The High Court of Australia has dismissed an Australian Competition and Consumer Commission 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.
"It was the first time the High Court was asked to interpret the unconscionability provisions of the Trade Practices Act 1974", ACCC Chairman, Professor Allan Fels, said today. "The appeal turned on the application of section 51AA*. 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", Professor Fels said.
"The ACCC places a high priority on enforcing the unconscionable conduct provisions of the Act.
"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 taking the proceedings, the ACCC sought to explore the effectiveness of section 51AA of the Act in protecting tenants and other small business.
“While this matter was taken under previously existing provisions of the Act, a new provision, section 51AC, which came into effect from 1 July 1998, provides an improved level of legal protection for small businesses. It does not rely simply upon the 'unwritten law' ".
"Section 51AC mirrors for small businesses the rights previously enjoyed by consumers and incorporates a range of additional matters that the Courts can consider in order to ensure that small businesses are protected from unconscionable conduct in their dealings with larger businesses".
In dismissing the appeal, by a four-one majority, Chief Justice Gleeson said:
- “…In the context of s 51AA … 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.
- “…A 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”.
- “…Unconscientious 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: “…The 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”.
Justices Gummow and Hayne acknowledged that the question as to which particular equitable principles are reached by s 51AA was an important one.
They said: "…Contravention of s 51AA attracts particular remedies under the Act which may not otherwise be available and provides, as this case illustrates, for litigation to be instituted and conducted by a public body, the ACCC".
They also accepted the view that "…a person in a greatly inferior bargaining position nevertheless may not lack capacity to make a judgement about that person's own best interests".
In dissent, Justice Kirby, who would have restored the trial judge's decision, said :
- "…It is the serious or 'gross inequality of bargaining power' in the relationship between parties that refines and sharpens issues of conscience and the need to provide remedies, whether in equity or under provisions such as s 51AA of the Act. The special position of the Roberts enlivens the need to consider the complaint of unconscionability in the conduct of the respondents. Their position as small traders involved precisely the kinds of circumstances that the legislature had in mind when enacting s 51AA…".
- "…A particular purpose of the inclusion of s 51AA in the Act was to afford more effective remedies to small operators in the marketplace, such as the Roberts…A corporation dealing with such a small player would normally be entitled to assume that it could take advantage of the comparative weakness of that player without any real fear that it would be rendered accountable in a court of law or equity".