ACCC v C.G. Berbatis Holdings Pty Ltd & Ors P34/2001 [2002] HCATrans 257 (31 May 2002)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Perth No P34 of 2001

B e t w e e n -

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Applicant

and

C.G. BERBATIS HOLDINGS PTY LTD

First Respondent

GPA PTY LTD

Second Respondent

P & G INVESTMENTS PTY LTD

Third Respondent

GEORGE PALASSIS ATZEMIS

Fourth Respondent

CONTANTINE GEORGE BERBATIS

Fifth Respondent

ANNA MARIA ANTONIA HEIJNE

Sixth Respondent

BRIAN SULLIVAN PROPERTY PTY LTD

Seventh Respondent

BRIAN EDWARD SULLIVAN

Eighth Respondent

Application for special leave to appeal

GUMMOW J

KIRBY J

HAYNE J

TRANSCRIPT OF PROCEEDINGS

FROM PERTH BY VIDEO LINK TO CANBERRA

ON FRIDAY, 31 MAY 2002, AT 11.13 AM

Copyright in the High Court of Australia

_________________

MR N.W. McKERRACHER, QC: May it please the Court, I appear for the applicant. (instructed by the Australian Government Solicitor)

MR M.J. McCUSKER, QC: May it please the Court, I appear for the respondent. (instructed by Haydn Robinson)

GUMMOW J: I hold a certificate from the Deputy Registrar that she has been informed by the solicitors for the seventh and eighth respondents, Julian Johnson, Lawyers, that the seventh and eighth respondents will abide by any order of the Court save as to costs. Yes, Mr McKerracher.

MR McKERRACHER: Your Honours, the central issue in the application is the appropriate assimilation into trade and commerce from time to time of the equitable doctrine of unconscionability.

KIRBY J: That is the central issue you want to argue but, on one view of the matter, your client - or, rather, the person involved here made a commercial decision and settled up and now wants to renege and come along and take up a lot of time in the High Court of Australia over what is a rather small amount of money so far as that person is concerned and all of this dragging into Court other enterprises to elucidate an arguably interesting point of the interpretation of the Act.

MR McKERRACHER: The amount of money involved is small but the principle, we submit, is significant and its application - - -

HAYNE J: If that is so, if you were to persuade us that leave should go, on what terms should leave go? Why should it not be on terms that the Commission not disturb costs below and pay the costs in this Court in any event?

MR McKERRACHER: That may be a reasonable approach, with respect, your Honour. I have not had the opportunity to take instructions on that.

GUMMOW J: Do you need to do so?

MR McKERRACHER: No, I would think that that would be reasonable.

GUMMOW J: Yes.

MR McKERRACHER: The importance of the point in principle is that 51AA of the Act - - -

GUMMOW J: You focus on paragraph 81 on page 117, do you not? It was said in the Full Court that it could not be said that the will of the Roberts were:

so overborne that they did not act independent and voluntarily.

That was the end of the application.

MR McKERRACHER: Yes, that is certainly one of the points, your Honour, and that is the first point which is raised.

GUMMOW J: Yes. What is the other one?

MR McKERRACHER: The second point that is raised essentially is that a broad statement that a tenant in that position could never be in a serious advantage, which is in essence what the Full Court said, is not a sound way for the law to be left in an influential judgment.

GUMMOW J: Well, that is not a proposition of law, is it?

MR McKERRACHER: It would be construed by the public at large as being a statement that a tenant in the position of the Roberts could never be in a relevant serious disadvantage. The section itself contemplates that it be applied from time to time. It clearly contemplates a degree of flexibility and evaluation. The learned primary judge applied a great deal of evaluation in forming a view, in the particular circumstances of the Roberts, as to whether or not there was a serious disadvantage and whether it had been the subject of unconscientious action on the part of the owners.

In particular, that passage is to be found commencing at 54 of the application book, where his Honour outlines, in the middle paragraph, the nature of special disadvantage but then goes on to say that, "This is an area of evaluation and assessment" and he lists the sorts of matters which he considered, having said that there could be no "hard and fast guides", and lists the matters which he took into account in the trial before him, having had the opportunity to evaluate the impressions of attitudes, motives, the superior bargaining positions of the owners as against the Roberts. He goes on to list those matters, including the personal circumstances of the Roberts. Of course, as your Honours will be aware, in reaching the conclusion in relation to the Roberts which he did, he reached a totally different conclusion from that of the other two tenants, which indicates a careful evaluation of the difference in the nature of the circumstances.

We submit that in a circumstance in which the legislature has invoked the equitable doctrine into a commercial context it is inevitable that those to be affected by the doctrine will include persons with business acumen and experience and not necessarily those of the category of people whose will might be overborne, which is a different character of equitable approach in any event. Furthermore, in order to assess the special disability and whether there has been unconscionable conduct, it is essential to also examine the actual actions of those against whom that conduct is impugned. We submit that 51AA - - -

GUMMOW J: Yes. I think we will hear from Mr McCusker now.

MR McKERRACHER: May it please your Honour.

GUMMOW J: Yes, Mr McCusker.

MR McCUSKER: Thank you, your Honours. Going to page 117 of the application book where in the Federal Court it was said:

It cannot be said that the Roberts' wills were so overborne that they did not act independently and voluntarily.

It is my submission that that was not the reason for the court concluding that there was no special disadvantage in this particular case. The court concluded there was no special disadvantage shown by the applicant because all that the applicant could point to relevantly was the fact that the tenant wanted an extension of the lease and the landlord had no obligation to grant an extension of lease.

There is an added factor which was part of the pleading in this case by the plaintiff. It appears at page 111 of the application book where it is pleaded as one of the matters that led to the alleged special disadvantage which is pleaded - one of the particulars that is - in:

(g) The Roberts daughter was suffering from a serious illness which involved medical expense and substantial care.

As the Full Court said, that matter was not shown to have been a causative factor and, indeed, the position of the Roberts as tenants was that they had a lease that was due to expire in a matter of a few months and they had no right to an extension of lease. So whether they sold the business or whether they retained the business, depended entirely in each case upon whether they could get an extension of the lease, or renewal of the lease.

The motivation for sale of the business was certainly, on the evidence, the fact that they had had enough and the daughter was suffering from an illness, but whether they sold or retained the business, both of those alternatives depended upon the landlord granting an extension. Now, your Honours will note at page 111 that the conclusion, the assertion of special disadvantage, was that:

As a result of the matter particularised in (g), the Roberts were preoccupied with those anxieties and according unable to give full attention to the protection of their own economic interests.

The evidence did not support that assertion, which was the basis of the allegation of special disadvantage, because the evidence was that prior to ultimately and very reluctantly signing the release in respect of the current litigation that they were parties to they had advice from their solicitor and they knew full well exactly what they were doing. So it could not be said that they were unable to give "full attention" et cetera in the terms that, for example, the alcoholic vendor in Blomley v Ryan was or, indeed, unable to give full attention in the sense of understanding what they were doing in the case of Amadio or, for that matter, for Garcia, cases which have been decided by this Court in an entirely different context.

The issue was always whether there was a special disadvantage in this case and the assertion by the applicant was the special disadvantage was a combination of factors which, as the particulars show, in particular (h), was asserted to result in them being:

unable to give full attention to the protection of their own economic interests -

and that was not the case on the evidence.

The further factor in this case is that it was common ground that the landlord was not obliged to grant an extension of lease. Certainly there was an inequality of bargaining power in that the landlord could not retain or grant an extension of lease, but there will always be an inequality of bargaining power and it was conceded by counsel for the applicant in the course of argument that mere inequality of bargaining power was not of itself sufficient to give rise to special disadvantage.

GUMMOW J: I think you may ultimately have something going for you on all of this, Mr McCusker, but nevertheless there does seem to be problems that arise as to the construction and application of the section and there is this undertaking that is proffered as to costs here.

MR McCUSKER: Certainly, your Honours, but notwithstanding that undertaking as to costs, which somewhat relieves, I am sure, my client, nevertheless my client would prefer to have an end to litigation rather than have it continuing.

GUMMOW J: Of course.

KIRBY J: It has, after all, gone through now four levels, I think, has it not?

MR McCUSKER: That is so, your Honour, yes. Now, what the applicant has never really focused on is whether the end result of what occurred constituted an unfair bargain. Given that there was no evidence of any inability to make a judgment as to their own economic interests, the question then is: in any event, was the bargain shown to be unfair? In that regard, the evidence was that there was pending litigation to which they were parties in the Supreme Court in the sense that they had financed or contributed to a fighting fund for that purpose.

GUMMOW J: Yes. We will just take a short adjournment, Mr McCusker.

AT 11.24 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.36 AM:

GUMMOW J: Yes, Mr McCusker.

MR McCUSKER: May it please your Honours. The matter I was about to raise is that the question of whether the bargain was fair was not ventilated except in this way. The trial judge at page 55 observed that it was "of no consequence" that the damage "may have been small in money terms" - this is at lines 10 to 15 - or:

the detriment suffered by the Roberts may have been small in money terms.

GUMMOW J: And also at lines 23 to 25.

MR McCUSKER: That is so, your Honour, yes. He also said at page 54 - - -

GUMMOW J: Now, his Honour may turn out to be right or wrong about that, but there does seem to be a point there.

MR McCUSKER: He also said at page 54, at line 25, that:

Unfair exploitation of disadvantage amounting to unconscionable conduct may occur when 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.

The Appeal Court at pages 116 to 117 dealt with that, first, in our submission, correctly, by - this is at lines 25 and following. It is said that, in any event:

it could not be said that the release elicited from the Roberts was commercial irrelevant.

But as well as that, whether it was commercially irrelevant, clearly in the view of the Full Court - and, in our respectful submission, correctly - commercially irrelevant is not to the point. The question is whether that is indicative of unconscionability.

The facts of the matter were that there was a pending Supreme Court action which was ultimately settled by the - it was a test case to which they had contributed financially. It was settled on terms which, if they had been parties to the settlement, would have netted them less than $2,800. As a result of agreeing to a release of the action, which incidentally they did not follow through by discontinuing their claim in the Tribunal, as a result they got an extension of the lease which enable them to retain the business, the benefit of the business, which otherwise would have been much less in value, simply worth, in effect, the plant and chattels, with no goodwill attaching to it.

So it cannot be said objectively that the bargain that they entered into was, in any event, an unfair bargain. Indeed, it shows, in our submission, complete fairness, because the landlord could have, if he had so chosen, simply said, "I won't extend the lease because you are in litigation. I will simply wait until the expiry of the lease and then I will grant a lease to some other person who is more suitable to us." But that was not done. If that had been done, it could not be said to have been unconscionable in any way, I think, on the current state of the law at least.

In our submission, this is therefore not an appropriate vehicle to determine any question that is said to arise by way of special leave point, although, in our submission, there is no special leave point involved here. In the course of argument counsel for the applicant did concede that there was no real difference between us as to the relevant legal principles and certainly the Full Court did not suggest that the relevant legal principles, that is, in equitable terms, relating to unconscionability, were, as it were, frozen in time with Blomley v Ryan and the court simply referred - - -

KIRBY J: You refer in your written submissions to the newly-enacted section 51AC. What is the relevance of that?

MR McCUSKER: Your Honours, we do not press that as a major point. Section 51AA still exists. It is simply that 51AC with a greater particularity will take over most, but, we concede, not all of the ground that was formerly occupied by 51AA.

KIRBY J: So that is a sort of makeweight.

MR McCUSKER: I do not know about a makeweight, your Honour, but it just is something further which militates against granting special leave in this case. Could I conclude by just referring to the concession that was made - - -

KIRBY J: I just wonder whether the section 51AA is intended for a case like this, where really a commercial bargain was struck and that, on the face of things, at least arguably, was a sensible decision to make.

MR McCUSKER: Well, as the Full Court said, your Honour, it was a lifeline which they accepted which need not have been thrown. If this is a case of special disadvantage, then one can think of a multitude of cases which could form the same category and which one would think could not possibly amount to special disadvantage. For example, if a purchaser of land desperately needs the particular land because it is going to fill in perhaps an area that he wishes to subdivide as a whole, the vendor, the owner, knows that and says, "I will only sell it to you for twice the market value." So the purchaser in a commercial context says very reluctantly, "Yes." Is that unconscionability? Is that a special disadvantage situation? In our submission, clearly not. That is no different in principle from the present case. May it please your Honours, those are our submissions.

GUMMOW J: Yes, thank you, Mr McCusker. We do not need to hear you in reply, Mr McKerracher, but you should attend to what we are about to say.

On condition that the applicant, the Australian Competition and Consumer Commission, file with the Senior Registrar within seven days its written undertaking to this Court that (1) it does not seek to disturb the costs order made in the Full Court of the Federal Court, (2) it will pay the reasonable costs of the first to sixth respondents of the appeal in this Court, including the reasonable costs of senior and junior counsel, there is a grant of special leave in this matter.

The time estimate, I should think, would be one day.

MR McKERRACHER: I agree with your Honour.

GUMMOW J: You agree with that, Mr McCusker, one day?

MR McCUSKER: Yes, I do, your Honour.

GUMMOW J: Yes, thank you. We will now adjourn to reconstitute.

AT 11.43 AM THE MATTER WAS CONCLUDED