Cox v Esanda Finance [2000] NSWSC 502 | Case summary

Cox v Esanda Finance [2000] NSWSC 502 | Case summary | Zoe

REASONS FOR JUDGMENT 1 In these proceedings Anthony Robert William Cox (Cox) sought relief against Esanda Finance Corporation Limited (Esanda) and Australia and New Zealand Banking Group Limited (the bank) arising out of their involvement in the provision of finance facilities required by Cox for the development of a piece of land situated in Narooma New South Wales (the Narooma property). 2 After the close of evidence and during submissions, Cox, who appeared in person throughout, sought to withdraw the proceedings against the bank and to further amend his statement of claim to raise a fresh case in fraud against Esanda, based upon further evidence which Cox had obtained leave to adduce in reply. I acceded to neither application. 3 In the case of the bank, there was insufficient evidence to support the case based on misrepresentation or contract and I think Cox freely acknowledged that. However, having regard, principally, to the time at which the application came, I thought it more appropriate to deal with the case against the bank on its merits in the interests of finality. 4 As to the application against Esanda I declined to accede to that application principally on the basis that the evidence relied upon did not support the case, as originally pleaded, in fraud. Furthermore, the additional material upon which Cox sought to rely and which he maintained had come, belatedly, to his attention did not, in my view, lend any further support to a case in fraud. To grant the application would have been futile and would have involved recalling witnesses of Esanda. Had I been otherwise inclined I would not have acceded to the application in the form proposed. 5 Cox renewed the application against Esanda on the basis that he had not been afforded sufficient opportunity to inspect Esanda's documents. I considered that argument specious, having regard to the several occasions during the hearing on which I acceded to applications by Cox for the inspection of the documents of the bank and Esanda. 6 The inspection of documents had proceeded in an unsatisfactory way during the hearing having regard to Cox's failure or inability to inspect, prior to the hearing, documents which had been produced on subpoena, and the fact that neither party had given discovery. 7 Had the application been made by a legally qualified person I think it would have occasioned consideration of the propriety of raising an allegation of fraud. As it happened, throughout his submissions Cox reopened his case on several occasions and tendered further material from Esanda's records and addressed as though the application had been granted. I remain of the view that the evidence did not support a case in fraud. 8 The Narooma property was adjacent to a home owned by Cox which was used by him prior to 1989 as a holiday residence (the Narooma residence), Narooma being a resort area on the south coast of New South Wales. His permanent residence was situated in Victoria where he was a customer of the Preston branch of the bank and had been so for several years. 9 To that point Cox had developed a successful business which traded internationally. He was highly regarded by Adrian Sowton (Sowton), the bank's Preston manager, as a successful businessman who had established a "first-class" relationship with the bank. In 1989 Cox sold his business interests and made the Narooma residence his permanent home. 10 The Narooma property comprised lot 21 in deposited plan number 594109. When it came to the notice of Cox that the Narooma property was available for sale he saw it as providing him with a comparatively undemanding business interest in subdividing and developing it over a period of years. 11 The evidence established that Cox did not approach the project as one capable of providing a quick profit with minimum size blocks designed to attract the lower end of the market. Instead, he envisaged large allotments covered by restrictive covenants aimed at ensuring a residential development aimed at the higher end of the property market. The property was on sloping country overlooking the Pacific Ocean and in the immediate foreground lay local beaches and Montague Island. It was clearly a picturesque sight and one that Cox felt a special affinity to. 12 The evidence does not suggest that Cox had any prior experience in a development of this nature and, presumably for this reason, he sought the advice of a local developer and a builder, Rudolf Gschwend (Gschwend), who had operated in the Narooma district for the previous twenty six years. He assisted Cox in examining the feasibility of a residential subdivision of the Narooma property. With the benefit of this advice, Cox placed a holding deposit of $10,000 on the Narooma property. 13 His next step was to approach Sowton with a view to seeking finance for the acquisition of the Narooma property and its development. He did this either in "late 1989 or January 1990". The funds needed to acquire the Narooma property posed no difficulty in that the bank was called upon only to provide bridging finance pending receipt by Cox of the proceeds of the sale of his business. The purchase price of the Narooma property was $475,000. That bridging finance was duly approved and contracts were exchanged for the purchase of the Narooma property on 9 February 1990. 14 Sowton had been sufficiently interested in the project to visit the Narooma property in January 1990. In the course of Cox's dealings with Sowton in relation to the Narooma property it was made clear by Cox that he proposed residential development and the construction of some four houses "to set the character of the Estate." 15 While the bank was in a position to provide bridging finance for the purchase of the Narooma property, for internal policy reasons, it would not handle the provision of a facility for subdivisional and residential development. This was the function of a related corporation, Esanda. The approach of Esanda to such a facility was more in the nature of a financier than that of a banker. It engaged in subdivisional activities as a principal in addition to lending money for such projects. 16 Graeme Patrick Swinton (Swinton) held the position of Esanda's District Manager, Property Finance in Canberra from 7 February 1989 to September 1993. He had discretion to approve lending applications up to an amount of $2,000,000. It emerged from his evidence that Esanda approached the provision of and the maintaining in place of financial facilities in much the same way, whether it was acting as a principal or lender. In the case of the finance provided to Cox I think that approach may not have worked to his advantage. 17 Adjacent to the Narooma property was another large area of undeveloped land comprised in lot 97 deposited plan 603878 (the Moylans' property) which was in the joint ownership of Frank and Sybil Moylan (the Moylans), both Narooma residents. 18 In a deed dated 26 April 1991 (the Moylan deed), Cox entered into an agreement with the Moylans for the subdivision of the Narooma property and the Moylans' property. There is no particular importance in the detail of that arrangement beyond obtaining an understanding of (a) the information communicated by Cox to Esanda: (b) the nature of the subdivisional approval of the Eurobodalla Shire Council (the Council): (c) an issue raised by Cox as to the purported exercise of the power of sale by Esanda over certain of the subdivided blocks and (d) aspects of negotiations between Cox and Esanda which preceded the execution of a deed of release dated 10 June 1994 between Cox and Esanda (the deed of release). 19 Under the Moylan deed, Cox and the Moylans agreed to seek approval of a subdivision of the Narooma property and the Moylans' property in three stages. Stage 1 comprised lots 1 to 21 inclusive: stage 2 comprised lots 22 to 46 inclusive and stage 3, lots 47 to 64. Under the Moylan deed it was agreed that, following registration of the respective plans of subdivision, title to the various lots would be effected as follows:

The rate of interest remained unchanged. 24 Full repayment was due by 1 February 1992. It was stated that the rate of interest "may be varied at 3 monthly intervals with the first review due 1.5.91." In view of the date of approval the review date seems incongruous. 25 There was a dispute between the parties as to the circumstances that gave rise to this succession of letters of approval. Whatever the truth of the matter may be, I think it is clear that obscurity in the dealings between the parties at that time was due to the unsatisfactory business method by which Esanda conducted its dealings with Cox. About some matters there is no dispute. 26 It was the evidence of Sowton that in late 1989 or early 1990, a time which he was able to fix by reference to a meeting with Esanda officers, he first referred Cox to Esanda by a memorandum to Esanda's Canberra branch. That document was not produced on subpoena addressed to the bank and Esanda respectively. Secondary evidence by Sowton of its contents was as follows: "A. Introducing Mr Cox as being in a position to settle the purchase of land at Narooma from his own funds and his proposition from there was to subdivide and build certain houses and requesting that Esanda make contact with Mr Cox at his home phone number at Narooma. Q. Any other matters that you can recall? A. No, it was usually, if I put myself in a position of introducing someone to someone else usually they came with some form of preamble that they were a person who has satisfied every demand on the bank over a period of time." (T 217:25- T 217:35) 27 He had no further communication with Esanda concerning Cox's application prior to a further memorandum by him to the Ivanhoe branch of Esanda of 20 November 1990 which attached "a self-explanatory Diary Note" inviting Esanda to inform him of "progress made". The diary note is reproduced in full below: " DIARY NOTE WILCOX ENTERPRISES PTY LTD PAGE NO 15/11/90 TDL's $ NIL RISK GRADE B Update with Director re on-going positions. As file records, following the sale of the expanding file business to Fellowes International in September 1989, Tony Cox has purchased land abutting his Narooma (NSW) residence for sub-divisional purposes. The council of the Shire of Eurobodalla has approved a 64 lot subdivision with ownership:- A R Cox (Reg. Business Name Sole Proprietor Tony Cox) 34 lots (inc. 3 Unit sites) To transfer to A R Cox from joint ownership 8 lots 42 lots A R Cox and Frank Moylan (Deputy Shire President & Chairman of planning committee for the Eurobodalla Shire) 1 lot Frank Moylan 21 lots 64 lots The project is currently progressed to Council approval (attached) and preliminary survey with roads marked. They now await an engineering survey on the road and have had preliminary discussions with 3 road contractors. The lots are situated on a hill slope at Kianga in a residential area. 75% of the proposed lots will have uninterrupted views of the coastline and Montague Island. The land of Cox and Moylan is owned freehold. Cox purchased his parcel of land on vendor terms is October 1989; the vendor terms satisfied in October 1990 when the final payment under Sale Contract over the expanding file business was forthcoming. Purchase Price 10/89 $485,000 - Plus - stamp duty/legals etc $ 17,000 - - sub-division approval costs $ 15,000 - - rates and taxes $ 2,000 - - interest on vendor finance $ 75,000 - Total cost to date: $594,000 - … The sub-division is to carry executive status due to its prominence on the coastline, being some 4 blocks from the foreshore . It is to be developed in stages; the 1st stage for Cox viz:- 1) 15 allotments plus services to lot 35 (the jointly owned lot) 2) 1 executive residence at an estimated cost of $130,000 This will encompass taking the roadway to the existing residence. The market will be tested at this time with the residence (asking price anticipated $270,000-) and 4 vacant allotments to be offered for sale . Project Manager is to be Rudi Gschwend, a Narooma residence for 20 years and with 35 years experience in the building / contracting/ ppy INV markets. Engineers are John Healey and Assoc. Success of the 1st stage offering to sale will dictate the immediate future for the development past that time. Market capture area is seen as Canberra, Sydney and Melbourne; with retirees targeted. The region has appeal. The cost of the development as described is for Cox. Request is for ANZ to finance. I have advised Tony that development and logistics do not suit N E Region/ Sth Zone but that I will present the proposition as it stands to ESANDA, Canberra. I have informed Tony the following information will be required as a minimum to enable full consideration: 1) Development Programme inc. timings. 2) Development costings - Stage 1 inc. roads, services, surveyor and engineer, management, contractor and extraordinary. 3) Cash flow forecast and to identify holding cost impact pending anticipated revenues and debt run-down. 4) Formal request for borrowing inclusive of contingent margin. 5) Marketing summary supported 6) Profit and Loss budget 7) Statement of Position plus income/ expenditure statements of private income of proprietor (i.e. Willcox Stationery Pty Ltd enjoys Royalty income from expanding file sales in NZ, Europe Aust and the Amercias of approx $75,000 PA plus has contracts to manufacture "Fyleroo" production machinery for Fellowes International and Anthes International who hold the world rights to the expanding file.) 8) Security on offer is to be a mortgage over 42 allotments and where I have advised a formal valuation (at cost) will be required plus a RM over the existing Narooma residence. There is also joint ownership of a Doncaster (Vic) residence. BBO: Please present this D/N to Esanda, Ivanhoe requesting they on- forward to their Canberra office. Plan, approval and press advertisement can course with the D/N. Contact is Tony Cox, 19 Baldwin Ave, Kianga Phone (044) 76 2741" [Emphasis added] 28 The passages emphasised clearly reveal the understanding given to Esanda that: (a) the proposed subdivision was aimed at the upper "executive" range of the market; (b) it was to be a development in stages, with the construction of an "executive residence" included in stage 1; and (c) the stage 1 "executive residence" was to be offered at $270,000 along with four "vacant allotments" to test the market and "the immediate future for the development". 29 One would have expected, in the context of that understanding, that Esanda would have made known to Cox, prior to approving finance for stage 1, any misgivings Esanda may have entertained covering the practicality or commercial viability of Cox's development proposal. 30 The first record of Esanda in its dealing with Cox is a letter of 10 December 1990 to Cox. It confirmed an appointment for the following day at the Narooma property (the December meeting) to be attended by Cox and Esanda's Assistant Lending Manager, Property Finance, Canberra, Robert John Taylor (Taylor). In his evidence in chief Taylor described his duties as "principally to assess applications for finance pertaining to the construction of residential dwellings commercial developments and developments of land for subdivision purposes." 31 It is no particular criticism of Taylor to say that at the time of the December meeting he lacked experience in the type of proposal put forward by Cox. The evidence disclosed that he was 28 years of age at the time. I found his evidence quite unreliable, due presumably, to the passage of time and a near total failure of recollection. I regarded most of his evidence as a product of reconstruction. He had no diary records to assist his memory of the events. 32 Swinton did not visit the site until the last half of 1991. It is Cox's evidence that during 1990, prior to the December meeting, he had been frustrated by his inability to get any action from Esanda to progress a decision on its provision of any finance for the project. 33 Cox gave evidence of several conversations with Swinton in the second half of 1990 in which he requested a visit by Swinton to the site and expressed his need for a firm decision from Esanda on the provision of required finance. Cox's evidence was that, towards the end of 1990, he became increasingly concerned with the lack of any action by Esanda, as he was progressively committing himself to costs in obtaining subdivisional approval and in site preparation. He said that he was continually met with the assurance that Esanda would finance the project and that he would "be able to borrow sufficient for (his) needs". He said that he was told by Swinton to "stop worrying (as Esanda was) all very busy at the moment and (that Cox was) the least of (Esanda's) worries." 34 It was also Cox's evidence that the December meeting was the result of a phone conversation with Swinton about a week earlier, in which Cox repeated his concern over the lack of activity by Esanda. I have little doubt that there were several telephone conversations between Cox and Swinton during 1990. There are no diary records of those telephone attendances. It was Swinton's evidence that it was not Esanda's practice at that time to keep such records. If there was such a practice, I doubt that it was the result of any conscious decision made by Esanda. Rather, I think the absence of records relating to Cox's application is a strong indication of the lack of acceptable administrative practices within the Esanda Canberra office at that time. 35 According to Swinton he had no more than two or three conversations with Cox prior to the December meeting and no earlier conversation than the date of receipt of Sowton's 20 November memorandum. There are no diary notes of those telephone attendances. I am reasonably satisfied that, in the most general terms, Swinton assured Cox, in telephone conversations during 1990, that funds would be available from Esanda for the subdivision of the property. The absence of Esanda records of its dealings with Cox lends weight to Cox's evidence of Esanda's inefficiency in addressing his borrowing requirements. 36 The December meeting involved an inspection by Taylor of the Narooma property in the company of Cox. It was Cox's evidence and that of Gschwend that Gschwend was also present on the occasion of the inspection. Taylor has no recollection of Gschwend's attendance and places a meeting with Gschwend that day at, what he described as, Cox's office. I am satisfied that his recollection is unreliable, indeed, if it be a recollection, as distinct from some reconstruction. 37 Cox's evidence of his discussions with Taylor during the December meeting was that Taylor informed him that there was no need for any formal application to be completed and that all that would be needed "for the moment" was for Esanda to arrange a licensed valuer to assess the project. 38 Although I formed a favourable impression of Gschwend in the witness box, I have difficulty in treating his recollection of conversations which took place during Taylor's inspection as representing an accurate version. I think that is partly due to his aligning himself with Cox. I think that he entertained little doubt as to the justice of Cox's complaints against Esanda. I did not regard him as deliberately mis-stating the position. Rather, I think it was a case of unconsciously putting a favourable colour to an impression with which he was left from the conversations between Cox and officers of Esanda. 39 It was the evidence of Gschwend that Taylor committed Esanda to "financing the project" stating that all that was required was "a sworn valuation to release funds". I have considerable difficulty in accepting the accuracy of that statement, having regard to Taylor's responsibilities as assistant lending manager in Esanda and to the limited involvement of Taylor in the project to that point. 40 It was Cox's evidence that Taylor discussed with him the basis upon which Esanda would provide finance in the following terms:

(Exhibit A) I am satisfied that a conversation along those lines took place. 41 According to Swinton, Esanda's policy permitted lending in relation to subdivisional projects on the basis of 75% of the cost or value, whichever was the lesser, of the property to be subdivided and 75% of the cost of subdivision, subject to an overriding value of the end product. 42 It is not without significance that, in the second half of 1991, Esanda declined Cox's application for additional finance for the construction of residential properties on stage 1 of the project at a time when those parameters of lending were not the basis of Esanda's rejection. Rather, Esanda relied on its own judgment of the marketability of the proposed residences having regard to their likely cost of construction and the prevailing market conditions. Esanda purported to apply its own commercial judgment in rejecting the additional finance sought by Cox: notwithstanding that the nature of the proposed residences, in principle, was as described in Sowton's 20 November 1990 memorandum to Esanda. 43 On the occasion of the December meeting Taylor was given papers by Cox which he could not identify but which I think were in the terms of Cox's undated handwritten description of the proposed stages of the project (Cox's cost estimates) (Doc 14, Ex 9). Taylor has no diary note of any such records being provided to him or of the contents of any such material. 44 Cox's cost estimates reinforced Sowton's description of the project in his diary note of 15 November which he had provided to Esanda. Cox's description of the project revealed an intention to include in stage 1 at a cost of $130,000, a residential development which it was proposed to put on the market for $275,000 together with "15 ½ blocks" for $495,000. Stage 2 envisaged sale of some six homes and several lots. Stage 3 contemplated the building of ten homes and the marketing of some twenty blocks, while stage 4 in year three, contemplated building and marketing fifteen houses and the sale of several allotments. It was envisaged that the overall development would yield a profit in excess of $2,000,000 and could require, at one point, finance of approximately, $2,440,000. 45 It is clear, I think, that Esanda's March and April approvals were based upon Cox's cost estimates and, in the case of the April approval, upon the estimate of subdivision costs of $650,000 for stage 1 compiled for Cox by a firm of civil engineering consultants, Jeff Exell and Associates Pty Ltd (Exell) dated 26 March 1991. It is possible, I think, to see ingredients of both sets of costs in the April approval. 46 The evidence of Swinton was that Esanda's loan approvals were provided in response to specific requirements of Cox: in the case of the February approval, to make available funds to meet development expenses incurred: in the case of the March approval, to provide Cox with what, in effect, was a bank letter of comfort for Cox's proposed contractors. Cox agreed with none of that. He put the sequence of approval letters down to the incompetence of Esanda in dealing with his application. Given my acceptance of his evidence of his inability to get Esanda to move with due expedition in the consideration of his need for finance, I prefer his evidence that this sequence of approvals was mainly the product of stop-gap steps arising from Esanda's previous inactivity. What is reasonably clear from each of those letters of approval, in particular the April approval, is that Esanda had not included any amount for the construction of a residence in stage 1. The evidence disclosed that Cox was aware of this. 47 Colin Michael Tennant (Tennant), in February 1991, was employed by Esanda in its Canberra branch as Manager, Property Lending Finance. Swinton was his immediate superior. It was part of Tennant's duties to prepare lending applications and recommendations for approval of applications. He had authority to approve loans up to an amount of $1,250,000. 48 I formed a favourable opinion of Tennant whilst he was giving evidence in that he gave his evidence spontaneously and without any appearance of attempting to assess the implications of questions in cross-examination. On the instructions of Swinton he prepared a credit memorandum, bearing date 25 February 1991 (the Tennant memorandum). It is clear from its contents that it must have been prepared, in part, on days subsequent to 25 February. Tennant confirmed that it was so constructed. 49 The Tennant memorandum identified the total borrowing required as being $810,000, which can only refer to the April approval. 50 In that memorandum Tennant noted that the ratio of proposed borrowing to estimated value of the stage 1 subdivision and collateral security was 51%. It is also clear from his notes on feasibility that he must have had access to Cox's costs estimates as well as those of Exell. 51 The only discordant note about that description of the document is that it bears Swinton's endorsement of approval, the concurrence of Taylor and the recording of a hindsight overview. The approval of Swinton and Taylor was dated 26 February 1991 and, in the case of the hindsight overview, 8 March 1991. Those endorsements could not have any application to the terms of the April approval and should be taken to relate to the February approval. Documents relied upon by Tennant in the Tennant memorandum were not in existence at the time of those endorsements. 52 I think the method of recording significant aspects of this transaction left considerable room for improvement. The method of preparing the Tennant credit memorandum involved, over a period of months, whiting out entries to produce some hybrid credit memorandum covering presumably all three letters of approval. I think that borders on the bizarre and, not surprisingly, has given rise to considerable suspicion by Cox of the reliability of the records. However, I accept the evidence of Tennant as to the method by which the Tennant credit memorandum was constructed. 53 As foreshadowed by Taylor at the December meeting, Esanda obtained a valuation report from a real estate consultant and valuer, Terry Hanrahan (Hanrahan) who provided his report on 10 January 1991 in which he assessed the current market value of the Narooma property at $600,000. In that report, he noted the terms of the proposed restrictive covenants on the envisaged allotments which limited construction of residences to ones built in brick, stone, concrete and glass, with limited use of timber for external walls and which required the minimum area of buildings to be not less than two hundred square metres. 54 Hanrahan provided two further valuation reports to Esanda, the first also dated 10 January 1991 and the second, 29 March 1991, respectively valuing the Narooma residence and valuing lot 12, in the latter case, at $228,000 as a residential development in conformity with plans provided by Cox which complied with the proposed restrictive covenants. Cox provided floor plans and elevations of the proposed dwelling for valuation purposes. In his comments Hanrahan expressed the view that the cottage was "too large and overcapitalises site" and that, with reduced size, it could be marketed at $148,000. He noted that demand in the bracket from $150,000-$250,000 had "been the worst hit by current economic conditions." He expressed the further view that "saleability may well be very slow." A copy of this valuation was provided to Cox by Hanrahan and, later by Esanda. 55 It is clear, I think, from Tennant's memorandum that no consideration was given to funding any residential development in stage 1. In my view, that is remarkable having regard to (a) the importance that Cox placed upon the use of residential development in testing the market; (b) the fact that this was made clear to Sowton and was conveyed to Swinton in Sowton's November diary note; and (c) residential development was the subject of discussion with Taylor and the subject of Hanrahan's March valuation. There is nothing in the Tennant memorandum to suggest that the absence of finance for housing development was in any way influenced by Hanrahan's valuation of lot 12. 56 It was Swinton's evidence that residential development financing was not provided for in the April approval as a result of the terms of the Hanrahan March valuation in relation to lot 12. 57 That evidence does not accord with Tennant's evidence. In his evidence in chief, Tennant said that Cox's cost estimates came to his attention as did, in all probability, Sowton's November memorandum and diary note. It was his recollection that, in observing that Cox's plans included the building of some homes, he discussed the matter with Swinton and inquired of him whether Esanda was funding the building of residences on the subdivision. It was his evidence that Swinton replied: "No we are just doing the sub-division" 58 During his cross examination Tennant gave the following answers in response to my questions: Q. CMT2 does mention the building of houses there, doesn't it? A. Yes, but again I was advised that we were only doing a land subdivision by Mr Swinton, so therefore after that, that CMT2 was basically discarded, forgotten.

I do recall reading the handwritten notes ["(Cox's cost estimates)"], a copy of which are exhibited to me and marked "CMT-2" and which I believe are those of Mr Cox, noticing mention of homes being built and asking Mr Swinton if we were funding houses. He said "No. We are just doing the sub-division." He gave no indication that we were funding the construction of houses. It is my handwriting which appears on the first page of those handwritten notes and I believe I wrote them there before speaking to Mr Swinton." (Exhibit 3) 60 In his evidence in chief Tennant denied statements attributed to him by Cox to the effect that he held out to Cox that Esanda would finance housing construction on the Narooma property. According to Tennant it was not until a meeting took place in Canberra (the Canberra meeting) with Cox and Gschwend "in mid 1991" that he discussed housing finance with Cox in the following terms: "35. I am not aware of any proposal by Mr Cox to Esanda, as mentioned in paragraphs 23 and 27 of Mr Cox's Statement to build a dual occupancy on the sub-division whilst earthworks were underway. I can remember however that Mr Cox and Mr Gschwend came to Canberra in mid 1991, I had lunch with them and during lunch I said to Mr Cox words to the effect (having waited for Mr Gschwend to leave the table so that he was not present when I said them) "We're only interested in funding a land sub-division and not any housing of any description." I do not recall the context in which I said this." 61 In cross examination "mid 1991" became "between that sort of March and May period." (T376.49). It was Tennant's recollection that Cox brought to the Canberra meeting Hanrahan's March 1991 valuation of the residential development on lot 12. He could not recall the circumstances in which Esanda came to forward the valuation to Cox by facsimile of 17 April 1991. In relation to that subject matter he gave the following evidence: "Q. 1991. It does not figure, does it, there was a house built into my original plan. I submitted to you a sketch plan of the houses and you said that is fine? A. When did you submit the copy?

(T 384.1- 384.20) 64 However, the unsatisfactory evidence of Esanda concerning the exclusion of housing was matched by obscurity and inconsistency in the evidence of Cox on this subject. According to Cox, upon receipt of the March approval he had a telephone conversation with Tennant in which he complained that the approval contained "no reference to [his] long term need for financial support to construct houses". On receipt of the April approval Cox stated that he further complained to Tennant that there was " no reference to stage 2 of the subdivision or any mention of funds for housing construction." He attributed to Tennant the response that "funds for houses….will be treated as separate loans under the same mortgage", referring to the mortgage terms of the April approval. This evidence is difficult to reconcile with the further evidence in chief of Cox as follows: "Esanda had refused in May 1991 to finance a dual occupancy dwelling whilst the earthworks were under way. I had spent considerable time and money on this proposal. I did not protest too much about this refusal as I had not canvassed the idea of building houses prior to earthworks completion before borrowing from Esanda. I did how-ever contact Mr. Tennant after this early refusal, to remind him that whilst I accepted Esanda's declining to cooperate on that occasion, that when final council approval was obtained, the housing construction program would commence immediately, and I would not expect denial of funds at that time." (Exhibit A) 65 Cox complicated matters further by his evidence in cross-examination as follows: "I did not object to the fact that they had not provided finance for that particular first house because that was an afterthought of sorts and it had always been agreed, starting with Mr Sowton and going through Mr Taylor and Mr Swinton that the construction of houses would commence after the subdivision had been approved and after it had been registered. So I was not terribly upset about that at the time. Also the subdivision was progressing at that stage at a good rate… " 66 Again in cross-examination Cox gave the following evidence: "Q. I put to you when you entered into the contract for the lending facility that you entered into in May of 1991, you were aware that it was funding for subdivision only with a term expiring on 1 February 1992? A. As supported by verbal assurances that funds would be made available for housing. I understood even in Mr Tennant's own statement there is reference to houses and a long-term plan.

(a) The inclusion of residential buildings on the proposed subdivision was an important element in Cox's plans for the project. This was well known to Esanda. (b) It was well known to Esanda that the project contemplated by Cox was not a conventional subdivisional scheme: that it was designed to attract a high standard of construction by recourse to large subdivisional allotment sizes and restrictive building covenants on the allotments: that this was a semi-retirement type activity by Cox and one envisaged to take place in stages over a period of years. (c) Probably as early as February 1991, Swinton had instructed Tennant that Esanda would not be financing housing construction on the subdivision. This decision was not conveyed to Cox. It was a decision made prior to the Hanrahan valuation of lot 12. It did not necessarily preclude the provision of housing construction finance at a later time. (d) It was clear to Cox from the terms of the February, March and April approvals that housing finance was not included in the approval facilities. (e) If Cox had raised the absence of housing finance with Esanda prior to the Canberra meeting, it was in terms that were in keeping with Cox's evidence that he "did not object to the fact that [Esanda] had not provided finance to [the] first house." I think this was the result of Esanda's favourable response to his subdivisional proposal and Cox's expectation that he would not encounter any particular difficulty in gaining Esanda's approval of further finance. (f) Esanda's first clear refusal to provide housing finance, I think, was conveyed to Cox at the Canberra meeting. I do not accept that the refusal was based upon the terms of Hanrahan's valuation of lot 12. (g) Tennant was unable to satisfactorily explain Esanda's decision to refuse housing finance. I do not accept Swinton's evidence that the refusal was based upon Hanrahan's valuation of lot 12 for the reasons that (i) I think Swinton's instruction to Tennant not to include housing finance in the proposed facility was given about February 1991 when Tennant undertook preparation of the Tennant memorandum; (ii) It does not accord with Tennant's statement to Cox in mid-1991 that Esanda would not provide finance for "any housing of any description". (h) I think Esanda had decided as early as February 1991 to keep its options open in relation to the provision of housing and further finance beyond stage 1 of the project. This was not clearly conveyed to Cox. (i) Both parties accepted that success in marketing stage 1 of the project would influence the course of further development of the subdivision and the provision of additional finance by Esanda. (j) Although the April approval stipulated retirement of the proposed facility on 1 February 1992 I am satisfied that neither party expected the loan to be retired at that time for the reasons that: (i) it was clear from all of Cox's dealings with Esanda that the facility was being sought and provided in connection with a project estimated to extend over several years. (ii) Even with a successful marketing of stage 1, it was not likely that the proceeds of sale would have enabled retirement of the loan within nine months. (iii) Cox had a good credit rating with Esanda and his security to debt ratio was well within Esanda's lending criterion, such that it was highly unlikely that Esanda would have reason to call up the loan. (iv) The summer holiday season offered the more auspicious conditions for marketing of the subdivision. One would expect that sales in the earlier months would not be significant. (k) I am reasonably satisfied that Cox was content to proceed with subdivision finance only, buoyed by his enthusiasm for the successful marketing of stage 1 and his confidence that Esanda would provide construction cost finance when required. 69 The contentions in the Amended Statement of Claim Further Amended (the statement of claim), asserted that, in negotiations for finance, representatives of Esanda and of the bank made certain representations to him. 70 In the case of Sowton, it was alleged that he represented to Cox that the bank would provide the required finance for the development and construction of dwellings on the Narooma property. There is some support for that in the evidence of Gschwend. However, I am satisfied that no such representation was made by Sowton and I do not understand Cox to be persisting in such an allegation. The evidence is, I think, unequivocal to the effect that the bank would not be playing any part, other than in providing bridging finance, in the financing of the proposed project and that any such financing would have to be considered by Esanda to whom Cox was then referred by Sowton. I have little doubt that the reference of the application for finance by Sowton to Esanda was done in a spirit of optimism that the application would be well received and went with Sowton's, in principle, support. 71 As a corollary to that allegation, Cox further contended that Sowton represented to him that Esanda would provide all necessary finance for the subdivision and development of the Narooma property. In my view, there is no credible evidence to support that allegation. 72 As to Esanda, Cox asserted that Taylor represented to him that Esanda would progressively make funds available up to $2,100,000 up to the end of 1992 to finance the proposed development (the Taylor representation). It was also alleged that Tennant represented to Cox that written documents were a mere formality and that Cox would be provided with further documents as the development progressed (the Tennant representation). Taylor was said to have participated in aspects of those representations. Another representation was attributed to Tennant, namely, that additional loans would be provided for the construction of dwellings under the same mortgage document as applied to the original loan for the land development (Tennant's further representation). Cox asserted that Swinton represented to him that there was no need to seek alternative or additional finance other than from Esanda as the required finance for the development would be provided by Esanda (the Swinton representation). 73 As noted above, there is no substance in Cox's case against the bank and Cox has assented to that. 74 As to the case against Esanda, I have had some difficulty in reconciling the case as evidenced by Cox with the representation case as pleaded. 75 In his evidence, the emphasis was upon the failure of Esanda to provide additional funds for housing development in lots 5 and 9 of the subdivision. Application for this finance was not made by Cox until the last quarter of 1991 and was declined by Swinton on about 10 December 1991. 76 The evidence of Cox was that the provision of that additional finance was crucial to the success of stage 1. It was Cox's opinion that residential development was essential to stamp the subdivision with the up-market character that he envisaged for the project and to engender purchaser interest in the subdivision. 77 Esanda's witnesses shared that opinion to the extent that it was accepted that building activity stimulated consumer interest. 78 Although a housing development had formed part of Cox's concept for the project, the evidence which I have outlined earlier in these reasons, calls for the conclusion that in relation to stage 1 financing, Cox raised no objection of any significance to the limiting of the April approval facilities to estimated subdivision costs. 79 Nor, it seems, did he 'dig his heals in' at the Canberra meeting with Tennant when it was made clear that a loan to meet building costs was not available. Cox's evidence was that he did not press for building finance as he regarded the inclusion of housing development in stage 1 as an "after-thought". This evidence is difficult to reconcile with the representation case as pleaded. 80 In evaluating the evidence concerning the Taylor representations, I think that much of Taylor's evidence may be disregarded as unreliable for the reasons earlier given. Still, I think it is taking credulity beyond the bounds of common experience to attribute to Esanda, through Cox's dealings with Taylor, representations in terms of the Taylor representations, or to the extent that anything was said by Taylor as to future lending by Esanda to Cox, that Cox acted under the misapprehension that Esanda would lend him $2,100,000 for the project. 81 There is no doubt that it was conveyed to Cox that he could reasonably expect funding from Esanda for the progressive development of the project. It is equally clear that no unqualified undertaking was given to provide unquantified financial requirements to Cox. 82 I did not understand Cox to assert otherwise. He freely accepted that success of stage 1 was an important factor and that successive requirements for further funding would have to go through the conventional lending scrutiny that Esanda employed in dealing with such applications. 83 Those observations apply with like force to the Tennant representations. Tennant, I think, endeavoured to give his evidence to the best of his recollection. As with all Esanda officers, his evidence suffered from the absence of contemporaneous diary notes of dealings with Cox. 84 The Tennant representations, in my view, on the evidence, do not amount to anything significantly more than an assurance that Esanda was genuinely interested in providing finance for the project: that, in some respects, the terms of the loan facility were inappropriate to the concept of lending in stages, (I think the terms of the April approval clearly fell into that category) and that project funding could be accommodated under existing security documents. 85 In the light of Cox's evidence of his dealings with Esanda in relation to housing construction finance in the first half of 1991, I do not accept that any unqualified undertaking to provide such finance was given by Tennant. I accept Tennant's evidence that, prior to the Canberra meeting, Tennant had been acting on Swinton's instructions to limit consideration of the terms of any loan facility to subdivision costs. 86 In view of the absence of contemporaneous records of either party, the time that had passed since the conversations relied upon took place, the effect of the distress occasioned to Cox by the failure of the project, as he envisaged it, the inconsistencies in the evidence as outlined earlier in these reasons, it would be unrealistic to place much reliance upon discussions between the parties to found a case based upon the representations as pleaded. 87 A further difficulty confronts Cox's representation case. Correspondence between Cox and Esanda in 1993 presented Cox on several occasions with the opportunity of raising the allegations of misrepresentation relied on by him in these proceedings. He failed to do so. 88 The Swinton representation, as pleaded, was not substantiated by the evidence. The Swinton representation was alleged to be made "prior to entry into the agreement for loan." Cox's evidence, of the Swinton representation was of one made in the first half of October 1991, long after the "agreement for loan", at a time when Swinton visited Narooma to discuss progress with the sale of allotments in stage 1. This was the meeting that discussed the provision by Esanda of finance for the housing development of lots 5 and 9. That is dealt with in more detail later in these reasons. 89 Notwithstanding, the evidence of circumstances in which the 'April approval facility' was provided leave little doubt that Cox was led to believe that Esanda, in principle, was seriously interested in progressively funding the development and that Cox could reasonably expect that required funds would be forthcoming, subject, principally, to the market success of stage 1. 90 As earlier stated, I do not accept that Esanda treated the retirement date of the April approval facility as being other than a safety value should anything unforeseen eventuate, given the market conditions that existed at the time of the April approval (they were not buoyant) : the state of the subdivision works at that time (they were not completed until the second half of 1991): the unreality of expecting settlement of sufficient sales of allotments to permit retirement of the loan at the end of January 1992 (Cox was substantially dependent on that income for the retirement of the loan): the common ground that the anticipated relationship was likely to involve, the provision of financial accommodation by Esanda in stages. It is clear that the retirement date was, in substance, a review date which would result in an extension of the loan, provided Esanda's lending criteria were being satisfied and there were reasonable signs of the successful marketing of stage 1 allotments. 91 With his confidence in the market attraction of the site of the project, there was little reason for Cox to think that he was undertaking an undue risk in embarking upon the purchase of the Narooma property with the view to subdivision and, then embarking upon the subdivision without having a facility in place which, in terms, covered the whole project. 92 The proposal had been favourably received by the bank and, in turn, Esanda. The only thing that could go wrong was that Cox could find that his confidence in the success of the project was misplaced. He did not have to worry unduly about the retirement date of the facility viz 1 February 1992. 93 If those findings could be expressed in terms of representations it would be along the following lines: "(a) Esanda accepts that the project is a good concept, located on a picturesque elevated ocean-view, undeveloped site. (b) Esanda understands that the subdivision is aimed at the "executive" level of the market and has no problem with that, except that it may slow progress in sales. (c) Esanda understands that the project is planned in stages and success of stage 1 will influence its attitude to further funding. (d) Esanda also accepts that the project concept envisages the construction of some residential buildings to stimulate consumer interest and to establish the character of the proposed development. (e) Cox may reasonably expect the provision by Esanda of finance for the project in stages, provided that stage 1 of the project meets with success in the market and the borrowing meets Esanda's lending criteria." 94 In short, Cox had been led to believe that, in-principle, funding, would be available from Esanda to cover the financing of the project, provided that finance required from time to time satisfied Esanda's lending criteria and market experience in relation to stage 1 was favourable. However, Cox did not have an approval from Esanda committing it to funding the project. 95 The conduct of Esanda that draws my criticism is that which occurred in the second half of 1991. The subdivision work was not completed until September that year. It was the evidence, I think uncontradicted, that the time conducive to sale of subdivisional lots fell within the holiday season periods when substantial numbers of visitors took holidays at Narooma. Yet it was the evidence of Swinton that on the occasion of his visit to Narooma in the company of Tennant at a time in late September to mid October, he had become: "progressively more concerned at the lack of sale of lots from Mr Cox's subdivision [and that he conveyed] Esanda's concerns to Mr Cox on a number of occasions from August 1991 until November or December 1992" 96 Given the fact that the subdivision had not been completed until September 1991 and the unlikelihood of any significant sales being effected prior to the holiday season I am unable to accept that evidence. If Swinton genuinely held that view I would not regard it as reasonable. 97 It is more likely that Esanda had concerns, generally, about subdivisional developments in recreational areas in the context of prevailing economic conditions. 98 The evidence, I think, established that Cox had priced the allotments in the subdivision, probably above market price. That was the evidence of the agent witnesses called by Esanda and, in substance, I see no reason to disagree with the thrust of that evidence, although I think their estimates of market value in some respects lacked adequate research and were geared to early sale. The agent witnesses, clearly, had little patience with Cox's approach to marketing the allotments and were not imbued with his assessment of the superiority of his site as a resort development. 99 According to Swinton his concern in relation to the marketing of the allotments of stage 1 of the subdivision led to his visit with Tennant to Narooma in late September, or early October 1991 (the Narooma meeting). It was one of two visits to the site by Swinton about that time. There is considerable inconsistency in the evidence adduced of the Narooma meeting which involved a site inspection as well as a dinner engagement on the evening of the visit. There was a dispute as to who was in attendance and the extent of involvement of those present. 100 Maria das Gracias Cox (Mrs Cox) was a Brazilian national who came to Australia in 1989 and whose command of English was limited. There was some dispute as to that limitation. Clearly, at the time of giving evidence, Mrs Cox showed a reasonable understanding of the English language and a capacity to express herself in English. Neither Tennant nor Swinton could remember the presence of Gschwend at any time at the meeting other than during a period when they attended at the office in Cox's house. I think it is reasonably clear that Gschwend was present also at the dinner engagement. 101 The significance of the meeting lies in the statements attributed to Swinton by Cox and his witnesses to the effect that it would not be necessary for Cox to seek finance for housing construction "elsewhere" and that, subject to formalities, funds would be available from Esanda. 102 Tennant and Swinton accept that housing construction finance was raised at this meeting and that the proposal was not rejected by Swinton who agreed that he saw marketing benefits in construction activity on the site. However, both Tennant and Swinton were adamant that no commitment was given to provide such financial assistance and that it was made clear to Cox that a satisfactory proposal would have to come from him and be considered by Esanda. It was their evidence that Cox undertook to provide plans for the proposed two houses on lots 5 and 9 and undertook to obtain a feasibility report by Hanrahan. 103 The evidence of Mrs Cox was that at the dinner engagement, which she described as a "celebration", Swinton had undertaken on behalf of Esanda to finance the construction of the first two houses on the estate. She attributed to him the further statement that "he thought the project had been a great success". 104 It was Cox's evidence that he was at pains at this meeting to obtain some commitment from Esanda to provide finance for residential building construction: that Swinton informed him that it would be necessary to have plans drawn up and valuations performed by Hanrahan and that his application would be improved by the exchanging of contracts on certain allotments for which Cox had obtained a buyer: that he extracted an implicit assurance from Swinton as to the availability of Esanda finance in the following way:

(Emphasis added) 108 I think the emphasised passage goes close to what was conveyed by Swinton to Cox at the Narooma meeting, namely, that the proposed construction of two houses was, in principle, acceptable and that Cox could anticipate funding from Esanda for that purpose, subject to final approval being obtained after receipt of satisfactory supporting material from Cox. 109 I am satisfied that Swinton did not commit Esanda to additional funding at the Narooma meeting, stopping short of such a commitment with comments, which, nevertheless, left Cox confident that funding would be available once a formal proposal was submitted by Cox with appropriate financials and valuations. Swinton may well have stated that it was not necessary for Cox to look elsewhere for the required funds. However, such a statement should be taken as being subject to the rider that suitable financials and valuations were provided which met Esanda's lending criteria. 110 To the extent that Gschwend and Mrs Cox attribute a commitment to funding by Swinton at this meeting, I am not prepared to accept the accuracy of that evidence: although I have little doubt that, like Cox, they had been left with the strong impression that approval would be forthcoming once an appropriate proposal for further funding was presented by Cox. 111 I think considerable support for that view of the outcome of that meeting can be extracted from Tennant's conduct following receipt of Cox's letter of 11 November. He replied on the same date in the following terms: "In reply to your letter I advise that the following steps are required prior to us being in position to commence funding: - You will need to supply us with Terry Hanrahans report together with plans and your estimate of construction costs - We then undertake our assessment of the project and apply to Sydney to have the increased funding approved (this will take approximately 2 weeks from receipt of plans, report etc). - After approval our solicitors will be instructed to prepare Variation of Mortgage documentation which again will take between 1- 2 weeks. - We are then ready to commence funding construction progressively against work completed

As per your discussions with Graeme, approval of the additional funds was subject to the sale of Lots 10, 11, 20 and 21. We have received advice from your solicitor regarding Lot 10, however request that you have your solicitor advise us, in writing, that sale contracts on Lots 11, 20 and 21 have been exchanged. I trust this meets your requirements." (Emphasis added) 112 Further support for the view that Cox was encouraged to expect the provision of housing finance by Esanda, I think, lies in the credit memorandum of Tennant of 25 November 1991. The credit memorandum was prompted by Cox's letter to Tennant of 20 November 1991, received at a time when Swinton was still absent through illness. 113 With the 20 November letter Cox forwarded plans for the proposed construction of residential buildings on lots 5 and 9, Hanrahan's report in respect of that proposal, together with architect's estimates of construction costs. He also provided details of a private sale which Cox had negotiated in respect of lots 11, 20 and 21 to a Canadian business associate that was more in the nature of a loan than a sale of the lots. The purchaser had no interest in the investment and granted an option to Cox to repurchase at the sale price plus 10%, in addition to certain outgoings. The 'sale' enabled Cox to reduce debt to Esanda. 114 The Hanrahan reports were those dated 14 November 1991 and neither report was enthusiastic about the "saleability" of the proposed development of the lots having regard to the respective "anticipated market value" of the two proposals which put the developments into a bracket which, in Hanrahan's opinion, had "been the worst hit by current economic conditions." These adverse comments were acknowledged in Tennant's credit memorandum of 25 November 1991 but they, clearly, did not deter Tennant from expressing a favourable response to Cox's application, as reflected in the following extract: "Although profit level is marginal it is important to remember that the prime reason for constructing the house is to generate increased inquiry of the Estate as a whole and not obtain sizeable profit on the house in its own right. It should also be said that land is shown at value and not cost thereby reducing profit figure." 115 Tennant's further memo to Swinton of 6 December 1991 was in the same vein. His description of the application for additional funding was as follows:

(T 505:32- T 506:11) 119 The difficulty I have with Esanda's rejection of Cox's further request for funding stems from the following: (a) Cox clearly disclosed to the bank, and in turn, to Esanda an overall subdivisional plan aimed at the upper end of the market and which included limited residential development which had the objective of setting the standard for the subdivision development and of attracting interest in undeveloped allotments; (b) Esanda's implicit imprimatur of this scheme in the funding of stage 1 of the subdivision; (c) A reduction in debt was in process as at November 1991 as noted in Tennant's credit memorandum; (d) The debt to security ratio of the order of 54% involved in Cox's proposal for further funding compared favourably with Esanda's policy limit of 75%: leaving aside nuances of end value which found no expression in Esanda's rejection of the required funding. (e) It was common ground that residential development in stage 1 of one or more lots would have a beneficial effect on the level of interest in the market place in respect of allotments within the stage 1 subdivision. (f) The decision not to provide extended funding was taken at a time when the offering of allotments had not been given sufficient time to test the market given the comparatively limited period during which favourable market conditions were likely to arise, namely, at holiday season periods. 120 Whatever the legal implications of those conclusions it is small wonder that Cox regarded himself, at that stage, as poorly treated by Esanda. I am satisfied that the conduct of Esanda was such as to leave Cox with the clear understanding that provided his requirements for funding fell within Esanda's lending policy limits, funding for the development, including residential development of one or more lots, would be forthcoming, subject to the success of stage 1 of the project. 121 It is difficult to reach any firm conclusion as to the consequences of Esanda's failure to give effect to that understanding, putting aside any departure from the case as pleaded that such a case may represent. 122 It is unchallenged that the economic climate for selling resort residential blocks was far from propitious and the extent to which the offering of the allotments in stage 1 would have benefited from residential building activity on the site is highly problematical: particularly so when one has regard to the fact that Esanda did not call up the loan on its February 1 1992 expiry date, and only limited success was experienced by Cox in marketing stage 1 allotments, notwithstanding significant reductions in the asking price for those allotments. Up until 1993 Cox had sold four lots and three of those were effected only with the support of Cox's Canadian business associate. 123 Further, Cox has not relied on a case that he could have obtained alternative finance had Esanda rejected the application at the Narooma meeting for further funding. 124 However, there is a compelling reason why the exercise of evaluating the legal consequences of those findings is not warranted. In my view, the deed of release operates to release Esanda from any liability to Cox arising out of its dealings with Cox in relation to the funding of the subdivision and I am satisfied that Cox is not entitled to have that deed set aside on grounds of economic duress. 125 The deed of release provided for discharges of mortgage held by Esanda over the property of Cox upon payment of various amounts as follows:

3.4 If Cox fails to make any payment referred to in clauses 3.1 and 3.2 then the provisions of those clauses to the extent that they have not then been put into effect are void and Esanda may sell as mortgagee all land then the subject of the Mortgage and is entitled to sell transfer or otherwise deal with that property as Esanda in its absolute discretion thinks fit." 126 Mutual releases were provided for in the following terms: "5. MUTUAL RELEASES In consideration of the terms and conditions set out in this Deed; (a) Cox agrees with effect from the date of this Deed to release Esanda from all actions, claims, suits, demands, costs and expenses whatsoever which Cox may now or could or might but for this Deed at any time or times in the future have against Esanda, by reason of: (i) anything arising out of the Loan Agreement, the Mortgage, this Deed or any dealings or matters between the parties in relation to any loan by Esanda to Cox or discussions or negotiations for any loan by Esanda to Cox; or (ii) the exercise by Esanda of the power of sale or any of the other powers under the Loan Agreement or under the Mortgage to the date of this Deed or subsequently (b) If Cox makes to Esanda all payments referred to in clauses 2 and 3 of this Deed, Esanda agrees to release Cox from all actions claims suits demands or for costs and expenses whatsoever which Esanda may now or could or might have but for this Deed at any time or times in the future against Cox by reason of: (i) anything arising out of the Loan Agreement, the Mortgage, this Deed or any dealings or matters between the parties in relation to any loan by Esanda to Cox or discussions or negotiations for any loan by Esanda to Cox; or (ii) the exercise by Esanda of the power of sale or any of the other powers under the Loan Agreement or under the Mortgage to the date of this Deed or subsequently." 127 Cox has not argued that any of the causes of action relied upon in these proceedings falls outside that release. In my view, by cl 5, Cox has released Esanda from all of the causes of action relied upon, save, possibly a case in fraud as to which there is no substance. 128 The only question to be determined is whether Cox is entitled to have the deed declared void for economic duress. I am satisfied that he is not so entitled. The claim for this relief was pleaded in the following terms.

[56]

In November 1993 the plaintiff commenced proceedings No 5451 in the Equity Division of the Supreme Court against the first defendant claiming damages and costs for the first defendant's misleading and deceptive conduct in breach of the Trade Practices Act 1974 (Cth) and in respect of the first defendant's breach of its duties in relation to the exercise of its power of sale under the mortgage. 57. In mid May 1994 at a meeting between the plaintiff and Terry Nomarhas of the first defendant the plaintiff was informed that if the plaintiff persisted in his claim the first defendant had unlimited resources to fight the case which would run for three days and would cost the plaintiff $20,000 per day. The plaintiff was further informed that if the plaintiff won the case the first defendant would appeal the decision and the case would run on for years and the plaintiff would get nothing. 58. The effect of the pressure brought to bear upon the plaintiff by the first d (sic) and second defendants was that the plaintiff consented to sign the Deed of Release because the plaintiff believed that he had no other choice available." 129 There is no doubt that Cox suffered an emotional collapse of some kind in 1993 which I would attribute to the stress he suffered from difficulties encountered in marketing stage 1 of the subdivision, exacerbated by the conduct of the bank in withholding funding and exercising power of sale over a portion of the Narooma property, for the most part, at prices below those at which Cox had placed the allotments on the market. There was no medical evidence adduced of Cox's medical condition other than a bundle of prescriptions and pharmacy receipts for Normison capsules, which were dispensed to Cox throughout most of 1993 and 1994. 130 It was the evidence of Cox, supported by Peter Xavier Elliott (Elliott), that in late 1993 Cox had been hospitalised: he had been drinking to excess: he was very emotional, given to crying for no apparent reason: he trembled visibly and he was unable to get restful sleep. In layman's terms and as expressed by Elliot, he was a "nervous wreck". There was a hint of this condition in the memorandum of Terry Sam Nomarhas (Nomarhas) of 2 March 1994, he being a regional lending manager with Esanda. In his memorandum he addressed the contents of a letter from Cox which raised allegations of misleading and deceptive conduct against Esanda. Nomarhas assessed the situation in the following terms:

"point of distinction which [was] relevant for present purposes [was] that duress, like undue influence, focuses upon the effect of pressure, upon the quality of the consent or assent of the pressured party, rather than the quality of the conduct of the party against which relief is sought..." 143 The distinction, to the extent to which it exists, had a special significance in Cockerill as a result of the view the court took of the effect of the pleading of economic duress in that case which was not expressed in terms of the unconscionability found by the trial judge. Further, the unsatisfactory state of the pleadings in Cockerill: the procedure of a separate determination based upon assumed facts in the form of admissions made only for the purpose of the determination of a separate question, which admissions were themselves ambiguous, renders the decision in Cockerill of little utility as a precedent, in my view. 144 However, I think the distinction between the unconscionability referred to by McHugh JA and unconscionability founding an entitlement to equitable relief may not be a distinction of utility beyond the special circumstances of Cockerill in that, in duress, the unconscionability may be seen as having the additional ingredient of pressure or force which is unnecessary to found relief for unconscionability in equity. However, viewed in that way the unconscionability in duress may still have the ingredients of one party taking advantage of the special disability of the other. 145 In a case such as that posed by Cox, the special disability may consist of his impecunious position engendered by misconduct of Esanda, which is seen to take advantage of that situation by threats of litigation which would preclude Cox from enforcing his legal rights. As a matter of fact this appears to have been the approach of the trial judge in Cockerill. Giles J, as His Honour then was, in Equiticorp Finance Limited (In Liq.) v Bank of New Zealand (1992) 29 NSWLR 260 at 296-298 reviewed the authorities, including Crescendo, in terms which were approved by the Court of Appeal in affirming His Honour's decision (1992) 32 NSWLR 50 at 106, 149, and 150. 146 To avoid any misapprehension that the adoption of those principles as there explained, provides a clear guidance to the resolution of the dispute of economic duress raised in these proceedings, I think it is instructive to quote the observations of Kirby P, as His Honour then was, in Equiticorp on appeal, at 106-107:

[5]

The doctrine renders the law uncertain and in an area where certainty is highly desirable. This is illustrated by the instant case. It invites judges (and lawyers advising clients) to substitute their opinions and decisions for those of commercial people who, almost always, will have a better grasp of detail of their relationships and a better appreciation of the economic forces which are at work." 147 For the purpose of considering Cox's case founded on duress I accept that in the year or so prior to the execution of the deed of release he had suffered from considerable stress induced from his failing financial situation; that Esanda was aware to some extent of his emotional instability in negotiations preceding the deed of release. I accept that Cox believed that his beleaguered financial position was engendered by misleading conduct of Esanda. Although Cox claimed to have financial resources to fight Esanda in the court through the assistance of a "Canadian investor", I think Esanda recognised that it was not in Cox's financial interest to prosecute litigation against Esanda in the courts over a period of years. It is clear that Cox acted on the advice of Elliott in executing the deed of release so as to preserve, at least, some of his assets and his health and not by reason of any view that the deed of release represented a fair settlement of the competing claims of Cox and Esanda. Even so, the view I have formed is that Cox falls well short of what is required to establish economic duress. 148 Relevant settlement negotiations began in December 1993 in which Cox was represented in discussions with officers of Esanda by an accountant, Clive Henry Morris (Morris). The first meeting was held on 8 December 1993. That meeting coincided with a facsimile of Kevin Ross McMahon (McMahon), a partner in the firm of solicitors, Button Hawdon & McMahon, acting for Cox, disputing Esanda's right to exercise a power of sale over the Narooma property. Esanda had issued s 57(2) notices on 9 March 1993 and had taken possession of the Narooma property in April 1993. An auction of the stage 1 subdivision took place on 2 October 1993, with sales being effected, post auction, on eight lots. It was through those sales it came to the attention of Mallesons that Esanda had failed to take a mortgage over the whole of the land included in those sales. This had arisen out of the exchange of lots within the subdivision pursuant to the Moylan deed: whereas Esanda's mortgage of 1 May 1991 (the principal mortgage) extended only to the Narooma property. Mallesons brought this to the attention of McMahon by letter of 8 November 1993 proposing that Cox execute appropriate transfers of mortgage. 149 The impasse was eventually overcome by Esanda executing a mortgage over the affected allotments on behalf of Cox acting on the powers conferred upon it under the principal mortgage. 150 On 10 December 1993 McMahon had a telephone conversation with Cox in which he confirmed that proceedings were underway against Esanda and in which there was discussion over tactics in negotiating settlement with Esanda as reflected in McMahon's following record of the telephone attendance:

"But may accept or reject any such offer at its absolute discretion" 161 That amendment I think also explains the record in McMahon's filenote, namely, "Cox to negotiate". McMahon was not called to give evidence. Whatever may be Cox's recollection of the subject matter of that file note, I am satisfied that it recorded some aspects of the discussion between Cox and McMahon concerning the terms of the proposed deed of settlement and of Cox's instructions in relation to the contents of the draft deed. I think the file note also carries the strong inference that Cox was in sufficient control of his faculties to consider the terms of the proposed settlement and to consider tactics in negotiations with Esanda. I think it also shows a clear awareness by Cox that McMahon would be involved in further negotiations with Mallesons. 162 On 21 December 1993 Mallesons responded to the proposed deed of settlement. McMahon's letter to Mallesons of 23 December 1993 recorded a discussion between him and Kemp of that day and enclosed a form of deed "amended in accordance with [Mallesons's] facsimile of 21 December 1993" and requesting that Kemp arrange for execution of the deed for Esanda. McMahon noted that he was "arranging for a copy of the Deed to be executed by Mr Cox with a view to exchange being effected on 10 January 1994." A copy of the deed was forwarded by letter of the same date to Cox. The terms of that letter are informative in that the letter conveyed to Cox the following: (a) Morris had been consulted by McMahon in relation to the terms of the draft deed (b) Morris had drawn attention to proposed amendments, namely a proposal that the deed should provide for an assignment by Cox of his rights and obligations under the Moylan deed to Esanda (c) Such a proposal had been discussed between McMahon and Kemp with the latter expressing opposition to such an amendment (d) McMahon had been unable to contact Cox with the purpose of obtaining instructions concerning that proposed amendment. (e) The draft deed had been sent to Mallesons for execution by Esanda without incorporation of the 'assignment' amendment. The letter contains the following postscript: "PS. Since dictating all of the above we confirm we received a telephone call from Mr. Michelsen indicating that Moylan would be looking for compliance with the Deed and wished Stage 2 to proceed, and we also note our subsequent telephone conversation with you appraising you of the up to date position.

"Client doesn't care - not prepared to sign Deed at this stage - he insists on supply of addit. info - he also hanging out for Lot 22 as well. - he will do nothing & see what happens in next couple of days." 182 Again, I think that reflects a certain degree of wiliness on the part of Cox and gives no indication of any apprehension of pressure fair or unfair being imposed upon him by Esanda. 183 There was a further filenote of McMahon of 9 March 1994 recording telephone attendance on Elliott. The filenote recorded Elliott's awareness of the details of settlement negotiations and of the nature of Cox's claim against Esanda and further recorded the basis upon which Elliott would continue to be involved in negotiations on behalf of Cox. 184 That brings the history of negotiations up to the time of the 18 March 1994 meeting with Nomarhas. In my view, up to that point the evidence established that Cox had been substantially involved in negotiations towards settlement: that he was taking the initiative in those negotiations: that he displayed a certain amount of brinkmanship or wiliness in those dealings with Esanda: that he had the benefit of the assistance of Morris, McMahon and Elliott in relation to his dealings with Esanda: that he felt confident enough of his capacity to deal with Esanda to take over all direct dealings with Esanda towards settlement. 185 There is nothing in that material which would, in my view, reasonably justify a finding of any unusual pressure being brought to bear on the negotiations by Esanda. If anything, I think Cox was shown to be testing Esanda's resolve to continue the dispute. In my view, the further dealings with Esanda, and in particular the first and second meetings involving Elliott and Nomarhas on 18 March and 13 April 1994, particularly in light of the evidence of Elliott, reflect negotiations conventional in commercial disputes and lend little or no support to Cox's case of duress. 186 Statements made at the second meeting concerning the prohibitive cost of litigation were unexceptional and, in my view, state the obvious. Perhaps the only additional ingredient in those dealings was the advice of Elliott to Cox to settle in the interest of his personal well-being rather than by paying close attention to Cox's perception of his entitlements against Esanda. Again, I think that was sound advice and acting upon it would not have much bearing, in my view, on a case in duress. If it were otherwise, most settlements of commercial disputes would be subject to avoidance. 187 With that history of negotiations I am unable to accept Cox's evidence that his will was broken by the economic pressure Esanda placed upon him in bringing about settlement. 188 I have stated earlier in these reasons that nothing, in my view, turns on the circumstances in which the third meeting of 11 May 1994 was arranged between Cox and Nomarhas. I think that follows from the general nature of the negotiation of terms eventually agreed upon as recorded in Nomarhas's filenote of that meeting which follows:

(T287:29 - T287:47) 194 Examination of the dealings between Cox and Esanda from 18 March to 26 May 1994 in my view revealed a healthy exchange of negotiations in relation to property to be released from mortgage, the amount of consideration to be paid and the time for performance under the proposed settlement. Further, I think it is difficult to associate undue pressure with Esanda over any statements made on the question of costs having regard to the essential reality of the capacity of commercial litigation to give rise to a prohibitive burden of cost and to Cox's statement, supported by the letter of the "Canadian investor", that he had the financial resources to enforce his claimed rights against Esanda. 195 While I accept that Cox had endured an emotional collapse in 1993 from which he may not have completely recovered to full health by the time of the commencement of negotiations, there is virtually nothing in the record of dealings between Cox and Esanda in that time which would reasonably justify a conclusion that his state of health was so debilitated as to leave him particularly vulnerable to pressure by Esanda to settle the dispute. Clearly, Elliott regarded the recent history of Cox's health from his own observation as warranting consideration by Cox of the desirability of putting the litigation behind him. 196 As part of his duress case, Cox has relied upon economic pressure arising from the sale and attempted sale of property over which Esanda held security and from the bank calling up his overdraft: in the latter case, requiring him to obtain finance elsewhere to discharge the bank's mortgage over his Preston residence. However, the discharge of his liability to the bank took place in September 1993 and, apart from the unsuccessful auction of lot 22 on 22 January 1994, sales activity in 1994 related to 1993 transactions where contracts were exchanged and settlements effected in 1994. I think the last of those settlements took place on 11 March 1994, while the contracts for the sale of lot 3 were exchanged on 28 March 1994. I accept that there remained the continued threat of further sales during the period of negotiations for settlement. However, I am unable to accept that that factor had any inordinate effect on settlement as eventually agreed between the parties. 197 There was a claim by Cox that the conduct of the bank in calling up the overdraft was the result of a decision to act in concert with Esanda in putting financial pressure upon Cox. However, there is no evidence to support that contention other than the co-incidence of the sale of portions of the secured property and the calling up of the overdraft. Beyond that, it is clear from the evidence of Sowton that the bank's involvement in the affairs of Cox in relation to the Narooma property ceased in early 1990, at the latest. There is no sufficient basis for the case sought to be made by Cox against the bank. 198 As earlier stated, the case in fraud was not substantiated and I prefer to express no further view on the probable operation of the deed of release or the subject matter of such a cause of action. Although the causes of action based upon wrongful exercise of power of sale and in conversion, in my view, fall squarely within the terms of the cl 5 release, so far as the evidence permits me to make a finding, I am satisfied that those causes of action have not been substantiated. 199 In pars 37-45 of the contentions Cox has raised allegations in relation to the process of sale of secured property within the subdivision, including an allegation of attempted sale of non-secured property. The alleged irregularities were not supported by expert evidence in Cox's case and could not stand in the face of the expert evidence adduced in Esanda's case through Hanrahan, Paul Powderly and Gregory Burbidge. 200 In pars 61-64 of the contentions, Cox raised a case in conversion in the following form:

(sic) The creation of the mortgage over lots 2, 3, 13, 14 and 19 of DP 813755 enabled the first defendant to complete the sale of lots 2, 13, 14 and 19 of DP 813755." 201 The short answer to that case is that Cox had given a power of attorney to Esanda under the principal mortgage, inter alia, to effect the security document referred to in par 64 of the contentions and, as it was entitled to do, on the evidence, Esanda exercised that power. The efficacy of the sales effected under that mortgage is not open to question, in my view: registration of that mortgage after the issue of the s 57 notice and before the execution of transfer of allotments under sales effected pursuant to s 58 being sufficient. See Midland Montagu Australia Ltd v Cuthbertson (1989) 17 NSWLR 309 at 313 citing Mathieson v Mercantile Finance & Agency Co Ltd (1891) 17 VLR 271, a decision of the Full Court. 202 As earlier noted, correspondence passed between McMahon and Mallesons over the entitlement of Esanda to perfect its security. There was ample opportunity for Cox to prevent the sale of allotments if there was perceived to be substance in his stand in relation to the affected allotments. 203 In summary, I am satisfied that any cause of action relied upon by Cox was either not made out, or, to the extent that there was evidence to support it, the cause of action was released under the deed of release. 204 This matter proceeded on evidence limited to the issue of liability only, without the making of a Pt 31 Order: that course being taken to accommodate Cox's claimed inability to call all desired evidence on quantum at the time of the commencement of the hearing. In the light of the findings reached in these reasons no utility lies in requiring the parties to address quantum issues. I do not understand the parties to suggest that I should do so. Accordingly the course I propose to follow is to proceed to judgment. 205 The Further Amended Statement of Claim Further Amended is dismissed. I order the plaintiff to pay the defendants' costs of the proceedings. 206 The first defendant's cross-claim, being predicated by the seeking of relief only in the event that the deed of release is set aside, is dismissed with no further order as to costs.

Cox v Esanda Finance

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Judgment (217 paragraphs)

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Legislation Cited (1)

Cases Cited (5)

Cited By (1)