Re Dila Pty Ltd
[2023] VSC 176
•6 April 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2022 04224
IN THE MATTER of DILA PTY LTD (ACN 146 706 658)
BETWEEN:
| DILA PTY LTD (ACN 146 706 658) | Plaintiff |
| v | |
| ROSS VOCI | Defendant |
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JUDGE: | Barrett AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 7 March 2023 |
DATE OF JUDGMENT: | 6 April 2023 |
CASE MAY BE CITED AS: | Re Dila Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2023] VSC 176 |
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CORPORATIONS – Application to set aside a statutory demand – Corporations Act (Cth) ss 459G, 459H, 459J – Whether there is a genuine dispute as to the existence of the debt – Whether statutory demand should be set aside for some other reason – Whether indefeasibility of mortgage and covenant to pay debt precludes any genuine dispute in the absence of fraud – Whether deeds are voidable by reason of illegitimate pressure or economic duress – Held, applying Australia and New Zealand Banking Group Ltd v Karam (2005) 64 NWSLR 149 and Thorne v Kennedy (2017) 263 CLR 85, ‘economic duress’ and ‘illegitimate pressure’ are limited to threatened or actual unlawful conduct – Proceeding dismissed with costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N Paterson | Eales and Mackenzie Melbourne |
| For the Defendant | Mr H Forrester | Harding Stenning & Co Pty Ltd |
TABLE OF CONTENTS
Application.......................................................................................................................................... 1
Material relied on............................................................................................................................... 1
Background......................................................................................................................................... 1
2022 Deed............................................................................................................................................. 5
The statutory demand....................................................................................................................... 6
Applicable principles........................................................................................................................ 7
Plaintiff’s submissions..................................................................................................................... 9
Defendant’s submissions............................................................................................................... 11
Does the indefeasibility of the mortgage and the covenant to pay the debt that it secures, preclude any genuine dispute in the absence of fraud?...................................................................... 12
Is there a genuine dispute whether the 2019 Deed and 2022 Deed are voidable by reason of illegitimate pressure or economic duress?............................................................................ 12
Should the statutory demand be set aside for some other reason?........................................ 17
HIS HONOUR:
Application
By its amended originating process filed on 27 February 2023, the plaintiff seeks orders to set aside a statutory demand pursuant to ss 459G, 459H and 459J of the Corporations Act 2001 (Cth), on the basis there is a dispute about the existence of the debt and for some other reason.
Material relied on
The plaintiff relies on:
(a) the affidavits of Gary John Pascu affirmed on 19 October 2022 and 14 February 2023;
(b) the affidavit of Roger Michael Stansfield affirmed 13 February 2023; and
(c) written submissions filed 16 February 2023.
The defendant relies on:
(a) the affidavit of Ross Voci sworn on 14 December 2022;
(b) the affidavit of Alyssa Yi Ning Dai affirmed 28 February 2023; and
(c) written submissions filed 3 March 2023.
Background
This matter concerns a property development in Airport West. The relevant background is as follows.
On 2 March 2016, the plaintiff became the registered proprietor of a property in Airport West. The plaintiff entered into a development agreement with Mr Pascu, the sole director and shareholder of the plaintiff, which granted rights to Mr Pascu to develop the property.
On 26 April 2016, Mr Pascu entered into a joint venture agreement with the defendant and two other parties. The terms of the joint venture agreement included that:
(a) the defendant would hold a 37.5% interest in the joint venture (cl 2.1);
(b) the defendant would pay Mr Pascu $862,000 (cl 2.3) by way of an initial 20% contribution upon signing the joint venture agreement, with the balance to be paid into Mr Pascu’s lawyers’ trust account and to be released on certain conditions (cl 2.4);
(c) the plaintiff would provide a mortgage in favour of the joint venture parties securing its performance of the development agreement but that mortgage would not be registered and none of the joint venture parties would cause any caveats to be lodged over the property until development finance was secured (cls 5.3 and 5.4);
(d) if development finance were not procured within two months from the date of the agreement (being two months after 26 April 2016), then the joint venture agreement ‘shall come to an end’ and the monies paid by the parties under cl 2.3, including by the defendant but not by Mr Pascu, ‘shall be refunded in full to those parties’ (cl 4.3). It appears from this provision that the obligation to refund would be Mr Pascu’s obligation and not the plaintiffs; and
(e) the joint-venture parties would:
(i) promote the interests of the joint venture (cl 9.1(e)); and
(ii) not do anything by way of act, matter or omission that would have any adverse effect on the goodwill, commercial reputation or value of the development or the joint venture (cl 9.1(f)).
The plaintiff says that between 22 April 2016 and 1 June 2016 the defendant made six payments totalling $565,000 from his company PS Corporation (Aust) Pty Ltd, which were received by the plaintiff’s lawyers and held in a trust account. That submission is supported by the affidavit of Mr Voci sworn on 14 December 2022 which exhibits bank statements showing $565,000 as having been paid. It is at odds with the affidavit of Mr Pascu affirmed on 19 October 2022 in which he says the defendant made ‘sporadic payments totalling $595,000.’ The defendant disputes the plaintiff’s submission as to how much was paid and says that the total amount of payments made was $750,500. It is not necessary to resolve what was paid for the purposes of the questions raised in this proceeding.
It does not appear to be disputed that development finance was not procured within two months from the date of the joint venture agreement. That being the case, it appears that by operation of cl 4.3, the joint venture agreement terminated on 26 June 2016 and Mr Pascu was obliged to refund the monies that had been paid. The plaintiff submits that despite the terms of cl 4.3, they continued dealing with each other and engaging with the process of advancing the development.
Initially, the property was mortgaged to Bendigo and Adelaide Bank Pty Ltd in respect of purchase finance. In late 2016, it was refinanced to Kehlmann Berleys Capital Pty Ltd (‘Kehlmann’).
The joint venture parties discussed construction funding from about May 2016 through 2017 but no such funding was obtained. The defendant says that on 17 May 2016, Mr Pascu told him that development finance for the project had been approved. The defendant also says that development finance had not in fact been approved and that he felt he had been misled by Mr Pascu. This appears to have been the cause of some or all souring in the relationship.
On 16 March 2017, the defendant lodged caveat AN654910A on the title of the property, claiming a freehold estate interest and an absolute prohibition.
The plaintiff submits that from about May 2017 the defendant ‘began pressuring Mr Pascu to repay him money, – not just the $565,000 that have been advanced under the [joint venture agreement], but $1.5 million.’
The plaintiff further submits that in breach of its obligations under cls 9.1(e) and (f):
(a) the defendant interfered with the construction funding from New Ground Capital in September 2017;
(b) prevented mezzanine finance from the Salvo Group in December 2017; and
(c) maintained caveat AN654910A on the property until 30 September 2019.
On 6 January 2019, La Trobe Financial offered to provide construction finance.
On 10 January 2019, Mr Pascu emailed a draft deed to the defendant, the terms of which included:
(a) that the defendant would withdraw its caveat; and
(b) the plaintiff would pay the defendant $850,000 by a payment of $100,000 upon the refinance of the mortgage and a final payment of $750,000 from the net profit of the project.
Subsequently, the parties engaged in without prejudice communications. At this time, the mortgagee, Kehlmann, threatened to force a sale of the property and Mr Pascu paid interest to keep it at bay.
On 19 June 2019, the plaintiff, the defendant, Mr Pascu, Grant Luff, Geoffrey Luff and Mr Dempsey as trustee for the MGG Investment Trust executed a deed (‘2019 Deed’). The background to the 2019 Deed states that the parties were in dispute as to their respective obligations under the joint venture agreement, including entitlement to immediate repayment of money. Briefly stated, the 2019 Deed otherwise provided that in lieu of its rights and entitlements, the defendant would withdraw its caveat and accept the amount of $1,300,000 by payments of $100,000 on refinance and $1,200,000 from the profit of the project, no later than 20 months from the date of the 2019 Deed payment. If payment were not made within 12 months, then interest would accrue at a rate of 2% per month. The 2019 Deed also provided that the defendant may lodge a caveat after the refinance mortgage was registered, and for mutual releases.
Mr Pascu deposes that he did not believe that the defendant would remove his caveat or permit the project to proceed unless he executed that deed. The plaintiff submits that ‘[i]n that sense, the plaintiff had no practical alternative but to execute the 2019 deed, despite the fact that he did not owe the defendant any money.’
2022 Deed
On 30 September 2019, La Trobe Financial’s offer of construction funding was settled, the defendant removed the caveat and construction commenced.
On 2 March 2020, the defendant lodged a new caveat, AT038942V, over the title of the property and registered its interest on the Personal Property Securities Register (‘PPSR’).
In late 2021, the project was completed and the plan of subdivision was registered. Several apartments were sold but the proceeds were not sufficient to pay out the mortgagees.
On 21 January 2022, the first mortgagee issued a default notice.
On 7 February 2022, the plaintiff obtained a letter of offer from Equity One Mortgage Fund Ltd for refinance in the amount of $4.4 million subject to security over 15 apartments.
The plaintiff submits that the effect of the refinancing would have been to reduce the amount payable to the first mortgagee, reduce the interest rate payable and postpone service obligations.
On 15 February 2022, the plaintiff’s solicitors informed the defendant’s solicitors of the prospect of refinancing and requested that the defendant release his security over the 15 apartments and his PPSR registration, to facilitate the refinancing. On 7 March 2022, the defendant’s solicitors responded that they would only consent to the refinancing if there were a new loan agreement and further security. After some negotiation, on 24 March 2022 the plaintiff, Mr Pascu, the defendant and another party entered into a further deed (‘2022 Deed’).
The recitals to the 2022 Deed acknowledge the amounts to be paid under the 2019 Deed, and that the plaintiff and Mr Pascu had failed to repay the debt and interest and were in breach of the 2019 Deed. Pursuant to the 2022 Deed, the parties agreed as follows:
(a) the plaintiff and Mr Pascu would pay the defendant and the other party $3,124,000 (comprising principal of $2,200,000 and interest of $942,000), defined as the ‘Current Debt’, by 19 September 2022;
(b) the plaintiff and Mr Pascu would pay the defendant and the other party interest at 30% per annum compounding monthly if it were paid within three months, otherwise at 40% per annum compounding monthly.
Mr Pascu deposes that the proposed deed did not represent a real choice for him or the plaintiff because the alternative was that La Trobe Financial would repossess the property and sell it, in which circumstances no investor would have recovered their money.
It is apparent from the plaintiff’s evidence and submissions that Mr Pascu struggled to obtain finance and to realise sales sufficient to make the development financially viable. It is also apparent that a significant reason why the plaintiff entered into the 2019 Deed and the 2022 Deed was a determination to overcome the various financial difficulties it faced.
The statutory demand
On 29 September 2022, the defendant served the plaintiff with a statutory demand and affidavit in support sworn on 27 September 2022.
The statutory demand relevantly provides as follows:
1.[Dila Pty Ltd] owes [the defendant] … the amount of $2,074,494.20 being the amount of debt described in the Schedule.
2.The amount is due and payable by the company.
3.Attached is the affidavit of [the defendant] … verifying that the amount is due and payable by the company.
The schedule to the statutory demand provides:
Description of the debt:
Monies owed by the company to the creditor pursuant to a Deed dated 19 June 2019 and a Deed dated 24 March 2022 between the company, the creditor and others.
Total amount $2,074,494.20
In his affidavit in support of the statutory demand, the defendant relevantly deposes:
1.I make this affidavit in respect of a debt of $2,074,494.20 owed by Dila Pty Ltd (the Debtor company) to the Creditor [defined as Ross Voci] pursuant to a Deed dated 19 June 2019 (2019 Deed) and a Deed dated 24 March 2022 (2022 Deed) between the Creditor, the Debtor company and others. …
2.Pursuant to the 2019 Deed the Debtor company covenanted to pay to the Creditor on or before 19 February 2021 $1,392,000.00 comprising principal of $1,200,000.00 and interest of $192,000.00. The Debtor company failed to do so.
3.Pursuant to the 2022 Deed the Debtor company: (a) acknowledged that, as at 19 March 2022, it owed the Creditor $1,704,000.00 comprising principal of $1,200,000.00 and interest of $504,000.00; and (b) covenanted to pay the $1,704,000.00 together with interest, at the rate of 40% pa compounding monthly (ie $370,494.20), to the Creditor on or before 19 September 2022. The Debtor company failed to do so.
4.The total amount due and payable by the Debtor company to the Creditor as at 19 September 2022 is $2,074,494.20 comprising principal of $1,200,000.00 and interest of $874,494.20 (ie $504,000.00 + $370,494.20).
…
Applicable principles
The principles in relation to applications to set aside statutory are well settled.
The plaintiff refers to the oft-cited decision in Mibor Investments Pty Ltd v Commonwealth Bank of Australia[1] that:
[I]t is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of [the] dispute. All the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.[2]
[1][1994] 2 VR 290.
[2]Ibid 295 (Hayne J).
The plaintiff also emphasises that the level of satisfaction required by the Court to determine there is a genuine dispute is not high, and that the test has been said to be whether there is a serious question to be tried,[3] that the dispute is not plainly vexatious or frivolous,[4] and that it is no more onerous than the test confronting a party opposing an application for summary judgment.[5]
[3]Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37, 39 (Lockhart J).
[4]Ibid.
[5]Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA & Pharmagel SpA (1994) 15 ACSR 347, 354 (Lindgren J).
The defendant refers to the recent decision of Amville Constructions Pty Ltd v LS Bricklaying (Vic) Pty Ltd,[6] in which Hetyey AsJ summarised the principles regarding what constitutes a genuine dispute for the purposes of s 459H(1) as follows:[7]
[6][2022] VSC 65.
[7]Ibid [13] (citations omitted).
(a) for a dispute to be ‘genuine’ it must be ‘bona fide and truly exist in fact’;
(b)‘the grounds for alleging the existence of a dispute … [must be] real and not spurious, hypothetical, illusory or misconceived’;
(c)the dispute must have a ‘sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile … Something “between mere assertion and the proof that would be necessary in a court of law” may suffice’;
(d)a genuine dispute may involve a ‘plausible contention requiring investigation’ and raising the same sort of considerations as the ‘serious question to be tried’ test that applies in the case of interlocutory injunctions;
(e)the Court should not uncritically accept statements about an alleged genuine dispute which are ‘equivocal, lacking in precision, inconsistent with undisputed contemporary documents … or inherently improbable …’;
(f)if the dispute appears to be something ‘merely created or constructed in response to the pressure represented by the service of the statutory demand’, then it is not advanced in good faith and will not be regarded as genuine; and
(g)whilst the underlying nature of the dispute about the existence of a debt ‘must be exposed’, the Court will not deal with the merits and nothing of substance will be decided.
I do not consider there was any issue between the parties as to these principles and I have applied them in this matter.
Plaintiff’s submissions
The plaintiff seeks to challenge the obligations giving rise to the debts identified in the statutory demand on the basis of economic duress. The plaintiff cites the following proposition from Heydon on Contract: The General Part (‘Heydon on Contract’):[8]
So far as it operates in contract, duress is a form of pressure: which is regarded by the law as illegitimate; which is usually created by a threat coupled with a demand; which has the purpose of inducing the plaintiff to enter into a contract or a variation to a contract; which leaves the plaintiff no reasonable alternative but to do so; and which operates as a cause of the plaintiff’s entry into the contract or the variation.[9]
[8]JD Heydon, Heydon on Contract: The General Part (Thomson Reuters (Professional) Australia Limited, 2019).
[9]Ibid 609 [16.10].
In support of the submission that ‘illegitimate pressure’ was applied in relation to the 2019 Deed, the plaintiff relies on the following matters:
(a) first, caveat AN654910A was lodged despite cls 5.3 and 5.4 which precluded the right to lodge such caveats;
(b) second, caveat AN654910A was maintained in circumstances where the plaintiff asserts it prevented or delayed construction funding being obtained for the project. The plaintiff submits that this was in breach of the obligations to promote the interests of the joint venture, and to not do anything by way of act, matter or omission that would have any adverse effect on the value of the development or the joint venture;
(c) third, the deed constituted a demand for $1.3 million jointly from the plaintiff and Mr Pascu, when the defendant had only contributed $565,000 and was, under the terms of the joint venture agreement, only entitled to the return of that contribution from Mr Pascu (not the plaintiff), if construction funding was not obtained.
In support of the submission that illegitimate pressure was applied in relation to the 2022 Deed, the plaintiff relies on the following matters:
(a) first, the 2022 Deed was premised on the enforceability of the 2019 Deed, which the plaintiff submits is voidable for the reasons stated above;
(b) second, the plaintiff contends that the defendant unreasonably refused to permit a refinancing of the first registered mortgage security, in circumstances where the property was under threat and all investors would lose out if the 2022 Deed was not entered, and insisted on an interest rate of 40% per annum compounded monthly as against an interest rate of 24% per annum under the 2019 Deed.
On 6 March 2023, the plaintiff’s solicitor swore an affidavit exhibiting an unfiled copy of a written statement of claim which she deposes she was instructed to file. The statement of claim names the plaintiff in this proceeding, Dila Pty Ltd, and Mr Pascu as plaintiffs, and the defendant in this proceeding, Mr Voci, as a defendant. It is a 16-page, 83-paragraph pleading that has the names of two counsel and the solicitors for the plaintiff appended to it. I was informed during the hearing that it has in fact been filed in this Court. The matters raised in it reflect the arguments noted above made by the plaintiff.
I note in particular that the statement of claim alleges the defendant breached the joint venture agreement by reason of the following conduct:
(a) in about September 2017, he interfered with an offer of construction capital from Newground Capital by communicating directly with them, disparaging the plaintiff and stating in colourful terms that the plaintiff had ruined the development; and
(b) in about December 2017, he prevented the settlement of construction finance with Salvo Finance by refusing to withdraw his caveat.
The relief sought includes declarations that the 2019 Deed and the 2022 Deed are voidable and have been voided by the plaintiffs. Mr Pascu further claims $297,000, being the amount owing under the joint venture agreement and $100,000 being moneys had and received under the 2019 Deed, as well as damages.
Defendant’s submissions
The defendant submits that cl 4.3 of the joint venture agreement provides that if development finance could not be procured within two months of the date of the agreement, that is by 26 June 2016, then the agreement would terminate and the defendant would be entitled to a refund of monies it had contributed. Thereafter, the parties would be at liberty to negotiate whatever terms they wished. At that stage, Mr Pascu had the choice whether to simply refund the money that had been provided by the defendant, or to agree to such terms that the plaintiff and defendant might agree to in order to progress the development. That was a commercial decision for the plaintiff to make. Further, the defendant submits that in coming to the decision to enter into the 2019 Deed and 2022 Deed, the plaintiff was advised by lawyers and presumably made a commercial decision with the benefit of legal advice.
The defendant further submits that his debt is secured by mortgage, and that the indefeasibility of the mortgage extends to a covenant to pay the debt within it. He submits that the primary exception to indefeasibility is fraud, but no fraud is alleged in this case.
As to the submission that the defendant applied illegitimate pressure, he submits that the circumstances of this case do not come within the definition of economic duress. The defendant submits that an agreement can only be set aside on the basis of economic duress if there is an element of unlawfulness in the conduct constituting the duress. In this case, so it was submitted, there is no suggestion of any unlawfulness; therefore, there can be no genuine dispute as to debt that is said to arise by reason of the 2019 Deed and the 2022 Deed.
Does the indefeasibility of the mortgage and the covenant to pay the debt that it secures, preclude any genuine dispute in the absence of fraud?
I do not consider that the indefeasibility of a mortgage, or an associated covenant to pay a debt, are sufficient to preclude a genuine dispute in relation to the debt. As was submitted by the defendant, indefeasibility describes ‘the immunity from attack by adverse claim[s] to the land or interest in respect of which he is registered, which a registered proprietor enjoys.’[10] The fact that a mortgage is stated to secure a debt does not mean that there cannot be a genuine dispute regarding the existence of the debt for the purposes of s 459G. Looked at another way, a debt does not become unchallengeable for the purposes of s 459G simply because it is secured by a mortgage. The logical extension of the defendant’s submission would seem to be that no mortgagor would ever be permitted to challenge a mortgagee’s calculation of the amount owing under a mortgage. For those reasons, I do not accept that any indefeasibility of the mortgage and the associated covenant to pay the debt necessarily precludes a genuine dispute for the purposes of ss 459G and 459H.
Is there a genuine dispute whether the 2019 Deed and 2022 Deed are voidable by reason of illegitimate pressure or economic duress?
[10]Frazer v Walker [1967] 1 AC 569, 580 (Viscount Dilhorne, Lords Denning, Hodson and Wilberforce).
Subject to arguments about voidability, it is not suggested that the terms of the joint venture agreement and the 2019 Deed and 2022 Deed do not operate in such a way that the plaintiff is liable to the defendant for the amount of the debt. That is, the argument is not that on the proper construction, or in fact, such liabilities did not rise. Rather, the argument is that the agreements are voidable by reason of the economic duress, or illegitimate pressure, brought to bear by the defendant.
The plaintiff relied on various matters in support of its argument that it was subject to economic duress:
(a) first, contrary to the terms of the joint venture agreement, the defendant lodged a caveat over the property;
(b) second, the defendant maintained that caveat in circumstances where it knew it would obstruct development finance; and
(c) third, in breach of the terms of the joint venture agreement it disparaged and undermined potential funders.
One difficulty with the plaintiff’s argument is the extent to which the defendant was subject to any contractual obligations when the alleged conduct occurred. As noted above, the joint venture agreement was entered into on 26 April 2016 and by cl 4.3 was to terminate after two months – that is, by 26 June 2016 – if construction funding were not obtained by then. Construction funding was not obtained by then, so on that reading of the joint venture agreement, it terminated on 26 June 2016 and the obligation to refund the monies that had been paid by the defendant was triggered. It also appears that from the date, any contractual obligations not to lodge a caveat expired.
The plaintiff submitted that while cl 4.3 provided that the joint venture agreement would end after two months if no funding were obtained, the parties in fact continued to negotiate and pursue the opportunity consistently. I agree to an extent. It is obviously true that the parties continued to negotiate, and the 2019 Deed and 2022 Deed are evidence of their attempts to progress the development. But the terms of the 2019 Deed and 2022 Deed are also evidence that the negotiations had moved into a different phase, with significantly different obligations being discussed and agreed to. In those circumstances, I do not consider it is arguable that the conduct of the defendant in negotiating and entering the 2019 Deed and 2022 Deed could constitute breaches of the joint venture agreement. I note that each of the parties were represented by lawyers through the course of these negotiations.
The next question is, if the parties were not bound by the terms of the joint venture agreement after 26 June 2016, is it nevertheless arguable that the conduct complained of constituted sufficient economic duress to render the 2019 Deed and 2022 Deed voidable.
As noted above, the caveat was lodged on the title on 16 March 2017. That is many months after the contract ended by operation of cl 4.3. At that stage, there was no contractual prohibition on the lodging of a caveat. The statement of claim describes the illegitimate pressure as being constituted by the defendant refusing to remove its caveat other than on terms of the 2019 Deed, in circumstances where it knew that the plaintiff had received notices of default in relation to existing finance and that the necessary refinancing was being removed. Essentially, the plaintiff’s position is that the defendant knew the plaintiff had its back against the wall and faced losing the whole development, which would include loss to the various investors: the defendants exploited that situation to extract the terms that it did and which have given rise to the debt that is claimed. The same arguments are raised by the plaintiff in relation to the 2022 Deed; that is, the defendant knew that the plaintiff needed to refinance and that the caveat had to be removed for that purpose, but the defendant refused to do so unless the plaintiff executed a deed in the form of the 2022 Deed. Essentially, the plaintiff submits that the defendant exploited the plaintiff’s commercial vulnerability to extract the most favourable terms it could, knowing that the alternative would likely be financially ruinous for plaintiff.
Before considering the legal arguments that were raised in this context I note that, as submitted by the defendant, there are processes by which a party who is affected by caveat may seek to have it removed. None of those processes appear to have been pursued.
The difference in submissions regarding the applicability of economic duress are as follows. The plaintiff submits that economic duress may be constituted by what may broadly be described as ‘illegitimate,’ but not necessarily unlawful, pressure, and the defendant submits that economic duress requires an element of unlawfulness.
The plaintiff relies upon an extract from Heydon on Contract, for the proposition that lawful conduct may constitute illegitimate pressure sufficient to render an agreement voidable. That extract is included at paragraph 38 of this judgment and repeated below:
So far as it operates in contract, duress is a form of pressure: which is regarded by the law as illegitimate; which is usually created by a threat coupled with a demand; which has the purpose of inducing the plaintiff to enter into a contract or a variation to a contract; which leaves the plaintiff no reasonable alternative but to do so; and which operates as a cause of the plaintiff’s entry into the contract or the variation.[11]
[11]Heydon (n 8) 609 [16.10] (emphasis added).
The plaintiff also relies upon the decision of Crescendo Management Pty Ltd v Westpac Banking Corporation,[12] in which McHugh JA held:
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.
[12](1988) 19 NSWLR 40, 46 (emphasis added).
The plaintiff submits that this passage leaves open scope for lawful conduct duress by reference to what is ‘illegitimate.’ Heydon agrees to an extent, describing this passage from McHugh JA as ‘enigmatic’.[13] Heydon also notes that there is authority in Australia,[14] and England[15] that duress can include pressure from otherwise lawful conduct.[16]
[13]Ibid 619 [16.260], quoting Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50, 106 (Kirby P).
[14]Ibid, citing Westpac Banking Corporation v Cockerill (1998) 152 ALR 267, 289 (Kiefel J); Denmeade v Stingray Boats [2003] FCAFC 215, [14] (Whitlam, Kiefel and Dowsett JJ).
[15]Ibid 620 [16.260], citing CTN Cash & Carry Ltd v Gallaher Ltd [1994] 4 All ER 714, 719 (Steyn LJ). See also Progress Bulk Carriers Ltd v Tube City IMS LLC [2012] 1 Lloyd’s Rep 501 (Comm), [92]-[30], [35] (Cooke J); Law Debenture Trust Corp plc v Ukraine [2017] EWHC 655 (Comm), [178], [183] (Blair J).
[16]See ibid 623-624 [16.300].
The defendant on the other hand referred to of the New South Wales Court of Appeal decision in Australia and New Zealand Banking Group Ltd v Karam (‘Karam’),[17] in which the Court held:
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 Ltd v Amadio.[18]
[17](2005) 64 NSWLR 149 (‘Karam’).
[18]Ibid 168 [66] (emphasis added).
Heydon describes this approach as the ‘traditional approach’ and endorses it.[19] That is, he says ‘… duress by lawful means should be abolished on the ground that it does nothing that the doctrines of undue influence and unconscionable conduct do not do.’[20]
[19]Heydon (n 8) 611 [16.40]. See n 22, citing Karam (n 17).
[20]Ibid. See 611 n 22.
The defendant also refers to the decision of Commercial Base Pty Ltd v Watson,[21] in which Almond J considered the principles relevant to economic duress and conscientious dealing. In particular, the defendant relies on Almond J’s acceptance of Karam, which was in the following terms:
This approach effectively renders the concept of economic duress redundant and limits the circumstances in which a court would intervene in equity to set aside contracts and other transactions procured by lawful economic pressure to the established equitable doctrines of undue influence and unconscionable dealing of the type set out in Commercial Bank of Australia v Amadio.[22]
[21][2013] VSC 334, [34]-[43].
[22]Ibid [35] (citations omitted).
The High Court of Australia in Thorne v Kennedy (‘Thorne’) has since confirmed that Karam, as the leading intermediate appellate decision on the point,[23] stands as authority for the proposition that:
[T]he concept of illegitimate pressure should be restricted to the exertion of pressure by “threatened or actual unlawful conduct” …[24]
[23] (2017) 263 CLR 85, 97-99 [26]-[29] (Kiefel CJ, Bell, Gageler, Keane and Edelman JJ), [70] (Nettle J).
[24]Ibid [70]. See n 125.
While Nettle J in Thorne expressed some reservations about that limitation, he ultimately considered that he was bound to follow Karam and that:
[T]here would need to be detailed argument and deep consideration of the ramifications of departing from Karam before this Court would contemplate that course …[25]
[25]Ibid [73]. See [70]-[72].
Having regard to these authorities, I consider I am bound to apply the principle as set out in Karam and accepted by the High Court in Thorne, that ‘illegitimate pressure’ is limited to actual or threatened unlawful conduct.
In this case, the plaintiff has disavowed any reliance on unlawful conduct, and does not suggest there was any conduct of the type set out in Commonwealth Bank of Australia v Amadio.[26] In those circumstances I do not consider that it is arguable that the conduct complained of could render the 2019 Deed or 2022 Deed voidable. In those circumstances, I do not consider that there is a genuine dispute in relation to the debts in that regard.
[26](1983) 151 CLR 447.
Should the statutory demand be set aside for some other reason?
The plaintiff also submits that the statutory demand should be set aside for some other reason having regard to:
(a) the alleged failure by the defendant to pay the full amount agreed to be paid under the joint venture agreement, which it is said constitutes a breach of the joint venture agreement; and
(b) the alleged breach by the defendant of its obligations to promote the interests of the joint venture and not to do or omit to do anything that would have an adverse effect on the project.
I am not satisfied that the alleged failure to pay the full amount agreed to be paid into the joint venture agreement constitutes some other reason why the statutory demand should be set aside. I note that there is some dispute as to the amount of payments made, but even if the payments were not made in full, I do not consider that any claim in relation to such a breach is sufficiently related to the debt described in the statutory demand to constitute a reason why it should be set aside. I note in particular that cls 2.4 and 2.5 of the joint venture agreement specifically state that the amounts in question were to be paid to Mr Pascu ‘for his own use and benefit’ and ‘for whatever purpose he sees fit’, respectively, and clause 2.5 acknowledges that such funds ‘do not constitute development funds and [Mr Pascu] may use those funds for whatever purpose he sees fit.’ I do not consider that any failure to provide any part of those funds as alleged would constitute a reason to set aside the statutory demand issued to the plaintiff.
As for the alleged breaches of obligations to promote the interests of the joint venture and not to adversely affect it, all of the conduct relied on in that regard is conduct that occurred from 2017 onwards. As noted above, the effect of cl 4.3 of the joint venture agreement is that, because no construction finance was obtained by 26 June 2016, the agreement ended on that date. I do not consider that the plaintiff has established an arguable case that the conduct complained of was a breach. Even if it were a breach, I do not consider that the plaintiff has established sufficient grounds to set aside the statutory demand for some other reason. The statement of claim that has been filed particularises the loss and damage flowing from such alleged breaches to include:
(a) $297,000, being the unpaid amount of the defendant’s contribution;
(b) the amount of $100,000 Mr Pascu paid to the defendant under the 2019 Deed; and
(c) the lost opportunity to profit from the development.
Having regard to the size of the debt claimed in the statutory demand, the specific amounts of $297,000 and $100,000 are an insufficient basis upon which to set it aside. As for the loss of opportunity to profit, leaving aside questions of causation which were raised by the defendant, the plaintiff did not attempt to articulate how this claim would sound in damages, and in the circumstances I am not satisfied that it would be appropriate to set aside the statutory demand for some other reason.
Accordingly, I will dismiss the proceeding with costs unless the parties inform the Court by 4.00pm on 14 April 2023 that they seek any other order.
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