11 December 2016 he met Mr Nadinic at the property, and told him that settlements were to take place during the coming week, and that he had just received an email advising of a higher than expected payout figure, and that the owners would now most likely lose money on the project;
(h) later that day, he received a telephone call from Mr Nadinic insisting that he instruct the building superintendent to issue the Certificate of Practical Completion immediately. After he said that he would do it the following day, Mr Nadinic became angry and threatened to close down the site the following day. Mr Sier deposed as follows:
Despite misgivings but with the assurances of the Contractor that the stage of practical completion was all but reached and their undertaking to complete any outstanding work in a very short time as well as attend to all the defects now identified and as will be indemnified after settlements, I instructed the Building Superintendent that night to issue the certificate which was done first thing on Monday morning and forwarded to Frank Nadinic. Some settlements took place that day.
On the evening of Monday 12 December 2017 I received another call from Frank Nadinic sternly summoning me to a meeting at his solicitor’s office in Dandenong at 10.30am the next day, Tuesday 13 December 2017. He said that he had just put the site in lockdown despite the issue of the certificate of practical completion and it would stay that way until we had come to an agreement on how he was to be paid.
I had arranged for a purchaser to move her possessions into her Unit at 405 High Street at 7.30am on that Tuesday and at 7.30am I received a phone call from her saying that the building was in lockdown and nobody was allowed in or out until authorised by Frank Nadinic. She had to turn her removalist away.
The early settlements for Tuesday 13 December 2016 had to be cancelled and I rushed out to the meeting in Dandenong and discussed what his conditions were. Arthur Visedo was also present and it was agreed that the amount owed was $1,426,102.60. I was told that an agreement would be prepared for signing later that day to put that into effect at 5pm at the City office of the Contractor’s solicitors and that I was to get Peter Sier down to that meeting from the country. I agreed and Frank relented and allowed access to the building by about midday and some settlements took place that day and the cancelled ones re-scheduled for the Thursday.
The critical issue was if the settlements were not affected [sic] so the Ingwersen money was not repaid in full by that Friday a further penalty interest clause was going to be applied by the lender and an addition [sic] $1.5 M would be demanded and have to be paid.
(i) Mr Sier gave the following evidence concerning the meeting on the afternoon of 13 December 2016:
Peter and I met with Frank Nadinic and Arthur Visedo at the solicitor’s office. I had been concerned to ensure that the agreement they wanted me to sign did not offend the undertakings given to the Court and as I was in the city at the time I met briefly with Mitch McKenzie of Counsel to explain the situation as he was in a hurry to go to another engagement. He accompanied me to the meeting to look at the agreement to ensure it did not offend the undertaking with what was in the preamble of the agreement. He did not read the entire agreement and was not instructed to advise on it nor did he have the time at that point to do so and left. He did note there were two sets of undertakings given and the document incorrectly did not refer to both, nor was the expression as to requiring court approval satisfactory. He left before the document was finalised. We were presented with the agreement which we were not given time to comprehend or understand due to our anxiety and distressed state of mind in this trapped position and the pressing need for us to sign to ensure that the settlements could take place the next day so as to avoid further severe financial penalties threatened by the mortgagee of another $1,531,980.00 if settlement was not effected by 16 December 2016. Peter Sier had no opportunity to seek his own independent legal advice on the agreement or fully read and try to understand the agreement he was being pressed to sign failing which the lock down would be imposed.
At this meeting we were once again assured that the premises were now at a point of practical completion and that all defects would be attended to even though there were still some matters which needed attention so we signed the agreement.
(j) the remainder of Mr Sier’s affidavit concerned events after the execution of the 13 December Deed, including being pressed by the builder to get Court approval for the transfers. He then went on to express the following concerns about doing so:
(i) the building was full of defects and the builder was not responding to calls seeking rectification;
(ii) the three lots were valued considerably more than the agreed contract price;
(iii) he believed other unsecured creditors would be disadvantaged by any transfer of the three lots to the builder;
(iv)he had formed the view that he had been ‘tricked and bullied and mislead [sic] and threatened’ to enter into the 13 December Deed;
(v) he decided that any application to the Court should be ‘open to the position of others involved in the project’;
(vi)there are no surplus funds in the project;
(k) he deposed that on 21 December 2016 Mr Nadinic attended his office and threatened and assaulted him and his staff. Mr Nadinic then attended the property and threatened his wife;
(l) on that day he engaged Mr Stout to assist the owners with the management of the project;
(m)also on 21 December 2016 the elevator at the property ceased to function, and was not finally repaired until 6 January 2017; and
(n) in the final paragraph of his affidavit, Mr Sier deposed as follows:
I now respectfully seek an order of the Court setting aside the 13 December Agreement thereby allowing the return of the D & C Contract but recognising the agreement with the Contractor that the amount owing to it was $1,426,102.60. I also seek an order for the removal of the Caveats lodged by the Contractor under the 13 December Agreement and an order allowing the sale of the remaining units.
Mr Gary Squire, the building superintendent, also swore an affidavit. Much of his evidence was somewhat florid, and inadmissible. That said, he deposed, in summary, as follows:
(a) the Certificate of Practical Completion was issued after Mr Nadinic made threats to Mr Vincent Sier about closing down the site. He personally was not in favour of issuing the Certificate;
(b) he attended a meeting with Mr Sier and Mr Nadinic on 7 December 2016 to discuss the final contract sum and the issue of the Certificates of Occupancy for the project. He had been trying to get these for a number of days without success;
(c) in the meeting Mr Nadinic stated that the builder would get the Certificates of Occupancy issued within half an hour of Mr Sier agreeing to a final contract sum;
(d) he deposed as follows:
A great deal of pressure was placed on the developer to sign an agreement somewhat reducing the reasonable assessment of liquidated damages. After the Third Defendant agreed, he requested me to issue a Practical Completion Certificate and after signing a new Deed of Amendment, the C of O was issued that same day;
(e) he had concerns about issuing an unconditional Certificate of Practical Completion, but did so after requested by Mr Sier ‘because of the urgency of the situation’;
(f) in the week after, he had grave concerns regarding the completion of the works and rectification of defects, which he provided further exchanges and details; and
(g) at paragraphs 20 and 21 of his affidavit, Mr Squire deposed as follows:
In viewing the defects and the damage of water entry etc and the possible rectification to balconies preventing water entry, I would suggest an independent assessment of the works to bring this building in line with acceptable standards be carried out. It is my opinion the works required would cost in the hundreds of thousands to complete.
It is clear that the Plaintiff has not reached the stage of practical completion.
The owners also relied upon an affidavit sworn by Mr Kenneth Stout. Mr Stout deposed, in summary, as follows:
(a) he first met Mr Peter Sier, Mr Vincent Sier, and Mr Gary Squire on 21 December 2016;
(b) he deposed as to his professional background and experience;
(c) since the commencement of his engagement he has been in receipt of complaints from numerous unit owners concerning defects in their properties;
(d) he deposed as to his dealings with subcontractors when a group of them congregated outside Mr Sier’s office on 22 December 2016;
(e) he deposed as to his dealings concerning the faulty lift at the property;
(f) he received at least twenty emails from unit owners concerning water entry and damage after heavy storms on 29 December 2016;
(g) the builder has not attended the property to rectify past defects;
(h) he has read the McKellar affidavit, and has suspicions about the solvency of the builder and its capacity to rectify defects; and
(i) at paragraphs 26 to 28 of his affidavit, Mr Stout deposed as follows:
I am informed by Maggie Andrews a principal consultant with specialist Building Industry expert consultants dealing with claims and quantification in Exner Consulting who deal with quantification of loss and damage, and who I expect will be engaged to undertake an assessment of the 405 Plaza site should the Plaintiff not rectify the defects as already found and if the water and lift issues as found prove to be major items then an expectation to repair would possibly easily exceed Two Million dollars [$2,000,000.00] which is more than what is now claimed by the Plaintiff as against the developers of 405 Plaza. I believe the Court should be protecting the Unit owners and the developer of 405 Plaza against poor and shabby workmanship as now found at the site and be making the first obligation to be for the Plaintiff builder to perform and deliver up a finished project.
The builder has not rendered a tax invoice for the balance of work performed to date and all tax invoices raised to date and forwarded to the financier have been paid in full in accordance with the financier’s arrangement with the builder.
I agree with the filed request by Vin to seek an order for the removal of the Caveats lodged by the Plaintiff contractor under the 13 December Agreement and an order allowing the sale of the remaining units because the building works require major defect rectification and as the Plaintiff has not commenced to attend to Urgent matters as directed by the Building Superintendent, then the Developer will be required to apply its assets to rectify defects and apply as against the Plaintiff its legal right to set-off claims and costs incurred by the developer of 405 Plaza.
The first affidavit filed in reply on behalf of the builder was a short affidavit by Mr Phillip Merambelotis sworn on 6 February 2017. Mr Merambelotis is a director of the company engaged to carry out the plumbing works on the project. His company’s details were included in the owner’s manuals provided by the builder to the developer. He deposed as follows:
No contact was made by apartment owners … over the Christmas period to complain about plumbing defects or water entry.
Liquid Vision is working with the plaintiff to attend to investigate and repair claimed defects that are our responsibility. All we need is access.
Also, on 6 February 2017, Mr Graeme Bruce, a director of 405 High, swore an affidavit on behalf of 405 High. He deposed, in summary, as follows:
(a) 405 High contributed $2,437,500 to the project pursuant to the JVA. This sum was made up of contributions from seven syndicate members. The project would not have been able to proceed without this funding;
(b) 405 High has exercised its entitlement to call for the transfer of eight units in the property to the syndicate members. He exhibited the contracts of sale for each of these units;
(c) in order to settle the purchase of the units, each of the syndicate members will be required to pay the difference between the initial contribution and the actual value of the units, which will result in a net payment to the owners of approximately $1.5 million;
(d) the caveat lodged on 21 December 2016 was lodged to protect 405 High’s interest as a secured creditor;
(e) 405 High does not consent to the transfer of units 105 and 204 to the builder; and
(f) 405 High seeks an order in the Loustas proceeding that it be released from its undertakings, to allow the settlement of the sale of the eight units, which will enable the owners to pay their unsecured creditors, including the builder.
On 8 February 2017, the builder filed and served a number of affidavits in reply. Mr Visedo deposed, in summary, as follows:
(a) in response to the affidavit of Mr Stout, he noted that Mr Stout neglected to refer to the protocol between the builder and the building superintendent to inspect and rectify defects which are the responsibility of the builder, and to facilitate access to the property to enable rectification to take place;
(b) he referred to the 31 May Deed, and asserted that the owners had defaulted upon their obligations under that deed. The 13 December Deed was entered into because the owners had not met their obligations under the 31 May Deed. The builder has met all of its obligations;
(c) the builder is only obliged to rectify defects identified by the building superintendent. The builder is attending to all of the defects identified by Mr Squire. He rejects the suggestion that it will cost in excess of $2 million to rectify the defects, as most concern scratches, paint on carpets and the like. The water penetration issues are being addressed;
(d) the builder was not aware of the undertakings, the dealings with 405 High, or the dealings with the first mortgagee;
(e) if not for the 7 December Deed and the 13 December Deed, the builder would have exercised its rights under the original building contract and the Building and Construction Industry Security of Payment Act 2003 (Vic) (‘Security of Payments Act’); and
(f) he exhibited a number of schedules showing summaries of sales and the valuations of unsold units in the property.
The builder also relied upon a further affidavit sworn by Mr McKellar who deposed, in summary, as follows:
(a) in relation to the meeting at Dandenong held during the morning of 13 December 2016, he deposed as follows:
To the extent that the affidavit refers to a meeting held in the offices of Macpherson Kelley at Dandenong on 13 December 2016, I do not recollect that the parties agreed on the sum payable under the building contract other than for the purposes of the Settlement Deed.
My recollection is that:
(a)there was considerable debate between the parties as to amounts owing under the building contract both at the meeting on the morning of 13 December 2016 at Dandenong and the subsequent meeting in Melbourne that afternoon/evening;
(b)the Contractor claimed that a higher sum was owed and the owners claimed that a lower sum was owed. In my more than 15 years’ experience in building disputes I would describe this situation as ‘typical’; and
(c)the parties agreed on the amount payable under the building contract for the purposes of the Settlement Deed which was then recorded in the Settlement Deed in paragraph 2.1.
(b) to the extent that the owners alleged duress and/or unconscionable conduct, he deposed that he could only comment upon what occurred at the two meetings on 13 December 2016. He stated:
Each of the meetings involved what in my experience could reasonably be described as fairly typical commercial discussions at the end of what appeared to me to be a difficult and financially challenging property development.
(c) as for the meeting that took place in the evening of 13 December 2016, Mr McKellar deposed as follows:
At the meeting in Melbourne at which the final version of the Settlement Deed was negotiated and executed the attendees on the part of the Defendants were Vin Sier, Peter Sier and Mr Mitch McKenzie of counsel.
Arthur Visedo, Frank Nadinic and I attended on behalf of Merrion.
Two meeting rooms were booked to enable the parties to separate to discuss aspects of the proposal with their respective advisers, and the parties did separate on a number of occasions.
There were lengthy discussions between the parties concerning aspects of the Settlement Deed during the meeting in Melbourne.
My recollection is that the Settlement Deed was reviewed by both Vin Sier and Mr McKenzie prior to its execution.
I cannot comment on the extent of that review, the scope of any instructions provided to Mr McKenzie or any of the private discussions between any of the attendees on behalf of the Defendants as I was not privy to them.
(d) he made some observations concerning the commercial context and legal effect of the 13 December Deed; and
(e) in response to paragraph 21 of Mr Sier’s affidavit (concerning Mr Sier’s description of what occurred at this meeting), he deposed as follows:
The original draft of the Settlement Deed prepared by me before the meeting commenced referred to two separate Deeds entered into by the Defendants in the Recitals.
There was extensive discussion in the meeting concerning the Deeds entered into by the Defendants, the undertakings given to the Court by the Defendants and the terms of the draft Settlement Deed.
A reference to one of the Deeds referred to in the Recitals in the original Settlement Deed was removed following discussions between the parties.
I otherwise recall, from memory, that Mr McKenzie was in attendance at all relevant times throughout the meeting in Melbourne and left only immediately prior to formal execution of the Settlement Deed.
The meeting was lengthy (more than two hours as I recall it) and there were numerous aspects of the Settlement Deed discussed in that time.
A draft of the Settlement Deed was presented at, or very close to, the commencement of the meeting. The key terms in the Settlement Deed were all present in the first draft.
The Defendants had what I considered to be ample time to consider the document and were, as I understood it, represented during those discussions.
As previously stated my involvement in this matter was very limited.
Within the course of one day I read background material on the project, had a preliminary meeting in Dandenong with the representatives of Merrion, had the meeting with the Defendants in Dandenong referred to above, conducted property searches and further acquainted myself with the facts, travelled to Melbourne, prepared draft settlement terms and then had the meeting with the Defendants and their adviser in Melbourne referred to above.
I do not have detailed notes of what transpired at each of the meetings and I cannot recall, or have any record of, the exact times that Mr McKenzie arrived or departed the meeting in Melbourne.
Mr Frank Nadinic, the construction manager of the builder, deposed, in summary, as follows:
(a) the claimed defects are being attended to;
(b) Mr Sier had assured him that once the Certificate of Practical Completion had been issued, the first mortgagee would provide the final payment; and
(c) the 7 December Deed provided for $175,000 by way of liquidated damages in favour of the developer. At this time, no payment had been made for months. The disputed variations were dealt with in the 31 May Deed, and the final sum due was purportedly dealt with by the 7 December Deed.
Mr Nadinic did not respond to the allegations in Mr Sier’s and Mr Stout’s affidavits concerning the alleged threats to Mr Sier, his staff, and his wife on 21 December 2016. However, this alleged conduct post-dated the execution of the 13 December Deed, and as such is irrelevant to the question of the enforceability of the 13 December Deed. If the evidence was advanced for the purpose of establishing the propensity of Mr Nadinic to engage in threatening behaviour, no notice has been given as required by s 97 of the Evidence Act 2008 (Vic).
On 9 February 2017, Mr Nadinic swore a further affidavit, which exhibited an agreement between Mr Sier and Mr Travers Gascoigne, one of the syndicate members, made on 1 February 2017 concerning the settlement of the sale of one of the units in the property. The handwritten agreement states as follows:
Whereas Travers Gascoigne has purchased Unit 309/405 High Street Northcote off the plan and certain disputes as to representations have arisen, it is now agreed that the purchase price of the unit shall be reduced to $325,000. [Which has been paid in full.] This agreement is private and confidential and will not be disclosed to anyone under any circumstances.
The extract of contract of sale for the unit exhibited to Mr Bruce’s affidavit describes the original purchase price as $650,000. The contract of sale exhibited to Mr Nadinic’s affidavit is a different document, albeit being also dated 3 November 2011. However, it is not entirely clear whether the existence of two separate documents is significant, or the immediate relevance of this document to this application. It may well be that it is relevant to the statements of Mr Bruce that the settlement of the sales of the units to the syndicate members will put the owners in funds: however, that is not relevant to the question of whether the 13 December Deed is enforceable.
Mr Loustas also swore an affidavit on 9 February 2017, largely directed at the defendants’ informal applications to discharge the undertakings, and noting that the contracts of sale exhibited to Mr Bruce’s affidavit filed on behalf of 405 High have not been discovered in the Loustas proceeding. He deposed as follows:
Vin Sier, through Counsel, has constantly and repeatedly maintained on every occasion in court that there would be no profits on the development of the Property. On the contrary the Siers will have at least $3,530,644 available of which $1,765,322 should be paid into trust by order of the court.
The real issue before me, having regard to the observations I have made concerning the relevance (or lack thereof) of the evidence concerning the alleged defects, delays, the disputation in the post 13 December period, and the owners’ alleged concerns about the position of the unsecured creditors, is whether I should grant the relief sought by the builder, effectively on a summary basis, or whether I should direct that the matter proceed to a full trial on the question of whether the 13 December Deed ought to be set aside on the grounds of duress or unconscionable conduct.
Having closely analysed the evidence of the parties concerning the events leading up to and including 13 December 2016, I consider that the owners’ contentions in that regard have, in the language of s 63(1) of the Civil Procedure Act 2010 (Vic), no real prospects of success. While I am conscious that there have been no pleadings or discovery, the issue for determination is relatively simple, and the parties have had some time to locate and produce documents which advance their position or harm the other parties’ case. While there has been no cross‑examination of the deponents, given the matters which have emerged during the course of this application concerning the conduct of the owners in respect of their dealings with lots in the properties, one can infer that the position of the owners would be unlikely to be advanced by thorough cross‑examination. For example, lot 204 is said to be the subject of a contract of sale to one of the syndicate members, the subject of an obligation to transfer under the 13 December Deed, and also security for a charge in favour of Beringo Pty Ltd, which is a rather extraordinary state of affairs.
In undertaking this course of action, and having regard to the extensive evidence filed on behalf of the owners concerning what upon closer analysis pertains to largely irrelevant matters, I am reminded of the remarks of Asche CJ in Civic & Civic Pty Ltd v Pioneer Concrete (NT) Pty Ltd,[4] as follows:
Again with great respect to Parker LJ, his remarks may well serve to encourage ingenious counsel to adopt what one would have to call a ‘cuttlefish’ defence. That sagacious mollusc endeavours to confuse and defeat its enemies by pouring forth clouds of inky blackness when attacked. So, resort to a welter of authorities and referral to esoteric points of law might be employed to persuade an overworked judge that the answer is too hard to find on summary proceedings; and the defence thereby gain a much desired breathing space; at the expense of the plaintiff.[5]
[4](1991) 103 FLR 196.
[5]Ibid, 215-216.
While his Honour was referring to cases where there might be lengthy argument and deliberation on questions of law, rather than cases where there are said to be a range of factual disputes, I consider the remarks to be at least relevant, albeit not conclusive, to the task at hand: just because the owners advance voluminous evidence making allegations concerning a wide range of contentious matters does not prevent a court from carefully evaluating that evidence in order to identify whether that evidence is relevant to whether there is a claim or defence with real, as opposed to fanciful, prospects of success, and the plausibility of the evidence concerning the facts in issue.
It is worthwhile pausing here for a moment to consider what amounts to duress, in particular economic duress. It has been described as:
the unacceptable use of economic power to place another person in a situation in which there is no practical alternative but to submit to the demand involved.[6]
[6]Paul Vout (ed) Unconscionable Conduct: The Laws of Australia (Thomson Reuters, 2nd ed, 2009) 300 [35.7.580].
The courts have generally been cautious to find economic duress, particularly in connection with contracts between substantial businesses.[7] In Crescendo Management Pty Ltd v Westpac Banking Corp[8] McHugh JA said:
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.
[7]Equiticorp Finance Pty Ltd v Bank of New Zealand (1993) 32 NSWLR 50 (Kirby P).
[8](1988) 19 NSWLR 40.
More recently, the New South Wales Court of Appeal expressed some distaste for the vagueness of the notion of illegitimate pressure. In Australia and New Zealand Banking Group v Karam,[9] Beazley, Ipp and Basten JJA stated as follows:
The vagueness inherent in the terms ‘economic duress’ and ‘illegitimate pressure’ can be avoided by treating the concept of ‘duress’ as limited to threatened or actual unlawful conduct. The threat or conduct in question need not be directed to the person or property of the victim, narrowly identified, but can be to the legitimate commercial and financial interests of the party. Secondly, if the conduct or threat is not unlawful, the resulting agreement may nevertheless be set aside where the weaker party establishes undue influence (actual or presumptive) or unconscionable conduct based on an unconscientious taking advantage of his or her special disability or special disadvantage, in the sense identified in Commercial Bank of Australia v Amadio.[10] Thirdly, where the power to grant relief is engaged because of a contravention of a statutory provision such as s 51AA, s 51AB, or s 51AC of the Trade Practices Act (Cth), the Court may be entitled to take into account a broader range of circumstances than those considered relevant under the general law.
[9](2005) 64 NSWLR 149, [66].
[10](1983) 151 CLR 447; 57 ALJR 358; 46 ALR 402; [1983-1984] ANZ ConvR 169.
The relevance of the discussion to the current case is that while allegations of economic duress may be frequently made, they are relatively infrequently made out, and one must look closely at the nature of the conduct said to constitute duress, not simply the situation and the circumstances. Further, if one is forced to fall back on a claim of unconscionable conduct, as the owners seek to assert here, then they must be able to show that there is a real prospect that it will be established that the builder had taken an unconscientious advantage of the owners’ special disability or special disadvantage.
The following matters are relevant to the question of whether the owners have any real prospects of success of establishing either economic duress or unconscionable conduct on the part of the builder:
(a) Mr Peter Sier did not file an affidavit concerning what transpired at the second meeting on 13 December 2016. He may not be legally represented in this proceeding, or the Loustas proceeding, but that would not have prevented him from giving evidence about what occurred during the meeting leading up to the execution of the 13 December Deed. The hearing of the builder’s application came on reasonably promptly, but the owners had weeks, not days, to prepare their evidence. In the absence of any explanation of his failure to swear or affirm an affidavit, I am entitled to draw the inference that his evidence would not have assisted the owners, and do so;
(b) similarly, Mr McKenzie also failed to give evidence about this meeting in support of Mr Sier’s version of events, although given that he is counsel for the owners in both this proceeding and the Loustas proceeding, his failure to do so is perhaps more understandable;
(c) the evidence filed on behalf of the owners failed to identify with any precision that the conduct of the builder was said to amount to duress. Mr Sier deposed that on the evening of 12 December 2016 Mr Nadinic told him that he had put the site in lockdown. That, of itself, might amount to economic duress. However, Mr Sier’s own evidence is that the lockdown was lifted at midday on 13 December 2016, after the parties had agreed the price to be paid to the builder (which the owners seek to retain the benefit of), and settlements proceeded on that day. This was prior to the meeting at which the 13 December Deed was discussed and executed. Mr Sier did not give any evidence about whether the builder made any further threats to lock down the site;
(d) no evidence was led in order to rebut the evidence filed on behalf of the builder on 8 February 2017. Of course, this evidence was filed and served the day before the hearing. However, given the significance of that evidence, and in particular the affidavit of Mr McKellar, which contains evidence which is inherently plausible, to the claims of the owners concerning duress, the failure of the owners to advance, or to seek to advance, evidence in rebuttal is of itself significant. Given the nature, timing and significance of this evidence, it is unlikely that an application for a short adjournment would have been refused.
Further, it is a little difficult to understand how the owners were under commercial pressure emanating from the builder, as opposed to commercial pressure emanating from the first mortgagee. As the Certificates of Occupancy had been issued (on 7 December 2016), there was no legal impediment to settlement of the off the plan sales. The owners’ own evidence was that it wanted to effect the settlements quickly in order to take advantage of the discount being offered by the first mortgagee for prompt payment.
As for the issue of the Certificate of Practical Completion, whether Mr Squire felt under pressure or duress is beside the point. As noted by Mr Visedo in his affidavit of 8 February 2017, it was Mr Squire’s own decision to make in any event, and Mr Squire’s evidence is that he issued the Certificate of Practical Completion, albeit with some reservations, upon the instructions of Mr Sier.
No doubt the negotiations on 13 December 2016 were robust. The Certificate of Practical Completion having been issued, the builder was entitled to be paid. Having discovered that there were no funds available from the first mortgagee, the builder was no doubt concerned about how it was to be paid, having not received any payments for many months. It already had a promise to pay at least part of the contract price from the proceeds of the settlement of the sales by reason of the 31 May Deed, and a purported agreement on the final contract price by reason of the 7 December Deed. As noted by Mr Nadinic and Mr McKellar in their affidavits of 16 December 2016 and 8 February 2017, it had the right to demand immediate payment and to suspend works under the ‘pay now, argue later’ regime under the Security of Payment Act. Further, the 13 December Deed did not have the effect of compelling the owners to undertake new obligations: it provided a mechanism by which they were to comply with their existing obligations.
Further, it is arguable that, as at 13 December 2016, it was the builder, not the owners, that was in the more commercially vulnerable position. It was owed a substantial amount of money, and the likely expected source of at least part of the amount owing, being the first mortgagee, had evaporated. It was being told the owners had no money. The owners, on the other hand, had the Certificates of Occupancy, and thus were legally entitled to demand that the purchasers settle the contracts of sale. The discount for prompt payment offered by the first mortgagee, and the constraints imposed by the undertakings, may well have imposed commercial pressure upon the owners, but that commercial pressure cannot be sheeted home to the builder.
It is difficult to see how the terms of the 13 December Deed were so commercially disadvantageous to the owners such as to lead to an inference that it was procured by duress. The price was a compromise: indeed, the owners, somewhat disingenuously, still seek to preserve the term of the 13 December Deed concerning price. As it turns out, the owners were not in a position to give clear title on two of the three lots they agreed to transfer to the builder. It is not possible to determine whether the owners had done so knowingly, or simply recklessly. However, it does provide at least part of an explanation as to why the owners sought to resile from their obligations under the 13 December Deed within a matter of days of its execution.
However, perhaps the most compelling evidence in support of the builder’s contention that the owners were not the victims of illegitimate commercial pressure is the uncontested evidence of Mr McKellar as to what occurred on 13 December 2016, particularly the later meeting, during which the 13 December Deed was executed. The meeting lasted at least two hours, with a draft deed provided for discussion at the commencement of the meeting. The owners withdrew to discuss the terms of the draft deed on a number of occasions. Mr Vincent Sier is a solicitor, and counsel for the owners, who has represented the owners for a number of years in the Loustas proceeding, was apparently present throughout. This evidence is quite inconsistent with the proposition that the owners executed the 13 December Deed, which was commercially advantageous to both parties, under duress. The evidence is also inconsistent with the proposition that the builder had taken unconscientious advantage of any special disability of the owners, or indeed that the owners were under any special disability.
Accordingly, taking the evidence filed on behalf of the owners at its highest and best, the owners have not established that their claims that the 13 December Deed was executed as a result of any economic duress or unconscionable conduct on the part of the builder have any real prospects of success. The only conduct of the builder, being the lockdown of the site, which could conceivably amount to duress had been reversed a number of hours before the meeting at which the 13 December Deed was executed, and settlements proceeded unimpeded. As for the question of any unconscionable conduct on the part of the builder, notwithstanding references by Mr Sier to being anxious, distressed, and ‘trapped’, he has failed to identify any special disadvantage or vulnerability on the part of the owners, particularly given he is a solicitor, and the owners were accompanied to the relevant meeting by counsel. Arguably, it was the builder that was in a more vulnerable commercial position, and the terms of the 13 December Deed conferred no particular advantage upon the builder over and above its position in the 31 May Deed and the 7 December Deed. Indeed, in hindsight, its position was probably worse, in that it agreed to take the transfer of properties which are otherwise encumbered.
For completeness, as the question is raised in the submissions relied upon by counsel for the owners, there is no evidence of the 13 December Deed having been entered into by the owners as a result of any misleading and deceptive conduct on the part of the builder. The only evidence of any such conduct was Mr Sier’s evidence that he instructed the building superintendent to issue the Certificate of Practical Completion on the assurances of the builder that the stage of practical completion was all but reached, ‘despite misgivings’ on his part. Mr Squire’s own evidence was that he did not want to issue an unconditional Certificate of Practical Completion, so he cannot have been misled. There was no evidence that the owners executed the 13 December Deed as a result of misrepresentations on the part of the builder.
Accordingly I will make orders declaring that the 13 December Deed is valid, and that those terms of the Deed which are not terms which are unenforceable by reason of the contracts of sale with respect to lots 105 and 204 are enforceable.
I will hear further from counsel on the form of order, and the question of costs. In particular, I seek submissions as to whether I ought make orders requiring the owners to apply to the Court to vary the undertakings and to transfer lot 112, and whether any such orders would need to take into account the caveat lodged by Beringo Pty Ltd. Further, the parties may wish to give some thought as to how to proceed given the information which has emerged during the course of this application concerning the enforceability of the 13 December Deed, including the existence of the caveat lodged by Beringo Pty Ltd. It may be, that if the builder issues a fresh proceeding promptly, or seeks to proceed by way of writ in this proceeding, I could make orders in that proceeding directing that the parties proceed to mediation together with the mediation in the Loustas proceeding, if that is practical and desirable.
SCHEDULE OF PARTIES
MERRION PTY LTD (ACN 141 640 128) Plaintiff - and - ARTHUR LOUSTAS First Defendant PETER JOHN SIER Second Defendant VINCENT JOHN SIER Third Defendant 405 HIGH STREET PTY LTD (ACN 158 418 565) Fourth Defendant
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