Bustfree Pty Ltd v Llewellyn & Anor [2013] QCA 103

SUPREME COURT OF QUEENSLAND

CITATION: Bustfree Pty Ltd v Llewellyn & Anor [2013] QCA 103

PARTIES: BUSTFREE PTY LTD (appellant) v PETER ELFYD LLEWELLYN (first respondent) RODERICK WICKHAM JAMES (second respondent)

FILE NO: Appeal No 11355 of 2012 / DC No 307 of 2012

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeal

ORIGINATING COURT: District Court at Southport

DELIVERED ON: 10 May 2013

DELIVERED AT: Brisbane

HEARING DATE: 24 April 2013

JUDGES: Gotterson JA, Philippides and A Lyons JJ / Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDERS: Appeal dismissed.Appellant to pay the respondents’ costs of the appeal on the standard basis.

CATCHWORDS: EQUITY – GENERAL PRINCIPLES – UNDUE INFLUENCE AND DURESS – DURESS – ECONOMIC DURESS – where the appellant and respondents entered into a business venture which had the objective of exploiting commercially a breast clothing invention of which Ms Westall from the appellant was the inventor – where Ms Westall became concerned that the respondents, of whom each had become a representative director, were being paid disproportionately high director’s fees – where the respondents exited the venture by execution of a Deed of Settlement with Ms Westall – where Ms Westall on behalf of the appellant was independently legally advised in relation to the deed – where draft copies were sent to the legal representatives of Ms Westall and the terms were agreed to by her through her legal representatives a fortnight prior to execution of the deed – where the deed barred all future causes of action between the parties – whether the deed is voidable on account of economic duress applied by the respondents on to Ms Westall / Uniform Civil Procedure Rules 1999 (Qld), r 293(2) / Alati v Kruger (1955) 94 CLR 216, [1955] HCA 64, cited / Alec Lobb (Garages) Ltd v Total Oil GB Ltd [1983] 1 WLR 87, cited / Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40, considered / Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421, [1972] HCA 61, cited / Pao On v Lau Yiu Long [1980] AC 614; [1979] UKPC 2, followed / Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366, followed

COUNSEL: C Westall in her capacity as director of the appellant / M R Bland for the respondents

SOLICITORS: C Westall in her capacity as director of the appellant / QBM Lawyers for the respondents

GOTTERSON JA: On 9 November 2012, summary judgment was given in these proceedings which were commenced in the District Court at Southport on 12 June 2012. Judgment was given against the plaintiff which is the appellant in this appeal, on the application of the first and second defendants who are the respondents to the appeal. The appellant’s claim was dismissed in its entirety and it was ordered to pay the respondents’ costs of the proceedings including the application.

The appellant is a company of which Ms Carolyn Westall is a director and principal shareholder. She prepared the court documents and appeared on behalf of the appellant in both the District Court proceedings and this appeal. The respondents were represented by counsel on instructions from solicitors engaged by them.

The claim made in the District Court proceedings was one for damages. It arose out of a business venture which had the objective of exploiting commercially a breast clothing invention of which Ms Westall was the inventor.

The venture was launched in 2003. The respondents were partners in the law firm, Llewellyns Solicitors. That firm was engaged by Ms Westall to assist with legal aspects of advancing the venture. Amongst other things, working capital was required. As events transpired, the respondents themselves became involved in the venture through their corporate entities, PR Finance & Securities Ltd (“PRFS”) and PR Administration Pty Ltd (“PRA”).

Ms Westall, PRFS and PRA executed a Heads of Agreement document which is dated 28 August 2003. Essential features of this agreement were that PRFS would acquire 10 per cent of the appellant on its formation and appoint one representative director; Ms Westall would acquire 90 per cent of the capital and appoint a representative director; PRA would manage the appellant exclusively for which it would be paid 30 per cent of net profit, it also being entitled to appoint a representative director. As well, PRFS was to fund working capital up to $100,000 initially and Ms Westall was to assign her legal rights and interests in the invention to the appellant which would apply for patent, design and trademark registrations. A Management Agreement and a Share Agreement were also documented and executed by the parties to those respective transactions. All documents were prepared by the respondents’ firm. About this time, the respondents indicated to Ms Westall that the firm would not be able to continue to act as solicitors for the venture.

In summary, the invention enjoyed initial early success with significant sales. However, disharmony developed between Ms Westall and the respondents and eventually the relationship soured to a point of being very strained. She considered that she was being excluded from the venture’s business affairs. She distrusted the way that the manager entity was dealing with the proceeds of sale and was concerned that the respondents, of whom each had become a representative director, were being paid disproportionately high director’s fees.

Towards the end of 2003, each side engaged its own legal representatives. Contentious correspondence between them ensued. In due course, the respondents exited the venture, a buyer having been found for the shares held by PRFS. Terms of settlement were negotiated and on 29 March 2004, a Deed of Settlement to which the appellant, PRA, PRFS, Ms Westall and the respondents were parties, was executed. The deed was executed on behalf of the appellant by Mr Llewellyn and Ms Westall. As the deed required happen, several other legal agreements were executed contemporaneously with the deed. They included a Share Sale Agreement between PRFS and Mr Lovos who was to acquire its shares in the appellant, and a Royalty Agreement between the appellant and PRA.

The proceedings

The appellant’s amended statement of claim filed in the District Court proceeding described the claims which were pursued by it as:

“… Action for Misrepresentation Company funds were paid into Defendants bank account not the Companies Action for negligence by Defendants for not allowing Plaintiff in the office or access to financials Action for harassment by Defendants for drunken phone calls at night to the Plaintiffs house stopping her rent and wages and making threats to take away her business Action for duty of care Caused by the Defendants mismanagement during their time as Managing Directors with Bustfree Pty Ltd.”¹

A sum of $750,000 damages was claimed, comprised of $200,000 which it was alleged was not contributed to the appellant as working capital when the shares were issued to PRFS, and $550,000 for loss of income “due to the Misinterpretation of company funds leaving no running capital to advertise the Product, due to managers refusal to place the bra in stores”.² The $200,000 is referenced to the $100,000 to which I have referred and a further $100,000 which under the Share Agreement was to be invested by PRFS in the appellant “as and when required to meet the [appellant’s] objectives”.³

A defence was filed to this pleading on 10 July 2012. Relevantly for present purposes, the pleading contained an allegation that all causes of action raised were “barred” by clause 5 of the Deed of Settlement. Clause 5 provides for a release in the following terms:

“Upon execution of and compliance with this Deed by the parties hereto:

(a)Bustfree and Westall release, discharge and forever hold harmless PRA, PRFS, James and Llewellyn with respect to any claim, demand, complaint, cause of action, cross-claim (and counter-claims), actions, suits or proceedings whether present or contingent and capable of being made by any party to this Deed against any other party to this Deed;

(b)PRA, PRFS, James and Llewellyn release, discharge and forever hold harmless Bustfree and Westall with respect to any claim, demand, complaint, cause of action, cross-claim (and counter-claims), actions, suits or proceedings whether present or contingent and capable of being made by any party to this Deed against any other party to this Deed.”⁴

The nature of the disputes and the parties’ agreement in respect of them were recorded in Recitals P and Q to it as follows:

Disputes have arisen between the parties in relation to, inter alia, payments to directors, duties as directors, contributions to Bustfree, management, practices and [future] directions of Bustfree, payment of management fees to PRA, breaches of fiduciary duties, failure to account, defamatory allegations, negligence and misrepresentation (“the disputes”);

The parties named herein have reached agreement in respect of the various matters set out above and wish to record the terms of that agreement herein.⁵

The release in clause 5(a) is comprehensive. Specifically, the release granted by the appellant company is sufficiently ample in its terms for it to apply to all the claims which the appellant had sought to advance in the District Court proceedings. It has not contended otherwise.

A document titled “Reply and Answer” was filed on behalf of the appellant. It took issue with a number of factual assertions in the defence. At paragraph 17(b) thereof, it contained an allegation that the Deed of Settlement “should be void due to fraud under UCPR rule 15.3”.⁶ No particulars of fraud were pleaded. No declaration was sought that the Deed of Settlement had been avoided.

This was the state of the pleadings that confronted the learned judge before whom cross-applications for summary judgment came on for hearing on 24 August 2012. His Honour did not determine either application that day. He made the following orders:

“(a)the applications filed on 19 July 2012 and 9 August 2012 be adjourned to a date to be fixed;

(b)on or before 7 September 2012, the plaintiff file and serve on the defendants’ solicitors further and better particulars of its allegations that the deed of settlement dated 29 March 2004 is void and liable to be set aside for fraud and/or unconscionable conduct and/or unfair dealing;

(c)on or before 21 September 2012, the plaintiff file and serve on the defendants’ solicitors all affidavits evidencing the allegations referred to in paragraph (b);

(d)on or before 5 October 2012, the defendants file and serve on the plaintiff all affidavits in response to the plaintiff’s affidavits referred to in paragraph (c);

(e)on or before 5 October 2012, the defendants serve copies of the particulars and affidavits referred to in paragraphs (b), (c) and (d) on PR Administration Pty Ltd and PR Finance & Securities Pty Ltd;

(f)the plaintiff pay the defendants’ costs of and incidental to today’s hearing to be assessed on the standard basis, payment of such costs to be stayed pending the final determination of the proceeding.”⁷

It is evident why these orders were made. It was not at all clear from the pleadings what were the facts and circumstances on which the appellant proposed to rely in support of its ultimate contention that the Deed of Settlement was void. Clarification of that deficiency in the pleading was necessary.

On 7 September 2012, the appellant filed a Further and Better Particulars document which apparently had been prepared with UCPR r 150(1) in mind. It claimed that the Deed of Settlement was:

“void to be set aside

(d)Duress

(f)Fraud

(j)Misrepresentation”⁸

There followed immediately a heading “Defendants unconscionable conduct and unfair dealings of Westall Director for the Plaintiff”, and under it, some thirty-nine paragraphs of factual assertions were set out. These assertions all related to conduct or events alleged by the appellant to have occurred during 2003 or in 2004 before the Deed of Settlement was executed. They included failing to afford access to the office or financial records, stopping payment on Ms Westall’s wages and rent for her residence for a two month period, harassing her with abusive phone calls at night and threatening to take money from the appellant’s Bank account whenever they wanted. In many respects, these allegations reflected facts which had been pleaded in the amended statement of claim to found the damages claim. The state of affairs as seen by Ms Westall is illustrated by paragraph 12 which stated:

“Westall for the Plaintiff had no way out but sign the deed as the Defendants were draining the Plaintiffs bank account taking unauthorised funds whenever they felt like it.”

Affidavits were filed by the parties as required by the directions. In paragraph 22 of her affidavit, Ms Westall explained the circumstances in this way:

“Westall had to rely on the accountant she hired to pay her rent so she would not be evicted from her rented property and friends had to arrange food for her and daughter Krystal Westall arranged for Defendants to be dismissed as Managers but they did not want that and agreed to resign if I signed a deed of settlement and they would sell their shares to the accountant Westall hired …”⁹

The applications for summary judgment were then heard by the learned judge on 9 November 2012. At that hearing, counsel for the respondents focused his submissions on whether, having regard to the pleadings and the totality of the evidence, the appellant had any real prospect of establishing the Deed of Settlement was a void document. For reasons which I shall elaborate later, his Honour concluded that there was no such prospect and gave summary judgment accordingly to the respondents.

The issue on appeal

Rule 293(2) of the UCPR permits a court to give summary judgment against the plaintiff’s claim if it is satisfied that:

“(a)the plaintiff has no real prospect of succeeding on the claim; and

there is no need for a trial of the claim.”

On this appeal, this Court is required to consider whether his Honour erred in law in reaching his conclusion that the appellant had no real prospect of success. Given the comprehensiveness of the release in clause 5(a), that broadly-stated issue resolves to one of whether or not his Honour erred in concluding that the appellant had no real prospect of success in its claim that the Deed of Settlement is void.

Analysis

As both paragraph 12 of the further and better particulars and paragraph 22 of Ms Westall’s affidavit intimate, the essence of the appellant’s case for the avoidance of the Deed of Settlement is that the consent to it of the appellant’s majority shareholder and director, Ms Westall, was procured in circumstances of economic duress exerted by the respondents. To use her words, all she wanted was to “get out of” the environment which she alleges the respondents had created. Despite the references to fraud and misrepresentation at the beginning of the further and better particulars document, there is no allegation in the document that Ms Westall (or the appellant) was induced to agree to the terms in the deed by any fraudulent conduct or misrepresentation of the respondents.

The concept of economic duress in law is an evolving one. In Pao On v Lau Yiu Long,¹⁰ Lord Scarman, for the Privy Council, identified as a hallmark of the concept, that there had been compulsion of the will of the victim which vitiated consent. His Lordship said:

“It must be shown that the payment made or the contract entered into was not a voluntary act.”¹¹

In Crescendo Management Pty Ltd v Westpac Banking Corporation,¹² McHugh JA expressed the opinion that the overbearing of the will theory of economic duress should be rejected, observing:

“A person who is the subject of duress usually knows only too well what he is doing. But he chooses to submit to the demand or pressure rather than take an alternative course of action.”¹³

His Honour then continued:

“… The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress.”¹⁴

In that case a borrower failed to prove that any economic duress had been exerted by a lender. Unlawful conduct on the lender’s part was established but, the court held, that conduct played no part in the execution of the mortgage. This result was reached in the course of taking the first step identified by McHugh JA, namely, to enquire into whether any applied pressure induced the borrower to enter into the mortgage.

Here, the learned judge adopted a comparable approach. The evidence before him disclosed the following history:

Ms Westall had engaged solicitors, Minter Ellison at Southport, to act for her in October 2003;

On 28 October that year, her solicitors wrote to the respondents confirming arrangements for an accountant, Mr Lovos, to access the appellant’s books and records;¹⁵

On 19 November 2003, both sides met with Mr Quentin Proctor of Minter Ellison to discuss issues and complaints with respect to operational and financial aspects of the venture which had been identified by his client;

On 3 December 2003, her solicitors wrote to the respondents confirming matters which had been acknowledged by them at the meeting. The solicitors stressed that Ms Westall wished to have input into decision-making. They also stated that she did not understand the nature and effect of the Management Agreement when she agreed to it and that it was not acceptable in its present form.¹⁶

On 9 January 2004, her solicitors wrote to the respondents complaining of “outrageous” behaviour on their part, instancing:

a unilateral decision to pay themselves $59,000 as directors’ fees without a resolution and subsequently classifying the payments as loans;

thereby causing the appellant to become insolvent;

payment by PRFS of $80,000 only towards working capital; and

payment of management fees to PRA when Ms Westall, herself, was doing a lot of the management work.¹⁷

This letter contained the following warning:

“Please be assured that these tactics will not have the effect of bullying our client into submission.”

On 29 January 2004, her solicitors emailed the respondents to record her denials of allegations they had made about her undermining distribution arrangements for the product, and to complain about drunken, threatening phone calls made to her at night by one of the respondents.¹⁸

During February 2004, negotiations began for terms on which the respondents’ involvement in the venture might come to an end. They engaged Mr Paul Box of QBM Lawyers to act for them. Mr Clinton Smith of Grays Lawyers was engaged to act for Mr Lovos.

Mr Box prepared drafts of a Deed of Settlement, Share Sale Agreement and Royalty Agreement and circulated them to the other legal representatives for discussion on 24 February 2004.¹⁹

Negotiations ensued between the legal representatives. On 12 March 2004, Mr Box emailed a marked-up amended version of the Deed of Settlement²⁰ and other agreements with his comments on the same to his counterparts. One of the comments was a rejection of a proposal to vary Recital Q to add “on the basis that each of the parties have made full and proper disclosure each and to the other under the terms of the agreements and arrangements between them and the law.” Mr Box’s comment was that the whole basis of the settlement was to resolve existing disputes and avoid the possibility of future claims. It was not to leave the door open for such claims.

On 15 March 2004, Mr Proctor emailed Mr Box as follows:

“Further to our conversation this morning my client and I are happy with the documents in the form attached to your email of 12/3.”²¹

(xi)The deed and agreements were engrossed. They were executed on 29 March 2004 at a meeting attended by Ms Westall, Mr Proctor and the other legal representatives and signatories.

(xii)Arrangements were made to implement many of the settlement terms contained in the deed and the agreements that day: Mr Lovos to pay $200,000 for the shares in exchange for a share transfer from PRFS; the respondents to resign as directors of the appellant; and a bank cheque for $25,000 payable to the appellant to be handed over by the respondents.

The learned judge was sceptical of the appellant’s prospects of proving that Ms Westall executed the Deed of Settlement for the appellant under pressure of the matters and circumstances of which she had previously complained. His scepticism was rightly placed. In circumstances where she was independently legally advised; her complaints about the respondents’ alleged conduct had been ventilated in correspondence from her solicitors; they had warned that she would not be bullied into agreement, the terms on which the respondents would exit were then negotiated; significantly, her solicitors indicated that she and they were “happy” with a revised draft of the Deed of Settlement which, in material respects, was identical with that ultimately executed;²² and execution of the deed and agreements, and implementation of important terms in them, took place a fortnight later without there having been any demur in the interim on her part or that of her solicitors, there was good reason to conclude that the appellant would face very substantial evidential hurdles in proof of the element of inducement.

However, none of the circumstances individually, nor all of them collectively, predicated that the appellant would necessarily fail on the issue. I would have hesitated to regard the economic duress claim as having no real prospects of success merely on that evidentiary basis.

There are, however, two further attributes to the availability of relief for economic duress which, in my view, so further weaken an already weak case that the point of having no real prospect of success is reached. One attribute is that a contract that has been induced by economic duress is voidable, and not void.²³ That is to say, the contract is binding unless and until the victim takes steps to repudiate it on account of the duress. This attribute led Deputy Judge Millett QC to propose in Alec Lobb (Garages) Ltd v Total Oil GB Ltd²⁴ that a plaintiff who seeks to set aside a transaction on the ground of economic duress must establish, inter alia, that “he repudiated the transaction as soon as the pressure was relaxed.”

Here, the earliest intimation that the appellant regarded the Deed of Settlement as void occurred with the pleading in the reply and answer. This was at a point more than nine years after the deed had been executed, its terms had been carried into effect, and the parties had gone their separate ways. Significantly, neither the pleading nor the evidence identifies any step taken by the appellant at any time to repudiate the Deed of Settlement.

The second attribute turns upon the discretionary nature of declaratory relief for economic duress.²⁵ Even if it be assumed that execution for the appellant by Ms Westall was induced by economic duress exercised by the respondents, its failure to repudiate the Deed of Settlement in a timely way has given rise to virtually insuperable difficulties in restoring the parties substantially to the status quo which prevailed immediately prior to the Deed of Settlement.²⁶ Under the deed, the respondents agreed to pay $25,000 to the appellant and to resign as directors. The appellant is now insolvent. Moreover, the deed was subject to a condition precedent that PRFS sell its shares in the appellant to Mr Lovos. That sale, too, would have to be reversed. There is no evidence that Mr Lovos still owns those shares, that he would be willing to transfer them to PRFS or that PRFS could refund the $200,000 he paid for them. In the face of these circumstances, the discretion to make a declaration that the Deed of Settlement was void would not have been exercised in the appellant’s favour.

Accordingly, I am of the view that on the pleadings and the evidence before the learned judge, it was correct to conclude that the appellant had no real prospects of success in its claim. The release in the binding Deed of Settlement defeats it comprehensively.

I would add that in the course of addresses before the learned judge and then this Court, Ms Westall claimed to have bank statement evidence that the $25,000 was not paid by the respondents to the appellant at settlement. No bank statements were adduced by her into evidence. To my mind, it is not credible that the terms of settlement were implemented without that sum having been paid. Payment of it was a principal provision of the Deed of Settlement. Certainly, Mr Lovos would not have paid $200,000 for shares in the appellant if the payment of $25,000 was not being made contemporaneously to the appellant. That aside, the pleadings have not sought to attach contractual significance to the alleged non-payment. Notably, it is not alleged that the Deed of Settlement was liable to be, and was, terminated on account of non-payment of the amount.

Disposition

For these reasons, I am of the view that this appeal cannot succeed and must be dismissed.

Order

I would propose the following orders:

Appeal dismissed.

Appellant to pay the respondents’ costs of the appeal on the standard basis.

PHILIPPIDES J: I agree with the judgment of Gotterson JA and with the orders proposed.

ANN LYONS J: I agree with the reasons of Gotterson JA and with the orders proposed.

Footnotes

1. AB 213. ↩

2. AB 220. ↩

3. Heads of Agreement cl 3.1, AB 76. ↩

4. AB 92. ↩

5. AB 89. ↩

6. AB 242. ↩

7. AB 247-248. ↩

8. AB 249. ↩

9. AB 42. ↩

10. [1980] AC 614. ↩

11. At 636. See also per Lord Diplock in Universe Tankships Inc. of Monrovia v International Transport Workers Federation [1983] 1 AC 366 at 384. ↩

12. (1988) 19 NSWLR 40. ↩

13. At pp 45-46. ↩

14. At p 46. ↩

15. AB 53-55. ↩