New South Wales Supreme Court CITATION : Cox v Esanda Finance [2000] NSWSC 502 revised - 12/07/2000 CURRENT JURISDICTION: Equity Division Commercial List FILE NUMBER(S) : SC 50148/99 HEARING DATE(S) : 31.1.00, 1.2.00, 3.2.00, 7.2.00, 8.2.00, 9.2.00, 10.2.00, 14.2.00, 15.2.00, 16.2.00, 17.2.00, 18.2.00, 21.2.00, 22.2.00, 23.2.00, 24.2.00, 28.2.00, 29.2.00. JUDGMENT DATE : 8 June 2000 PARTIES : Anthony Robert William Cox -v- Esanda Finance Corporation Limited & ANZ Banking Group Limited JUDGMENT OF : Hunter J COUNSEL : Plaintiff - A R W Cox (In person) Defendants - R E Montgomery SOLICITORS : Plaintiff - A R W Cox (In person) Defendants - Coudert Brothers CATCHWORDS : Banker and customer - partial financing of subdivision project - unreasonable refusal to provide additional finance - misleading conduct - fraudulent representation - deed of release - whether void for undue pressure - exercise of power of attorney clause in mortgage to get in security - RPA Mortgage effected and registered after s 57 notice & prior to transfer in exercise of power of sale - bona fides of sale by mortgagee - conversion of allotments by mortgagee. LEGISLATION CITED : Real Property Act 1900 Crescendo Management Pty Ltd -v- Westpac Banking Corporation (1988) 19 NSWLR 40 Westpac Banking Corporation -v- Cockerill (1998) 152 ALR 267 CASES CITED : Equiticorp Finance Limited (In Liq.) -v- Bank of New Zealand (1992) 29 NSWLR 260 Midland Montagu Australia Ltd -v- Cuthbertson (1989) 17 NSWLR 309 Mathieson -v- Mercantile Finance & Agency Co Ltd (1891) 17 VLR 271 DECISION : Statement of claim dismissed. Plaintiff to pay defendants' costs of proceedings. First Defendant's cross-claim dismissed with no further order as to costs. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST HUNTER J THURSDAY 8 JUNE 2000 50148/99 ANTHONY ROBERT WILLIAM COX v ESANDA FINANCE CORPORATION LIMITED & ANZ BANKING GROUP LIMITED 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: "8. Following registration of the respective Plans of Subdivision for Stages One and Two the parties covenant and agree that they shall arrange for ownership and title of the various Lots to be transferred as follows:- (a) Stage One (i) Cox Lots 1-14 and 19-21 ; (ii) Moylan Lots 16-18; (iii) the parties shall jointly own Lot 15 and upon the sale thereof the proceeds shall be shared equally. (b) Stage Two (i) Cox Lots 22-38 and 41-46 (ii) Moylan Lot 39 together with any land which will comprise Lots 47-54 and 57-64 in Stage Three." 20 I think it is clear that the agreement reflected in the Moylan deed had been reached much earlier than the date it bears, as evidenced by council approval of a 64 lot subdivision of the Moylans' property and the Narooma property on 11 October 1990. Earth moving equipment went onto site shortly after that to perform preparatory work. 21 There were three letters of approval of finance from Esanda to Cox. The first was dated 6 February 1991 (the February approval) recording Esanda's "pleasure in confirming approval of your recent loan application on the following terms and conditions: AMOUNT OF LOAN 52,000 PURPOSE (a) to assist with initial development expenses 50,000 (b) to assist with interest charges 2,000 TOTAL 52,000" The interest rate was 21.25% reducible to 18.25%. Interest only was payable during the term of the loan with full repayment of the indebtedness due by 1 February 1992. 22 The second letter of approval, dated 4 March 1991 (the March approval), recorded the continued "pleasure" of Esanda in approving Cox's "recent loan application", this time in the amount of "$398,000 (bringing total approval to $450,000)". The purpose of the loan was described as follows: "(a) To assist with estimated development and associated expenses: $360,000 (bringing total to $410,000) (b) To assist with interest charges $38,000 (bringing total to $40,000) TOTAL $398,000 ($450,000)" Interest and term of the loan remained the same. 23 The third letter of approval, dated 19 April 1991 (the April approval), commenced with the expression, common to the preceding approvals, of "pleasure in confirming approval of your recent loan application". It described the approved facility as follows: "1. AMOUNT OF LOAN $810,000 ($52,000 already approved) 2. PURPOSE (a) To assist with estimated development and associated expenses as detailed below: Development cost $600,000 Working capital $100,000 $700,000 (b) To assist with interest charges $110,000 $810,000 " 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: "15. Over lunch I asked Mr. Taylor about Esandas lending criteria. I said to him: "What is expected in the way of security for loans on such projects as mine?' Mr. Taylor replied: "We can lend up to 75% or 80% depending on the risk involved. In your case we will go to at least 75% I think., because you own the land." I said: "That will not be enough to develop the land, as the valuation will probably only come up to what I paid for the land, yet I will require $650,000 to develop stage one alone." Mr Taylor said: "That is not the way we work. We will allow a further 75% of the value added to the property by subdividing it. That means if the property as it is values at $500,000 say, and you spent $650,000 on improvements, we can lend to 75% of $1.150,000." I said; "I see. It like an overdraft, the limit of which is set at 75% of the value of the security held?" Mr. Taylor; "Exactly. And, don't forget you will be providing your home as extra security so there will be no problem." I said; " Will the same formula be applied to the houses to be built on the Estate." He said; "Yes." Mr. Taylor left Narooma to return to Canberra before dark." (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. Q. Having got that handwritten outline of the project from Mr Cox which did show stage 1 that at least one home being built, I think, and in the next stage I think five homes being built, was that the reference that caused you to clear with Mr Swinton? A. That's correct. Q. That the facility was not intended to extend to the housing development? A. That's correct. Q. Did anybody bother to say that to Mr Cox, or more accurately did you? A. No, I certainly didn't. Q. The reason I ask that is looking at that outline and knowing that the development would have to come out of the bank's facility because you were going to capitalise interest - and I infer from that you didn't anticipate any outside sources of income being available to Mr Cox to service the loan - that consequently you would have understood that the development of the subdivision and the building of the house or houses was anticipated by Mr Cox to come out of bank finance? OBJECTION. A. Yes. We were aware that any funding he would require would need to be provided by ourselves. Q. And he has provided you with an outline in relation to Stage One that involves the building of at least one house. It just seems to me that in the circumstances that I have outlined that it would not have been surprising for someone to say: Quite clearly we are limiting the application to the subdivision and it will not, repeat not, extend to housing? A. My understanding was that in February when I first became involved in it discussions had been going on for some months between Mr Cox and Mr Swinton and I assumed that all of these things had been addressed. Q. So far as you were concerned, that had been covered? A. That's right. (T 364:34 - T 365:36) 59 The reference to CMT2 is a reference to Cox's cost estimates. That evidence was in keeping with Tennant's evidence in chief as follows: "5. My first involvement with Mr Cox's dealings with Esanda was on 4 February 1991 on my first day of my new job. The very first job which I was given to do by Mr Swinton on that day was an application for a loan of $52,000.00 to Mr Cox being made up of an advance of $50,000.00 and capitalised interest of $2,000.00. Mr Swinton said to me words to the effect: "This gentleman wants to do a land sub-division. He owns the land outright but needs $50,000.00 immediately for walking around money. Feasibility studies of the subdivision are in the process of being done and we have a valuation of Mr Cox's land "as is" which provides plenty of security to advance $50,000 against plus $2,000.00 of capitalised interest." I can recall that no mention was made to me by Mr Swinton when he gave me my instructions of houses being a part of Mr Cox's project. .... 8. 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? HIS HONOUR: Q. Have you any present recollection about how you came into possession of the Hanrahan valuation of 29 March? A. No. Q. Whether it was requested by the bank or requested by Mr Cox? A. I certainly have no recollection of doing a request for it. Q. 29 March 1991, and you have passed it onto Mr Cox? A. Yes, it certainly appears that way. Q. What was the purpose of doing that? A. I don't know. Q. May I suggest to you that the only purpose could be consideration of finance for such a development on the Stage One development? A. I am a little bit I suppose confused as to why - if the valuation is dated 29 March, it is almost a month later, 17 April, that we have sent a fax to Mr Cox. Q. I think the thing that interests me is the time and the subject matter and why you would have been dealing with it at all if there was not a proposal for financial assistance for the development of a house on Stage One of the subdivision? A. As I said, to my recollection we didn't order it. My recollection was that Mr Cox brought the valuation with him to the meeting. Now my only -- Q. To what meeting? A. To the meeting when Mr Cox and Mr Gschwend came to Canberra between that sort of March and May period. I do not know why there is a copy of the fax back to Mr Cox. I don't know if this is admissible in as much as I am supposing or guessing because of the length of time, maybe Mr Cox had requested a copy of it be sent back to him. If he had come to the meeting with the original of the valuation and we have said that we were not prepared to assist and then some weeks later he said: I want a copy of that valuation, and then we have then faxed it to him. That is the only thing I can think of. Q. Again coming back to your paragraph 35, you do not have any recollection of Mr Cox including in his request for financial assistance finance to cover the cost of a house or houses? A. At day one I was aware from his handwritten notes that he wished to build a house. My subsequent discussion with Mr Swinton I was advised we were only doing a land subdivision -- Q. Let me stop you. At that point you did not convey that to Mr Cox? A. No, because I was under the impression that those discussions had already taken place with Mr Swinton. Q. After that? A. After that - in that period between March and May I am aware that Mr Cox approached us to build a residence on the property. Q. When do you say that happened? A. I can't be more specific than between March and May. Q. Before or after this luncheon? A. It was on the same day. So the discussion was taking place and then we had lunch. Q. How is it that on that same day you were able to say that Esanda would not be interested in providing finance? Was there some policy decision? A. The discussion in the office between Mr Cox and Mr Swinton and myself, a decision was made that we were not doing house funding. Q. But no decision had been made, had there, until this meeting? A. A decision was made at that meeting. Q. What I am trying to find out is on what basis a decision could be made to reject finance for the building of this house when the proposal was only made that day? OBJECTION. A. I can't recall now. I don't know whether there was something within this valuation that would tend to say that the building of a house of that type wasn't feasible. HIS HONOUR: Q. Would you care to have a look at it now? A. Your Honour, on page 10 of the valuation. HIS HONOUR: Yes, I have read that. WITNESS: Regarding the demand being slow in that bracket, I would think would have been the reason. HIS HONOUR: Q. Have you got any recollection of that? A. I couldn't - I wouldn't swear to that. Q. Does that mean you have no recollection of that? A. That's correct." (T 376.16 - 378.14) 62 On the face of that evidence I would have thought it was quite clear that: (a) Cox had requested financial assistance from Esanda to construct a residential building on lot 12 as part of stage 1 of the subdivision. (b) This development of lot 12 was intended to be used to interest potential buyers in the subdivision and to test the market. (c) Swinton had instructed Tennant that Esanda would not be financing housing construction on the subdivision. This instruction was probably given in February and before Hanrahan's valuation of lot 12. (d) Swinton's decision was not conveyed to Cox prior to the Canberra meeting. There was no record of that meeting kept by Esanda. As appears from the transcript passage quoted above, I have difficulty in understanding Tennant's evidence in so far as he suggested that Esanda's refusal to finance housing construction at the Canberra meeting was based on adverse comments in Hanrahan's March 1991 valuation of lot 12: particularly where, according to Tennant, he informed Cox that Esanda was not interested "in funding… any housing of any description" (my emphasis). 63 I sought clarification from Tennant of this decision as follows: "Q. But not the particular proposal, not on the basis of any particular unfavourable aspect of the particular proposal put forward? A. I thought Mr Cox' question was relating to in October when he approached us for the two houses and he was saying that therefore we had plenty of security so why didn't we approve the houses. Q. Had not ESANDA already made the decision in mid '91 that they wouldn't fund housing development of any description? A. At that point in time and-- Q. Was there some policy about that? A. No. Q. Why did you use the words "of any description"? A. I think because we were just looking at it as a land subdivision full stop." (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. Q. I put to you that in the presence of Mr Tennant on your evidence, having rejected an application for construction in March, that answer is not correct? A. I would say that the rejection of the funding for housing in March - it was actually May I think - was because there had been no previous discussion about constructing - or they had not agreed to construct any houses until such time as the subdivision was complete and approved by council. So I accepted that. HIS HONOUR: Q. But the subdivision had been approved and completed by council back in 1990? A. The approval had been given, but the final approval is when all the services are in, when the roads, sewers et cetera et cetera. What I was trying to do was to get some activity which was feasible whilst construction of the services was being done and they refused that. But I did not interpret that as being a rejection of the overall proposition that they would fund housing - provide funds for housing - once the subdivision was complete. Q. What was the thinking behind that? I mean why not - if support for the building project was expected to the bank, why wouldn't they offer finance for the one building? A. For the reason that I had not conceived that initial - in our discussions, it was an afterthought. Q. What was an afterthought? A. The house on Lot 4. As these things progressed you sit around and I chat with my project manager and we get a good idea and you change directions from time to time. I did not interpret the rejection of that particular house. It indicated to me concern. It became of concern to me but I could not see that I had a strong argument at that time because the services had not been installed. Q. So far I have to say that it looks clear to me that the facility for the 800,000 odd, that did not involve finance for the building of houses? A. Yes. Q. And that was provided purely for subdivision costs? A. Yes, and that later funds for houses would be provided under the same mortgage. Q. I understand that is what you say. But so far as - the importance of that to me, I should indicate to you, is that it would be reasonable, I would think, for the bank to keep an eye on how the subdivision was going, to follow how it was going in terms of being built and once built how it was going in terms of sale. Because, as I understand it, you had not intended to build a home on every block that had an anticipated selling undeveloped blocks, is that not so? A. It was a case of seeing how it went and keeping options open. If someone was prepared to - provided they were within covenant then there would be no objection. Q. Leave aside the nine months or so that you say was out of the question in terms of reasonable time, to get the subdivision up and going in stage 1, leave aside that time, let's assume you had a couple of years to get that up and going. What do you say about the bank's position if there was an economic collapse and nobody was interested in buying dirt or bricks and mortar under any circumstances and you were landed with this subdivision and what you put into it was several thousand dollars. What do you say your position would have been then? A. My position on that is that it is all the more important to have buildings on the properties because it is easier to sell completed houses - this is a marketing view. Q. I put an extreme case to you of vacant lots and the market that does not exist, nobody is interested in buying a beach property. They are worried about their job and family and you cannot move a block, what happens then? A. I suppose that is the risk all businessmen take. My assessment at the time when I commenced was that that would not happen in this case. On the balance of probability it would succeed. I found that in my previous career, if I am right 75 per cent of the time and wrong for 25 per cent of the time, then you are in front. Q. It is not a bad average. When you say it was the risk you took, do you accept that seemed to me to suggest that you accept that the bank did not give you an open cheque for the development? A. It did not give me an open cheque, no. But the loan was not to be limited just to stage 1. I mean that particular loan was. It does say that but at all times it was assumed that I would get ongoing support and if things got tough then that would help me. Q. Do you go so far as to say that help would be forthcoming, say, at the end of 12 months or 15 months you had not been able to move a block? A. If I had not been able to move a block and there had been houses on it then I would have no argument. Q. Hadn't been able to move a block and no houses on it? A. It would have been a matter of allowing me a two and a half year period which I believed existed in the deed of loan." (T 113.8 - T 114.5) 67 Cox acknowledged that the February, March and April approvals did not include any housing finance. However, it was common ground that Cox regarded the building of residences on the subdivision as a matter of "vital importance". Swinton acknowledged as much in the course of cross-examination as follows: " PLAINTIFF: Q. From the beginning of the Skyline Estate did you have any optimism for its success? A. Yes. ... PLAINTIFF: Q. Did you understand my concept of what it was to be? A. Yes, the subdivision especially. Q. You understood I considered it absolutely of vital importance to build houses, didn't you? A. That you understood that, yes. Q. And on the basis that you understood that and having taken it to a stage where you were ready to build houses you refused? A. No, it goes back earlier than that. You knew we wouldn't do the first house before you accepted the final loan offer amount where you again agreed to reconsider the funding of the houses in September, October." (T 550.38-550.40...T550.46-551.2) 68 I have found the evidence on this subject in each party's case to be undermined with inconsistencies, obscurity and a complete absence of records of meetings between Cox and Esanda. It is not a stable ground on which to build a case of misleading representations or of estoppel. I think the probabilities are as follows: (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: "I said. "Is there anything can you think if which I should do to ensure nothing goes wrong with the financing of my building program? If I need to find money from another source I will do so, although I think it would be unreasonable of you to expect this given everything has progressed so well so far. In any case if the houses are slow in selling I will buy one myself." Mr. Swinton: "It will not be necessary for you to go elsewhere for funds, but I would like to see a statement of your personal assets and liabilities for the record." (Exhibit A) 105 Gschwend's version of the discussion with Swinton was to the effect that Swinton said "there should be no problem for that loan to be forwarded and to go ahead and have the plans drawn up for lots 5 and 9….for the two homes." 106 After that meeting Cox wrote to Esanda on 21 October referring to the visit and forwarded a statement of assets and liabilities together with a "new valuation of the subdivision" based on varying parameters. There is no statement in that letter that Swinton had committed Esanda to approval of funding of the proposed construction of two houses on the subdivision. 107 At about that time Swinton suffered a serious illness and in the absence of Swinton, Cox wrote to Tennant on 11 November 1991 in the following terms: "Prior to Grahams unfortunate illness, he and I had discussed the construction of 2 houses on the Skyline Estate. He agreed in principle to this venture and said that Esanda would provide the necessary funds . Since then we have been working with Architect Phil Rose on plans, costings etc. A copy of this estimate follows. We believe these estimated costs to be a little high as he has based his figures on employing a builder for the construction where-as, in the event we will be subcontracting on our own behalf. [I] have today been in touch with Terry Hanrahan to arrange for evaluation on the project. We expect to have these by this time next week. Would you please advise the necessary steps for us to have the finance available as I have set a strict timetable to have the dwellings to the frame stage before the end of this year so as to give visual appeal to prospective buyers of land on the subdivision. In the meantime we are awaiting titles from the government so as to be able to have settlement and payment to you for the 4 blocks which have been sold. Please call me to discuss your requirements so that I can press on down here as we must shortly begin spending money provided the proposition is to your satisfaction." (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: "In February this year funding of $810,000 was approved for the subdivision comprising 20 lots (total 64 lots) To - date four blocks have sold from which we should receive approximately $260,000 (net sale proceeds) which would accordingly reduce our loan to $550,000. Generally sales have been slow and to stimulate enquiry borrower wishes to build a spec residence on one of the blocks (block 9). He is seeking the full construction costs of $178,000 together with capitalisation and interest facility of $42,000 bringing total to $220,000. Our security position on completion of the house would be as follows: EMV Lots 2-6, 12-14, ½ 15, 19, $820,000 END Lot 9 (on compl. $250,000 Englobo land $290,000 Collateral security $117,000 $1,4477,000 Lending will not exceed $780,000 and therefore borrowing represents figure 53 % of security value (51% in original valuation). A valuation of the proposed development has been undertaken by our panel valuer T. Hanrahan and is attached. The residence will be built to a high standard and although the market is slow the comparable sales show that houses above $200,000 are selling. It must also be stressed that the prime reason for constructing the house is to increase the level of enquiry in the whole subdivision. Although we would prefer that the sale prices on the developed lots be reduced to speed up sales borrower is adamant that sales will pick up once construction activity commences on the site. We have spoken to our valuer who concedes that the level of inquiry should increase. ... Borrower is a valued client of the ANZ and in view of the fact that original loan amount will not be exceeded and there is only a nominal increase in our loan/ security ratio it is recommended that approval be granted subject to the following..." There followed several conditions of approval which are not pertinent. 116 I attach considerable importance to those views of Tennant as I think that it is highly unlikely that they were at odds with the response of Swinton at the Narooma meeting. Further it records Tennant's view that Cox's application fell well within the policy limits described by Swinton when first questioned about that matter. The memorandum had the following further note of Swinton recorded on it: "9/12 discussed with Evan Summerson & we both agree in view of lack of land sales & the high end of the market the proposed homes are aimed at that the proposal be declined. Tony Cox advised." 117 In my view, the response of Evan Summerson and Swinton should be seen as a change in attitude by Esanda to the staged subdivision of the Narooma property: as being at odds with Esanda's response to Cox's approach for funding of a staged subdivision and house project and at odds with the response of Swinton to Cox's request for housing finance at the Narooma meeting. I addressed questions to Swinton concerning Tennant's credit memorandum of November and he gave evidence as follows: "HIS HONOUR: Q. Mr Swinton, so that I can understand that credit memorandum of 25 November, that starts at page 459, the way I read that memorandum in the light of Esanda's refusal to provide further funding is this; although the proposal fell within the lending guidelines as to 75 percent of costs or value of the property, whichever was the lower, 75 percent of costs of development, subject to an overall limit based upon value of the finished product? A. Subject to it not exceeding the funding on the cost basis is provided it doesn't exceed that end value determination. Q. Although it fell within those guidelines, it was rejected on the basis that additional funding was not commercially desirable, having regard to the failure of the lots to sell satisfactorily, and the unfavourable valuer's remarks on the marketability of the two blocks with the houses upon them. Are you able to agree with that outline? A. I am not able to agree with it totally your Honour. Certainly the principal reason for not approving the funding of the houses was the proposal of the houses was not viable. The valuer determination of market conditions said that Mr Cox's proposed asking prices for those houses were too high, and that that sort of price range there was very little market activity, very limited buyers, so they would probably get built and not sold, other than at a discount price. You said about the subdivision itself, because of its lack of success as far as sales are concerned contributing to that decision, and the progression to make that decision was to try and help the marketability of those developed blocks, because, yes, it was a problem. So that wasn't the reason the houses were declined, the houses were declined because they would have lost more - they would not have recouped what they cost. The benefit of creating the construction activity on the site to whether that would help us achieve land sales of the other developed blocks, was not worth the risk, when it was clearly shown it would be very hard to sell those prospective houses. Q. The overall borrowings still fell within guidelines, subject to what you have just said? A. That's correct, but the lending ratios are only one part of our assessment process. (T 502:16 - T503:3) 118 The approach of Esanda to applications of this kind was elaborated upon by Swinton in the following evidence: "HIS HONOUR: Q. Mr Swinton, Esanda engaged in a subdivision financing in a variety of forms, did it? A. In a variety of locations or--? Q. No, in addition to straight out lending, did it participate in subdivisions in which it had a financial interest? A. Certainly Esanda was involved in joint venture projects from time to time. Q. What was the nature of those joint venture projects so far as it concerned subdivisions? A. It would depend on the specific project. A joint venture project, a generalisation of how they worked were that Esanda provided the money on a - on an agreed basis with the prospective developer and joint venture partner and depending on what those terms and conditions were, assisted to determine what the profit share arrangement would be on completion of the project. Q. And were you involved in that side of Esanda's use of funds? A. Not for a subdivision, no, but I certainly had involvement in, over six or seven years, two or three joint venture projects in Canberra we were involved in. Q. The reason I asked that is it occurred to me that the type of thinking that you have expressed in terms of the proposal by Mr Cox to fund the housing development seemed to reflect not so much the mind of a lender so much as the mind of somebody having a commercial interest other than as lender in the project? A. Well, what we did was we were a very - totally specialised in property development lending, the area where I, where I worked and that, I guess, we have the - the mind, the talk of a developer because that's all we do. That's a - whether it's a joint venture or a straight lending proposal, we are talking the same language as a developer." (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: "2.1 Cox must on the date of execution of this Deed pay the sum of $50,000 to Esanda. 2.2 On payment by Cox to Esanda of the amount referred to, Esanda must immediately hand to Cox a discharge in registrable form of its Mortgage over the property contained in Folio Identifier 132/32831 being the residential property known as 19 Baldwin Avenue, Kianga. 3. FURTHER DISCHARGES OF MORTGAGE 3.1 If within one year of the date of this Deed Cox pays to Esanda: (a) in respect of Lot 4 in Deposited Plan 813755 comprised in Folio Identifier 4/813755 the sum of $45,000; or (b) in respect of Lot 6 in Deposited Plan 813755 comprised in Folio Identifier 6/813755 the sum of $45,000, then Esanda must immediately hand to Cox a discharge in registrable form of the Mortgage insofar as it affects the lot in respect of which payment has been made. 3.2 If within one year and six months of the date of this Deed Cox has paid to Esanda the sum of $90,000 pursuant to clause 3.1 and if within that period Cox pays to Esanda in respect of Lot 22 in Deposited Plan 813755 comprised in Folio Identifier 22/813755 the sum of $60,000 then Esanda must immediately hand to Cox a discharge in registrable form of the Mortgage over that lot. 3.3 If Cox makes to Esanda the payments referred to in clauses 3.1 and 3.2 no interest is to accrue on moneys owing by Cox to Esanda after the date of this Deed but if he fails to make any such payment interest continues to accrue as if this Deed had not been made. 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. "49. On or about February 1993 despite the sale of a number of blocks of the subdivided land and the application of the sale proceeds towards the reduction of the loan the first defendant refused further extension of the existing loan. 50. On or about February 1993 the first defendant demanded that the plaintiff either repay the loan or refinance with another financial institution. 51. In June 1994 the plaintiff executed a Deed of Release acting under the financial duress exerted over him by the first defendant. 52. The Deed of Release was executed on terms and conditions over which the plaintiff was not free to negotiate. 53. Despite the fact that the plaintiff received legal advice regarding the Deed of Release prior to its execution it was clear to him and to his legal advisers that had he refused to execute the Deed the first defendant would have evicted him from his residence and would have wrongly exercised its perceived power of sale. 54. The plaintiff executed the Deed because of the economic duress which the first defendant had systematically imposed on the plaintiff over a long period of time and which continued up to the date on which the plaintiff signed the Deed. PARTICULARS (a) On 3 March 1993 the first defendant offered to delay action to take possession of the land and the plaintiff's house for purpose of sale if the plaintiff granted to the first defendant absolute control over the sale of the development (b) On 9 March 1993 the first defendant served notice on the plaintiff under s57(2)(b) of the Real Property Act alleging default and intention to exercise power of sale. (c) On 6 April 1993 Mr Swinton of the first defendant telephoned the plaintiff to inform him that the first defendant was going to sell the remaining land and as well as the plaintiff's home. (d) By letter dated 9 August 1993 the first defendant informed the plaintiff that it intended to sell off the remaining land and requested the plaintiff vacate his home so it could also be sold. (e) The plaintiff had had an overdraft of around $150,000 for over 15 years with the second defendant secured by his home in Melbourne in which his ex wife lived and which in 1993 was valued at $300,000. (f) In or around June 1993 without any warning the second defendant served a notice on the plaintiff's ex wife to vacate the Melbourne property as the second defendant proposed to sell it. The plaintiff was forced to go to another financial institution to obtain a home loan to pay out the overdraft. (g) In October 1993 against the express instructions of the plaintiff, the first defendant sold land over which it did not hold a mortgage. 55. In addition to the threat of losing his home the persistent economic duress exerted on the plaintiff by the first and second defendants over a long period of time had caused the plaintiff to suffer a sever stress illness. 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: "It appears that there is an impasse in our resolution of the matter as Mr Cox is both unemployed and void of any assets and therefore difficult for him to obtain the required $40,000 loan to pay Esanda for the discharge of mortgage on his own home. The second aspect is that there is Mr Cox's unstable personality and any resolution/agreement may be difficult to achieve and finalise. It is recommended that we "open the door' to discussion with Mr Cox in the hope that it may result in resolution or at worst the final step before legal action commences. Should you concur with the approach then the position will be reassessed after the outcome of the meeting (if held) and receipt of legal advice on the next steps i.e. possession proceedings." (Emphasis added) (Exhibit Q) 131 Elliott was present at the request of Cox at two meetings attended by Cox and Nomarhas, one at Narooma on 18 March 1994 which lasted approximately five and a half hours (the first meeting) and the second meeting on 13 April 1994 at Canberra (the second meeting). Elliott is a practicing barrister and solicitor and attended these meetings as a friend of Cox, having met Cox on holiday visits to Narooma. I regarded his description of Cox's emotional condition as reliable. I also considered his evidence of the meetings with Nomarhas to be restrained and reliable. Although clearly extremely sympathetic to Cox's welfare, financial and physical, I think his evidence was given without bias of any kind. 132 Nomarhas also presented as a witness who gave his evidence carefully, promptly, without any obvious identification with the interests of Esanda. Nomarhas kept detailed file notes of the meetings, at the second of which he was accompanied by Richard Kemp (Kemp), a partner in Mallesons Stephen Jaques (Mallesons), Esanda's solicitors. Both meetings were concerned with negotiating a resolution of disputes between Cox and Esanda without resort to further litigation. Cox had instituted proceedings in the Equity division of the Court but had not served that process on Esanda. Elliot agreed with the substance of Nomarhas's record of the first meeting, and offered no different recollection of Nomarhas's record of the second meeting. As to the appearance of Cox at these meetings he gave the following evidence: "HIS HONOUR: Q. You mentioned a number of times of the state of health of Mr Cox. I assume you have no medical training? A. No, I have not. Q. Were there any signs of ill-health? A. Yes, your Honour. Q. Would you describe them? A. If I might just say, I knew he had been hospitalised quite recently before this. Q. Before what? A. Before I met him. Q. When did you meet him? A. Late 93, early 94. He had been hospitalised. He was drinking to excess. He was shaking. He was emotional. He would cry. I knew he was not sleeping. He appeared to me to be simply a nervous wreck. Q. What was his appearance in these meetings that you have spoken of? OBJECTION. Q. What was his appearance to you in these meetings you have spoken of? A. What do you mean? Q. In terms of what you have described? A. He wasn't drinking alcohol during them. He was nervous. He was unsettled. He oscillated between the need to put this behind him and the need to get on with his life on the one hand, and on the other hand, his sense of dissatisfaction of what had occurred. Q. You have spoken of trembling? A. Oh— OBJECTION. WITNESS: I can't tell you whether he was trembling specifically at the meetings or not. I don't remember. HIS HONOUR: Q. You have spoken of bursting into tears? A. He did not do that at either of the meetings." (T 102:54 - T 103:41) 133 Elliott, in addition to attending those meetings provided a certificate at the request of Kemp, certifying to the facts that he had explained to Cox the "contents and effect of the [deed of release] and [that] he advised [Elliot] that he understood its nature and effect". It was Elliot's evidence that he had advised Cox to agree to the terms of settlement in terms as follows: "despite the merits of your case, most people have neither the time nor the energy to devote to litigation like this. You have just come out of hospital because of illness directly related to this litigation. If you want to keep your home and for the sake of your health you should sign the Deed of Release." 134 It was also Elliot's evidence that at the second meeting Nomarhas and Kemp had urged Cox to settle the case with the following comments: "Mr Nomarhas : "If Mr Cox does not sign the Deed and fights the case his costs of fighting the case will ruin him financially. He will end up with nothing." "Mr Kemp: "If Mr Cox signs the Deed he can keep his home and some of the development land." 135 There is no doubt in my view that commercial pressure of that kind was strongly influential in persuading Cox that he should settle with Esanda notwithstanding a strong conviction that he had been unjustly treated by Esanda. Before a settlement of the dispute in terms of the deed of release there was a further meeting between Cox and Nomarhas on 11 May 1994 (the third meeting). They were the only persons present at the meeting which was held at a room reserved by Cox at the Boulevard Hotel. The circumstances of the arrangement of that meeting and what was said are the subject of dispute. According to Cox he received a phone call from Nomarhas on 20 April 1994 in which he was informed that Esanda had a new proposal to put to him and requested a meeting unaccompanied by others: in particular by solicitors. According to Cox it was "at this meeting [that his] will was finally broken". He attributed to Nomarhas the statement as follows: "If we do not agree on a settlement the matter will be going to court. The case will run for three days. This will cost you about $20,000 a day. You will probably win as you are the under-dog but that will not worry Esanda, it has lots of money and it will appeal. The case could go on for years, why don't you settle and get on with your life." 136 Cox explained his agreement to settle in terms of the deed of release as follows: "I was at a very low ebb. I could see that if I did not agree to Esanda's terms it would sell the remainder of my properties for next to nothing and then bankrupt me. Coupled to this concern was that Esanda had control of all my properties and I would have no funds to fight it in court…I felt I had been harassed beyond a point where I was able to maintain my resistance." He said that it was in these circumstances that he took Elliot's advice and agreed to sign the deed of release. 137 It was Nomarhas's evidence that he had been contacted by telephone by Cox shortly prior to the third meeting with a request to have a meeting unaccompanied by others, including solicitors, and with Nomarhas's concurrence, Cox arranged a meeting place at the Boulevard Hotel. Nomarhas prepared a file note of that meeting which recorded the fact that the meeting was held at Cox's request. According to that record, Cox tabled a letter from a "Canadian investor" stating that he was "prepared to support legal action against Esanda". According to the evidence of Esanda, Cox referred to this letter in stating that he had "the backing to commence proceedings against Esanda with [his] Canadian contact." I do not understand Cox to deny that he had claimed to have this financial support. The name given to the Canadian investor was Snowden. About this Nomarhas gave the following evidence: "Q. Standing alone against Esanda that was the position, that I had no choice? A. The view that I had, Mr Cox, was that standing alone if all the assets were sold there would be no assets. You had an income from a business of which I had no details about and you had contacts with Mr Snowden which I knew nothing about. So I did not determine what you would do to stand alone. I did not consider it and still have not considered it." (T 578:3 -T 578:11) 138 Nomarhas denied in cross examination that he had requested the May meeting. For reasons later referred to, in my view, nothing turns on a finding whether the meeting and the proposal that it be held in the absence of others emanated from Cox or Nomarhas. 139 The pleading of economic duress by Cox requires a little interpreting. It is not free from ambiguity. However, having regard to the evidence of Cox quoted earlier in these reasons it is reasonably clear that, implicit in his pleading of economic duress, Cox contends that, by reason of Esanda's misconduct in relation to the funding of the development of the Narooma property, he was left without physical or financial resources to enforce his legal rights against Esanda which had control over his assets. It was in that context that he was faced with threats of costly and lengthy litigation. 140 I am satisfied that Cox's case in fraud against Esanda has not been made out. 141 In my view, upon the evidence adduced in this case, the question of economic duress has to be looked at, in terms of lawful conduct rendered illegal by its nature and in the circumstances in which it took place. That being so I think the only basis upon which one could regard the conduct of Esanda as amounting to duress is if the conclusion is reached that the conduct of Esanda was unconscionable. McHugh JA, as His Honour then was, expressed the nature of economic duress in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 46 in the following terms: "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, will not necessarily constitute economic duress". It was said by Kiefel of that passage, in Westpac Banking Corporation v Cockerill (1998) 152 ALR 267 at 289, that she did not think that McHugh JA "was intending….to refer to the equitable doctrine of unconscionable dealing which is recognised as affording an independent ground on which a court exercising equitable jurisdiction can relieve from a contract." 142 It was further observed that the: "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: "I see no error in Giles J's approach. It is true that, in Crescendo (at 46), McHugh JA offered only enigmatic guidance: "…The proper approach …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?" What precisely the law is prepared to countenance as "legitimate" begs the question which needs to be answered in characterising particular conduct as impermissible economic duress (on the one hand) or the permissible (even necessary) operation of the market economy (on the other). There is no doubt that in some circumstances commercial pressure may constitute duress: see, eg, Pau on v Lau Yiu Long [1980] AC 614. The authors (Meagher, Gummow and Lehane) of Equity, Doctrines and Remedies, 3rd ed (1992) Butterworths, Sydney, after reviewing the cases, came to the not unsurprising (sic) conclusion that attempts to circumscribe the jurisdiction of economic duress by "attempts at exact verbal formulae" were bound to be unprofitable: see ibid par 1216 at 345-346. Many (if not most) of the cases dealing with economic duress have concerned parties in seriously unequal economic bargaining positions. One of them effectively overbears the will of another in a way that strikes the decision-maker as unconscionable. Such a case was Williams v Bayley (1866) LR 1 HL 200. Relief in such cases involves an arguably legitimate, if somewhat paternalist, intervention of the law where the will of a party has been overborne or where what has occurred is so unconscionable as to call out for redress from the court. From one perspective, the relief offered can be seen as a defence of true freedom to contract and not an intervention by the courts to strike down contracts only achieved by duress: see Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] A AC 366 at 383f: cf R Halson, "Opportunism, Economic Duress and Contractual Modifications " (1991) 107 LQR 649 at 656; A Phang "Economic Duress - Uncertainty Confirmed" (1992) 5 J C L 147; A Phang, 'Wither Economic Duress" Reflections on Two Recent Cases " (1990) 53 MLR 107. There are various reasons why I approach this claim in the present case with reservation. These reasons include: 1. The unsatisfactory and open-ended formulae which have been offered in the cases. These do not seem to have been improved much over the past hundred years; 2. The dangers of court's substituting their opinions about agreements for those reached by parties, at least in circumstances such as the present where the parties are substantial corporations and where millions of dollars are involved; 3. The overlap, in this jurisdiction, of the concepts involved in economic duress and those invoked by the Contracts Review Act 1980 whose applications are more sensibly limited and whose provisions more detailed and structured; 4. The doctrine of economic duress may be better seen as an aspect of the doctrines of undue influence and unconscionability respectively. If relief, beyond statute, is appropriate, courts would be better able to provide such relief in a consistent and principled fashion under the rubric of undue influence and unconscionability rather than by pretending to economic expertise and judgment which they will generally lack: cf Phang (1990) 53 MLR 107 at 113; and 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: "Noted mgee in pos -suggested delay signing selling auth until I discuss W Counsel - Dont want to tell Esanda what is happening if they think buyer for stage two they may not negotiate sett with us." The latter entry was a reference to a possible buyer of stage 2 of the subdivision development. 151 The Equity division proceedings instituted by Cox against Esanda sought declarations against Esanda for unconscionable conduct, invalid exercise of power of sale against Esanda, a failure to act in good faith in respect of those sales, and a claim for damages for proscribed conduct under s 52 of the Trade Practices Act. The form of the summons had been the subject of advice of counsel and, on Cox's instructions, was not served on Esanda. 152 An outcome of the meeting between Esanda and Morris was a proposal of settlement in terms of Esanda's letter to Morris of 17 December 1993. In substance, it provided for a release of the Narooma residence from the security held by Esanda upon payment of $40,000 by Cox. 153 It is not clear to what extent Cox was in receipt of counsel's advice at this stage. Cox had been in receipt of counsel's advice some months prior to that, as confirmed by him in cross examination and recorded in a filenote of a meeting between Esanda's officers and Cox and Mrs Cox of 17 August 1993 in which Cox informed the Esanda officers that he had been to see "his silk who had told him that [he] had a very strong case and if [the parties] ended up in court Esanda would have no chance of success". 154 On 17 December 1993 McMahon forwarded a facsimile to Mallesons which was in the following terms: "We refer to our previous correspondence in this matter. We are instructed that following a recent meeting of representatives of our respective clients a compromise was reached in relation to the dispute between our client and Esanda. On our instructions, such compromise broadly involves the following:- 1. Our client pay Esanda $40,000.00; 2. Esanda release its mortgage over our client's house property (Baldwin Avenue, Kianga); 3. Our client transfer to Esanda all other items of security property held by Esanda in satisfaction of the remaining secured debt (the remaining Lots in Stage 1 and the residue Lot being Stage 2); 4. Settlement of these terms be effected within 21 days of execution of a Deed compromising the terms; 5. Such Deed to include mutual releases by each party in favour of the other. Pursuant to that, we enclose herewith draft Deed setting out the proposed terms of settlement, for approval by Esanda. If the Deed is in order, please arrange for execution of copy by or on behalf of Esanda and advise us so that we may obtain execution of a copy by Mr Cox. Subject to that, we will arrange to exchange copies of the executed Deeds with you. Alternatively, if there are any amendments which you believe to be necessary or appropriate we await your submissions in relation to those as a matter of urgency." 155 The draft deed accompanying that facsimile was consistent with the terms of Esanda's letter to Morris of the same date as McMahon's facsimile and contained provisions which, in substance, were similar to the terms of the deed of release, particularly as to mutual releases. 156 There is a note by McMahon of a telephone conference with Cox of 20 December 1993 in which he recorded that he "confirmed Deed sent to Mallesons." The file note contains the further following record : "Tony - has no objection to deletion of RT of 1ST refusal - just cov to negotiate -doesn't want to assign Moylan rights - don't mention that if poss" 157 The conference note ended with a reference to an arrangement with Cox for McMahon "to fax copy to him once final form of Deed settled". 158 Cox's evidence in cross examination in relation to his dealings with McMahon during this period was, I think, unsatisfactory. Essentially, he took the position that McMahon was out of his depth in dealing with Esanda and that he, Cox, was not consulted in respect of the various communications between McMahon and Esanda. 159 While I accept that Cox was enduring a personal battle to come to terms with his financial position and his treatment by Esanda, I am unable to accept that his condition was such that he was not reasonably aware of developments in McMahon's communications with Esanda. For example, in relation to this file note of his conference with McMahon of 20 December 1993 the reference to the deletion of the right of first refusal is clearly a reference to paragraph five of the draft deed, which in unamended form was in the following terms: "5. If Esanda hereafter wishes to sell any of the land secured by the Mortgage being any of the land referred to in clause 3 hereof, Esanda agrees that it will consider any offers by Cox to purchase such property and agrees to offer such land to Cox for sale on no less favourable conditions than are being offered to any other prospective purchasers such land." 160 So much of that proposed right of first refusal commencing with the words and "agrees to offer" to the end of the clause has been struck out in the file copy and a handwritten note of an alternative proposal in the following terms: "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. In view of the above developments we now consider that we should insist on an amendment to the Deed with Esanda to provide that Esanda will not sell Lot 22 to any purchaser other than one who covenants to comply with your obligations under the Deed with Moylan. However, we confirm your instructions to proceed to send the Deed to Mallesons as it is, and to consider the above matter in the new year." 163 In the absence of McMahon I would be most unwilling to conclude that the information so forwarded to Cox was not a reliable record of events surrounding the submission of the proposed deed of settlement for Esanda's execution. There is no record of Cox's dissent from the terms of that letter. 164 Communications from Kemp to McMahon of 30 December 1993 record Esanda's acceptance and execution of the deed of settlement. A file note of McMahon of 5 January 1994 recorded a telephone attendance on Cox which was in the following terms: "returned Tony's call in Melb. - he has found out that Esanda planning to auction land (residue) 22/1/94. - he has spoken to Syd sol. & wants to forget "deal" with Esanda - I to speak to sol. & Robert Forster & ret. his call in Melb." 165 Again, I think I should treat that filenote as a reliable record of Cox's active involvement in settlement tactics with Esanda and of the fact that Cox was aware of the "deal" with Esanda and further that he was taking additional legal advice from Sydney lawyers. 166 There is a further filenote of McMahon of 14 February 1994 recording a telephone attendance on Cox. From that record I think the following inferences should be drawn: 1. Cox was continuing to take advice from counsel in relation to settlement with Esanda; 2. Cox was sufficiently aware of negotiations with Esanda to give instructions to McMahon concerning amendment to the proposed deed and its submission to Esanda; 3. Morris was still assisting Cox and was receiving up-to-date versions of the proposed deed. 167 There was a further filenote of McMahon of a telephone attendance on counsel of 8 January 1994. From that file note I think it should be inferred that McMahon's letter to Mallesons of 17 January forwarding "a final copy Deed of Release between our respective clients for approval and if approved for execution on behalf of Esanda" was in accordance with Cox's instructions. 168 The letter noted certain further amendments which had been "agreed to between our clients." On 21 January 1994 Kemp informed McMahon that Esanda had executed the latest version of the deed of settlement. It was at that point that Cox took the matter of negotiation of settlement with Esanda out of the hands of McMahon in terms of his facsimile to Esanda of 28 January 1994. So far as is relevant the facsimile was in the following terms: "I am in receipt of a faxed copy of a document signed by Esanda which is titled "Deed of Release." Next week I will be in court on an unrelated matter following which I will give consideration to signing the deed. In the meantime please be advised: 1. No one is until further notice empowered to discuss my affairs with your corporation or your legal representatives or agents except me. Please address any communication directly either by mail or fax." 169 Cox claimed to be "discussing with Police" matters concerning the "attempted fraudulent sale of [his] property on 22/1/94 as, land which [he did] not own…", referring to the Moylan ownership. The reference to a "fraudulent sale" referred to an unsuccessful auction of lot 22 conducted on behalf of Esanda at which there was an inadvertent reference to lot 12 by the agent conducting the sale. 170 For his assistance in deciding upon his attitude to the proposed deed of release, Cox requested Esanda to provide him with certain material concerning his dealings with Esanda and the bank. 171 That facsimile was sent against the advice of McMahon, who in a letter to Cox of 31 January 1994, set out his views about the terms of the proposed deed of settlement and provided the following further advice: "We also confirm our advice that Esanda, through it's solicitors, are now pressing for an exchange of Deeds, but we record your instructions not to respond to that request until further instructions from you. We again note our advice as to the possible dangers of delaying exchanging the Deed of Release with Esanda to conclude the deal which has been negotiated. We are fearful that Esanda may choose to resile completely from that arrangement, and subsequently seek possession of your house with a view of selling that, in addition to the 3 blocks in State (sic) One and the residue Lot. Notwithstanding that, we note your desire to continue negotiations with Esanda in an effort to improve your position under the proposed settlement." A memorandum of counsel "for work done… to date" was enclosed. 172 Cox's evidence in cross examination relating to his involvement in this period of negotiation was unsatisfactory and to some extent I think contradictory. He maintained a lack of understanding or knowledge of what communications were passing between Esanda and his solicitor and, at one point, he said that, in effect, there were too many involved dealing with Esanda. However, I think the records of McMahon to which I have referred reveal a client who was aware of progress in negotiations, who was in receipt of legal advice from counsel and who was very much involved in tactics aimed at extracting an acceptable settlement from Esanda. 173 Following further communication from Mallesons, Cox wrote to Esanda on 8 February 1994 in which he addressed settlement in the following terms: "You must understand that by signing the "Deed of Release" as presented by your Solicitors I would be exposed to legal action by Mr Moylan, which makes my legal position very difficult indeed. If you would be prepared to consider Lot 22… to remain mine it would make my decision to sign the Deed very much easier. The deed in its present form leaves me between a rock and a very hard place." 174 The terms of that letter I think lend support to the correctness of the views I have expressed concerning Cox's involvement in negotiations to that point and his awareness of the implications of the terms under discussion. At that stage if any pressure was being applied in the conduct of the negotiations I think it was coming from Cox. 175 On 8 February 1994 Cox wrote to McMahon responding to the letter of 31 January 1994 in the following terms: "Thanks for your letter of 31/1/94 which I have now absorbed. As to the "deal" you refer to with Esanda negotiated by Clive Morris, there was never any such deal approved by me, nor did I instruct you on the matter save to ask for a copy of the "Deed of Release" drawn up by Esanda solicitors. At no time did I say I would sign the deed until I had examined all the issues involved and had sighted the deed. The original discussions held between Morris and Esanda were preliminary to a formal document which I now have. What I will now do in light of the position which will arise with Moylan if I sign the Esanda deed is something I will decide in the next day or two." 176 While, in terms, that letter lends some support to Cox's evidence in these proceedings that he had not instructed McMahon in relation to the proposed deed of settlement "save to ask for a copy of the document", such a statement does not accord with McMahon's several file notes of attendances on the telephone or in conference with Cox. 177 Cox's proposal to Esanda that lot 22 be released to him met with a counter-proposal that the discharge of mortgage over that portion would be given in consideration of the payment of $140,000. Although Cox had taken over the negotiating role with Esanda he appears to have continued to deal with McMahon as appears from the latter's filenote of an attendance upon Cox on 18 February in which the following was recorded: "- not happy with Deed as is & will not sign that at present. - would not even necessarily sign if they agreed to release lot 22 - he will keep us advised - proposes to continue to "chip away" at Esanda. 178 Although Cox did not accept use of the term "chip away" as being his terminology, I think the record should be accepted as a reasonably reliable note of the level of Cox's involvement in negotiation and his tactics in dealing with Esanda, particularly in light of McMahon's confirming letter to Cox of 21 February 1994. 179 On the same date as that attendance on McMahon, Cox wrote to Esanda concerning its counter offer in respect of lot 22 as follows: "Your Solicitor has suggested you may consider discharging the Mortgage on Lot 22 in consideration of the sum of $140,000. As Esanda with its spurious auction of 22nd January has rendered Lot 22 evidently valueless, it is difficult to see how such a price could be struck. I will how-ever consider your offer in conjunction with "The Deed of Release" you have forwarded." 180 I think it is reasonably clear that Cox continued to involve McMahon in the progress of negotiations and was the recipient of advice from McMahon in relation to the proposed settlement, at least until 21 March 1994. It is also clear that, from early March, Elliott became involved in negotiations on behalf of Cox. 181 McMahon's file note of 28 February 1994 recorded a telephone attendance upon Cox in which the implications of rejecting the terms of settlement in the form executed by Esanda and the possibility of Esanda moving to take possession of the Narooma residence were discussed: as to which the filenote recorded the following: "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: "DIARY NOTE A COX 11/5/94 9.00am Meeting - Boulevarde Hotel Attendees: T Nomarhas A Cox The meeting was requested by A Cox to discuss the settlement of the matter and to discuss new developments. A Cox has reviewed the deed and contrary to his earlier request, wants the reference to G Swinton deleted from the deed. The second request the deed is that Esanda (as mortgagee in possession) will not agree to any change of covenants on the land. T Nomarhas agreed on the basis that at least 75% of all land owners agreed and supported any change of covenant (restricted to building erected on the subdivision). A Cox stated the recent developments since the last meeting were: a) Another similar case in Narooma - Island View Caravan Park. Graham Grant had an FCA loan from ACT, G Swinton and Hannahan (sic) involved, concerning M.I.P and forced sale of units. Similar consequences of forced sale of property. b) Table a letter from Snowdon (Canadian who purchased three lots) stating he would fund legal costs against Esanda. c) Additional legal costs incurred by A Cox further deteriorated his position A Cox offered $60,000 for house and Stage 2. The offer was rejected. T Nomarhas understood A Cox need houses (to live with his second wife) existing house occupied by his estranged wife and Stage 2 (englobo land at Narooma) to avoid litigation with adjoining land owner and to obtain profits from the development. T Nomarhas what lots A Cox had sold for Snowdon. A Cox sold lot 20 for $95,000 and lot 21 for $75,000. It was agreed by Nomarhas/Cox the two remaining blocks, 4 and 6, were the worse (sic) block, restricted views and no views. T Nomarhas made counter offer and discussed as follows: - House $50,000 (funds to be borrowed0\). - Englobo land $60,000 (payment from investors or JV with a developer). - Sale of two lot (4 & 6) at a net price of $45,000 each. - No interest. - Rates and taxes for 1/7/94 paid by A Cox. The offer was accepted by A Cox, but he wanted up to 2 years for settlement. T Nomarhas to consider this period. A Cox requested offer in writing. T Nomarhas to reply and if accepted Deed to be amended/incorporate changes for settlement." 189 Cox does not deny the substance of that filenote of the meeting. The main point of difference lay in his attributing to Nomarhas the following statement which is repeated for ease of reference: "If we do not agree on a settlement the matter will be going to court. The case will run for three days. This will cost you about $20,000 a day. You will probably win as you are the under-dog but that will not worry Esanda, it has lots of money and it will appeal. The case could go on for years why don't you settle and get on with your life." 190 Nomarhas does not deny that the cost of litigation would have been discussed but does not accept that he made the statement attributed to him by Cox. In my view little turns on whether that statement was made. If it is accepted that the statement was made, it would not affect my view that there was no undue pressure placed upon Cox by Esanda in the settlement negotiations. 191 Otherwise, I think the following evidence of Cox in cross examination established that the version of the meeting given by Nomarhas was substantially correct: Q. While you are on paragraph 92, Mr Cox, I do not put to you that yourself and Mr Nomarhas didn't discuss the cost of conducting the litigation, but I do put to you that Mr Nomarhas did not use the words that you have attributed to him in '92? A. I say that is exactly what he says. Q. I have already put to you - and I don't know if you responded - that you told him that you had Canadian backing for your costs of litigation? A. I didn't have. Q. Did you tell him you did have? A. Yes. Q. The two of you then sat around in any event, and tried to resolve the matter? A. I might clarify that a little. I did, I was offered some - that I could use some land which had been bought by my Canadian friend as security if I wanted to contest the case. Q. And then the two of you sat around and negotiated trying to resolve the matter? A. Yes. Q. And you were able to have your say with him as to what you wanted; you told him? A. Told him I wanted Esanda to give me $2 million. Q. You told him you didn't want Esanda changing the covenants on the land, is that right? A. I can't recall if we went into that detail. Q. Can you remember saying to him "I am prepared to pay $60,000 for the house and stage 2 of the development"? Can you remember saying that, $60,000 for the house and Lot 22? A. I can remember that that was his position. Q. What, that he offered you Lot 22 and the house for $60,000 total? That wasn't his position, was it? A. His position was as it finally turned out in the deed. Q. Mr Cox can we just get back to my question? Did you say to him: "I am prepared to pay you $60,000 for the house and stage 2 of the development"? A. I don't, I don't believe I did. Well I may accept that. I may have said that. We were holding a talk. Q. And if you said that to him you knew you were playing hardball, because that was $20,000 less than Mr Elliott had offered on leaving the 13 April meeting? A. Yes. Q. And Mr Nomarhas responded: "No, we cannot agree to that. I understand that you need a house to live in with your second wife and you want stage 2 to avoid any litigation with the adjoining landowner and so that you can obtain a profit from the development; however that offer is not good enough. What lots did you sell to Snowden?" Did he say that to you? A. Yes, well I don't know. It was irrelevant. I wouldn't have thought so, no. Q. Well which of those is right? "Yes", "I don't know", "it's irrelevant" or "I wouldn't know"? A. Well I am trying to think why he would have mentioned Snowden's properties during negotiations, this negotiation. So I don't think I did - it did happen. Q. Can I, with respect, not ask you not to try and work out why, but to try and test your memory to work out if you have a recollection, firstly, that he said that to you and if not, that he didn't say it to you and, in the third alternative, you just don't remember what was said? A. I will have to say I don't remember what was said. Q. Then you went on about the sale of Lot 20 and Lot 21 and the prices they were sold for and the remaining lots were Lots 4 and 6? A. Yes. Q. And then Mr Nomarhas said to you: "Yes, I think that's probably right. Esanda are prepared to accept $50,000 to release the security it holds over your house, plus 60,000 for the in globo (sic) land and $45,000 for each of the two remaining lots" which totals $200,000? A. Yes. Q. I am sorry, I added that conclusion at the end and you agreed with it. I will withdraw it and I will put the question again. He said to you: "Yes I think that's probably right, Esanda are prepared to accept $50,000 to release the security it holds over your house plus $60,000 for the in globo land and $45,000 for each of the two remaining lots"? A. Yes. Q. And he said: "No interest will be payable, although any outstanding rates and taxes for the year ending 1 July 1994 will have to be paid by you"? A. Yes. Q. And you said: "Those figures are acceptable to me but I will need up to two years to raise the funds to settle the matter"? A. Yes. Q. And he said: "I don't know about that, I will have to consider what sort of time period Esanda would be prepared to accept"? A. Yes. Q. And you said: "Can you put the offer in writing?" And he said "All right I will consider the settlement term and reply to you and, if accepted, I will have the deed amended to incorporate the changes we have agreed upon?" A. Correct." (T 283:32 -T 285: 55) 192 There was a further telephone conversation between Nomarhas and Cox on 26 May in which the period for the sale of lots in stage 1 was further negotiated and agreed upon. 193 As to the period that followed the 26 May conversation, Cox gave the following evidence in cross examination: "Q. The point is, Mr Cox, that you had, didn't you, about a month, between the 11 May meeting and when Mr Elliott certified your understanding of the deed on 10 June? A. Yes. Q. You had weeks, not hours, but weeks, even between negotiating the time for payments and signing the deed? A. Correct. Q. In that time you had the counsel of Mr Elliott? A. You have heard Mr Elliott's counsel. Q. And you had the availability to you of Messrs Button, Gordon and McMahon, if you chose to use them, is that right? A. Am I expected to answer that? Yes, I suppose, yes. Q. And it was in those circumstances that you came to the deed of June of 1994? A. I say that in my statement." (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: "CONVERSION OF PROPERTY OF THE PLAINTIFF 61. On or around October 1993 the first defendant converted to its own use the land of the plaintiff. 62. On or around October 1993 the first defendant sold land which was the property of the plaintiff and over which the first defendant did not hold a mortgage. PARTICULARS (a) In October 1993 the first defendant did not hold a mortgage over lots 2, 13, 14 and 19 of DP 813755. (b) In October 1993 the first defendant entered into contracts for sale of lots 2, 13, 14 and 19 of DP 813755. 63. The first defendant sold lots 2, 13, 14 and 19 of DP 813755 at sacrificial prices against the express instructions of the plaintiff. 64. On 23 November 1993 the first defendant used its power of attorney to execute a mortgage over lots 2, 3, 13, 14 and 19 of DP 813 755 despite the protests of the plaintiff and the plaintiff's refusal to execute a new mortgage over the lots himself. 64. (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. ************** Last Modified: 09/26/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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