Rose v Sakkara Properties Pty Limited - [2009] FCA 304

FEDERAL COURT OF AUSTRALIA
Rose v Sakkara Properties Pty Limited [2009] FCA 304
TRADE PRACTICES – Unconscionable conduct – inequality of bargaining power – position of special disadvantage or disability – whether deeds entered into as a result of duress and improper pressure – whether any failure to permit redemption of mortgages – whether any conduct amounted to unconscionable conduct or duress and improper pressure
CONTRACTS – Whether contracts unjust in the circumstances relating to their execution – Contracts Review Act 1980 (NSW)
TRADE PRACTICES – Misleading and deceptive conduct – whether false representation – Trade Practices Act 1974 (Cth) Part V
Contracts Review Act 1980 (NSW)
Trade Practices Act 1974 (Cth)
ACCC v C.G. Berbatis Holdings Pty Ltd (2003) 214 CLR 51 applied
Watson v Foxman (1995) 49 NSWLR 315 applied
CHRISTOPHER PETER ROSE and ANOR v SAKKARA PROPERTIES PTY LIMITED & ORS
NSD 1087 of 2007
EMMETT J
1 APRIL 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 1087 of 2007

BETWEEN:
CHRISTOPHER PETER ROSE
First Applicant

RIVA PROPERTIES PTY LTD (IN LIQUIDATION)
Second Applicant

AND:
SAKKARA PROPERTIES PTY LIMITED
First Respondent

RMB AUSTRALIA HOLDINGS LIMITED
Second Respondent

SAKKARA CAPITAL INVESTMENTS PTY LIMITED
Third Respondent

JUDGE:

EMMETT J

DATE OF ORDER:

1 APRIL 2009

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
In respect of the Amended Application
1.Subject to order 3, the Amended Application be dismissed.

2.If the applicants do not file a Notice of Appeal within the time prescribed by the Federal Court Rules Order 52 rule 15, the applicants’ application for leave to amend be dismissed.

3.If the applicants do file a Notice of Appeal within the time prescribed by the Federal Court Rules Order 52 rule 15, the applicants’ application for leave to amend to be listed for hearing at a time convenient to the Court and the parties.

4.The applicants pay the respondents’ costs on an indemnity basis.

In respect of the Amended Cross-Claim
5.The first applicant/cross respondent pay to the first and second respondents/cross claimants the sum of $598,587.69 pursuant to the Guarantee and Indemnity between the first applicant, first respondent and second respondent dated 18 December 2006 (‘First Guarantee’).

6.The first applicant/cross respondent pay to the first and second respondents/cross claimants interest on the sum of $598,587.69, or so much as is outstanding from time to time, from and including 9 April 2009 until the judgment sum is paid in full, at the rate of 20% accruing daily and capitalised on the last day of each calendar month.

7.The first applicant/cross respondent pay to the second and third respondents/cross claimants the sum of $2,978,170.47 pursuant to the Guarantee and Indemnity between the first applicant, second respondent and third respondent dated 18 December 2006 (‘Second Guarantee’).

8.The first applicant/cross respondent pay to the second and third respondents interest on the sum of $2,978,170.47, or so much as is outstanding from time to time, from and including 9 April 2009 until the judgment sum is paid in full, at the rate of 28% accruing daily and capitalised on the last day of each calendar month.

9.The first applicant/cross respondents be restrained, until orders 5,6,7 and 8 have been complied with, from:
(a) creating or permitting to exist any encumbrance, other than a Permitted Encumbrance, over any of his property, including 1102/8 Glen Street, Milsons Point, New South Wales (‘Milsons Point Property’);
(b) disposing of, declaring a trust over or otherwise creating an interest in any of his property (including the Milsons Point Property) except if it is at arm’s length and for full value in a transaction that (other than the Milsons Point Property) is entered into in the ordinary course of his ordinary business,
(The words ‘encumbrance’ and ‘Permitted Encumbrance’ bear the meaning provided for in cl. 1.1 of the First Guarantee).

10.The first cross respondent pay the cross claimants’ costs of the cross-claim on an indemnity basis.

THE COURT DECLARES THAT:
11.The First Guarantee and the demand made for payment of $450,000 pursuant to the First Guarantee are valid and effective.
12.The Second Guarantee and the demand made for the payment of $2,000,000 pursuant to the Second Guarantee are valid and effective.

THE COURT NOTES the following undertakings given by the first applicant/cross respondent to the Court and the respondents/cross claimants:
13.Until orders 5, 6, 7 and 8 have been complied with, the first applicant/cross respondent, Christopher Peter Rose, will not dispose of the Net Proceeds of any sale of the Milsons Point Property.

14.The first applicant/cross respondent will, within 24 hours of exchange of any contract for sale of the Milsons Point Property, notify the respondents of the exchange of contracts and provide to the respondents a copy of the contract for sale of land.

15.The first applicant/cross respondent will, within 24 hours of completion of a contract for sale of the Milsons Point Property, provide to the respondents details of the proceeds of sale, including:

(a) The gross purchase price received on Completion;

(b) An itemised list of all payments made from the proceeds of sale;
(c) The amount of the Net Proceeds; and

(d) The name and address of the banking institution and account details in which the Net Proceeds will, subject to any other order of the Court, be maintained until orders 5, 6, 7 and 8 have been complied with.

Net Proceeds means the proceeds of sale of the Milsons Point Property, net of the following payments:
(a)   Payment of the amount required by ANZ Banking Group Limited to discharge registered mortgage AE109562.
(b)   Payment of the amount required to discharge the loan advanced by John Alexander Crawford supported by caveat AE337195.
(c)   Payment of commission due on completion of the sale of the Milsons Point Property to the selling agent, legal fees due to the vendors’ solicitor in respect of the conveyance of the Milsons Point Property and adjustments for strata, rates and water liabilities in respect of the Milsons Point Property.

To: Christopher Peter Rose
If Christopher Peter Rose disobeys order 9 of this order, Christopher Peter Rose is liable to imprisonment or sequestration of property.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 1087 of 2007

BETWEEN:
CHRISTOPHER PETER ROSE
First Applicant

RIVA PROPERTIES PTY LTD (IN LIQUIDATION)
Second Applicant

AND:
SAKKARA PROPERTIES PTY LIMITED
First Respondent

RMB AUSTRALIA HOLDINGS LIMITED
Second Respondent

SAKKARA CAPITAL INVESTMENTS PTY LIMITED
Third Respondent

JUDGE:

EMMETT J

DATE:

1 APRIL 2009

PLACE:

SYDNEY

REASONS FOR JUDGMENT
INTRODUCTION

This proceeding involves two separate claims, although much of the factual background is common to both claims. The principal claim involves both the first applicant, Mr Christopher Rose, as well as the second applicant, Riva Properties Pty Limited (Riva). The second claim involves only Riva. Riva is controlled by Mr Rose.
The principal claim concerns four agreements entered into on 18 December 2006 (together the Impugned Agreements). The parties to the Impugned Agreements were Mr Rose and Riva, on the one hand, and the respondents, Sakkara Properties Pty Limited (Sakkara Properties), RMB Australia Holdings Limited (RMB) and Sakkara Capital Investments Pty Limited (Sakkara Capital), on the other. It is convenient to refer to the three respondents together as the Lenders. Mr Rose and Riva claim that they have rescinded the Impugned Agreements. Alternatively, they claim declarations that the Impugned Agreements are void, orders that the Impugned Agreements be set aside and cancelled or orders refusing to enforce the Impugned Agreements.
Mr Rose and Riva claim that the Impugned Agreements were entered into as a consequence of duress and improper pressure alleged to have been brought to bear on Mr Rose by the Lenders. Alternatively, they claim that the Impugned Agreements were entered into as a result of unconscionable conduct on the part of the Lenders. Mr Rose also asserts that two of the Impugned Agreements, being guarantees executed by him, were unjust in the circumstances relating to their execution, within the Contracts Review Act 1980 (NSW) (Contracts Review Act).
The conduct complained of by Mr Rose and Riva is that the Lenders wrongfully refused to permit redemption of mortgages given to the Lenders by Moruben Properties Pty Limited (Moruben). Moruben is also controlled by Mr Rose. In addition, Mr Rose and Riva claim that the Lenders wrongfully threatened to appoint administrators to Riva, Moruben and other companies controlled by Mr Rose.
The two Impugned Agreements that are guarantees by Mr Rose relate to obligations owed by Riva to Sakkara Properties and to RMB and Sakkara Capital respectively. Riva has failed to meet those obligations. Accordingly, by cross-claim, the Lenders claim judgment against Mr Rose under the guarantees. Mr Rose accepts that, if he and Riva fail to obtain the relief claimed in the proceeding, he has no answer to the cross-claim by the Lenders in respect of his obligations under the guarantees.
Under the guarantees, Mr Rose covenanted that he would not further encumber any property of his until the obligations guaranteed by him are satisfied. I shall refer below to the precise terms of the covenants. The Lenders say that Mr Rose has, notwithstanding that covenant, further encumbered property owned by him. Accordingly, as I understand the position, Mr Rose also accepts that, if he and Riva fail to obtain the relief claimed in the proceeding, injunctions should be granted restraining Mr Rose from further encumbering his property. Mr Rose accepts that, unless restrained, he does not regard himself as bound by the covenants.
In the second claim, Riva asserts that it suffered loss by misleading and deceptive conduct that it alleges was engaged in by the Lenders in connection with the sale by Riva to Chevron Lifestyle Properties Pty Ltd (Chevron Lifestyle) of apartments in a property at Chevron Island, Queensland (the Chevron Island Property). The apartments were constructed by Riva with the assistance of finance provided by the Lenders on the security of mortgages of the Chevron Island Property. Riva says that the Lenders represented to it that they were agreeable, or would be agreeable, to Riva’s selling unsold apartments in the Chevron Island Property in one line to Chevron Lifestyle. Riva says that, because the Lenders were not agreeable to such a sale, the alleged representations were misleading or deceptive in contravention of the Trade Practices Act 1974 (Cth) (Trade Practices Act) and that Riva suffered loss by reason of having to pay the sum of $102,500 to Chevron Lifestyle as consideration for the rescission of the contract for sale that Riva entered into with Chevron Lifestyle in reliance upon the alleged representations.
I shall first say something about the parties and various financing arrangements entered into by the Lenders with companies controlled by Mr Rose. I shall then say something about the witnesses. After that, I shall deal with the circumstances of Riva’s contract with Chevron Lifestyle. Finally, I shall deal with the circumstances that led up to the execution of the Impugned Agreements.
The Parties and the Financing Arrangements
In his evidence in chief, Mr Rose described himself as a property developer, although to the extent that he engaged in such an activity, he did so through a series of limited liability companies controlled by him, each separate property development being undertaken by a different company. One of the issues turns on that distinction, having regard to the provisions of the Contracts Review Act. Under s 6(2) of the Contracts Review Act, a person may not be granted relief in relation to a contract so far as the contract was entered into in the course of, or for the purpose of, a trade, business or profession carried on by the person. The Lenders say that the Impugned Agreements were entered into by Mr Rose in the course of the business carried on by him as a property developer.
In addition to Riva and Moruben, Mr Rose also controlled the following companies:
·Quadwest Developments Pty Ltd (Quadwest);
·Quadrant Properties Pty Ltd (Quadrant Properties);
·Quadrant Property Services Pty Ltd (Quadrant Services);
·Quadrant Projects Pty Ltd (Quadrant Projects).
The companies controlled by Mr Rose are conveniently referred to as the Quadrant Group.
Each of the Lenders is a financier. Sakkara Properties and Sakkara Capital are related to each other and are part of the Sakkara Group. RMB is an Australian subsidiary of an international financier. Various finance facilities were entered into between the members of the Quadrant Group on the one hand, and one or more of the Lenders, on the other. Sakkara Capital managed RMB’s involvement in the various facilities.
Different facilities were entered into in relation to each development of the Quadrant Group. In some instances, the facilities were cross-collateralised, in that one development was sometimes provided as security for facilities granted in connection with a different development. It is desirable to say something about the facilities relating to each development.
The Riva Facilities
In February 2004, Riva acquired the Chevron Island Property for the purposes of constructing 21 residential apartments and the subsequent sale of the apartments. On 16 February 2004, Riva entered into a facility agreement with Sakkara Properties (the Riva Equity Agreement) for the provision of finance up to a total of $2 million. The obligations of Riva under the Riva Equity Agreement were secured by a registered mortgage of the Chevron Island Property and a fixed and floating charge over the whole of the assets of Riva. Advances were made to Riva by Sakkara Properties pursuant to the Riva Equity Agreement.
On 23 December 2004, Riva entered into a loan agreement with Sakkara Capital and RMB for the provision of a further facility of $2 million for the purposes of refinancing (the Riva Mezzanine Agreement). An advance was made pursuant to the Riva Mezzanine Agreement, part of which was applied in repayment of advances made under the Riva Equity Agreement. The obligations of Riva under the Riva Mezzanine Agreement were also secured by a registered mortgage of the Chevron Island Property and a fixed and floating charge over the whole of Riva’s assets.
On 23 December 2004 Quadrant Properties executed a Guarantee and Indemnity in favour of Sakkara Capital and RMB. The Guarantee and Indemnity is curious in so far as it fails to identify Sakkara Capital and RMB by name. However, it is common ground that the Guarantee and Indemnity executed by Quadrant Properties on 23 December 2004 was given in favour of Sakkara Capital and RMB in respect of the obligations of Riva under the Riva Mezzanine Agreement.
On 8 June 2006, Mr Rose executed a mortgage (the Milsons Point Mortgage) over his home in Milsons Point (the Milsons Point Property) in favour of Sakkara Capital and RMB to secure the payment of all amounts payable by Mr Rose or by Quadrant Properties to Sakkara Capital and RMB. In the Milsons Point Mortgage, Mr Rose also personally covenanted to pay the amount secured by the Milsons Point Mortgage. Thus, Mr Rose was personally liable, without limit, for the obligations of Riva under the Riva Mezzanine Agreement.
The Moruben Facilities
In or before June 2004, Moruben was granted an option to acquire land in Moruben Road, Balmoral, NSW (the Moruben Road Property). On 16 June 2004, in connection with the proposed development and resale of the Moruben Road Property, Moruben entered into a development facility agreement with Sakkara Properties (the Moruben Equity Agreement). The limit of the Moruben Equity Agreement was $300,000.
By clause 6.1 of the Moruben Equity Agreement, Moruben acknowledged and agreed that, in addition to the payment of all other money payable to Sakkara Properties, Moruben must pay to Sakkara Properties an amount calculated as 10% of the Net Project Profit of the Project. Project was defined as the acquisition of the Moruben Road Property, obtaining all approvals necessary to carry out the design and construction of six luxury apartments, managing and carrying out all work necessary to construct the development, marketing and selling the apartments and any other incidental works and matters required for completion of the development.
Net Project Profit was defined as the amount agreed by Sakkara Properties and Moruben in good faith to be the profit derived in relation to the Moruben Road Property calculated by reference to the difference between Revenue for the Project less Project Costs, as detailed in the Feasibility. Revenue was defined as the proceeds of sales of the Moruben Road Property, plus any other revenue received by Moruben for the Project. The term Project Costs was defined as the cost to Moruben and the Project of acquisition costs, construction costs, financing costs, selling costs and such other costs incurred on the Project as the parties may agree. Feasibility was defined as the detailed Project feasibility annexed to the Moruben Equity Agreement, as varied with the written consent of Sakkara Properties. Net Project Profit was to be determined only after there had been paid from sale of the Project all amounts owing to any senior lender, any mezzanine debt provider and all amounts owing to Sakkara Properties.
Under clause 6.6(a) of the Moruben Equity Agreement, Moruben was required to make available to Sakkara Properties all records, vouchers, receipts, accounts and plans relating to the Project, its purchase and sale, to enable Sakkara Properties to assess the Net Project Profit. Further, under clause 6.6(b) Moruben agreed that it would not sell, assign or otherwise dispose of the Project unless it ensured that any sale, assignment or disposal was for a fair and proper consideration and otherwise on terms appropriate to an arms length commercial transaction and was on terms acceptable to Sakkara Properties. Such terms could include arrangements to ensure that Sakkara Properties will achieve an economic return on its debt as contemplated by the Moruben Equity Agreement. Finally, by clause 6.6(c), Moruben acknowledged that the 10% of Net Project Profit to be paid to Sakkara Properties represented additional interest payable to Sakkara Properties in consideration of the facilities granted to Moruben and that a proper financial return to Sakkara Properties was calculated by adding the 10% of Net Project Profit to all other money payable to Sakkara Properties.
However, under clause 6.4 of the Moruben Equity Agreement, Sakkara Properties was to receive a minimum Internal Rate of Return of 40% prior to any distribution to Moruben of Net Project Profit. Internal Rate of Return was defined as the rate of interest determined by Sakkara Properties (expressed as a percentage) at which all future payments under the facility made available under the Moruben Equity Agreement must be discounted in order that the net present value of those cash flows should be equal to zero.
By clause 8 of the Moruben Equity Agreement, Mr Rose guaranteed to Sakkara Properties that Moruben would promptly and diligently comply with all of its obligations under the Moruben Equity Agreement relating to the physical delivery and management of the Project. However, nothing in clause 8 was to impose upon Mr Rose any liability to Sakkara Properties for the repayment of any debt of Moruben. Thus, the parties expressly excluded any liability on the part of Mr Rose for money obligations of Moruben.

The effect of clause 3(d) of the Moruben Equity Agreement was that Moruben could only make a drawing under the Moruben Equity Agreement if Sakkara Properties held the Security. Security was defined as being:
(a)a charge over Moruben’s option to buy the Moruben Road Property and any contract entered into pursuant to that option, and a fixed and floating charge over the whole of Moruben’s assets and undertaking; and
(b)after completion of the purchase of the Moruben Road Property, a second mortgage over the Moruben Road Property and a deed of priority between Moruben, Sakkara Properties, and any senior lender consented to by Sakkara Properties.
There was some doubt about whether such a second mortgage was ever granted. No second mortgage was in evidence and, at one stage during the hearing, Mr Rose and Riva suggested that no mortgage had in fact been given, notwithstanding an allegation in the Third Further Amended Statement of Claim that Moruben had granted an equitable mortgage over the Moruben Road Property. Ultimately, that suggestion was abandoned and the proceeding was conducted on the basis that it was common ground that at least an equitable mortgage of the Moruben Road Property was given to Sakkara Properties to secure Moruben’s obligations under the Moruben Equity Agreement (the Moruben Equity Mortgage). The existence of the Moruben Equity Mortgage is of critical importance as will appear below.
On 28 March 2006, Sakkara Properties wrote to Moruben in relation to the Moruben Equity Agreement, the term of which had expired on 15 December 2005. Sakkara Properties notified Moruben that the term had been extended until 31 December 2006. Mr Rose accepted the extension on behalf of Moruben.
On 15 April 2005, Moruben entered into a loan agreement with Sakkara Capital and RMB (the Moruben Mezzanine Agreement) for the provision of advances up to $1,700,000. Moruben’s obligations under the Moruben Mezzanine Agreement were to be secured by a registered mortgage over the Moruben Road Property, as well as fixed and floating charges over all of the assets of Moruben.
By mortgage dated 15 April 2005 (the Moruben Mezzanine Mortgage), which was registered in due course, Moruben mortgaged the Moruben Road Property to Sakkara Capital and RMB to secure the punctual payment of the Secured Money. Secured Money was defined as all amounts that are payable, owing but not payable or that otherwise remain unpaid, by Moruben to RMB and Sakkara Capital on any account at any time. Clause 15 of the Moruben Mezzanine Mortgage provided that:
·when RMB and Sakkara Capital were satisfied that all the Secured Money had been irrevocably paid and discharged in full or satisfied and no amount remained contingently payable, or may become payable, on the security of the Moruben Mezzanine Mortgage; and
·on payment or retention of all expenses incurred by or payable to RMB and Sakkara Capital,
RMB and Sakkara Capital must, at the request and cost of Moruben, reconvey, surrender or release to Moruben any remaining part of the Moruben Road Property, which would then be discharged from the Moruben Mezzanine Mortgage.
By fixed and floating charge given by Moruben on 15 April 2005, Moruben charged all its assets to Sakkara Capital and RMB. That charge contains an express power for Sakkara Capital and RMB to appoint a receiver or receivers of any of the charged property. Under s 436C of the Corporations Act 2001 (Cth) (the Corporations Act), a chargee, such as RMB and Sakkara Capital were in relation to Moruben, has power to appoint an administrator of a company granting such a charge. The significance of that will become apparent.
Also on 15 April 2005, a deed of priority was executed by Sakkara Capital and RMB, Moruben and BOS International (Australia) Limited (BOS), in connection with the Moruben Mezzanine Agreement (the BOS Priority Deed). By the BOS Priority Deed, the mortgage and charges given to BOS as security for advances made by it to Moruben were given priority over the mortgage and charges given to Sakkara Capital and RMB.
Clause 4.1 of the BOS Priority Deed relevantly provided to the following effect:
(a)Subject to (c) below, BOS may exercise any power, under or in respect of its first ranking registered mortgage over the Moruben Road Property without first notifying RMB and Sakkara Capital.
(b)RMB and Sakkara Capital may not exercise any power under or in respect of their second ranking registered mortgage over the Moruben Road Property or their second ranking fixed and floating charge over the assets of Moruben without the consent of BOS unless BOS has been fully and finally paid all amounts advanced by BOS to Moruben in connection with the development of the Moruben Road Property and BOS is satisfied that any such payment is not able to be avoided for any reason.
(c)BOS will give to RMB and Sakkara Capital fourteen days notice before realising any property that is subject to a security interest under those securities.
(d)RMB and Sakkara Capital may exercise a power under or in respect of their second ranking registered mortgage and their second ranking fixed and floating charge without the prior written consent of BOS if, and to the extent that, BOS’s first ranking registered mortgage and the second ranking securities in favour of RMB and Sakkara Capital do not create or evidence a security interest over the same property of Moruben.
A similar deed of priority had been entered into with Bank of Western Australia Limited in relation to the Riva Mezzanine Agreement.
The term “power” was defined, both in the BOS Priority Deed and in the priority deed with Bank of Western Australia Limited, as including any power, right, discretion and remedy of a chargee or receiver, as applicable, whether under the Priority Deed, under the security or under any law. Thus, the term power, when used in clause 4.1 would include the right to appoint a receiver or administrator to Moruben or Riva. That is of significance in relation to the alleged threat by the Lenders about which Riva and Mr Rose complain.
The Quadwest Facility
In November 2005, Quadwest acquired land in Adelaide Terrace, Perth WA (the Adelaide Terrace Property) for the purposes of development into apartments and resale. The funds used for the purchase of the Adelaide Terrace Property were provided by Sakkara Properties pursuant to a loan agreement dated 15 March 2005 (the Quadwest Loan Agreement). Riva and Moruben were also parties to the Quadwest Loan Agreement. The obligations of Quadwest under the Quadwest Loan Agreement were secured by a mortgage over the Adelaide Terrace Property and charges by Quadwest in favour of Sakkara Properties and RMB. In addition, Quadwest’s obligations were secured by a registered mortgage over the Moruben Road Property and a registered mortgage over the Chevron Island Property. There was thus cross-collateralisation of the Chevron Island Property and the Moruben Road Property in relation to the Adelaide Terrace Property.
Default under the Financing Facilities with the Lenders
As at November and December 2006, the critical times in relation to the principal claim made by Riva and Mr Rose, the various facilities described above were either overdue or in default. The Riva Equity Agreement had expired on 16 February 2006, although it had been extended to 31 December 2006. The Riva Mezzanine Agreement had expired on 30 September 2006. The Moruben Equity Agreement had expired on 15 December 2005, although it had been extended to 31 December 2006. The Moruben Mezzanine Agreement expired on 15 October 2006. The Quadwest Loan Agreement had expired on 30 September 2006.
Thus, the Riva Mezzanine Agreement, the Moruben Mezzanine Agreement and the Quadwest Loan Agreement were in default according to their terms. In addition, notwithstanding the extension of the Riva Equity Agreement and the Moruben Equity Agreement to 31 December 2006, they were in default by reason of cross default provisions linking them to the Riva Mezzanine Agreement and the Moruben Mezzanine Agreement respectively.
The Witnesses
Mr Rose gave evidence orally and was extensively cross examined. In addition, oral evidence was given by Mr Neil Wilson, the managing director of the Sakkara Group and Mr Gordon Bevan, the former chief operating officer of the Sakkara Group. Both were extensively cross-examined. Mr Stephen Camilleri was an officer of the Sakkara Group at relevant times. Mr Camilleri played an important role on behalf of the Sakkara Group in relation to the Quadwest Group, but was not called to give evidence.
Mr Rose
In the witness box, Mr Rose initially presented as a plausible witness. However, his evidence was shown to be quite unreliable on several occasions, such that I would not be prepared to accept his oral evidence where in conflict with the evidence of the other witnesses. I shall recount several such instances of Mr Rose’s unreliability.
One of the complaints by Riva and Mr Rose in the proceeding is that, in an alleged conversation with Mr Bevan on 8 December 2006, Mr Bevan threatened that Sakkara Capital and RMB would move to appoint an administrator to all companies in the Quadrant Group to which they had exposure, including Moruben. A file note purporting to record that threat was tendered on behalf of Mr Rose and Riva.
The file note, which bears the date 8 December 2006, purports to record a telephone call between Mr Rose and Mr Bevan “at approximately 11 am” on 8 December 2006. In his evidence in chief, Mr Rose said that he had a practice in relation to meetings that he attended, which entailed his sitting down and typing a file note on a computer, within one to two days after the meeting. He said that it was sometimes shorter than one to two days and sometimes it was immediately after the meeting, but certainly no later than a couple of days. When giving his evidence in chief, Mr Rose was asked about the file note bearing the date 8 December 2006. He said that it was prepared in accordance with that usual practice.
When asked about the file note in cross-examination, Mr Rose said that it was typed a few days later than 8 December 2006 but that he could not recall the exact date. When it was put to him that it was a lot more than a few days, Mr Rose persisted in saying that he could not recall the exact date. When it was specifically put to him that it was not prepared until some time in late 2007, his response again was that he could not recall when it was done.
Ultimately, however, Mr Rose accepted that the file note was created in October 2007 and modified in November 2007. Specifically, he accepted that he did not create the file note until well after this proceeding had been commenced. He accepted that, until challenged with those facts, he had been prepared to put the file note forward as a contemporaneous record of what Mr Bevan had said to him on 8 December 2006. He also accepted that he intended that the Court should believe that it had been brought into existence shortly after the discussion to which it referred.
It is also significant that, when giving oral evidence concerning the alleged threat to appoint an administrator, purportedly recorded in the spurious file note, Mr Rose, on three occasions, referred to a threat to appoint a receiver. He has never complained about a threat to appoint a receiver, although it is possible that Mr Bevan may have adverted to that possibility, something to which I shall return later. The reference to the threat to appoint an administrator was an integral part of the initial complaint made by Mr Rose and Riva in the proceeding. The inconsistency in referring to appointment of a receiver and appointment of an administrator, when coupled with the spurious file note, is highly damaging to Mr Rose’s credibility.
Another matter relevant to the assessment of Mr Rose’s credibility arises out of evidence he gave concerning the Milsons Point Mortgage. In the course of his evidence in chief, Mr Rose was asked about his state of mind when he accepted a proposal from the Lenders contained in a letter of 8 December 2006, pursuant to which the Impugned Agreements were executed. He answered that there were a number of concerns and pressures that he had. One was that the facilities granted to Riva and Moruben by senior lenders (BOS and Bank of Western Australia Limited), which he had personally guaranteed, were to expire at the end of 2006. He said that he was also acutely aware of the financial position in which he would find himself, if he were unable to access any funds from the Moruben Road Project. He ended by saying that he was also concerned about losing his own home, given that Sakkara Capital [and RMB] also had a mortgage over that. Clearly, he was then referring to the Milson’s Point Mortgage.
In cross-examination, Mr Rose accepted that he understood that he had given a mortgage over his home to secure the obligations of Quadrant Properties and that he understood that Quadrant Properties had given a guarantee of the obligations owed by Riva to Sakkara Capital and RMB. However, when it was put to him that the reason he was concerned about losing his home was that he knew that he was personally “on the line for all of Riva’s liabilities”, he said that that was not the reason. It was put to him that he had said, in his evidence in chief, that he was concerned about losing his home because he understood the way in which the securities were interlocked. Mr Rose’s response was that he was concerned about “the threat that Gordon Bevan gave saying that they would appoint receivers [sic]”.
In later cross-examination, Mr Rose would not agree that, prior to 8 December 2006, he was personally liable, by reason of the covenants in the Milson’s Point Mortgage, for the obligations owed by Riva. He would not accept that that was why he said he was concerned about losing his own home. Later still in cross-examination, Mr Rose said that he was concerned that, if an administrator were appointed to all the companies in the Quadrant Group, then one of the assets that would be seized would be his own home. He said that he believed that, if Gordon Bevan’s threat to appoint a receiver [sic] to all the companies were carried out, then his home would be captured by that.
In re-examination, when asked what his understanding was as to how, if a receiver or administrator were appointed to all of his companies, that would capture his home, Mr Rose said that he had personally guaranteed senior debt facilities and he knew that an event of default was the appointment of an administrator. However, that response appears to be a complete non sequiter. It was not suggested that there was a mortgage over the Milson’s Point Property in favour of the senior lenders. There is no basis for concluding that the appointment of receivers or administrators would result in the Milson’s Point Mortgage being enforced. Mr Rose’s evidence in relation to the matter was wholly unconvincing.
Where there is any conflict between Mr Rose, on the one hand, and Mr Bevan or Mr Wilson on the other, I prefer the evidence of the latter two over that of Mr Rose. That conclusion underlies the factual findings that I make below concerning the alleged misleading and deceptive conduct in relation to the sale of the Chevron Island Property to Chevron Lifestyle and also the communications that led to the execution of the Impugned Agreements.
Mr Wilson
Mr Wilson is the managing director of the Sakkara Group. Mr Wilson and Mr Rose worked together for a developer for a number of years from the late 1980s or early 1990s, through to the mid 1990s. They were close working colleagues and were friends as well. They each left the employment of that developer, at different times, and went their separate ways. Mr Wilson and Mr Rose subsequently met by chance, as a result of which Mr Rose commenced dealing with the Sakkara Group.
I consider that Mr Wilson made an honest and fair attempt to give accurate evidence. He presented in the witness box as a credible and honest witness and I consider that his evidence is on the whole reliable.
Mr Bevan
Mr Bevan is a solicitor. He commenced practice as a solicitor in 1974. His practice, until the middle of 2005, was concerned with banking, finance and property. Mr Bevan had a practice of maintaining a day book in which he made notes of conferences and attendances. He did not maintain a separate book for separate matters, but made a separate note in the day book as each attendance or conference occurred. The notes do not purport to record everything that occurred, or even everything that might have been regarded as important. Rather, Mr Bevan regarded his notes as a prompt for himself. In the middle of 2005, Mr Bevan became a director of the Sakkara Group. Mr Bevan continued the practice of maintaining a day book while working with Sakkara Group during 2006.
My assessment of Mr Bevan is that he is an honest and credible witness, who was making a genuine effort to recall relevant circumstances as best he could. That is not to say that his recollection was perfect but, on the whole, I regard his evidence as reliable.
RIVA’S AGREEMENT WITH CHEVRON LIFESTYLE
Riva’s allegations concerning the Chevron Island Property in the Third Further Amended Statement of Claim may be summarised as follows:
·From February 2004 Riva engaged in marketing activity for the sale of the apartments, or units, in the Chevron Island Property but, by June 2005, some of the units had not been sold.
·In June 2005, Mr Rose informed Mr Wilson that Riva did not have the funds to market or pay holding costs in respect of unsold units in the Chevron Island Property.
·In March 2006 Mr Rose informed Mr Wilson that there had been a deterioration in the market for the sale of units in the Chevron Island Property, that some of the units had not been sold, that the profit hoped for from the sale of the units was not going to be realised, that Chevron Lifestyle was prepared to purchase the unsold units and that Riva proposed to sell the unsold units to Chevron Lifestyle in order to complete the development of the Chevron Island Property.
·Mr Wilson represented to Mr Rose at that time that the Lenders were agreeable, and would be agreeable, for Riva to sell the unsold units to Chevron Lifestyle.
·Those representations were misleading and deceptive because the Lenders were not agreeable to Riva selling the remaining units to Chevron Lifestyle and there were no reasonable grounds for representing that they would be agreeable to such a sale.
·On 18 May 2006, in reliance upon the representations, Riva entered into a contract for the sale to Chevron Lifestyle of the unsold units in the Chevron Island Property.
·On or about 4 July 2006, Mr Rose was informed that the Lenders would not permit the sale to Chevron Lifestyle and would insist on the contract with Chevron Lifestyle being rescinded.
·On 2 May 2007, Riva paid the sum of $102,500 to Chevron Lifestyle as consideration for the rescission of contract to sell the remaining units in the Chevron Island Property to Chevron Lifestyle.
The Lenders deny that the representations were made as alleged but accept that, if the representations alleged were made, they were false. However, the Lenders say that, even if representations were made, Riva has failed to establish that it has suffered any loss as a consequence of having entered into the contract with Chevron Lifestyle. In particular, they rely on the fact that Riva has made no attempt to show whether, after the contract with Chevron Lifestyle was rescinded, it subsequently sold the units in the Chevron Island Property that were the subject of that contract and, if so, the amount of the proceeds of sale. More specifically, there is no evidence to indicate whether the amount of any such proceeds was greater or less than the price at which Riva had agreed to sell the units to Chevron Lifestyle. Further, the only evidence of the value of the units suggests that their combined value was significantly greater than the prices payable by Chevron Lifestyle, such that an inference can be drawn that Riva was better off as a consequence of the rescission of the contract with Chevron Lifestyle.

In the circumstances, I would not be persuaded, on the balance of probabilities, that, even if there had been misleading and deceptive conduct on the part of the Lenders that induced Riva to enter into the contract with Chevron Lifestyle, Riva suffered any loss or damage as a consequence. In any event, for the reasons I shall now explain, I am not persuaded that there was any conduct on the part of the Lenders that was misleading or deceptive in relation to the sale of the units to Chevron Lifestyle.
Where one party alleges that the conduct of another was misleading or deceptive, it is incumbent upon the first party to establish, on the balance of probabilities, precisely what the conduct was that is alleged to be misleading. In addition, the precise circumstances that rendered the conduct misleading must be established. Where the conduct is the making of oral representations, the words spoken must be proved with a degree of precision that enables the Court to be satisfied, on the balance of probabilities, that the words spoken were misleading in the circumstances established. The question of whether spoken words were misleading may, although not necessarily, depend upon what may have been relatively subtle nuances flowing from the use of a particular word, phrase or grammatical construction or the presence or absence of some qualifying word or phrase or condition (see, for example, Watson v Foxman (1995) 49 NSWLR 315 at 318-319).
There is no contemporaneous documentary evidence of the representations alleged by Mr Rose to have been made by Mr Wilson. The sole evidence of the alleged representations is oral evidence given by Mr Rose. To the extent that that evidence is inconsistent with Mr Bevan’s evidence, I reject it. I consider that the evidence of the conversation given by Mr Wilson indicates what happened. Accordingly, I shall recount only that version.
Mr Wilson accepted that he had a conversation with Mr Rose in March 2006 concerning the sale of the unsold units in the Chevron Island Property. Mr Rose broached the subject by saying that, in his opinion, the Gold Coast market was deteriorating and that he felt an inline sale would be beneficial to the Chevron Island Project. He said that he had a potential inline buyer that would see the “mezzanine deck” portion of the project receive a full return of principal and interest; however, the equity portion of the loan would only receive the principal plus an 8% return, which would leave a 2% shortfall, and there would be no profit share.
Mr Wilson responded by saying that Mr Rose had not managed the Chevron Island Project as well as he had managed previous projects. Mr Wilson told Mr Rose that he had “dropped the ball on this one”, that he had been focussed on the Adelaide Terrace Project, as well as other things, and that, as a consequence, the Chevron Island Project had suffered. Mr Wilson also told Mr Rose that, nevertheless, he agreed that the Gold Coast market looked like it was going to deteriorate and that he would generally be supportive of a transaction that realised full principal and interest under the Riva Mezzanine Agreement and an 8% return under the Riva Equity Agreement with no profit share.
However, Mr Wilson told Mr Rose that that was a discussion he would need to have with his colleagues and with the Investment Committee of RMB, because he could not make decisions on his own. Mr Rose nodded and said “OK”. In cross-examination, Mr Rose acknowledged that he knew, from his previous dealings with Mr Wilson, that there would always be a formal process in relation to anything that they agreed, although he said that he was accustomed to accept Mr Wilson’s word and that if something was agreed between them, it would be done in the way that they had agreed. He gave no specific examples.
Riva relies on a subsequent communication that it says corroborates Mr Rose’s evidence that representations were made as alleged. On 10 October 2006, Mr John Batiste, head of lending for the Sakkara Group, wrote to Mr Rose. After referring to the contract with Chevron Lifestyle, Mr Batiste said as follows:
As discussed at the abovementioned meeting [on 5 October 2006] the Lenders at no time agreed to [Riva] entering into the [contract with Chevron Lifestyle]. The Lenders have reservations that the Lenders will be repaid the indebtedness by [Riva] should the contract be completed. In the circumstances, the Lenders reiterate that the Lenders do not agree to the completion of the contract without [Riva] demonstrating to the Lender’s [sic] satisfaction the capacity of [Riva] to repay the indebtedness of [Riva] to the Lenders. In the absence of such evidence, the Lenders reserve their rights under the terms of their security documentation.
On 17 October 2006, Mr Rose sent a facsimile communication to Mr Batiste, in response to the letter of 10 October 2006. After referring to the contract with Chevron Lifestyle, Mr Rose went on to say:
As part of my own personal endeavours to market the project prior to practical completion, I met with Neil Wilson in early March 2006 (prior to exchanging contract with [Chevron Lifestyle]) to advise him of Riva’s intention to sell to [Chevron Lifestyle] the remaining apartments at a discounted price. During this discussion I explained to Neil that the price was the best “arms length sale” we could negotiate without third party assistance and that the sale would be insufficient to generate a development profit and could result in a reduction in the rate of return that Riva could pay to RMB/Sakkara. Neil acknowledged this and encouraged me to get the best price possible from [Chevron Lifestyle] rather than to get to completion and have almost 50% of the building unsold.
In our attempt to mitigate loss and reliant upon the consent from Neil Wilson, we exchanged 9 contracts of sale with [Chevron Lifestyle] on the 10^th of May 2006 for a combined sale price of $4.6 million. We advised you of this on the 5^th June 2006. [Emphasis added]
There was no specific response to Mr Rose’s facsimile of 17 October 2006 by Mr Batiste or anyone else on behalf of the Lenders. However, Mr Wilson told Mr Batiste that the assertion in the facsimile was incorrect. Even so, the facsimile does not refer to a representation by Mr Wilson that the Lenders were agreeable to a sale, the terms of which had not even been settled at that stage. If anything, the facsimile is inconsistent with a representation such as is alleged. To encourage Mr Rose to get the best price possible is not a representation that the Lenders would be agreeable to a sale at an unspecified price.
It is inherently unlikely that Mr Wilson would make a statement intended to bind, not only Sakkara Properties and Sakkara Capital, but also RMB, without obtaining express authority to do so. The discussion in March 2006 took place in a coffee shop. That is to say, it was attended with a degree of informality. I accept the version of the conversation given by Mr Wilson. I do not consider that that discussion involved the making of any representation by Mr Wilson that the Lenders were agreeable to, or would be agreeable to, a sale of units in the Chevron Island Project in one line, such as is alleged by Riva. I do not consider that the statements that Mr Wilson made to Mr Rose on that occasion were, in the circumstances, misleading or deceptive. It may be that Mr Rose was encouraged by the response that he received from Mr Wilson to pursue negotiations for the sale of the unsold units in one line. Be that as it may, that is a different matter altogether from a representation that the Lenders were agreeable or would be agreeable to a sale of the remaining units on terms that were not specified. As I have said, the language of the facsimile of 17 October 2006 is inconsistent with such a representation.
I do not consider that Riva has established that any of the Lenders engaged in any misleading or deceptive conduct in connection with the sale of units in the Chevron Island Property to Chevron Lifestyle. This claim must be rejected.
EXECUTION OF THE IMPUGNED AGREEMENTS
Mr Rose and Riva rely on three separate causes of action in relation to the Impugned Agreements. All depend upon the same factual matrix. They assert that there were two aspects of duress or unfair pressure brought to bear on them by the Lenders, which, they say, give rise to the three causes of action on which they rely. The first is that the Lenders threatened to appoint administrators to the companies of the Quadrant Group, in circumstances where it was unlawful for them to do so, because of the provisions of the BOS Priority Deed and the priority deed with the Bank of Western Australia Limited. The second is that the Lenders refused, or at least threatened to refuse, to permit Moruben to redeem the Moruben Equity Mortgage and the Moruben Mezzanine Mortgage, in circumstances where Moruben had evinced its willingness and ability to redeem by payment of all money secured by those two mortgages. It is convenient to deal with each of those aspects separately.
Threat To Appoint Administrators
In the Third Further Amended Statement of Claim, Mr Rose and Riva make the following allegations concerning the threat to appoint administrators:
·On 8 December 2006, Mr Bevan, acting on behalf of the Lenders, made a threat to Mr Rose and Riva that, if Mr Rose did not agree to provide a personal guarantee in respect of the obligations of Riva, they would move to appoint an administrator to all of the companies in the Quadrant Group.
·The making of that threat was unlawful, because the Lenders were not entitled, having regard to the terms of the priority deeds with BOS and Bank of Western Australia Limited, to appoint an administrator without the prior written consent of those senior lenders.
·The making of that threat thereby placed improper pressure upon Mr Rose to give a personal guarantee in respect of the financial obligations of Riva to the Lenders and on Riva to agree to a variation of the Riva Equity Facility and the Riva Mezzanine Facility.
·The execution of the Impugned Agreements was induced by that improper pressure.
Mr Rose gave evidence of the alleged threat of 8 December 2006. He relied upon his spurious file note of that date as corroborating his evidence. For the reasons given above, I do not accept Mr Rose’s evidence when it is inconsistent with that of Mr Bevan or Mr Wilson. For the reasons given above, I reject the spurious file note as having no weight whatsoever. Indeed, the circumstances surrounding the creation of the file note firmly suggest that no threat such as is alleged was made.
However, Mr Rose and Riva also pointed to internal memoranda of the Lenders that, they say, tend to support the allegation of a threat by Mr Bevan to appoint administrators. I consider that the documents, if anything, confirm that no threat was made on 8 December 2006 as alleged.
On 13 November 2006, Mr Camilleri sent an email to Mr Bevan in connection with the Quadrant Group. In the email, Mr Camilleri pointed out to Mr Bevan the prohibition on RMB and Sakkara Capital from exercising any power under its securities without the prior written consent of BOS. In the course of cross-examination, Mr Bevan agreed that it was unlikely that such consent would be given and that he did not ask for it. Mr Bevan accepted that, while it was not highly unusual for a senior lender to consent to a subordinate lender appointing a receiver, it was rare.
In an email of 4 December 2006, from Mr Bevan to Messrs Camilleri and Wilson, Mr Bevan referred to Mr Camilleri’s confirmation that they could not “move on the Riva security without the consent of the senior lender”. In response, Mr Wilson said that they needed to have an investment committee meeting on the question of the Quadrant Group.
At some time on 4 December 2006, Mr Bevan made a note in his day book concerning strategy in relation to Riva. His note was as follows:
Threaten to appoint a receiver/manager to:
Riva Properties Pty Limited
Quadrant Properties Pty Limited
-to approach Bank of Western Australia to obtain consent to act based upon Riva Properties being in default by reason of:
·expired Facility;
· changed circumstances;
- need the consent of Bank of Western Australia to act under our security – limitation as contained in the Deed of Priority with Bank of Western Australia.
I have added the emphasis. It is significant that the note refers to the appointment of a receiver/manager and not to the appointment of an administrator.
Later on 4 December 2006, Mr Bevan sent another email to Mr Camilleri, with a copy to Mr Wilson, saying, relevantly, as follows:
I suggest that we be in a position to put to the IC meeting scheduled for 5:00 pm today a proposal which, in the absence of Chris Rose changing his position to satisfy concerns on the Riva Project, that we:
(1)take steps to appoint a Receiver to Riva Properties Pty Ltd, Qaudrant [sic] Properties Pty Ltd;
(2)threaten to take steps to appoint a Receiver to Quadrant Properties Services Pty Ltd / Quadrant Projects Pty Ltd (before we can appoint a Receiver we need to establish an indebtedness by these 2 companies it may just be a matter of timing dependent upon the ability of Chris Rose to pay out the Mezzanine debt and profit share on Moruben Road and Quadwest).
As discussed, we cannot act upon our security without the consent of the senior lender (limitation in the Deed of Priority). That extends to the appointment of a receiver. In this regard, I believe that you have identified that Ross Harding at BOSI is the contact person. Given the possible consequences to Quadrant/Riva I suggest we await the result and direction of the IC meeting before contact is made with him. We need to formally request consent to act on our security and you and I will need to draft that request. It may be that the threat of the appointment of the receivers will be enough to bring Chris Rose back to the table.
I have added the emphasis. No mention was made of an administrator.
The proposed meeting of the Investment Committee was in fact held on 4 December 2006. The conclusion reached by the Investment Committee was recorded in an email from Mr Camilleri to Mr Bevan and Mr Wilson and others early on 5 December 2006, relevantly saying:
With reference to yesterday’s IC meeting regarding the Quadrant exposure, it was agreed that the following actions are to occur:
·Gordon Bevan is to advise Chris Rose that unless cross collateralisation of securities and personal guarantee is forthcoming in respect of the Riva loan facility, RMB/Sakkara will move to appoint a Receiver to Riva and other companies in the group.
·Chris Rose will be granted until midday today (5/12/06) to advise his position regarding the stance taken by RMB/Sakkara in this matter.
·Should Chris refuse to grant cross collateralisation and personal guarantee, contact is to be made with [the relevant officer] at BOSI to advise of RMB/Sakkara intention to appoint a Receiver and seek BOSI consent as required under the terms of the priority deed.
For information, the existing BOSI senior debt facility for the Riva on Chevron Project expires on 30/12/2006.
Again, I have added the emphasis. No mention was made of an administrator. More significantly, the need for the consent of BOS was specifically noted.
Mr Bevan acknowledged that he was aware that there was an express power to appoint a receiver in the deed of charge in favour of RMB and Sakkara Capital. He was also aware that there is a provision in the Corporations Act that entitles a chargee to appoint an administrator to the assets charged by a company. He also knew that, while Sakkara Capital and RMB had an entitlement to appoint a receiver, he could not act on that entitlement. He said that his strategy involved approaching the senior lenders to obtain consent to act.
In his evidence in chief, Mr Bevan said that, on 5 December 2006, he had at least two conversations with Mr Rose. In one of those conversations, Mr Rose asked him what would be proposed if agreement could not be reached on the provision of further securities. Mr Bevan responded that RMB and Sakkara Capital would look to their securities. Mr Rose asked what that would mean and Mr Bevan said that they would take steps to appoint a receiver. There was no discussion about the identity of the companies to which the receiver would be appointed. I accept that evidence. It is significant that Mr Bevan referred to appointment of a receiver and not an administrator. Further, the conversation was three days before the threat alleged by Mr Rose. Mr Rose and Riva make no complaint about any such conversation on 5 December 2006.
In cross-examination, Mr Bevan agreed that Mr Camilleri’s email of 5 December 2006 accurately recorded what was decided at the meeting of the Investment Committee held on 4 December 2006. While he acknowledged that his role was to advise Mr Rose that, unless cross-collateralisation of securities and a personal guarantee was forthcoming, Sakkara and RMB would move to appoint a receiver to Riva and other companies in the Quadrant Group, he denied that he in fact carried out that instruction.
Mr Rose’s evidence was that a threat to appoint administrators was made in a conversation on 8 December 2006. Mr Rose said that, in response to the alleged threat, he told Mr Bevan that he did not think Sakkara Capital and RMB had the right to appoint administrators, because the priority deeds would limit or restrict them in doing that. His evidence was that Mr Bevan told him that, in his view, Sakkara Capital and RMB had the right to appoint administrators.
It may be that there was a conversation between Mr Rose and Mr Bevan before 8 December 2006, in which Mr Bevan told Mr Rose of the possibility that, if some accord could not be reached concerning the Riva facilities, RMB and Sakkara Capital would consider taking steps to enforce their securities. I do not consider that that carried with it an implicit, and certainly not an explicit, threat to do so without obtaining the consent of the senior lenders. The email exchanges to which I have referred make it clear that Mr Bevan was very conscious of the need to obtain consent of the senior lenders before taking steps to enforce the securities given by Moruben and Riva. It is inherently unlikely that he would have made a threat to Mr Rose to act in contravention of the arrangements with the senior lenders, of which he was expressly aware. No complaint, in any event, is made in respect of any threat to appoint a receiver. The only threat is that alleged to have been made on 8 December 2006 to appoint an administrator that was the subject of the spurious file note.
I have already indicated my conclusion concerning Mr Rose’s credibility in relation to this factual issue. I find that there was no conversation between Mr Bevan and Mr Rose on 8 December 2006 that constituted a threat to appoint administrators to any members of the Quadrant Group. This aspect of the claim by Mr Rose and Riva must be rejected.
Redemption of the Moruben Road Mortgages
In their Third Further Amended Statement of Claim, Mr Rose and Riva allege improper pressure, unconscionable conduct and unfairness on the part of the Lenders in refusing to permit Moruben to redeem their securities over the Moruben Road Property. The Lenders were aware that the Quadrant Group was under pressure from the Australian Taxation Office to pay overdue instalments of tax and that all of the facilities with the Lenders were either overdue or in default. In that context, Mr Rose was anxious to obtain a discharge of the securities over the Moruben Road Property and other assets of Moruben so that Moruben could borrow sufficient funds from another lender to discharge the indebtedness secured on the Moruben Road Property, as well as provide additional funds for the ongoing purposes of the Quadrant Group.

The allegations in the Third Further Amended Statement of Claim may be summarised as follows:
·On 15 April 2005, Moruben acquired the Moruben Road Property and, by registered mortgage of that date, Moruben mortgaged the Moruben Road Property to RMB and Sakkara Capital.
·By equitable mortgage, Moruben mortgaged the Moruben Road Property to Sakkara Properties.
·Moruben was entitled to have both of those mortgages redeemed upon payment of the whole of any principal sum, accrued interest and costs owing under the mortgages.
·On 30 November 2006, Moruben requested the Lenders to account for the amount required to redeem the two mortgages.
·On 5 December 2006, Moruben again requested the Lenders to account for the amount required to redeem the two mortgages.
·The Lenders refused to account in answer to the requests and wrongfully refused and neglected to permit the redemption of the two mortgages.
·Between 1991 and 2005 Mr Rose, on the one hand, and the Lenders, on the other hand, dealt with each other upon the basis of a common assumption that, where a company in the Sakkara Group provided mezzanine finance to a company associated with Mr Rose, the company in the Sakkara Group would not obtain from Mr Rose a personal guarantee in respect of financial accommodation provided to the company associated with him.
·In reliance upon that assumption, Mr Rose continued to obtain, for companies associated with him, mezzanine finance from companies within the Sakkara Group, which provided mezzanine finance on the basis of the common assumption.
·On 7 December 2006, Mr Bevan, acting on behalf of the Lenders, “made a demand” on Mr Rose and Riva that the two mortgages of the Moruben Road Property would not be redeemed unless they agreed to enter into the Impugned Agreements.
·On 8 December 2006, the same demand was made again by letter of that day from Mr Camilleri to Mr Rose.
·The making of those demands was unlawful and thereby placed improper pressure on Mr Rose and Riva to agree to execute the Impugned Agreements in that:
- Moruben was entitled to redeem the mortgages of the Moruben Road property.
-The obligations under the Moruben Equity Agreement and the Moruben Mezzanine Agreement were separate and independent of the obligations of Riva under the Riva Equity Agreement and the Riva Mezzanine Agreement.
-Moruben was entitled to redeem the two mortgages of the Moruben Road Property upon payment of the payout figure without entering into the Impugned Agreements.
-The demands referred to above were inconsistent with and repugnant to the contractual and equitable right of Moruben to redeem the two mortgages of the Moruben Road Property.
-The demands constituted a penalty clogging Moruben’s equity of redemption.
-The Lenders knew that Riva and Mr Rose occupied a position of special disadvantage in relation to the Impugned Agreements and took advantage of their superior bargaining power by entering into the Impugned Agreements.
·Induced by the improper pressure referred to above Mr Rose and Riva executed the Impugned Agreements.
·In those circumstances, the Lenders engaged in conduct that was unconscionable in equity and within ss 51AA(1) and 51AC(1) of the Trade Practices Act.
·The Impugned Agreements were unjust in the circumstances relating to their execution at the time they were entered into and the Lenders used unfair pressure or unfair tactics against Mr Rose within the Contracts Review Act.
One aspect of the claim is that Mr Rose and the Lenders, through Mr Wilson, dealt with each other upon the basis of a common assumption that, where a company in the Sakkara Group provided mezzanine finance to a company associated with Mr Rose, a personal guarantee would not be obtained from Mr Rose. Mr Wilson accepted that he had had a number of conversations with Mr Rose concerning guarantees in which Mr Rose asked if the Sakkara Group required personal guarantees. Mr Wilson said that his answer was that the Sakkara Group do not normally look for guarantees when going into a deal because they want to make the deal work with only registered mortgage security. In cross-examination, Mr Wilson accepted that his practice on behalf of the Lenders was not to seek personal guarantees “going into a deal”.
It is difficult to see where the allegation of a common assumption leads. There was no evidence that, going into a deal, the Lenders ever required personal guarantees from the Quadrant Group. Mr Wilson’s evidence was, in effect, that, if the value of the property and the development proposed was not satisfactory, the Lenders would not go into a deal, even with personal guarantees. In the present case, however, the question of a personal guarantee from Mr Rose arose only because of the substantial default on the part of the members of the Quadrant Group and the prospect of a loss in relation to the Riva facilities in connection with the Chevron Island Property. I do not consider that Riva and Mr Rose have established that any arrangement was entered into between Riva and the Lenders on the basis of any common assumption that personal guarantees would never be called for, even in the event of substantial default, such that it would be unconscionable, in any way, for the Lenders to depart from such an assumption.
Mr Rose and Riva complain about a wrongful refusal to permit Moruben to redeem the mortgages. The allegation is that the Lenders wrongfully refused to permit redemption, not that they merely threatened to refuse redemption. The manner in which the claim is otherwise formulated is slightly unusual, in so far as it alleges a demand that the mortgages of the Moruben Road Property would not be redeemed. There is no allegation of tender by Moruben of any amount secured by the mortgages: merely an allegation of a refusal to account for the amount required to discharge the mortgages, coupled with a refusal to permit redemption. Further, in so far as Riva and Mr Rose seek rescission of the Impugned Agreements, restitutio in integrum would, of necessity, involve Moruben, since the mortgages over the Moruben Road Property were in fact discharged and a compromise was reached with Moruben over the amount of the Net Project Profit. Curiously, however, Moruben is not a party to the proceeding.
The essence of the complaint, as finally formulated, is to be found in a letter of 8 December 2008 from Mr Camilleri to Mr Rose. In order to put that letter in context, it is necessary to recount a series of communications between the parties that led up to the signature of that letter by Mr Rose, whereby he effectively agreed that the Impugned Agreements would be executed.
During September 2006, an internal memorandum concerning the Quadrant Group was produced by one or other of the Lenders. The memorandum recorded a review of the financing arrangements between the Lenders and the Quadrant Group. Two forthcoming events prompted the review, being:
·The forthcoming expiry of the term of the Quadwest Loan Agreement on 30 September 2006.
·The potential for loss in connection with the facilities granted to Riva in relation to the Chevron Island Property.
The memorandum noted that there was no obvious means by which the indebtedness under the Quadwest Loan Agreement could be repaid at expiry on 30 September 2006, given that sale of the units in the Moruben Road Property and the Chevron Island Property had not yet commenced. The memorandum noted that various arrangements with the Quadrant Group were not cross-collateralised and suggested an action plan or strategy, whereby an overarching agreement would be entered into with the Quadrant Group to deal with the issues of:
·Cross-collateralisation.
·Repayment of the various facilities.
·A sales program for the Chevron Island Project.
The same plan or strategy was taken up in an Action Plan of 11 October 2008, which also referred to a “Work Out Strategy”, involving entering into an overarching agreement with the Quadrant Group, which would deal with, inter alia, cross-collateralisation of all facilities. The Action Plan also referred to the possibility of the overarching agreement providing for a personal guarantee from Mr Rose. An updated version of the Action Plan of 20 October 2006 repeated the same workout strategy. That workout strategy was confirmed in successive iterations of the Action Plan on 27 October 2006, 3 November 2006, 10 November 2006 and 17 November 2006.
I have referred above to the letter of 10 October 2006 from Mr Batiste to Mr Rose, which referred to the contract with Chevron Lifestyle and asserted that the Lenders had at no time agreed to Riva entering into the contract with Chevron Lifestyle. On 17 October 2006, Mr Batiste wrote to Mr Rose concerning the various financing arrangements with the Quadrant Group. After referring to the loan balances and expiry dates of all of the facilities and to the profit share in relation to the equity facilities, the letter observed that three of the facilities had by then expired and suggested that it was in the best interests of all parties to agree upon and formalise arrangements for repayment of all of the facilities (other than a separate loan agreement between Quadrant Properties and Sakkara Capital and RMB which was to expire on 8 June 2007).
Mr Batiste’s letter of 17 October 2006 suggested that the “imminent sell down” of the Moruben Road Property offered the most sensible avenue by which to resolve the issues “in a timely fashion”. The letter proposed that the sale proceeds from the Moruben Road Property be utilised, after repayment of the senior debt facilities:
·first to repay the Moruben and Quadwest facilities in full; and
·secondly, in reduction of the Riva facilities.
The letter also proposed that the various facilities be “cross collateralised” and that all of the arrangements be formalised by way of a “multi partite deed’. The letter invited Mr Rose’s response in relation to the proposal concerning the application of sale proceeds from the Moruben Road Property and any alternative proposal that he may have for repayment of the various facilities.
Mr Batiste’s letter crossed with the communication from Mr Rose to Mr Batiste, also of 17 October 2006, to which I have referred above. In that communication, Mr Rose also said that Riva still did not have sufficient funds to undertake the marketing activities for the Chevron Island Property that had been suggested by Mr Batiste. Mr Rose said that, as a director of Riva, he was not in a position to allow Riva to incur additional debts and financial obligations without the means to repay them.
On 23 October 2006, Mr Rose responded to Mr Batiste’s letter of 17 October 2006. In his response, Mr Rose confirmed agreement to repay the outstanding loan facilities owed by Quadwest and Moruben from the proceeds of the sale of the Moruben Road Property, which he said he expected to be able to achieve within the next 14 days. However, he said that he would like a response to his communication of 17 October 2006 concerning the marketing of the Chevron Island Property before commenting on Mr Batiste’s proposals in the letter of 17 October 2006.
Notwithstanding Mr Rose’s stated expectation that the Moruben Road Property would be sold within 14 days of 23 October 2006, sale was not achieved within that time. Mr Camilleri then took up the question of the Chevron Island Property again. On 10 November 2006, Mr Camilleri sent to Mr Rose a letter from Mr Batiste dated 9 November 2006 concerning the Chevron Island Property. The letter said that the Lenders’ main concern in relation to the contract with Chevron Lifestyle was that:
·the sale does not appear to be at or near market value;
·the Lenders at no time agreed to Riva entering into the contract; and
·there would be a material adverse impact on Riva’s capacity to repay the monies owed to the Lenders should the contract with Chevron Lifestyle be completed.
The letter said that values obtained by the Lenders’ consultant were, in aggregate, $2,205,000 higher than the prices provided for in the contract with Chevron Lifestyle.
The letter of 9 October 2006 sought Mr Rose’s urgent advice as to how he proposed to deal with the contract with Chevron Lifestyle, given the Lenders’ stated position on the matter. The letter also required prompt finalisation and execution of an overarching agreement dealing with:
·cross-collateralisation of all existing loan facilities provided to the Quadrant Group;
·repayment of the various facilities provided to Quadwest, Moruben and Riva;
·a marketing plan for the remaining units in the Chevron Island Property.
Mr Rose responded to the letter of 9 November 2006 by facsimile of 15 November 2006. Mr Rose’s facsimile asserted that each project was funded independently from the other and that it was the intention of Riva to maintain that position. That assertion was inaccurate, since, as I have pointed out above, there was already a degree of cross-collateralisation in relation to the Adelaide Terrace Property. Mr Rose said that a new finance facility was being negotiated that would address the repayment of the Quadwest and Moruben facilities before the end of November.
That last observation is a reference to a letter of 13 November 2006 received by Moruben from Ashe Morgan Winthrop, thanking Moruben for the opportunity to assist with funding requirements for the Moruben Road Property. The letter enclosed a terms sheet for a proposed commercial facility for $5 million, inclusive of an interest provision of $410,000. By the letter, Ashe Morgan Winthrop offered “to use all reasonable endeavours” to obtain finance for Moruben on the basis of the terms sheet. Thus, it was not a firm offer of financial assistance but only an invitation to treat.
On 20 November 2006, Mr Rose requested the provision of “the current payout figures” for the Moruben facilities as at the end of that week, namely, 24 November 2006. On the same day, he received a response by email to his personal assistant saying that the Moruben “payout figure” as at 24 November was $2,367,669.24 and that interest would accrue at the daily rate of $1,153.96 until the end of November. Significantly, there was no complaint from Mr Rose that the response did not specify the legal costs for the discharge of the mortgages and other securities given by Moruben.
On 23 November 2006, Mr Bevan sent an email to Mr Wilson and Mr Camilleri concerning a conversation that he had had with Mr Rose. In the email, Mr Bevan recorded that Mr Rose had said that he was endeavouring to secure as much as he could from Ashe Morgan Winthrop on the security of the Moruben Road Property. To that end, Mr Rose had asked Mr Bevan that Sakkara Properties give consideration to setting “a realistic profit share figure” under the Moruben Equity Agreement. Mr Rose said he would pay out such a figure at the time of refinancing. There is no reason to doubt that the email fairly reflects a conversation between Mr Rose and Mr Bevan. It is significant that, at that stage, Mr Rose accepted the need for agreement between Sakkara Properties and Moruben as to the profit share, before finalisation of the Moruben Road Project.
Mr Bevan’s email of 23 November 2006 went on to note that the profit share was not ascertainable at that point in time and that it was necessary to make an estimate. Mr Bevan suggested that they “wait and see” what Mr Rose’s “wish list” of payments that he would make from the proceeds of refinancing would be, before giving any consideration to the request for agreement on a “realistic profit share”. Mr Wilson responded to Mr Bevan’s email by asking if they were still preparing an overarching deed. He said that they could not afford to wait for Mr Rose, since time was running out.
Later on 23 November 2006, Mr Rose sent an email requesting “end of November payout figures” in respect of the Quadwest and Moruben facilities. His email said that his “numbers” were currently based upon 30 September 2006 loan balances. That supports a conclusion that, for Mr Rose, the term “payout figure” referred to the amount owing under the facility and did not include legal costs that might be payable in connection with the discharges of securities. The allegation in the Third Further Amended Statement of Claim refers to the “payout figure” as the amount required to discharge the mortgages.
On 24 November 2006, Mr Camilleri responded to Mr Rose’s email, setting out the projected balances, as at 30 November 2006, under the Moruben facilities and the Quadwest facilities as follows:
Borrower  Loan Balance  Risk Fee / Profit Share
Quadwest  $465,425.24  $408,434.23
Moruben  $285,759.65  To be determined.
Mr Camilleri noted in his email that Mr Rose had obtained “a payout figure” under the Moruben Mezzanine Agreement direct from RMB. The use of the term “payout figure” is significant in that it indicates that that term was being used as referring to the amount owing under a relevant facility. Once again, there was no complaint by Mr Rose that he was not given particulars of the legal costs that would be incurred in connection with the discharges of the securities.
On 28 November 2006, Ashe Morgan Winthrop wrote to Moruben offering a loan facility in the amount of $5,500,000, inclusive of $440,000 of capitalised interest. The purpose of the loan was stated to be the refinance of existing debt primarily secured on the Moruben Road Property. The letter from Ashe Morgan Winthrop provided that Mr Rose was to give a guarantee in respect of the facility.
On 28 November 2006, Mr Bevan and Mr Wilson had a meeting with Mr Rose. During the meeting, Mr Rose said that he could not pay out the profit share in respect of the Moruben Road Project (and the Adelaide Terrace project) and asked that payment of the profit share be deferred. Mr Rose said that the offer he had received from Ashe Morgan Winthrop would preclude him from being able to offer cross-collateralisation in respect of the profit share. He asked whether Sakkara Properties would be prepared to accept a personal guarantee instead. Mr Rose said that he was “good for it”. Mr Wilson told Mr Rose that he, Mr Rose, knew how he, Mr Wilson, felt about personal guarantees but, since they had been working together for a long time and had done a number of successful projects, it was something they would consider in that instance.
On 29 November 2006, Mr Camilleri sent to Messrs Bevan and Wilson a draft of a letter to Mr Rose outlining proposed variations to the various Quadrant Group facilities. Mr Camilleri said that Mr Rose was meeting with Ashe Morgan Winthrop that morning to finalise the terms of refinance for the Moruben Road Project and that Mr Rose wanted to have the letter by 10 am that day.
In the afternoon of 29 November 2006, Mr Camilleri sent the draft letter to Mr Rose by email, in which Mr Camilleri referred to recent discussions with Messrs Bevan and Wilson. The draft letter set out “the proposed variations in key terms of the existing [loan] facilities”. The proposals involved repayment of the indebtedness under the Moruben Mezzanine Agreement in full, and repayment of the principal and interest under the Moruben Equity Agreement in full. The existing security was to be retained and cross-collateralised with the indebtedness of Riva. The profit share under the Moruben Equity Agreement was to be paid no later than 1 July 2007. A priority deed was to be entered into with Ashe Morgan Winthrop.
The draft letter also proposed that, in relation to Riva, the facility term be extended to 1 July 2007 and that an overarching deed be entered into to deal, relevantly, with the following:
·Cross-collateralisation of all security under the Moruben Mezzanine Agreement with the Riva Mezzanine Agreement.
·An unlimited guarantee from Mr Rose.
·Rescission of the existing contract with Chevron Lifestyle, with Riva to meet the costs of $100,000 associated with securing the rescission.

Mr Rose and Riva complain that that letter constitutes a demand or threat that the mortgages of the Moruben Road Property would not be discharged and the charges given by Moruben would not be discharged unless the Impugned Agreements were entered into. They point specifically to the following words:
The variations will be documented by way of a deed and guarantee and indemnity. The deed and guarantee and indemnity will need to be executed prior to settlement of the Moruben Developments Pty Ltd refinance.
It is significant that Mr Rose endorsed a further sentence immediately after the very passage that is said to constitute the threat or demand, thus indicating his express acceptance of that aspect of the proposal.
On 12 December 2006, drafts of the Impugned Agreements were sent by Blake Dawson Waldron to Deacons. In their email of 12 December 2008, under cover of which they sent the drafts, Blake Dawson Waldron said that Sakkara Properties did not propose to hand over any discharge of its security in relation to the loans to Quadwest and Moruben at settlement, on the basis that the security was not registered. The email also asked for a certificate confirming that Mr Rose did not consider it necessary to obtain independent legal advice prior to execution of the forms of Guarantee and Indemnity.
Later on 12 December 2006, Mr Rose proceeded to obtain legal advice in relation to the Impugned Agreements from Mr Robert Schneider, solicitor, as to whether there were provisions that would be inconsistent with any subsequent action by Mr Rose to impugn the guarantees, for example, by asserting that the Lenders had engaged in unconscionable conduct. Mr Schneider expressed the view that the guarantees contained such provisions but very much doubted whether the Lenders would agree to any variation, let alone the deletion, of such provisions, given that they were fundamental to the efficacy of the guarantees. Mr Schneider expressed the view that it would be extremely difficult for Mr Rose to impugn the guarantees successfully in the future, should the Lenders seek to enforce them, in circumstances where he had not, either prior to or at the time of executing the guarantees and the proposed variation agreements, reserved his right to do so.
Mr Rose then instructed Deacons to request further concessions. Importantly, he instructed Deacons to request that the guarantee provided by Quadrant Properties be released. That they did. Deacons informed Blake Dawson Waldron that Quadrant Properties had no assets and that it was proposed, in due course, that it be “wound down”. After obtaining instructions from Mr Camilleri and Mr Bevan, Blake Dawson Waldron responded to Deacons that the Lenders required that the guarantee remain in place at that stage and that, if Deacons’ client wished to commence any winding down of Quadrant Properties at a later date, it should request the consent to the release of the guarantee at that time.
Deacons responded late on Thursday, 14 December 2006 that it was intended that Quadrant Properties be liquidated the following week and accordingly requested Blake Dawson Waldron to obtain consent to the release of the guarantee. On 15 December 2006, Blake Dawson Waldron responded to Deacons that the Lenders agreed that the guarantee by Quadrant Properties would no longer be required, provided Mr Rose provided a statutory declaration confirming that Quadrant Properties had no assets and that Mr Rose agreed to wind up the company by a specified time. They said that the obligation to wind up Quadrant Properties by that date would be incorporated into the guarantees to be provided by Mr Rose. Deacons were asked for the time by which Mr Rose agreed to wind up Quadrant Properties.
There was no evidence as to why it was pressing for Quadrant Properties to be wound up and for it to be released from the guarantee at that time, other than the fact that its guarantee linked Mr Rose personally to the indebtedness of Riva through the Milson’s Point Mortgage. That is of great significance in relation to Mr Rose’s motivation in accepting the proposal of 8 December 2006 and executing the Impugned Agreements.
On the afternoon of 15 December 2006, Deacons provided to Blake Dawson Waldron, with a copy to Mr Camilleri and Mr Bevan and others, a form of statutory declaration by Mr Rose in relation to Quadrant Properties. A statutory declaration was given by Mr Rose in that form at the time of execution of the Impugned Agreements. By that statutory declaration, Mr Rose declared that there was a deficiency in the net asset position in Quadrant Properties and that a meeting of creditors had been set for 3 January 2007, to appoint a liquidator.
Mr Rose executed the Impugned Agreements on 18 December 2006, without any further complaint to the Lenders. On the same day, the sum of $5,060,000 was advanced by Ashe Morgan Winthrop on the security of the Moruben Road Property and all securities given by Moruben to the Lenders were discharged. The sum of $5,060,000 was dispersed as follows:
1.        $2,395,671.57           RMB
2.        $287,168.88              Sakkara Properties
3.        $300,000.00              Sakkara Properties
4.        $468,868.11              Sakkara Properties
5.        $411,455.53              Sakkara Properties
6.        $1,800.31                 Blake Dawson Waldron
7.        $11,340.39               Blake Dawson Waldron
8.        $19,087.02               Middletons Lawyers
9.        $2,500.00                 Blake Dawson Waldron
10.      $690,000.00              BOS
11.      $21,951.00               Office of State Revenue
12.      $5,080.00                 Gadens Lawyers
13.      $ 27,500.00              Ashe Morgan Commercial
14.      $121.00  bank cheque fees
15.      $5,894.94                 Deacons
16.      $660.00  Henry Davis York
17.      $9,102.50                 Blake Dawson Waldron
18.      $2,480.00                 Office of State Revenue
Total: $5,060,000.00
It is apparent that the indebtedness owing to BOS, the senior lender in respect of the Moruben Road Property, was repaid. At that stage, the amount owing was $690,000. In addition, all of the indebtedness of Moruben to the Lenders under the Moruben Equity Agreement and the Moruben Mezzanine Agreement, was repaid. Specifically, the sum of $300,000 was paid to Sakkara Properties as its share of the Net Project Profit.
The guarantee by Quadrant Properties was subsequently released when Quadrant Properties was wound up. Subsequently, the Milsons Point Mortgage was also discharged, since it no longer secured any indebtedness.
The Impugned Agreements
The four Impugned Agreements were entered into on 18 December 2006. The Impugned Agreements consist of two forms of Loan Agreement Variation Deed and two forms of Guarantee and Indemnity. The parties to the first Loan Agreement Variation Deed are Riva, RMB and Sakkara Properties and Mr Rose. The parties to the second Loan Agreement Variation Deed are Riva, RMB and Sakkara Capital and Mr Rose.
The first Loan Agreement Variation Deed recites the Riva Equity Agreement and recites that RMB had, on 23 December 2004, agreed to participate in the funding to Riva under the Riva Equity Agreement. The deed also recites the Guarantee and Indemnity of 18 December 2006 by Mr Rose of the obligations of Riva under the Riva Equity Agreement.
The operative provisions of the first Loan Agreement Variation Deed varied the Riva Equity Agreement in three respects. First, by new Clause 17, Riva undertook that it would fund and diligently and prudently coordinate all sale and marketing activities in connection with the sale of the Chevron Island Property and would rescind or terminate or procure the rescission or termination of the agreement of 18 May 2006 with Chevron Lifestyle. Riva also undertook that it would enter into contracts for sale of all residential units comprising the Chevron Island Property and ensure that completion occurred under those contracts by 30 June 2007. The prices at which the units were to be sold were specified. Secondly, by a new clause 18, the order of distribution of the proceeds of sale of the Chevron Island Property was specified. Finally, the term of the facility under the Riva Equity Agreement was extended to 1 July 2007.
By the first Guarantee and Indemnity, Mr Rose guaranteed to RMB and Sakkara Properties the due and punctual payment by Riva of the whole or any part of any moneys that remain unpaid at any time under or in connection with the Riva Equity Agreement, up to a maximum of $450,000. Clause 2.3(a) provided that, if Riva defaults in the due and punctual payment of any guaranteed money, Mr Rose must pay that money on demand to, or as directed by, RMB and Sakkara Properties. However, by clause 12, clause 2.3 was made conditional, inter alia, upon Riva failing to comply with the new clause 17 of the Riva Equity Agreement or upon any guaranteed money remaining following the sale of all residential units comprising the Chevron Island Property.
In addition, by clause 7.3 of the first Guarantee and Indemnity, Mr Rose covenanted that he would:
·not create or permit to exist any encumbrance over any of his property, other than specific mortgages identified in the Guarantee and Indemnity.
·not incur Financial Indebtedness, as defined, without the consent of RMB and Sakkara Properties.
·not dispose of any of his property, except at arms length and for full value in a transaction that is entered into in the ordinary course of business.
·keep his property insured against the risks and the amounts that are prudent and usual for a person similar to Mr Rose, with sound and reputable insurers.
The second Loan Agreement Variation Deed made the same amendments to the Riva Mezzanine Agreement of 23 December 2004 as had been made to the Riva Equity Agreement by the first Loan Agreement Variation Deed. Specifically, it extended the time for repayment to 1 July 2007. In addition, by clause 6.1, Mr Rose, in his capacity as sole director and sole secretary of Quadrant Properties, covenanted that, on or before 3 January 2007, he would either appoint an administrator or convene a meeting of creditors for the purpose of appointing a liquidator to Quadrant Properties. Riva and Mr Rose acknowledged that RMB and Sakkara Capital had executed the second Loan Agreement Variation Deed on the basis of that covenant.
By the Second Guarantee and Indemnity, Mr Rose gave a guarantee of the obligations of Riva under the Riva Mezzanine Agreement in terms similar to the first Guarantee and Indemnity.
As a result of the transactions that were settled on 18 December 2006, the default in respect of the facilities of the Lenders relating to the Moruben Road Projects was rectified and it was no longer open to the Lenders to enforce their securities in respect of the Moruben Road Property. In addition, the effect of the variation of the facilities with Riva was to remove any default, by extending the time for repayment of both facilities. Further Sakkara Properties accepted $300,000 in respect of its share of the Net Project Profit for the Moruben Road Project. The undertaking by Riva to rescind its contract with Chevron Lifestyle and to undertake a fixed regime for the realisation of the Chevron Island Property was a quid pro quo for Sakkara Properties accepting the sum of $300,000. The guarantees by Mr Rose were no doubt an inducement for the Lenders to enter into the Loan Agreement Variation Deeds with Riva.
Disposition of the Wrongful Refusal of Redemption Claims
I consider that the evidence leads to the conclusion that, at the time when he decided to accept the terms of the letter of 8 December 2006 and subsequently to sign the Impugned Agreements, Mr Rose had in mind that he was obtaining a considerable advantage for himself personally, in addition to the advantageous extension, from the point of view of Riva, of its facilities, which were either overdue or in default and were due for repayment by the end of December 2006. Further, he secured an advantageous compromise of the amount of the share of Sakkara Properties in the Net Project Profit for the Moruben Road Project.
I do not consider that Mr Rose was induced by any undue or unfair pressure on the part of the Lenders or by any unconscionable conduct on the part of the Lenders to accept the letter of 8 December 2006 or to execute the Impugned Agreements. Further, I do not consider that either of the two deeds of Guarantee and Indemnity executed by Mr Rose was unjust in the circumstances relating to their execution by Mr Rose. More specifically, I do not consider that the agreement of 8 December 2006, which was constituted by Mr Rose’s acceptance of the letter of that date, was unjust in the circumstances relating to its execution by Mr Rose. I do not consider that the Lenders used unfair pressure or unfair tactics against Mr Rose in relation to the execution of the forms of Guarantee and Indemnity.
It is true that the Quadrant Group, as a whole, was under some financial pressure, as the Lenders knew. Various companies in the Quadrant Group were in default of their financing arrangements and they needed funds to discharge obligations to the Australian Taxation Office. Nevertheless, the Quadrant Group as a whole derived benefits as a consequence of the Impugned Agreements. Moruben had no entitlement to a discharge of the Moruben Equity Mortgage prior to the final determination of the Net Project Profit. Nevertheless, Moruben was able to secure discharge of the securities, notwithstanding that the Moruben Road Development was not complete because not all of the apartments had been sold. Thus, the Quadrant Group was able to use the unsold part of the Moruben Road Property to raise funds for the benefit of the Quadrant Group as a whole. That was a benefit to Mr Rose. Further, the default by Riva was remedied, in that an extension of more than six months for the time for discharge of the facilities granted to Riva was secured. That was also a benefit for Mr Rose.
Finally, and very significantly, while Mr Rose undertook personal obligations by means of the Deeds of Indemnity and Guarantee, with a limitation on his liability of $2,450,000, he also secured the release of an unlimited guarantee related to the obligations of Quadrant Properties, which as at 18 December 2006, were well in excess of $2,450,000. I consider that Mr Rose was conscious of his personal position and the exposure of the Milsons Point Property to liabilities of Riva, through Quadrant Properties. Mr Rose was personally better off as a consequence of the consummation of the agreement constituted by acceptance of the letter of 8 December 2006.
Mr Rose had information available to him that would have enabled him to calculate the payout figures for all of the indebtedness of Moruben to the Lenders, other than the amount of the Net Project Profit. That could not be determined until the sale of all of the apartments in the Moruben Road Property, although it would have been open to the parties to agree on an estimate of value for the purposes of an earlier discharge.
At no stage was any attempt made to tender any amount in order to secure discharge of the mortgages over the Moruben Road Property. Had there been a formal tender, the Lenders may have taken a different course. However, they were never put in the position of having to respond to a formal tender. Certainly, the legal costs of the discharge would be secured by the mortgages and would have to be paid in order to compel a discharge. It may be that Mr Rose did not know what the legal costs of the discharge of the securities would be. However, at no stage did Mr Rose, or those acting for him, specifically ask for an estimate of legal costs involved in the discharge. No demand had been made for costs at the time when Mr Rose signed the letter of 8 December 2006. Indeed, on 13 December 2006, Blake Dawson Waldron wrote to Deacons specifying the amounts “required to discharge the mortgages as at 14 December 2006”. At the end of the letter, Blake Dawson Waldron stated that they required payment of attached invoices and that their costs and disbursements in acting for the Lenders in respect of the discharge of the securities over the Moruben Road Property were $1,492.38. The letter ended by saying that, once the Impugned Agreements had been finalised, Blake Dawson Waldron would advise Deacons of their fees for acting for the Lenders in that regard, which they also required to be paid on settlement. There is no substance in the contention advanced on behalf of Mr Rose and Riva that they could not determine a payout figure for the redemption of the mortgages of the Moruben Road Property without first being given details of legal costs.
The definition of Net Project Profit in the Moruben Equity Agreement refers to an amount agreed by the parties, in good faith, to be the profit derived in relation to the Moruben Road Project. However, it is clear, from the language of the relevant provision of the Moruben Equity Agreement, that a calculation was to be made by reference to the difference between two amounts, each of which is defined by reference to the actual result of the Moruben Road Project. Specifically, Revenue was defined as the proceeds of sales of the Moruben Road Property, or parts of it, plus any other revenue received by Moruben from the Project. That must be understood as referring only to the actual proceeds received, not to some estimate of what might be received in the future.
The bargain between Moruben and Sakkara Properties was that Sakkara Properties would be entitled to 10% of the Net Project Profit from the Moruben Road Project and that its entitlement to that share was to be secured by a mortgage of the Moruben Road Property. Until the Project was completed and Net Project Profit could be determined, Sakkara Properties was entitled to maintain its security for its share of Net Project Profit. While Sakkara Properties could, of course, agree to accept an estimate, it was not bound to do so.
The crux of the complaint made by Mr Rose and Riva, that the Lenders threatened to refuse, wrongfully, to allow Moruben to redeem the mortgages of the Moruben Road Property, depends upon the construction of the letter of 8 December 2006. They point specifically to the following sentence:
The Deed and Guarantee and Indemnity will need to be executed prior to settlement of the Moruben Developments Pty Ltd refinance.
However, that sentence must be understood in the context in which it appears. It is not a threat.
The sentence is but one sentence in a letter of over a page and a half, in which a detailed proposal was being put forward to Mr Rose and Riva for their consideration. The proposal provided benefits to Riva and it was in no way expressed as an ultimatum. Mr Rose had put forward a proposal and the letter of 8 December 2006 is expressed to be a “counter proposal”. Even then, it is expressed to be subject to “formal approval” by RMB.
One of the terms of the proposal being put forward involved a guarantee and indemnity by Mr Rose. The requirement that the guarantee and indemnity be executed prior to settlement of the refinancing is understandable: that was the quid pro quo for the Lenders’ agreeing to the discharge of their security on the basis of a compromise concerning the Net Profit Share and the extension of the Riva facilities. Sakkara Properties agreed to limit its share of the Net Project Profit to $300,000 and to release its security, notwithstanding that the Project had not yet been completed and notwithstanding that Mr Rose had earlier estimated Sakkara Properties’ share to be $314,803 and had calculated the minimum Internal Rate of Return to be $355,818.
Mr Rose accepted the counter proposal. Indeed, he added a further requirement that time was to be of the essence and that the arrangements were to be consummated by 13 December 2006. He subsequently secured the release of his personal obligations in respect of the Riva Mezzanine Agreement, through the Quadrant Properties guarantee, as a consequence of the release of that guarantee.

I do not consider that, in all of the circumstances, there was any wrongful threat on the part of the Lenders to refuse to discharge the securities given by Moruben. Moruben had no entitlement to a discharge of the Moruben Equity Mortgage. It had no entitlement to a discharge of the Moruben Mezzanine Mortgage without tender of the amount secured, which it did not do until 18 December 2006. Mr Rose and Riva may have been under some pressure because of the financial pressure on the Quadrant Group. However, I do not consider that the circumstances that I have described amount to the bringing to bear of any undue or unfair pressure on either of them.
It cannot fairly be said that the conduct of the Lenders should be characterised as unconscionable. Mr Rose and Riva were, by reason of financial pressure, relevantly in a position of disadvantage to the Lenders. However, inequality of bargaining power is not of itself sufficient to render the conduct of a stronger party unconscionable.
Mr Rose and Riva must establish that they suffered a special disability or were placed in some special situation of disadvantage, which rendered them unable to make a worthwhile judgment as to what was in their own best interests and that the Lenders knowingly took advantage of that disability or disadvantage. No special disability or special disadvantage has been established in the present instance. A person will not be in a position of special disadvantage or disability as a result of inequality of bargaining power. Many, if not most, contracts are made between parties of unequal bargaining power and good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests (ACCC v C.G. Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at [11]). Unconscientious exploitation of another’s inability or diminished ability to conserve his or her own interests is not to be confused with taking advantage of a superior bargaining position (ACCC v C.G. Berbatis Holdings Pty Ltd at [14]).
Notwithstanding that Riva, Moruben and Quadwest were all in default, that Moruben had no contractual entitlement to the discharge of the mortgages over the Moruben Road property in the absence of tender of all monies owing under the Moruben Mezzanine Agreement and had no contractual entitlement to redemption of the Moruben Equity Mortgage because the amount of the Net Project Profit could not be calculated, Mr Rose was seeking indulgences from the Lenders that would permit him to obtain an extension of the facilities granted to Riva. He had no contractual entitlement to such an extension and therefore had to make concessions to the Lenders to obtain such a concession. One of the terms that the Lenders dictated was the provision of personal guarantees by him. While the situation may have been difficult for Mr Rose, and the Quadrant Group generally, it is not a situation that justifies a conclusion that the Lenders brought undue pressure or duress to bear on Mr Rose or Riva or that their conduct was in any way unconscionable.
As I have said, the Lenders contend that relief under the Contracts Review Act is precluded by the operation of s 6(2). Clearly enough, the Loan Agreement Variation Deeds entered into by Riva were entered into in the course of the business carried on by Riva, namely, the development of the Chevron Island Property. However, Mr Rose was not personally engaged in the development of the Moruben Road Property, the Chevron Island Property or the Adelaide Terrace Property. To the extent that those developments involved carrying on businesses, those businesses were carried on by Moruben, Riva and Quadwest respectively.
However, that is not an end of the matter. It is clear that Mr Rose was engaged in an enterprise involving property development. He described himself in his evidence in chief as a property developer. He engaged in that activity through the instrumentality of the various limited liability companies that formed the Quadrant Group. As part of that activity, Mr Rose regularly gave personal guarantees in respect of the obligations of one or more of the companies in the Quadrant Group. The Quadrant Group was an enterprise conducted by Mr Rose. It is an enterprise that can fairly be characterised as a business. I would be disposed to conclude that all of the Impugned Agreements were entered into in the course of that business. However, it is not necessary for me to reach a conclusion on that question.
APPLICATION FOR LEAVE TO AMEND
Mr Rose claims to have rescinded the Impugned Agreements, either by a letter of 9 February 2007 written by his solicitors or by the filing of an amended statement of claim in the proceeding dated 15 August 2007. The Lenders say that neither of those events constituted an effective rescission. They also say that it is not possible for the Court to order rescission, or the setting aside, of the Impugned Agreements. The Lenders say that there has been no rescission and there can be no rescission because of the impossibility of providing substantial restitutio in integrum to the Lenders.
Because of the benefits that accrued to Moruben and Riva on the one hand, and the corresponding detriment to one or other of the Lenders on the other hand, there may well be a real question as to whether restitutio in integrum could have been, or could be, provided by Riva and Mr Rose, even if duress or undue pressure, unconscionable conduct or unfairness were established.
In particular, a significant aspect of both the question of undue or unfair pressure or unconscionable conduct and the question of restitutio in integrum concerns the release of the guarantee given by Quadrant Properties of the obligations of Riva. Those obligations were secured by the Milson’s Point Mortgage and by personal covenants given by Mr Rose in the Milsons Point Mortgage to pay moneys owing by Quadrant Properties.
The significance of the guarantee by Quadrant Properties and the Milson’s Point Mortgage is that, quite apart from the Impugned Agreements, Mr Rose was personally liable for the indebtedness of Riva prior to his accepting the terms of the letter of 8 December 2006. His liability under the Milson’s Point Mortgage exceeded the amount now owing under the Impugned Agreements.
At this stage I do not propose to deal with the question of whether restitutio in integrum was or is possible. The question does not arise if there was no undue pressure brought to bear on Mr Rose and Riva, if there was no unconscionable conduct on the part of the Lenders that induced the execution of the Impugned Agreements and if no order ought to be made under Contracts Review Act.
I have already referred to the absence from the proceeding of Moruben as a party. Moruben secured an advantage, not only in relation to the discharge of the securities over its properties, including the Moruben Road Property, but also in having the net profit share capped at $300,000. Thus, the question of restitutio in integrum may require an investigation of the final outcome of the development of the Moruben Road Property to determine whether the Net Project Profit exceeded the Internal Rate of Return as defined in the Moruben Equity Agreement.
In their written submissions, the Lenders asserted that rescission of the Impugned Agreements was not available to Mr Rose and Riva because it was not possible or practicable to put the Lenders substantially in the position they were in prior to entering into the Impugned Agreements. Following some discourse between the parties on the question of who bore the onus of establishing that restitutio in integrum was either possible or not possible, Mr Rose and Riva sought leave to amend the Application in the proceeding, to seek additional relief by way of the taking of accounts and the conduct of an enquiry for the purpose of determining what order should be made to ensure restitutio in integrum, assuming the Court were disposed to make declarations that the Impugned Agreements had been rescinded or to make an order that they be rescinded, set aside or cancelled. The leave was opposed by the Lenders.
Accordingly, at the completion of all submissions by both parties, I directed that Mr Rose and Riva serve on the Lenders a detailed outline of their contentions that, as at the respective dates at which they claimed to have effected rescission, they were in a position to provide restitio in integrum to the Lenders and that, as at the day on which any relevant Court order may be made, they will be in a position to provide restitio in integrum to the Lenders. The parties subsequently jointly asked the Court to vacate that direction on the following basis:
·In the event Mr Rose and Riva fail to make out any of the causes of action in their Third Further Amended Statement of Claim, the application for leave to amend is to be dismissed immediately following delivery of the Court’s reasons for judgment.
·In the event that they establish one or more of the causes of action in the Third Further Amended Statement of Claim, the application for leave to amend is to be heard at an early time convenient to the parties following delivery of the reasons for judgment.
I have not yet expressed a view as to whether the former course is appropriate. It may be that Mr Rose and Riva should be put to an election as to whether they wish to proceed with their application for leave to amend, even if they fail to make out any of the causes of action, against the possibility that, on appeal, a different result might ensure.
That is to say, if there are contentious matters that would need to be resolved, if the leave to amend were granted, the question of amendment should be dealt with before the final disposition of the proceeding at first instance. Accordingly, if the application for leave to amend is to the dismissed, it will be dismissed on the basis that Mr Rose and Riva no longer wish to pursue it and it will not be open to them to pursue it in the event of a different result being obtained on appeal.
CONCLUSION
It follows from what I have said that all of the claims made by Mr Rose and Riva must be dismissed and that there should be a judgment for the Lenders in the proceeding. It also follows that there should be judgment for the Lenders against Mr Rose on their cross-claims. In addition, injunctions should be granted restraining Mr Rose from breaching his covenants that he will not further encumber his property. I shall direct the parties to bring in short minutes of the orders that would follow from my conclusions, including the precise calculation of the amount for which judgment should be entered, and the terms of relevant injunctions.
At the conclusion of the hearing, senior counsel for the Lenders indicated that, if the respondents were successful, an application for a special order for costs would be made. The parties agreed that, in the circumstances, it was preferable to defer the question of costs until after the Court’s conclusions have been published. Accordingly, I propose to fix a time for further argument on the questions of costs, in the light of the conclusions I have reached.

I certify that the preceding one hundred and seventy-eight (178) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.
Associate:
Dated: 1 April 2009

Counsel for the Applicants: AS Martin SC with MR Tyson

Solicitors for the Applicants: HWL Ebsworth

Counsel for the Respondents: JE Marshall SC with DFC Thomas

Solicitors for the Respondents: Blake Dawson

Date of Hearing: 15-18 December 2008 and 9-11 February 2009

Date of Judgment: 1 April 2009

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1087 of 2007

JUDGE:	EMMETT J
DATE OF ORDER:	1 APRIL 2009
WHERE MADE:	SYDNEY

JUDGE:	EMMETT J
DATE:	1 APRIL 2009
PLACE:	SYDNEY

Counsel for the Applicants:	AS Martin SC with MR Tyson
Solicitors for the Applicants:	HWL Ebsworth
Counsel for the Respondents:	JE Marshall SC with DFC Thomas
Solicitors for the Respondents:	Blake Dawson

Date of Hearing:	15-18 December 2008 and 9-11 February 2009
Date of Judgment:	1 April 2009