Case:

The ACCC alleged unconscionable conduct had occurred in relation to a retail lease.

Key Words:

Trade practices, unconscionable conduct, equity, unconscionable within the meaning of the unwritten law, special disadvantage.

Reference:

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] ATPR 41-916

Industry:

Shopping centre leases

Relevant Laws:

Section 51AA of the Trade Practices Act 1974

Summary:

The High Court of Australia dismissed an ACCC appeal which sought to restore a trial judge¡¦s finding that some shopping centre landlords had acted unconscionably by requiring particular lessees to abandon legal claims against the landlords as a condition for renewal of their lease.

The central issue of the ACCC's appeal was the appropriate application, in the commercial context, of equitable principles of unconscionability for the purposes of that section.

The ACCC originally took action in the Federal Court, Perth, in April 1998 alleging that the landlords of the shopping centre, formerly known as Farrington Fayre ,had engaged in unconscionable conduct towards three tenants, Mr and Mrs Roberts, Mr and Mrs Ternent and Mr and Mrs Raitt, in contravention of section 51AA. The alleged conduct involved, among other things, the landlords stipulating that, as a condition of a lease renewal or extension, the tenants withdraw their action regarding charges and outgoings against the landlords which was then before the WA Commercial Tribunal.

On 20 September 2000 the Federal Court declared that the landlords had engaged in unconscionable conduct towards Mr and Mrs Roberts but found that the conduct towards the Ternents and Raitts was not unconscionable.

The landlords appealed, with the ACCC cross-appealing, and on 27 June 2001 the Full Federal Court upheld the landlords' appeal and dismissed the ACCC's cross-appeal.

The ACCC then sought leave to appeal to the High Court in respect of the Roberts case in the interests of clarifying the law.

Although the High Court appears to adopt a restrictive interpretation, the decision has helped to clarify the application of section 51AA of the Act. This is one of the three provisions in the Act dealing with unconscionable conduct.

In dismissing the appeal, by a four-one majority, Chief Justice Gleeson said:

¡§¡KIn the context of s 51AA ¡K unconscionability is a legal term, not a colloquial expression. In everyday speech, 'unconscionable' may be merely an emphatic method of expressing disapproval of someone's behaviour, but its legal meaning is considerably more precise.
¡§¡KA person is not in a position of relevant disadvantage, constitutional, situational, or otherwise, simply because of inequality of bargaining power. Many, perhaps even most, contracts are made between parties of unequal bargaining power, and good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests¡¨.
¡§¡KUnconscientious exploitation of another's inability, or diminished ability, to conserve his or her own interests is not to be confused with taking advantage of a superior bargaining position. There may be cases where both elements are involved, but, in such cases, it is the first, not the second, element that is of legal consequence¡¨.

In concluding that the Roberts were not at a ¡¥special disadvantage¡¦ as required by the relevant equitable principle, Chief Justice Gleeson said: ¡§¡KThe critical disadvantage from which the [Roberts] suffered was that they had no legal entitlement to a renewal or extension of their lease; and they depended upon the [landlords'] willingness to grant such an extension or renewal for their capacity to sell the goodwill of their business for a substantial price. They were thus compelled to approach the [landlords], seeking their agreement to such an extension or renewal, against a background of current claims and litigation in which they were involved. They were at a distinct disadvantage, but there was nothing 'special' about it¡¨.

For the latest information on ACCC judicial cases and outcomes, check out the news release section of the ACCC¡¦s new website at www.accc.gov.au