McHugh JA's judgment has been frequently cited with approval, including, at appellate level, in the NSW Court of Appeal in Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 11 ACSR 642; in the Western Australian Full Court in Scolio Pty Ltd v Cote (1992) 6 WAR 475 and Caratti v DFC of T (1993) 93 ATC 5,192; and in the House of Lords in Dimskal Shipping Co SA v International Transport Workers Federation [1992] 2 AC 152.
32 To answer this question, it is necessary to make some findings in relation to the course of dealings between the parties. It is probably unnecessary to find whether or not the parties did intend the November 1993 contract to have legal effect, this being the subject of contest between them. However, in this regard I accept Lawrence's version that the exchange of contracts took place to provide Bernoth with evidence that he had a sale of the land to present to his bank, but without intention that the contract should operate between them. $100,000 was paid into Bernoth's bank account on 19 November 1993. This was not provided for under the November 1993 contract. Negotiations were proceeding between the parties for them to enter into a joint venture arrangement in relation to the subdivision of the land, but in my view the negotiations had not then been concluded. I accept that Lawrence was at that stage prepared to make an advance of $100,000 to Bernoth, as a loan, secured by a mortgage, and against the likelihood that a contract or arrangement would ultimately be entered into between them, as undoubtedly it was. It is significant that neither the $5,000 deposit nor the stamp duty on the contract was paid. If it were necessary to do so, I should find that the parties did not intend the November 1993 contract to create legal relations between them.
33 The March 1994 contracts were undisputedly entered into in that month. The legal relation of vendor and purchaser was thereby created between the parties, but as already indicated negotiations continued long afterwards as to what were finally to be taken as the terms of those contracts, although this was finally settled between the parties, as has already been stated. It is clear that in March 1994 it was anticipated that six lots would be sold quickly, the subdivision works would then be undertaken, and the balance of the lots promptly sold. The contemplation was that that would all occur within the space of months, rather than two or three years. As already observed, six early sales did not take place, probably because the land continued to be virgin bush, and the works were not commenced; wrangling instead ensued and a large amount of time was consumed.
34 Fresh negotiations took place early in 1995 to break the deadlock which had occurred and to provide the plaintiffs with moneys they needed for interest payments. At that time Lawrence became willing to commence to carry out the works, but only if he was provided with firm security. When no security was forthcoming, Lawrence required the payment of interest by the plaintiffs, both upon the sums agreed to be lent to the plaintiffs, and upon the moneys whch would have to be borrowed to carry out the works. Again, negotiations between the parties were diffuse. And whether there was intention immediately to create legal relations by the March 1995 agreement is uncertain. Lawrence did commence work after that document was signed on 30 March 1995, but negotiations continued between the parties as to the terms on which interest was to be paid. It is clear that that document was in any event an interim document which was at most to have effect until superseded by a permanent document. Alternatively, it was regarded as not creating legal relations at all, but as a document which gave Lawrence some evidence of the general outline of the arrangement between them until a final document was entered into. It is not necessary to come to a final conclusion between those alternatives, because it is my view that, if ever there was an intention that that document should create legal relations between the parties, all parties thereafter abandoned the contract thereby created. By July 1995 the plaintiffs and the defendants are negotiating with each other for some different arrangement as to the interest to be payable upon the $2,000 per month instalments (which are then being paid despite the lack of final documentation) and the cost of the works. Bernoth (although he avowed at the trial that he regarded the March 1995 agreement as binding if the August 1995 deed were set aside, is the one who in July 1995 is proposing 12 per cent interest as a compromise. On the probabilities, I find that Bernoth did not at that time regard the March 1995 agreement as binding. Equally, Lawrence did not do so, and felt at liberty to demand that compound, as opposed to simple, interest be payable under the arrangements. Neither party in the course of those negotiations suggested that the priocess they were carrying on was negotiation for variation of an already binding agreement, rather than for the conclusion of an original agreement on this subject matter.
35 I find, therefore, that the defendants were not bound by an agreement that provided for simple interest when in July Lawrence required that the contemplated deed should contain a provision for compound interest, and a different definition of the principal upon which the interest was to be calculated. Bernoth's protests were that the proposed deed was inequitable, not that it was contrary to an agreement which existed between the parties and ought be adhered to. It seems likely that the reason for Lawrence's dishonouring of the cheque for the July instalment of $2,000 was to bring to a head the situation where he had already commenced work in the spirit of the March arrangement without the terms of that arrangement having been settled. And, indeed, that action and the negotiations consequent upon it led to the execution of the August 1995 deed setting out the terms .
36 It is against this background that I have come to the conclusion that the plaintiffs have not made out a case of duress. In doing so, I have not relied on Bernoth's admissions in cross examination that he executed the deed willingly; I am not convinced that he intended those admissions. But I am of the view that neither did Bernoth act under pressure or compulsion in the way the law requires for duress to be established, nor could Lawrence be said to have behaved illegally or unlawfully or in any way to have applied illegitimate pressure in insisting on the execution of the August 1995 deed containing the terms it did for compound interest or as to the basis of calculation of the interest. Both were experienced businessmen. Both had been bargaining for the terms on which the work would commence so that the subdivision could proceed. Bernoth conceded that his companies at material times from 1993 to 1995 had cash liquidity problems, but denied that even in November 1993 they would have gone to the wall but for Lawrence's $100,000 loan. There is no evidence that Bernoth's business or companies would have gone to the wall had the work on the subdivision been suspended in August 1995. There is no evidence that there was then no other alternative for him. I do not accept that he was unaware of the terms of the August 1995 deed at the time of execution. The bargain driven may have been a hard one, but he accepted it as a commercial solution at the time. Lawrence was not acting in breach of an existing contract by taking the course he did. In my view, no case of economic duress is made out and there is no case for the August 1995 deed to be set aside.
CONCLUSIONS: MISLEADING OR DECEPTIVE CONDUCT
37 For conduct to breach ss 52 or 42 of the TPA or FTA respectively, it must be conduct in trade or commerce. No submission was put to me that the relevant conduct was not in trade or commerce. Furthermore, although there is no evidence of any of the plaintiffs conducting a business of the purchase and resale or development of land at the times material to this suit (other than their engagement in the transaction), Bernoth conceded that he had previously engaged in speculative land dealings. More importantly, although the plaintiffs had held the land for many years, the project of subdividing it for resale in joint venture with another venturer appears to me to mean that the conduct engaged in was in trade or commerce. As to the issue of whether the impugned conduct was misleading or deceptive, the relevant facts must be looked at in light of the history of the transaction. There is no doubt that Bernoth was keen for Lawrence to enter into the transaction, on the basis that this would both provide Bernoth with some immediate cash to ameliorate his liquidity difficulties, and give the prospect of further cash upon the sale of the of the subdivided lots or through the medium of the two lots to be transferred back to the plaintiffs. However, I also find that Lawrence was not as reluctant as he claimed to enter into the transaction, and I do not accept that he did so only because of the persistence of Bernoth. I accept Bernoth's evidence that Lawrence said to him that he was interested in being involved in a five acre subdivision, and accept that this was the truth. Lawrence also claimed that he was reluctant from the start to enter into the transaction because he foresaw from the extent of the works that it would not in reality be profitable unless the residual Lot 13 were subdivided into small lots. Turning, as I think important, to the contemporaneous documents, they do not indicate to me that this is so. Whilst Bernoth's initial "feasibility study" was not comprehensive (because it does not make provision for some of the inevitable or likely expenses of the subdivision, such as interest on the money expended on the subdivision works), even allowing for the omissions, it seems to me that it suggests the likelihood of a profit from the venture upon the sale of 10 lots only (allowing for the return of two lots to the plaintiffs). Even interest on the whole of $400,000 odd subdivision costs over a two year period at 15 per cent would add $120,000 to the cost and leave some profit. And that was far beyond what was anticipated. In my view it was the anticipation of both the co-venturers that all the lots would be sold in a matter of months rather than years after the subdivision works were carried out (and, indeed, they were sold over about a 12 month period once the works had after delay been carried out). But the additional attraction always was that the residual lot offered the possibility of additional profit (estimates of its value in globo range between $130,000 and $400,000); if it could be subdivided there was the prospect of even greater profits.
38 I am of the view that both men entered into the transaction on this basis, namely, that it would be profitable if the subdivision yielded only 12 small lots (two to be returned to the plaintiffs) and one large lot which at least could be sold in globo. In my view it is against that background that Lawrence's allegation that an absolute assurance by Bernoth that Lot 13 would be subdivided into smaller lots must be viewed, whether it is to be taken as a representation that those lots would assuredly be in the order of five acres each, or whether an assurance that they would be in a range of five to 25 acres, or whether it be taken as simply an assurance that some further subdivision of Lot 13 would be carried out. Both the pleading and Lawrence's evidence in chief speak in terms of absolute assurance.
39 The absolute assurances that Lawrence says that Bernoth gave were all oral, such as that set out in [17] above. It is in my view significant that, even at the times when it is suggested that Bernoth was most desperate and keenest to persuade Lawrence to enter into the transaction, no such absolute assurance appears in the writings that were created. What written assurances or representations there are are in lesser terms, the highest probably being that Lot 13 possessed "excellent potential for further subdivision": see [18]. The use of the word potential is significant. "Potential" as a noun is defined in the Macquarie Dictionary (3rd Ed, 1997) as "a possibility or potentiality"; and "potentiality" is defined as follows:
"1. potential state or quality; possibility; latent power or capacity. 2. something potential."