Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18

HIGH COURT OF AUSTRALIA

GLEESON CJ,

GUMMOW, KIRBY, HAYNE AND CALLINAN JJ

AUSTRALIAN COMPETITION AND

CONSUMER COMMISSION APPELLANT

AND

CG BERBATIS HOLDINGS PTY LTD & ORS RESPONDENTS

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd

[2003] HCA 18

9 April 2003

P64/2002

ORDER

Appeal dismissed with costs.

On appeal from the Federal Court of Australia

Representation:

N W McKerracher QC with E C Gordon for the appellant (instructed by Australian Government Solicitor)

D F Jackson QC with P G Clifford for the first to sixth respondents (instructed by Haydn Robinson)

N C Hutley SC with N Perram for the seventh and eighth respondents (instructed by Julian Johnson)

Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd

Trade practices – Unconscionable conduct – Trade Practices Act 1974 (Cth), s 51AA(1) – Where conduct was in a commercial context – Condition for renewal of lease – Required by lessor – Lessees to abandon legal claims against lessor – Whether conduct of lessor unconscionable.

Equity – Unconscionable conduct – Where conduct was in a commercial context – Condition for renewal of lease – Required by lessor – Lessees to abandon legal claims against lessor – Whether unconscientious exploitation of special disadvantage of another – Relevance of inequality of bargaining power to finding of special disadvantage.

Words and phrases – "unconscionable within the meaning of the unwritten law", "special disadvantage".

Trade Practices Act 1974 (Cth), s 51AA(1).

1. GLEESON CJ. The facts are set out in the reasons for judgment of Gummow and Hayne JJ. The case concerns the application of s 51AA of the Trade Practices Act 1974 (Cth) ("the Act") to those facts. 2. The specific question is whether the lessors of premises in a shopping centre engaged in conduct that was "unconscionable within the meaning of the unwritten law" in stipulating, as a condition of their consent to a proposed renewal or extension of a lease, in contemplation of its assignment, a requirement that the lessees would abandon certain claims against them. The lessees were in a difficult bargaining position. They had no option to renew their lease. Their prospects of making an advantageous sale of their business depended upon the co-operation of the lessors, which they were not obliged to give. Considered objectively, and with the benefit of hindsight, the claims that the lessees agreed to abandon were of little value (less than $3,000). They regarded them as more valuable, but considered that in the circumstances, they had no choice but to give them up. The principal reason why they had no such choice was that they had no option to renew their lease. They could not offer a purchaser of their business a worthwhile tenure unless the lessors agreed to an extension or renewal of the lease and an assignment. The lessors were willing to give such agreement only on the condition already mentioned. 3. It may be noted that, although the appellant, the Australian Competition and Consumer Commission, claims that the lessors' conduct was unconscionable, the lessees never sought to have the deed they entered into with the lessors set aside. That would have been the last thing they wanted. Whether they might have had cl 14 of the deed set aside, assuming there had been unconscionable conduct on the part of the lessors, is a question that does not arise[1]. The issue is whether the conduct of the lessors was unconscionable. French J held that it was[2]. The Full Court of the Federal Court (Hill, Tamberlin and Emmett JJ) reversed that decision[3]. For the reasons that follow, I consider that the Full Court was correct. 4. It was not contended that the proper course for the lessors to follow, consistently with their obligations under the Act, was simply to have no dealings at all with the lessees, but to allow their lease to expire and to find a new tenant. That would have been an unwelcome (and costly) outcome for the lessees. It would be surprising if it were the policy of the Act to require the lessors to take that course, to the minor disadvantage of the lessors and the major disadvantage of the lessees. The practical consequence of the argument for the appellant is that the lessors, having been requested to agree to something they were entitled to refuse, were acting in contravention of the Act by imposing a condition upon their agreement. Yet if that be correct, it seems to mean that the lessors, if well advised, should simply have refused to discuss the matter of a renewal or extension of the lease. 5. Although he was concerned to make the point that ss 51AB and 51AC of the Act have a wider operation than s 51AA, senior counsel for the appellant argued the case on the basis that the relevant form of unconscionable conduct in question was "the knowing exploitation by one party of the special disadvantage of another." He said that, by special disadvantage, he meant "a disabling circumstance seriously affecting the ability of the innocent party to make a judgment in [that party's] own best interests." Applied to a case such as the present, that approach is consistent with what the Act calls the unwritten law concerning unconscionable conduct, bearing in mind that the Act also allows for development of the law from time to time. It is also consistent with the legislative history of s 51AA. In the Second Reading speech when the legislation was introduced, it was said[4]: