A Little Company Limited v Gregory Raymond Peters [2007] NSWSC 833 | Case summary

A Little Company Limited v Gregory Raymond Peters [2007] NSWSC 833 | Case summary | Zoe

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5789/03 A Little Company Ltd v Gregory Raymond Peters & 1 Ors JUDGMENT 1 HIS HONOUR: As at April 2003, the plaintiff ("the Company") owned all of the shares in Storage Plus Group Pty Ltd ("Storage Plus"). Storage Plus operated a self storage business at 87-103 Epson Road, Rosebery ("Epson Road"), and was in occupation of those premises as lessee under a lease with the owner of that property. 2 By Share Sale Agreement of 13 May 2003 ("the Agreement"), the plaintiff agreed to sell to Mr Gregory Raymond Peters ("Peters"), the first defendant, all of its shareholding in Storage Plus for a total consideration of $2 million. Mrs Catherine Marie Peters ("Mrs Peters"), the second defendant, guaranteed the obligations of Peters under the Agreement. The consideration for the share purchase was payable in instalments and included the release of a bank bond given by Mr Ronald Anthony Ooi Thean Yat ("Ooi") in support of the obligations of Storage Plus on the lease (noted as having a value of $610,000). Ooi held 80 per cent of the shares in the plaintiff and a Mr Djadjang Tanuwidjaja who is known as "Duncan" (and to whom I shall refer as "Duncan") held 20 per cent of the shares in the plaintiff. On 14 May 2003 Peters paid the Company a deposit of $10,000 in accordance with the Agreement. He paid a further $20,000 on 7 August 2003. 3 Mr J Robson SC and Mr A Lo Surdo appear for the Company and Mr C Harris SC appears for both Peters and Mrs Peters. There is no dispute that Peters did not meet the obligations imposed on him by the Agreement, other than pay the two amounts totalling $30,000, or that his failure to meet the time specified for payment and then extended time constituted a default entitling the plaintiff to terminate the Agreement. The plaintiff's claim for the amount owing under the Agreement including interest from both Peters and Mrs Peters is resisted on one basis only, namely that Peters' entry into the agreement was procured by a threat by the plaintiff through Ooi and Duncan to place Storage Plus in liquidation. Mr Harris in submissions sought to promote a separate case on behalf of Mrs Peters that was contrary to his statement in opening. Mr Robson took objection to that argument and justifiably so in my view: T36.10-38, T160.54-T161.5.

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5 As a consequence of Peters' withdrawal as a shareholder Ooi arranged for Duncan to take up 20 per cent of the shares in the Company. Ooi was the sole director of the Company and the Company took up 100 per cent of the shares in Storage Plus. 6 As at 1999 Peters had had extensive experience in self storage and he had also been a builder and developer: see T27.39-40, T51.14, T52.17, T55.37-41, T58.15-21. 7 On 30 October 1999 Storage Plus entered into a lease of Epson Road. Peters had told Ooi that the owner of Epson Road required guarantees from the directors of the lessee company, and Peters agreed that he would be the only one to provide the guarantee: see Exhibit "1" pp 3, 19. Peters executed the lease on behalf of Storage Plus and guaranteed the obligations of Storage Plus. 8 On 30 August 1999, Ooi had arranged a bank guarantee for $610,000 in favour of the landlord of Epson Road as a rental bond. That was required by the Epson Road lease, a copy of which is found at pp 2-42 Exhibit "A". Subsequently a further lease was entered into for additional space. The annual rental for the areas originally leased was $1.4 million and with the additional area it was in the order of $2 million per annum. According to Peters, Storage Plus was earning $250,000 per month in storage fees by early 2003: see T50.35. 9 In late 2002 Ooi, having become concerned about Peters' conduct of the business, asked a company accountant (Mr Ong) to examine the books and records of Storage Plus. Mr Ong reported to Ooi, who then in December 2002 told Mrs Peters that he was very unhappy with irregularities which had been uncovered. One of the matters which Mr Ong reported was the use of funds of Epson Road for Manly, another storage business in which Peters was involved, with which Storage Plus was not connected (and this was a matter which Ooi mentioned to Mrs Peters: see para 13 of Mrs Peters' affidavit of 16 March 2004) but there was also concern about cash receipts and contra deals engaged in by Peters on behalf of Storage Plus. 10 As a result of what Peters was told by Ooi and/or Mrs Peters he understood that Ooi (and Duncan) wanted to get out of the Storage Plus business and Peters commenced looking at ways of continuing the business. Mrs Peters says that Ooi had wanted to sack Peters (Mrs Peters' affidavit paras 13-15), although this was denied by Ooi (see para 15 of Ooi's affidavit of 26 June 2004). 11 In February 2003 Peters on behalf of Storage Plus entered into an agreement with TGBN Pty Ltd, a business broker, for the sale of the Storage Plus business at a price of $3.2 million: see p 85 Exhibit "A". Advertisements were placed (see p 84 (top right hand corner)) and material which had been prepared by Peters was circulated by TGBN (see pp 102-112 Exhibit "A" 18 February, pp 114-124 April). It seems that the $3.2 million was for 80 per cent of Storage Plus: see p 124 of Exhibit "A" and Peters' evidence at T64.8-10. A number of responses were received following the advertisement: see Tab 6 Exhibit "A". 12 Agreement was reached by Peters with Ooi that the Company would sell all of its shares in Storage Plus to Peters for $2 million. There is a dispute as to how precisely that agreement was reached. 13 As at February 2003 Peters, according to answers given by him in cross examination, had the following perception of the business of Storage Plus:

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(f) the deal was dependent upon Peters' being in control of the shares in Storage Plus (Peters' XX T66.36-45 and T67.3-8). 14 The Company also relies on a further matter which is that the landlord of the premises at which the Storage Plus business was being conducted had a "… DA approved for 750 units on that site … and wanted to get the building back" and that Peters was happy to accommodate by looking for a property to relocate the business: Peters' XX T65.45-54, T83.41-50 and T86.18-30. This evidence was retracted by Peters later however. I will treat that concession as in dispute. 15 TGBN advertised the sale of the Storage Plus business in the Sydney Morning Herald in February and March 2003: part of subpoenaed documents packet 1; Exhibit "A" p 84. 16 Fourteen expressions of interest were received before the execution of the agreement: part of subpoenaed documents packets 1 and 2; Exhibit "A" p 89. 17 On 26 March 2003, Peters and Duncan signed an internal memorandum which appears to set out the terms of an agreement in principle for the sale of the shares to Peters or his nominee: part of subpoenaed documents packet 7; Exhibit "A" p 113. 18 On 14 April 2003, Foulsham & Geddes, Solicitors ("FG") for the Company furnished to Peters the Agreement in duplicate: Exhibit "A" p 125 - that draft had Mrs Peters as a purchaser with Peters, but her presence as a purchaser was removed subsequently. 19 On 15 April 2003, Picone & Co ("PC"), Solicitors wrote to FG indicating that they had been instructed to act for Peters in relation to the Agreement: Exhibit "A" p 137. 20 On 22 April 2003, PC wrote to FG indicating that they hoped to be in a position to exchange contracts during the course of the following week and suggesting an amendment to the draft of the Agreement: Exhibit "A" p 138. 21 From 23 April 2003 to 13 May 2003, letters were exchanged between the solicitors in relation to the draft Agreement. The Company's submissions draw attention to the following exchanges:

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(5) there is much material that indicates reasons for Peters acting as he did that are not connected with such a threat. 35 Peters' case is not limited to Ooi. So far as Duncan having made such a threat is concerned, the evidence is confused. Mrs Peters said that he stated that that was Ooi's intention "if you do not buy him out". In her affidavit she fixed that conversation at a Chinese restaurant in Crows Nest, but in cross examination she retreated from any certainty as to the time and she agreed that the negotiations had proceeded as set out in Duncan's affidavit. There is a problem too in that neither party addressed the note of 26 March (p 113 Exhibit "A"). I do not think that Duncan was shown to have been obviously untruthful but his command of English was somewhat limited. His evidence that Peters was "upbeat" about finding an investor was entirely consistent with Mr Ellice-Flint's evidence and with much of Peters' own admissions in cross examination. Peters, as cross claimant, bears the onus of proof and I am left unpersuaded that Duncan did tell Peters that Ooi would put Storage Plus "into liquidation", which are the words Mrs Peters attributes to him in her affidavit in relation to the restaurant meeting and which Peters says were said to him in February 2003 ("he's going to put it into liquidation" and "No he wants $2 million or he's going to wind it up": see para 23 of Peters' affidavit). As at February Ooi had not yet sought advice about his options. 36 I accept Mr Harris's contention that on the balance of probabilities Ooi had before 13 May decided that if Peters did not proceed to execute the Agreement he would put Storage Plus into administration. I draw this from Exhibit "6" and would put the date at which he formed that intention as early May 2003. I do not accept Mr Harris's contention that Mr Woodgate had advised Ooi to threaten Peters that if he did not sign the agreement then Storage Plus would be placed in administration - and even if Mr Woodgate's fax is taken to mean that, as I have noted, even in May, Ooi did not give instructions for his solicitor to write such a letter. Nor do I accept Mr Harris's contention that Peters understood the reference to alternative action in correspondence to mean liquidation or administration. Peters relied on these documents to indicate a pressure of time (see T133.41-T134.39) but did not offer any evidence of what he thought was meant by alternative action in his affidavit or oral evidence. I accept that Peters may well have understood that the consequence of not proceeding with the share agreement by the deadline was very likely placement of Storage Plus into administration, but that is a quite different matter. 37 It is clear that Peters had decided in principle to buy the shares in Storage Plus well before 13 May. He had signed a document which might be described as a memorandum of understanding that stated a suggested price of "2 million dollars no greater than 2.25 million": see p 113 Exhibit "A". That document indicated that a signed agreement would be executed within 30 days of agreement on price. Peters gives no evidence in his affidavit of when the price of $2 million was agreed but it is clear from the evidence of Duncan that it had occurred by the end of March or early April (see also Exhibit "A" pp 125-137). In those circumstances, where Peters had clearly indicated an intention to proceed with the transaction, his solicitors were writing in connection with the proposed sale by 15 April and indicating a likely exchange before the end of April 2003 (see p 138 Exhibit "A"), I do not think that what occurred after that is of much significance. Ooi on behalf of the Company was entitled to be concerned that the sale agreement should be executed and was entitled by correspondence sent on its behalf to put a deadline on execution. The manner in which the $2 million came to be agreed 38 As I have noted, Peters did not provide any detail about the note of 26 March in his affidavit. In cross examination Peters said that he offered $1.4 million without any pressure being applied. There is undisputed evidence that Peters offered or agreed to pay Duncan a commission of $125,000 and 5 per cent of the shares in Storage Plus if Ooi agreed to a price of $2 million, which rather suggests a lack of dissatisfaction on the part of Peters with that price. There is a dispute between Ooi on the one hand, and Peters and Mrs Peters on the other, as to whether Ooi said to them that he wanted $2 million in his visit to Sydney in early January 2003. Mrs Peters was not challenged on her version in cross examination but she did in cross examination agree with Duncan's version as to how the $2 million was arrived at, and she does not dispute that she said to Duncan "I wish Ron could get the full $3,000,000. I hate to see him lose money." I am not satisfied that the $2 million was not arrived at willingly by Peters and his confidence of obtaining a buyer for an amount well in excess of that strengthens my view that it was not unwillingly arrived at, as does Peters' evidence at T121-T122 which I have set out earlier at 24. I accept that Peters would have preferred to pay less but there are few buyers who would not prefer to pay less than the price which a seller is willing to accept. A further relevant matter is that Peters sought the advice of Mr Ellice-Flint on capital gains tax (see Annexure "A" to Mr Ellice-Flint's affidavit) suggesting that he had a real anticipation that he would make a profit on purchase and re-sale of the shares in Storage Plus as at late April 2003, and after the price of $2 million had been agreed. Whether Peters mentioned a seller for $4 million 39 Duncan said that Peters had told him that he had a buyer interested at $4 million. From a negotiating point of view it would seem unlikely that Peters would mention that fact even if true, and Mr Harris submitted that it is most unlikely that Duncan would not tell Ooi about that if he had become aware of it, particularly where Duncan would benefit by a sale for $4 million. On the other side of the coin - Peters did have a view that the business was worth or would be worth $4 million, and he did have a reason to persuade Duncan that he was serious and would be able to proceed. 40 The introduction of a commission is a complication too because it might explain why Duncan did not tell Ooi about the $4 million. Duncan's account in cross examination of what he thought of Peters' claim to have a buyer for $4 million was a convincing one, namely what he and Ooi were interested in was $2 million from Peters - what Peters could get or said he could get elsewhere was uncertain and in effect a matter for Peters. I took this as evidence that Duncan was sceptical about Peters' promises and projections which I think was appropriate given Peters' own evidence about "ploys", the form of the marketing documents created by him, and the concerns that Ooi, and I assume Duncan, had about Peters' style of doing business. 41 I am inclined to accept Duncan's version of events but I do not think this factual issue is of any importance in the outcome in the case. 42 Although in my view Peters has failed to make out the factual basis for his claim, I will consider the matter on the basis that, contrary to my conclusions, the threats asserted to have been made were made. Legal principles to be applied 43 In Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 45-46 McHugh JA (as he then was) said that the rationale of the doctrine of economic duress: "is that the law will not give effect to an apparent consent which was induced by pressure exercised upon one party by another party when the law regards that pressure as illegitimate: Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366 at 384 per Lord Diplock. …

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It is unnecessary, however, for the victim to prove that the illegitimate pressure was the sole reason for him entering into the contract. It is sufficient that the illegitimate pressure was one of the reasons for the person entering into the agreement. Once the evidence establishes that the pressure exerted on the victim was illegitimate, the onus lies on the person applying the pressure to show that it made no contribution to the victim entering into the agreement: Barton v Armstrong (at 633; 120) per Lord Cross." 44 In Australia and New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149; [2005] NSWCA 344, the Court of Appeal examined in detail the law relating to what had been termed economic duress. The Court (Beazley, Ipp and Basten JJA) regarded the phrases "economic duress" and "illegitimate pressure" as inherently vague and said that "duress" should be limited to situations where there is threatened or actual unlawful conduct. The Court went on to say: "[66] … The threat or conduct in question need not be directed to the person or property of the victim, narrowly identified, but can be to the legitimate commercial and financial interests of the party. Secondly, if the conduct or threat is not unlawful, the resulting agreement may nevertheless be set aside where the weaker party establishes undue influence (actual or presumptive) or unconscionable conduct based on an unconscientious taking advantage of his or her special disability or special disadvantage, in the sense identified in Commercial Bank of Australia Ltd v Amadio [(1983) 151 CLR 447]." 45 Peters does not assert any threatened or actual unlawful conduct, nor does he assert any special disability, but rather relies on what is said to be an unconscientious taking advantage (by requiring payment of $2 million for the shares which was not based on any estimate of the value of the shares but rather on what the Company and in reality Ooi had sunk into the business) of a special disadvantage, that is his having guaranteed the lease of Storage Plus. 46 A further matter which is important to Peters' case is that he submits that it does not matter that he may have entered into the agreement even if no threats of winding up had been made and in this regard he relies upon Barton v Armstrong [1973] 2 NSWLR 598 and in particular the passage at 632-633 where Lord Cross (in whose speech Lord Kilbrandon and Sir Garfield Barwick concurred): "If Barton had to establish that he would not have made the agreement but for Armstrong's threats then their Lordships would not dissent from the view that he had not made out his case. But no such onus lay on him. On the contrary it was for Armstrong to establish, if he could, that the threats which he was making and the unlawful pressure which he was exerting for the purpose of inducing Barton to sign the agreement and which Barton knew were being made and exerted for this purpose in fact contributed nothing to Barton's decision to sign. The judge has found that, during the ten days or so before the documents were executed, Barton was in genuine fear that Armstrong was planning to have him killed, if the agreement was not signed. His state of mind was described by the judge as one of 'very real mental torment', and he believed that his fears would be at an end when once the documents were executed. It is true that the judge was not satisfied that Vojinovic had been employed by Armstrong, but if one man threatens another with unpleasant consequences if he does not act in a particular way, he must take the risk that the impact of his threats may be accentuated by extraneous circumstances for which he is not in fact responsible. It is true that, on the facts as their Lordships assume them to have been, Armstrong's threats may have been unnecessary; but it would be unrealistic to hold that they played no part in making Barton decide to execute the documents. The proper inference to be drawn from the facts found is, their Lordships think, that, though it may be that Barton would have executed the documents even if Armstrong had made no threats and exerted no unlawful pressure to induce him to do so, the threats and unlawful pressure in fact contributed to his decision to sign the documents and to recommend their execution by Landmark and the other parties to them. It may be, of course, that Barton's fear of Armstrong had evaporated before he issued his writ in this action, but Armstrong, understandably enough, expressly disclaimed reliance on the defence of delay on Barton's part in repudiating the deed."

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47 Barton is a case in which Armstrong had threatened Barton with death if he did not have Landmark company enter into an agreement with him. 48 In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, the High Court affirmed the decision of the Supreme Court of South Australia which had set aside a mortgage granted by Mr and Mrs Amadio over their property in support of an overdraft for a company controlled by their son. The bank had been selectively dishonouring cheques on the account to preserve the appearance of solvency. The son told the parents that the mortgage was limited to $50,000 and for six months only, which was not the case, and the bank knew that the mortgagors had been misinformed. 49 In Amadio, Mason J (as he then was) said of the willingness of equity to decline to enforce a transaction: "But relief on the ground of 'unconscionable conduct' is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage, eg a catching bargain with an expectant heir or an unfair contract made by taking advantage of a person who is seriously affected by intoxicating drink. Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position." 50 The passage just referred to is set out at [43] of Karam, and is that to which reference is made in [66] of Karam set out at [44] above. There is also set out in Karam the following: "[60] In Australian Competition and Consumer Commission v C G Berbatis , Gleeson CJ (at 64 [12]) stated that it was 'the inability of a party to judge his or her own best interests that was said by McTiernan J in Blomley v Ryan (1956) 99 CLR 362, and again by Deane J in Commercial Bank of Australia Ltd v Amadio , to be the essence of the relevant weakness'. Gummow J and Hayne J adopted a similar position in considering the concept of "special disadvantage" as a necessary factor in establishing unconscionable conduct, as identified by Mason J in Commercial Bank of Australia Ltd v Amadio . Their Honours stated (at 77 [55]-[56]): '[55] It will be apparent that the special disadvantage of which Mason J spoke in this passage was one seriously affecting the ability of the innocent party to make a judgment as to that party's own best interests.

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(h) He knew the terms of the lease and was, I infer, aware of the payment situation. 53 It is true that Peters had signed the guarantee of the lease and was therefore potentially at risk if Storage Plus was placed in administration and no alternative lessee could be found, but his entry into the guarantee of the lease had occurred four years earlier and he makes no complaint about having done so. I do not regard the fact that Peters had signed the guarantee as a factor which placed him under a special disadvantage within the meaning of Amadio and reiterated in Karam. He was able to make his own judgment as to whether he had more to gain by entering into the agreement with the prospect of on-sale at a profit (or even at no profit) or not, and facing the prospect of having to meet a liability under the guarantee beyond that for which he was already liable (according to Mr Woodgate's advice there was already $410,000 of rent outstanding). Further, he had lawyers acting for him during the negotiations and he had access to accounting advice had he wanted it. 54 It follows that on the basis of Karam, Peters cannot succeed on his claim even if the threats were made. 55 There is a further reason why, in my view, Peters' claim ought be rejected. In my view, the Company was not acting unconscientiously in doing what it was legally entitled to do. It was, as Mr Harris conceded, entitled to put Storage Plus into administration: see T322.39-43. It probably had little choice but to do so if Peters did not take up the shares given the advice the Company had received about Storage Plus's parlous financial position (which it believed, on Ooi's evidence at T241.18, was a consequence at least in part of the misconduct of Peters), and see Exhibit "B", a copy of a fax sent by Mr Woodgate to Ooi. I cannot see any reason why the Company was not entitled to indicate in express terms that unless it received from Peters a price for the shares satisfactory to it, it would place Storage Plus into administration. Ooi, having bona fide formed the view that Peters had been siphoning off money from Storage Plus into another business with which Peters was connected, was entitled to ask whatever price for the shares in Storage Plus he wanted. Ooi, having provided the bond, was entitled to offer the shares on behalf of the Company to Peters or to accept an offer from Peters in order to avoid the risk of having to lose the bond. In Wardley Australia Ltd v McPharlin (1984) 3 BPR 9500 at 9502, it was held that "it is not economic duress to threaten to exercise neither more nor less than the existing legal rights of a party" even if that party was driving a hard bargain: per Rogers J at 9502. In Re Hooper & Grass' Contract [1949] VLR 269 at 272 Fullagar J drew the distinction between threatening to exercise a legal right in order to extract a promise and threatening to withhold that to which the other party was legally entitled. 56 The question of causation was addressed by both parties. The Company submitted that the material to which I have already referred explained why Peters wanted to enter into the Agreement. The Company submits that Peters executed the Agreement because he saw it as an ideal opportunity to acquire equity in a business that he had always wanted (Peters' XX T111.6-46, 112.26-53 and Mrs Peters' XX T157.36-57), a business which he had built, which he considered, as at January 2003 was "getting better and the type of business as grass grows improves" (Peters' XX T34-37), which Mrs Peters as at January 2003 had formed the view had "rounded the corner … was on a good financial path for future development … things were looking rosy" (Mrs Peters' XX T154.16-23), and which Peters considered to have a value of some $4 million which he was acquiring for only $2 million. In effect, says the Company, it was for Peters with his view of matters a commercial opportunity that he could not afford to pass up. I think there is ample evidence that even absent the alleged threat it is likely that Peters would have proceeded with the purchase. Mr Harris argued however that on the authority of Barton v Armstrong, even if I were to conclude that even absent any economic duress Peters would have signed the agreement, that fact would not matter - provided the threat was one of the factors that led to the agreement having been entered into. 57 There may be some room for doubt as to whether the approach taken in Barton, which was a case of common law duress, is applicable to the second category of case identified in Amadio, but accepting that it is, I do not think that it would assist Peters. First the threat, assuming it to have been made, was to do the very thing that Peters would have understood would occur even if it had not been made - that is he must have appreciated that if he did not purchase the shares, Storage Plus would be placed in administration. The enunciation of the threat therefore was of little moment. In Barton, the threat was of such a serious nature that the Court was prepared to accept in the absence of contrary evidence that it had continued in effect. The question of special disadvantage, unconscionable conduct and causation are very much linked. Here there is evidence that Peters had a number of reasons for wishing to buy the shares which are of a kind that undermine the proposition that the threat is what motivated his purchase or at least provided any motivation beyond what he ought reasonably to have appreciated.

A Little Company Limited v Gregory Raymond Peters

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