Sydney Law Review
|
|
Home
| Databases
| WorldLII
| Search
| Feedback
Sydney Law Review |
|
NICOLE DEAN*
Abstract
Incorporation of the equitable notion of unconscionability in the Trade Practices Act 1974 (Cth) has been fraught with uncertainty. When Australian Competition and Consumer Commission v Bertatis came before the High Court for consideration, there were high hopes that this uncertainty would be resolved. In this paper, an outline of how unconscionability is codified in s51AA of the Trade Practices Act is followed by a detailed discussion of the Berbatis litigation and its implications. The author concludes that the High Court in fact failed to fully delineate the parameters of s51AA, other than to confirm that an inequality of bargaining power between commercial parties is not, in and of itself, sufficient to establish s51AA unconscionability. The paper also questions whether the outcome in Berbatis would have been different if s51AC had been in force at the relevant time.
* LLB(Hons), BA(Hons). The author sincerely thanks Joellen Riley for her comments and suggestions on the draft of this article. The views expressed in this article are those of the author.
The equitable notion of unconscionability is not easily defined. One means of understanding the concept is to separate it into two categories.[1] The broad principle of unconscionability refers to equity’s jurisdiction to grant relief where a stronger party acts against equity and good conscience to enforce, or retain the benefit of, a transaction. This ‘central informing idea of Equity’[2] underpins numerous equitable doctrines like equitable estoppel, undue influence, misrepresentation, duress and, of course, the narrow doctrine of unconscionability.[3] The narrow doctrine of unconscionability, a ground for equitable relief in and of itself, is typically characterised by one party being at a ‘special disadvantage or disability’ vis-à-vis another and exploitation by the other party of their superior bargaining position to the disadvantaged party’s detriment.[4]
Unconscionability is a concept now codified in the Trade Practices Act 1974 (Cth) (hereinafter ‘TPA’). This paper begins with an examination of the type of unconscionability incorporated in s51AA. In particular, consideration of that provision in Australian Competition and Consumer Commission v Berbatis (hereinafter Berbatis) is examined in detail. While this litigation provided the first in-depth judicial analysis of s51AA’s scope and operation, discussion of the implications of that analysis demonstrates that critical questions concerning s51AA’s reach remain unresolved. The High Court’s judgment neither directly counters the idea that s51AA unconscionable conduct can arise between commercial parties as a result of ‘situational’ disadvantage, nor does it definitively reject the proposition that s51AA may embrace not only the narrow doctrine, but also the broad principle, of unconscionability. Finally, consideration of whether Berbatis may have been decided differently under s51AC of the TPA highlights that even though s51AC’s full reach remains unclear, its legislative history and judicial interpretation thus far indicate its scope is wider than s51AA. Consequently, s51AC appears to have greater potential to provide small business with better recourse to relief against unconscionable conduct encountered in commercial transactions.
Following much debate,[5] s51AA was introduced in 1992.[6] It provides that ‘a corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.’
Extrinsic material indicates s51AA was not intended to create new legal rights, but rather to make available to commercial transactions characterised by unconscionability the TPA’s flexible remedies and the possibility of the Australian Competition and Consumer Commission (ACCC) bringing representative actions on behalf of relevant parties.[7] Additionally, such a legislative prohibition was intended to have an ‘educative and deterrent effect’.[8] The legislature envisaged s51AA as codifying the narrow doctrine of unconscionable conduct, as articulated by the High Court in Blomley v Ryan[9] and Commercial Bank of Australia v Amadio.[10] As such, s51AA was designed to provide relief where ‘one party by reason of some condition [or] circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created.’[11] Traditionally, factors that establish the necessary special disadvantage or disability have been ‘constitutional’ in nature and include, but are not limited to, personal factors like poverty, illness, ignorance, impaired faculties, age, financial need, illiteracy or lack of education.[12]
Despite the legislature’s comments in respect of s51AA’s scope, it became clear following its introduction that s51AA’s reach was in fact not so clear-cut. Uncertainty arose because s51AA’s phrasing does not seem entirely consistent with the legislature’s comments as to its scope and purpose. Reference in s51AA to the ‘unwritten law’ has proved to be a particular concern because, as Baxt and Mahemoff observe, ‘the current limits of the unwritten law are not defined.’[13] Dal Pont and Chambers elaborate on this point, remarking:
It cannot be said that that which is unconscionable within the unwritten law is limited to the equitable doctrine of unconscionability. Numerous equitable doctrines are grounded, at least in part, in the notion of unconscionable conduct, including estoppel, unilateral mistake, undue influence, economic duress, constructive trusts and relief against forfeiture.[14]
Uncertainty has thus arisen as to whether s51AA is in fact limited to the narrow doctrine of unconscionability articulated in Blomley v Ryan and Amadio. The result, as Horrigan notes, is that ‘[o]ngoing debate about the scope of section 51AA has troubled courts as well as the ACCC,’[15] not to mention left those engaging in trade and commerce unclear as to their legal rights.
In 1996 a Western Australian couple, Mr and Mrs Roberts, found themselves in a difficult predicament. The lease on their fish and chip business in a shopping centre was to expire in February 1997 and contained no renewal option. The Roberts wished to sell their business, principally due to their daughter’s ill health. However, the sale would not be financially viable unless a new lease could be negotiated with the centre’s owners and managers, CG Berbatis Holdings Pty Ltd and others (hereinafter ‘Landlord’). Further complicating matters, the Roberts were engaged in legal proceedings against the Landlord.[16] Something, it seemed, would have to give.
Although prospective purchasers, the Hollands, were found, the sale initially fell through. The Hollands were only willing to buy if a new lease was negotiated. However, the Roberts refused to sign a new lease when the Landlord made it conditional upon the Roberts dropping legal proceedings against the Landlord.
The Roberts eventually gained a seven year extension of their lease and, as a result, negotiations with the Hollands resumed. The purchase was again conditional upon assignment of the Roberts’ lease to the Hollands. The Landlord agreed to this assignment, but made it contingent upon the Roberts discontinuing legal proceedings against the Landlord, a clearly non-negotiable condition. The Roberts sought legal advice and were advised against signing the lease on this term. However, feeling they had little other choice, the Roberts did in fact reluctantly sign.
The ACCC commenced proceedings against the Landlord, alleging unconscionable conduct under s51AA of the TPA. Testing s51AA’s scope, the ACCC argued, inter alia, that s51AA embraces special disadvantage based on ‘situational’, as well as ‘constitutional’, factors.[17]
Given the uncertainty surrounding s51AA’s scope, as already noted in Section 2, much expectation surrounded Berbatis, particularly once it reached the High Court. Speculation centred on two main issues:
i) whether s51AA embraced the broad principle of unconscionability or only the narrow doctrine of unconscionability; and
ii) if limited to the narrow doctrine, whether both ‘situational’ and ‘constitutional’ factors were relevant to the determination of ‘special disadvantage or disability’.
In a preliminary ruling on the constitutional validity of s51AA, French J reviewed both s51AA and the general principles of unconscionable conduct.[18] It was observed that unconscionability in the unwritten law operates at both a generic and a specific level.[19] At the generic level, unconscionability is the central principle according to which equity operates (the broad principle of unconscionability). At the specific level, unconscionability is a distinct ground of equitable relief, usually associated with notions of unconscionable exploitation and parties being ‘specially disadvantaged’ (the narrow doctrine of unconscionability).[20] French J noted that the legislature intended ‘the meaning of the unwritten law’ in s51AA to embrace unconscionability as articulated in Blomley v Ryan and Amadio,[21] that is, the narrow doctrine of, or specific level, unconscionability. Yet, having pointed to this legislative intention, his Honour cautioned that this ‘may turn out to have been an unduly narrow selection of case law given the range of equitable doctrines involving the application of the concept of unconscionable conduct.’[22]
Justice French regarded s51AA as having no settled technical meaning[23] and characterised ‘the unwritten law from time to time’ as being governed by ‘judge-made rules that can change from time to time.’[24] French J thus seemed to regard s51AA as capable of embracing the broad principle of unconscionability, rather than simply the narrow doctrine of unconscionability.
In his judgment addressing the facts,[25] French J first considered whether the Roberts had been at a special disadvantage or disability in the landlord/tenant relationship. Of primary significance was French J’s broad interpretation of the narrow doctrine of unconscionability. His Honour found that ‘special disadvantage or disability’ can be based not only on ‘constitutional’ but also ‘situational’ factors, that is, factors arising from the circumstances relevant to the transaction. Indeed, it was on the basis of situational factors, in particular the intersection of legal and commercial circumstances in which the Roberts found themselves, that French J found the Roberts to have been specially disadvantaged.[26] His Honour added that because the Roberts’ disadvantage was not constitutional in nature, it ‘was not able to be mitigated by the fact of legal representation which they had available to them at all material times.’[27]
Justice French’s next main concern was whether the Landlord ‘unfairly exploited the tenant’s disadvantage in a manner that would be regarded in equity as unconscionable.[28] According to his Honour, such unfair exploitation can arise where an owner uses ‘its bargaining power to extract a concession from the tenant that is commercially irrelevant to the terms and conditions of any proposed new lease.’[29] Emphasising that the Roberts’ legal claims against the Landlord were not frivolous or vexatious, French J characterised the condition to drop legal proceedings against the Landlord as ‘commercially irrelevant’ to the Landlord’s lease offer.[30] Unsurprisingly, the Landlord appealed French J’s decision.
On appeal to the Full Federal Court,[31] the relevant principles were not disputed. All parties accepted it was necessary to demonstrate that the Roberts were at a ‘special disadvantage’ in accordance with Amadio unconscionability. The appeal centred on the correctness of French J’s finding that the Roberts had been specially disadvantaged and that the Landlord took unconscientious advantage of that disadvantage.[32] In a cross-appeal, the ACCC sought the Court’s opinion on whether the narrow or broad view of unconscionability applies under s51AA, urging that the phrase ‘unwritten law’ in s51AA need not embrace only the narrow doctrine of unconscionability as articulated in Amadio.[33]
Considering the issue of special disadvantage, the Full Court highlighted that French J did not regard the emotional strain suffered by the Roberts as a result of their daughter’s illness as relevant to the Roberts being deemed specially disadvantaged.[34] Instead, the Full Court noted that French J’s finding of special disadvantage was based on the fact that the Roberts’ ability to sell their business had depended on the renewal or extension of their lease. In the Full Court’s opinion, it was inappropriate to characterise as a ‘special disadvantage’ the detriment a tenant suffers as a result of a lease’s imminent expiration,[35] explaining that ‘[a]ny proprietor of a business carried on in leased premises, where the goodwill of that business depends on its location, is in precisely the same position as the Roberts.’[36]
The Full Court then examined French J’s decision that the Landlord acted unconscionably by making the lease’s extension or renewal conditional upon the Roberts discontinuing bona fide and serious legal proceedings against the Landlord. Their Honours questioned French J’s distinction between seeking a release from frivolous or vexatious litigation and seeking a release from bona fide and serious claims, finding no difference between the two. The Full Court disagreed with French J’s finding that the Landlord’s condition was commercially irrelevant to the proposed lease’s terms,[37] instead characterising the Landlord’s lease offer as ‘a lifeline’.[38] The Roberts were given a choice where previously none had existed: either continue legal proceedings against the Landlord and lose the opportunity to sell their business (initially the Roberts’ only option), or abandon legal claims and sell the business. Hill, Tamberlin and Emmett JJ thus drew a distinction between the opportunistic striking of a hard bargain and s51AA unconscionable conduct.[39] Highlighting that the Roberts were financially better off for having accepted the renewed lease on the Landlord’s terms, the Full Court overturned French J’s decision.
Of significance is that the Full Court upheld the appeal by reaching a different conclusion on the facts. Unlike French J, their Honours did not rely (or indeed even comment) on whether ‘situational’ factors can establish special disadvantage.
The ACCC appealed against the Full Court’s findings that the Roberts were not specially disadvantaged and that the Landlord’s insistence upon legal proceedings being discontinued was not a commercially irrelevant condition of the proposed lease. Ultimately, however, the High Court upheld the Full Court’s decision in favour of the Landlord by a 4:1 majority (Kirby J dissenting). Although the majority issued no joint judgment, certain common threads in their respective judgments are identifiable.
The majority agreed with the Full Court that the Roberts were not specially disadvantaged, however the High Court majority’s reasoning was somewhat different. Emphasising the difference between a ‘special disadvantage or disability’ and a ‘hard bargain’, the majority held that the Roberts were at a distinct commercial disadvantage, but that this disadvantage was not ‘special’ because it did not impair their ability to make judgments in their own interests.[40] The majority thus adopted the conventional position that mere inequality of bargaining power is not, in and of itself, sufficient to establish special disadvantage.[41]
While the majority agreed with the Full Court’s finding that the Roberts had not been specially disadvantaged, the High Court justices voiced different opinions as to whether the Full Court erred in construing special disadvantage as requiring the weaker party’s will to have been so overborne that they acted neither independently nor voluntarily. Gummow and Hayne JJ,[42] together with the otherwise dissenting Kirby J,[43] held that the Full Court erred in construing s51AA against that criterion, noting that questions of quality of consent are relevant to duress, but not to the narrow doctrine of unconscionability.[44] Gleeson CJ and Callinan J took a different view and sought to clarify what the Full Court must have meant. Gleeson CJ regarded the Full Court’s remark as ‘simply an observation of fact as to part of the context in which the issue of unconscionability arose.’[45] In Callinan J’s opinion, the Full Court had actually meant that ‘whether a person’s will had in fact been overborne was a relevant, but not necessarily an essential element in many cases of unconscionability’.[46]
The majority of the High Court agreed with the Full Court that the Landlord did not take unconscientious advantage of the Roberts. Given there was no option to renew, the majority found that the Landlord was legally entitled to make discontinuance of legal proceedings a condition of any new or extended lease.[47] As Gleeson CJ highlighted, ‘[p]arties to commercial negotiations frequently use their bargaining power to “extract” concessions from other parties’, this being ‘the stuff of ordinary commercial dealing.’[48] A relevant, but not determinative, factor was that the Roberts would have suffered a far greater financial loss had they not renegotiated the lease for their business premises.
The lone dissenting voice in the High Court was Kirby J. His Honour interpreted s51AA broadly, finding that s51AA has the potential to extend beyond the narrow doctrine of unconscionability, as articulated in Amadio. Although noting the appeal before him was substantially argued by reference to the narrow doctrine of unconscionability, Kirby J maintained that ‘the reach of the section ... goes further’, with its full scope still ‘to be elaborated in this and future cases’.[49] Given the facts in Berbatis, Kirby J concluded it was open to French J to regard the Roberts as specially disadvantaged given their lease had been due to expire, they had pressing reasons to sell their business, and the business was connected to the value of their lease renewal or extension of the lease. Additionally, Kirby J concluded it was open to French J to find that the Landlord had exploited the Roberts’ special disadvantage.
Following the handing down of the High Court’s judgment in Berbatis, the ACCC stated that ‘[a]lthough the High Court appears to adopt a restrictive interpretation, the decision has helped to clarify the application of s 51AA of the [TPA].’[50] However, close analysis of the High Court’s decision in fact reveals that many questions in respect of s51AA’s scope remain unresolved.[51]
(i) The Broad Principle of Unconscionability
In considering the implications of Berbatis, it is important to note that the s51AA claim brought by the ACCC, as well as the subsequent appeals, were based on the narrow doctrine of unconscionability. A passage from Gummow and Hayne JJ’s joint judgment highlights this. Their Honours note that although s51AA has been judicially considered both to extend[52] and not to extend[53] to the broad principle of unconscionability, they conclude that the appeal can ‘be decided without choosing between the differing emphases in the[se] views,[54] given that the facts of Berbatis fall within the narrow doctrine of unconscionability.[55] As a result, the High Court was not obliged in Berbatis to consider whether s51AA also encompasses the broad principle of unconscionability, thereby embracing equitable doctrines other than the narrow doctrine of unconscionability. Given this, it is interesting to briefly refer to the Full Federal Court’s recent observations on this issue in ACCC v Samton Holdings Pty Ltd.[56]
In Samton Holdings, the Full Court noted that reference in extrinsic materials to the narrow doctrine of unconscionability, as articulated in Blomley v Ryan and Amadio, does not limit s51AA to that doctrine.[57] In the Full Court’s opinion, unconscionable conduct under s51AA ‘is that which supports the grant of relief on the principles set out in specific equitable doctrines.’[58] This reference to ‘specific equitable doctrines’ indicates that the Court did in fact regard s51AA’s language as sufficiently wide to embrace the broad principle of unconscionability.[59] Yet, despite this broad interpretation, the Full Court held that it was not unconscionable under s51AA for a landlord to demand a $70,000 payment from a tenant who accidentally failed to exercise an option to renew the lease on time. Like in Berbatis, it was held that in cases involving parties with commercial experience, mere commercial vulnerability is not enough to constitute ‘special disadvantage or disability’.[60] Thus, while Samton Holdings suggests s51AA is wide enough to embrace the broad principle of unconscionability, it sheds little light on what circumstances will enable that principle to be invoked when s51AA is relied upon.[61]
Ultimately, both Berbatis and Samton Holdings highlight the continuing uncertainty over s51AA’s limits. Certainly, concerns have been voiced in respect of s51AA being judicially interpreted as extending to the broad principle of unconscionability. Tucker, for instance, argues that such an interpretation would be unconstitutional, commenting:
It could hardly be argued that a section that encapsulates all equitable, and a growing proportion of common law, doctrines now and into the future does not confer upon the judiciary a legislative role of enormous import and impact. The offence to Chapter III of the Constitution is obvious.[62]
O’Brien raises another concern. He asserts that an expansive reading of s51AA would blur the distinction between that provision and ss51AB and 51AC, thereby questioning ‘the utility of having three separate provisions in the TPA which regulate unconscionable conduct.’[63] Judicial opinion in respect of such concerns has yet to be expressed. Noteworthy, however, is that in the event of the High Court interpreting s51AA as embracing the broad principle of unconscionability, there would also be implications for other areas of the law. For example, Riley argues that if s51AA is interpreted as embracing an equitable doctrine like estoppel, s51AA may be able to be used in addition to, or instead of, s52 in employment cases, because such cases often satisfy the elements of equitable estoppel.[64] Moreover, such a development would have implications for cognate unconscionability provisions under other statutes like s12CA of the Australian Securities and Investments Commission Act 1989 (Cth).[65] Ultimately, however, without a High Court pronouncement on the matter, it presently remains unclear whether s51AA of the TPA even embraces the broad principle of unconscionability.
(ii) The Narrow Doctrine of Unconscionability
Despite having the opportunity, the High Court did not definitively establish whether special disadvantage for the purposes of the narrow doctrine of unconscionability can be based on ‘situational’ as well as ‘constitutional’ factors. Gleeson CJ was the only High Court justice to expressly address the notion of ‘situational’ disadvantage. His Honour did not entirely rule out such an expansion of the narrow doctrine of unconscionability, noting that ‘emotional dependence of the kind illustrated by Louth v Diprose as a form of special disadvantage described as “situational” rather than “constitutional” is understandable and acceptable.’[66] Gleeson CJ did, however, add a significant caveat, namely that terms like ‘situational disadvantage’ and ‘constitutional disadvantage’ should not take on a life of their own and become substitutes for the language and content of the statute.[67]
It is interesting to note that prior to Berbatis, the Full Federal Court considered the notion of ‘situational’ disadvantage in Samton Holdings. While the Full Court clearly established that mere differences in bargaining power between commercially experienced parties are insufficient, the Court did acknowledge that the categories of ‘special disadvantage’ may extend beyond ‘constitutional disabilities’ to also embrace cases involving ‘situational disadvantage’.[68] In light of Samton Holdings, and the High Court’s failure in Berbatis to rule one way or the other in respect of the notion of ‘situational’ disadvantage, it is likely this issue will come before the courts again in the future.
What the High Court’s decision in Berbatis does clarify is that mere inequality of bargaining power is insufficient to establish special disadvantage for the purposes of the narrow doctrine of unconscionability in s51AA. As Gleeson CJ emphasised:
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.[69]
Even the otherwise dissenting Kirby J agreed that an inequality of bargaining power, or the striking of a hard bargain, is not, in itself, sufficient to justify concluding that the stronger party acted unconscionably.[70] Such comments clearly reflect the ongoing importance of contractual considerations and the well-known maxim ‘Chancery mends no man’s bargain’.[71] However, while Berbatis may reiterate that driving a hard bargain does not, in and of itself, place a party at a special disadvantage so as to attract s51AA’s protection, it remains uncertain what additional factors – in particular, whether situational, as well as constitutional, factors – are required to turn a hard bargain into unconscionable conduct.
(iii) Section 51AC Unconscionability – Would its Application Have Led to a Different Outcome in Berbatis?
Like s51AA, s51AC applies to commercial transactions. However, aside from this, the sections differ significantly. Section 51AC was introduced only in 1998,[72] following extensive lobbying and a number of reports[73] which concluded that the TPA was still largely ineffective at remedying unconscionable conduct in commercial transactions involving small business.[74] Under s51AC(1), a corporation must not, in trade or commerce, engage in unconscionable conduct in connection with the supply or acquisition, or possible supply or acquisition, of goods or services to a person (other than a publicly listed company). The opposite is also prohibited under s51AC(2), which stipulates that a person must not, in trade or commerce, engage in unconscionable conduct in connection with the supply to or acquisition from, or possible supply to or acquisition from, a corporation (other than a publicly listed company) of goods or services. There are, however, constraints on the size of businesses to whom s51AC applies,[75] the business cannot be a publicly listed company,[76] and s51AC applies only in respect of goods or services worth up to $3 million.[77]
A principal difference between s51AC and s51AA is that s51AC(3) provides a list of indicia to which a court may have regard when determining whether s51AC unconscionable conduct has occurred. Beale maintains that these factors indicate s51AC ‘is intended to include conduct already covered by equitable doctrines and, in addition, to ‘extend’ to other conduct that is, in all the circumstances, unconscionable.’[78] Indeed, s51AC even appears to encompass ‘situational’ disadvantage, at least insofar as allowed under the s51AC(3) indicia, which include considerations such as inequality of bargaining power, unfair tactics, compliance with industry codes, and the good faith of parties. These indicia clearly signal that s51AC escapes the constraints of s51AA and equity’s narrow doctrine of unconscionability. Consequently, whereas s51AA unconscionability principally concerns the means by which parties transact, s51AC unconscionability examines both the means of transacting and the substance of a transaction.
Section 51AC’s parameters received significant attention in a recent case involving a franchisor/franchisee relationship.[79] In Simply No-Knead, Sundberg J referred to a Full Federal Court decision in which it was noted both that ss51AB and 51AC unconscionable conduct require evidence of ‘serious misconduct or something clearly unfair or unreasonable’ and that the ‘various synonyms used in relation to the term ‘unconscionable’ import a pejorative moral judgment.’[80] Sundberg J then himself commented:
... in my view ‘unconscionable’ in s 51AC is not limited to the cases of equitable or unwritten law unconscionability the subject of s 51AA. The principal pointer to an enlarged notion of unconscionability in s 51AC lies in the factors to which subsection (3) permits the Court to have regard. Some of them describe conduct that goes beyond what would constitute unconscionability in equity.[81]
Simply No-Knead thus confirms s51AC is far broader than s51AA. The result, as noted by the ACCC Commissioner, is that it does not appear necessary ‘for a person wanting to establish a contravention of ... [s]51AC to show that the weaker party took unfair advantage of that disadvantage (which is the requirement for unconscionable conduct in equity, or unwritten law).’[82] Wilson takes this observation even further, commenting:
... there is no doubt that the introduction of s 51AC was intended to unleash a less restrictive concept of unconscionability where taking unconscientious advantage will not require a special disadvantage on the part of tenants, but will open up questions about integrity, bad faith, unfair bargaining based on disparities of size and resources, the pursuit of legitimate business interests and the general idea of fairness in transactions between supplier corporations and business consumers.[83]
In other recent cases, further guidance on s51AC’s scope has been provided. For instance, in the trial decision of Berbatis, French J asserted that the s51AC(3) indicia are not exhaustive, meaning the categories of unconscionable conduct falling under s51AC ‘will never be closed albeit the circumstances of the application of the standard prescribed ... is confined by the language’ of s51AA.[84] Section 51AC was thus regarded as of wider import than s51AA, allowing the court to consider undue influence, duress and/or other issues falling outside s51AA’s relatively narrow scope.[85] Interestingly, however, neither the Full Federal Court nor the High Court made any comment on s51AC in the Berbatis litigation, presumably because it was not in fact a point directly in issue.
In a different case, ACCC v 4WD Systems Pty Ltd & Ors,[86] Selway J implied that s51AC is not limited to the narrow doctrine of unconscionability by suggesting that while Kirby J’s dissenting approach in Berbatis does not represent the law on s51AA, it may be relevant to s51AC’s interpretation.[87] Selway J concurred with the opinions of French J in Berbatis and Sundberg J in Simply No-Knead, namely that s51AC unconscionability is not limited to the meaning of unconscionability at common law or in equity.[88] Moreover, Selway J noted that to find s51AC unconscionability, more is required than simply establishing that ‘behaviour is misleading or deceptive, or otherwise in breach of some other provision of the TPA.’[89] Instead, it must be shown ‘that the conduct is so unacceptable that it can properly be described as ‘unconscionable’.’[90]
Despite these judicial reflections on s51AC, its full reach has yet to be definitively established. The Fair Trading Coalition points to the fact that ‘there has not been a substantial amount of successful litigation on s51AC’ and that actions which have been successful involved only ‘the most egregious behaviour.’[91] Gardini maintains that the ACCC’s lack of legal action under s51AC is attributable to s51AC falling well short of the ‘unfairness’ concept that the 1997 Reid Report recommended be incorporated into the TPA instead of ‘unconscionability’.[92] Moreover, Gardini argues the threshold test for unconscionability is too difficult to establish, except in cases involving the most blatant forms of unconscionable conduct.[93] In any case, what is clear is that s51AC’s ambit has not yet been clearly delineated. What Simply No-Knead and 4WD Systems do indicate is that the s51AC(3) indicia render s51AC wider than s51AA. In light of this, there has emerged the suggestion in relation to Berbatis that ‘if similar conduct was to occur again and be assessed against s51AC, the result may well be different.’[94]
Given the lack of clarity as to s51AC’s full reach, consideration of whether Berbatis would have been decided differently had s51AC been in force at the relevant time remains speculative only. Nevertheless, looking at the facts in Berbatis and the considerations to which a court may have regard in s51AC(3), there are strong signals that the Roberts’ would have been more successful in gaining a TPA remedy under s51AC than they were under s51AA. Certainly, s51AC prima facie applies to their case given it is directed at commercial dealings of small business. Turning to consider s51AC(3), the facts also appear to prima facie satisfy various indicia. For instance:
i) Section 51AC(3)(a) allows a court to consider inequality of bargaining power. An inequality of bargaining power certainly existed in Berbatis. However, it remains unclear whether it is the type of inequality of bargaining power envisaged by s51AC(3)(a).
ii) Section 51AC(3)(b) directs the court to consider whether, as a result of conduct engaged in by the supplier, the business consumer was required to comply with conditions that were not reasonably necessary for the protection of the supplier’s legitimate interests. It seems at least questionable whether making the extension of a lease conditional upon discontinuance of legal proceedings is reasonable and in the supplier’s legitimate interests. Indeed, Webb maintains that the Landlord in Berbatis would ‘likely ... have fallen foul of this provision’ because ‘[s]urely it is not reasonable for a party to prevent the valid exercise of a tenant’s legal rights through the threat of the lease not being extended’.[95]
iii) Section 51AC(3)(d) enables the court to consider whether any undue influence or pressure was exerted on, or any unfair tactics were used by, the supplier against the business consumer. With the facts of Berbatis in mind, Webb argues that ‘a threat to refuse to extend a tenant’s lease, and therefore lose their business, unless legal action was halted would appear to fit within this section.’[96]
iv) Section 51AC(3)(k) allows the court to examine the good faith of both parties. Arguably, making the renewal of the Roberts’ lease contingent on discontinuance of legal proceedings against the Landlord may be interpreted as a condition not negotiated in good faith. This is particularly so given the Roberts’ primary reason for needing to sell their business was their daughter’s illness, a factor the Landlord was aware of, and the condition was clearly non-negotiable. However, while good faith considerations have been applied in Australia previously in relation to the exercise of contractual powers,[97] whether the Roberts’ would have succeeded on this basis largely depends on how ‘good faith’ in s51AC(3)(k) is judicially defined, a fact which remains unclear.
The s51AC indicia clearly reflect the two central concerns that Parkinson identifies as being at ‘the heart of all the different applications of the conscience of equity’, that is, protection of the vulnerable and protection of people’s reasonable expectations.[98] There thus seems to be strong reason to conclude that the Roberts’ may have had greater success if their claim had been brought under s51AC. Ultimately, however, this depends on what sort of conduct the courts will regard as sufficient to satisfy the indicia listed in s51AC(3).
As s51AA’s reach has been unclear since its inception, there were high hopes that in Berbatis the High Court would firmly delineate the parameters of that provision. The High Court’s decision has arguably made it harder for landlord-tenant conduct to be characterised as unconscionable under s51AC by emphasising that inequality of bargaining power is not, in and of itself, enough to constitute unconscionable conduct. However, the High Court did not directly reject the idea that s51AA unconscionable conduct can arise between commercial parties as a result of ‘situational’ disadvantage. Similarly, the High Court did not altogether reject the proposition that s51AA has the potential to embrace the broad principle of unconscionability. Exploitative conduct between unequal commercial parties, including extraction of irrelevant commercial concessions, might be enough to ground a finding of unconscionability, yet as Horrigan points out, it is ‘[o]f course, recognizing and drawing that line in practice [that] is the key.’[99] It is precisely where this line should be drawn that the High Court’s decision in Berbatis leaves at large, thus the only firm guidance offered by the Court is that an inequality of bargaining power between commercial parties is not, in and of itself, enough to establish s51AA unconscionability.
Horrigan maintains that the judicial and legislative development of ss51AA and 51AC mirrors the TPA’s ‘transformation from an Act primarily regulating anti-competitive conduct and abuse of market power to one which equally regulates commercially unfair, self-interested, and opportunistic conduct, regardless of its impact on competition and markets.’[100] There is undeniably an element of truth in this comment, and it is true that there is now required a greater level of good conscience in business and other relations than ever before. Yet just how great this move has been remains unclear, even after Berbatis. Horrigan is, however, correct, in concluding that the ‘gap between sharp conduct and unconscionable conduct has narrowed’[101] as a result of s51AC’s introduction and judicial interpretation of both ss51AA and 51AC. Only future litigation will reveal just how narrow this gap has in fact become.
[1] Phillip Tucker, ‘Unconscionability: The Hegemony of the Narrow Doctrine Under the Trade Practices Act’ (2003) 11 TPLJ 78 at 79.
[2] Jeffrey Hackney, Understanding Equity and Trusts (1987) at 17.
[3] Gino Dal Pont, ‘The Varying Shades of “Unconscionable” Conduct – Same Term, Different Meaning’ (2000) 19 Aust Bar Rev 135.
[4] Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 at 461 (Mason J).
[5] House of Representatives Standing Committee on Industry, Science and Technology, Small Business in Australia: Challenges, Problems and Opportunities (Canberra: AGPS, 1990); Senate Standing Committee on Legal and Constitutional Affairs, Mergers, Monopolies and Acquisitions: Adequacy of Existing Legislative Controls (Canberra: AGPS, 1991); Trade Practices Commission, Unconscionable Conduct and the Trade Practices Act: Possible Extension to Cover Commercial Transactions (Canberra: AGPS, 1991).
[6] Explanatory Memorandum accompanying the Trade Practices Legislation Amendment Bill 1992 (Cth).
[7] Ibid.
[8] Id at [44].
[9] [1956] HCA 81; (1956) 99 CLR 362 (hereinafter Blomley v Ryan).
[10] Amadio, above n4 (hereinafter Amadio). Explanatory Memorandum accompanying the Trade Practices Legislation Amendment Bill 1992 (Cth) at [41].
[11] Amadio, above n4 at 462 (Mason J), 423 (Deane J).
[12] Blomley v Ryan, above n9 at 405 (Fullagar J), 415 (Kitto J). A similar sentiment was expressed in Amadio: ‘The adverse circumstances which may constitute a special disability for the purposes of the principles relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible to being comprehensively catalogued’: Amadio, above n4 at 474 (Deane J).
[13] Robert Baxt & Joel Mahemoff, ‘Unconscionable Conduct Under the Trade Practices Act – An Unfair Response by the Government: A Preliminary View’ (1998) 26 ABLR 5 at 10.
[14] Gino E Dal Pont & Donald R C Chalmers, Equity and Trusts in Australia and New Zealand (2nd ed, 2000) at 273. [Emphasis added.]
[15] Bryan Horrigan, ‘Unconscionability Breaks New Ground – How the ACCC Test Cases Affect Banks’, Allens Arthur Robinson, October 2001 <http://www.aar.com.au/pubs/baf/banking2.htm> at 20/10/03.
[16] These legal proceedings arose in 1996, when the Roberts and numerous other tenants instituted proceedings against the Landlord in the Commercial Tribunal. They alleged that the Landlord had levied charges in excess of those allowed under the terms of the tenants’ respective leases.
[17] Although s51AC also provides protection against unconscionable conduct in commercial transactions, as will be discussed in greater detail in Section 4.B., it was not in force when the ACCC commenced legal action against the Landlord.
[18] Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2000) 96 FCR 492.
[19] Id at 502.
[20] Ibid.
[21] Id at 495, 502–503.
[22] Id at 495.
[23] Id at 502.
[24] Id at 504.
[25] Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (No 2) (2000) ATPR 41,165.
[26] Id at 41,197.
[27] Ibid.
[28] Ibid.
[29] Ibid. [Emphasis added.]
[30] Ibid.
[31] CG Berbatis Holdings Pty Ltd v Australian Competition and Consumer Commission (2001) ATPR 43, 179 (hereinafter Berbatis (No 3)).
[32] Id at 43,191.
[33] Eileen Webb, ‘Fayre Play for Commercial Landlords and Tenants – Lessons for Lawyers’ (2001) 9 APLJ 99 at 107.
[34] Berbatis (No 3), above n31 at 43,191.
[35] Id at 43,192.
[36] Id at 43,191.
[37] Id at 43,192.
[38] Ibid.
[39] Ibid.
[40] Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 197 ALR 153 at 168 (Gummow and Hayne JJ) (hereinafter Berbatis (No 4)).
[41] National Westminster Bank plc v Morgan [1985] UKHL 2; [1985] 1 All ER 821 at 830 (Lord Scarman); Amadio, above n4 at 462 (Mason J); Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621 at 654.
[42] Berbatis (No 4), above n40 at 162.
[43] Id at 174.
[44] Gummow and Hayne JJ commented that what ‘was said by the Full Court reflects notions associated with common law duress and the defence of non est factum rather than unconscionable conduct’: Berbatis (No 4), above n40 at 162. Kirby J similarly noted that ‘the question of whether the will of the party was overborne, so that it cannot be said that that party acted voluntarily, is a consideration relevant to the doctrine of common law duress’: Berbatis (No 4), above n40 at174.
[45] Berbatis (No 4), above n40 at 158.
[46] Id at 196.
[47] Id at 166–167 (Gummow and Hayne JJ).
[48] Id at 158.
[49] Id at 174.
[50] ACCC Media Release (10 April 2003), quoted in T Wilson, ‘Landlord’s Hard Bargain Not Unconscionable’ (2003) 17(9) APLB 77 at 80.
[51] Harland concurs, noting: ‘In the result the scope of s51AA is little clarified’: David Harland, ‘Unconscionable Conduct Between Business Parties – Guidance from the High Court’, Insights: Litigation & Dispute Resolution, Clayton Utz (22 August 2003): <http://www.claytonutz.com/areas_of_law/controller.asp?ns=57 & printnewsletter=yes> (20 October 2003).
[52] Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2000] FCA 2 (French J).
[53] GPG (Australia Trading) Pty Ltd v GIO Australia Holdings Ltd [2001] FCA 1761; (2001) 117 FCR 23 at 77 (Gyles J).
[54] Berbatis (No 4), above n40 at 165.
[55] Id at 163.
[56] (2002) 189 ALR 76 (hereinafter Samton Holdings). A similar approach had been taken even earlier in Pritchard v Racecage Pty Ltd [1997] FCA 27; (1997) 72 FCR 203 and Olex Focus Pty Ltd v Skodaexport Co Ltd [1997] FCA 27; (1997) 142 ALR 527. However, both were interlocutory proceedings only.
[57] Samton Holdings, above n56 at 93.
[58] Id at 92.
[59] The ‘specific equitable doctrines’ to which the Court refers are set out in Samton Holdings, above n56 at 92.
[60] Samton Holdings, above n56 at 97. Also relevant seems to have been the fact that the lessors were under no legal obligation to negotiate a new lease at all.
[61] Jan McDonald, ‘Case Note: Australian Competition and Consumer Commission v Samton Holdings Pty Ltd [2002] ATPR 41–858’ (2002) 10 TPLJ 234 at 238.
[62] Tucker, above n1 at 86.
[63] Dominic O’Brien, ‘The ACCC v Berbatis Litigation and Section 51AA of the Trade Practices Act 1974 (Cth)’ (2002) 10 TPLJ 201 at 212.
[64] Joellen Riley, quoted in ‘Arguing the Trade Practices Act in Employment Matters’, Australian Financial Review, (9 April 2003): <htttp://afr.com/cch/legal/2003/04/08/FFXQNQVR8ED.html> (17 July 2003).
[65] Horrigan, above n15.
[66] Berbatis (No 4), above n40 at 156.
[67] Ibid.
[68] Samton Holdings, above n56 at 96, quoting French J in ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 2.
[69] Berbatis (No 4), above n40 at 157.
[70] Id at 176.
[71] Maynard v Moseley (1676) 3 Swabs 651 at 655 (Lord Nottingham LC).
[72] Trade Practices Amendment (Fair Trading) Act 1998 (Cth).
[73] Commonwealth of Australia, Parliament, House of Representatives Standing Committee on Industry, Science and Technology, Finding a Balance Towards Fair Trading in Australia (Canberra: AGPS, 1997) (hereinafter ‘Reid Report’) (In Chapter 1 of this report it was recommended that a legislative package and other measures be introduced to ameliorate abuse and vulnerability of small business, especially franchisees, petroleum retailers and retail tenants); Consumer Affairs Division of the Department of Industry, Science and Tourism, Amendments to the Trade Practices Act 1974: A Better Deal for Consumers and Small Business (Canberra: AGPS, 1997).
[74] Underscoring s51AC’s advent was thus a desire to afford small business better recourse to unconscionability actions than was available in equity and under s51AA: Second Reading Speech of the Trade Practices Amendment (Fair Trading) Bill 1997 (Cth), Commonwealth of Australia, House of Representatives, Parliamentary Debates (Hansard), 30 September 1997 at 8801; Explanatory Memorandum accompanying the Trade Practices Amendment (Fair Trading) Bill 1997 (Cth).
[75] TPA s51AC(1).
[76] TPA s51AC(2).
[77] TPA s51AC(9) and (10). Until the Trade Practices Amendment Act (No 1) 2001 (Cth) this figure was only $1 million.
[78] Ian Beale, ‘Unconscionability in Equity and Under the Trade Practices Act 1974’ (1999) NLR 1 at 30: <http://www.lexisnexis.com.au/nlr/articles – files/beale/article.pdf> (23 September 2003). O’Brien similarly comments that in this regard, s51AC ‘diverge[s] from and expand[s] upon the equitable principles of unconscionable conduct within their relevant contexts’: O’Brien, above n63 at 206.
[79] Australian Competition and Consumer Commission v Simply No–Knead (Franchising) Pty Ltd [2000] FCA 1365; (2000) 178 ALR 304 (hereinafter, Simply No–Knead).
[80] Hurley v MacDonalds Australia Ltd (2000) ATPR 41–742, quoted in Simply No-Knead, above n79 at 315.
[81] Simply No-Knead, above n79 at 315.
[82] J Martin, ‘The Trade Practices Act and Retail Tenancy – is it Working?’, Presentation by the Commissioner of the ACCC to the Australian Retailers Association’s Managing the Asset Retail Tenancy Forum 2001, 27 February 2001 at 10: <http://www.accc.gov.au/content/item.phtml/itemId/256513.htm> (20 October 2003).
[83] Wilson, above n30, 81. Webb similarly contends that the list of factors in s51AC will encourage the courts to adopt an expanded concept of unconscionability: Eileen Webb, ‘Unconscionable Conduct and Retail Shop Wars – The Lessees Strike Back’ (2000) 8 APLJ 67.
[84] Ibid.
[85] Id at 335–336.
[86] [2003] FCA 850; (2003) 200 ALR 491 (hereinafter, 4WD Systems)
[87] Id at 543 (Selway J).
[88] Ibid.
[89] Id at 544 (Selway J).
[90] Ibid.
[91] Fair Trading Coalition, ‘Trade Practices Act Reform – Policy Paper’, 4 August 2003: <http://www.mtaa.com.au/news/ftcpolicypaper.pdf> (15 October 2003).
[92] Robert Gardini, ‘The Dawson Review – A Small Business Perspective’ (2003) 9(1) UNSWLJ Forum. By this Gardini seems to be implying that ‘unconscionable conduct’ in s51AC is narrower than the ‘unfairness’ concept canvassed in the Reid Report. The main difference between the two appears to be the indicia to which a court may have regard. In this regard, the ‘unfairness’ provision recommended in the Reid Report appears potentially broader, as it includes on additional factor for consideration, namely ‘the harshness of the result’: Reid Report, above n73, Recommendation 6.1.
[93] Gardini, above n92.
[94] Mullins & Mullins, ‘Business Update: Unconscionable Conduct on the Rise’ at 2: <http://www.mullins-mullins.com.au/files/HP275.PDF> (10 October 2003). Indeed, French J himself in a ‘Summary’ that preceded (but did not form part of) his judgment commented: ‘It may be that a different result could have been obtained under the later and wider provisions of s 51AC. That question will have to await another day and another case’: Australian Competition and Consumer Commission v CB Berbatis Holdings Pty Ltd (ACN 008 799 040) (2000) ATPR 41–778.
[95] Webb, above n30 at 109.
[96] Id at 110.
[97] Good faith has been referred to as an obligation that ‘underwrites the spirit of the contract and supports the integrity of its character’: Overlook v Foxtel [2002] NSWSC 17 at [67] (Barrett J).
[98] Patrick Parkinson, ‘The Conscience of Equity’ in Patrick Parkinson, The Principles of Equity (2nd ed, 2003) at 47.
[99] Horrigan, above n15.
[100] Ibid.
[101] Ibid.
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/journals/SydLawRw/2004/12.html