#7303 - Statutory Unconscionable Conduct Unjust And Unfair Terms And Third Party Impropriety - Contracts 2

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51

Relevant Facts: The case involved the lessees to a shop in a shopping centre. In 1990 the lessees and a number of other tenants were involved in litigation concerning overpayments on the lease, they estimated this to be at $50,000. The lease was due to expire in ’97 and the lessees made it apparent to the manager of the centre that they were anxious to sell their business and that they wished to negotiate a new lease term. The lessor required in the deed of assignment a clause that would discharge the owners from all claims made by the lessees prior to the assignment date – they were advised by their lawyer not to sign but had no choice. Supreme court proceedings were initiated by the other lessees and if they had participated they would have recovered around $2800. In ’98 the ACCC instituted litigation in the FCA, alleging that cl14 was in contravention of s51AA of the Act. The primary judge granted declaratory relief while the Full Court allowed the appeal and ordered that the application be dismissed. The appellant was granted special leave and appealed to the High Court.

Principle (Gleeson CJ):

• Gleeson CJ framed his judgement with the fact that while the lessees were in a difficult position, the lessors gave them an extension which they were not obliged to give. His logic based argument was that if this was the case the lessor should have just refused to discuss the renewal with the lessees

• He confirmed the fact that unconscionable conduct was ‘the knowing exploitation...of the special disadvantage’ which was ‘a disabling circumstance seriously affecting the ability of the innocent party to make a judgement in...best interest’ – and that this was consistent with what the statute called the ‘unwritten law’

• He proceeded to refer to the categories in Blomley v Ryan and also French J’s categorisation of constitutional disadvantage as distinct from situational disadvantages – noting the danger of the doctrine being permeated by a categorical approach

• One main principle of the doctrine is that someone is not under a relevant disadvantage simply because of an inequality of bargaining power – he quoted Mason J in Amadio ‘it was the inability...best interests’

Application

• There was no special disadvantage or unconscientious conduct – all parties involved were business people concerned iwth their financial interests.

• The only disadvantage was that they had no entitlement to a renewal of their lease and hence they had to approach the respondents – they were at a distinct disadvantage but there was nothing special about it

• They did not suffer from a lack of ability to judge their financial interest – commercial ability to pursue both at the same time

• Good conscience didn’t require the renewal of the lease by the lessor. It is an everyday occurrence in negotiations for settlement that as a term a party will be required to abandon claim that mightn’t be related

Ratio (Gummow and Hayne JJ):

The two concluded much to the same effect of Gleeson CJ. In their judgement they considered the overarching doctrine of unconscionability reflecting the remedies suited to each particular case (e.g. rescission misrep/mistake). They also referred to the problem of the “lines of demarcation” that shift around the boundaries of different doctrines in equity that were “a standard determined by judicial decision making rather than a rule” (French J) but noted that this case was found on the basis that it fell within unconscionable conduct.

The judges then enunciated the principle from Amadio – namely that the disadvantage must be one ‘seriously affecting the ability of the innocent party to make a judgement in their own best interests’ concluding that the Roberts were under no such disabling conditions – they had no right to the renewal though this placed them in a difficult bargaining position. There was no lack of capacity on their part.

Their honours delineated this requirement from the “taking advantage of the disadvantage” – noting that the owner’s bargaining position was lessened by the fact that there were 7/8 other vacant shops and also that the Roberts estimation of the value of the litigation was overly inflated and was in the range of $3000, whereas the renewal was worth $65000. They noted three options available to the parties: the inclusion of cl 14 and proceeding with the lease (which was unacceptable to the owners – they weren’t obliged to grant the renewal and they were at liberty to prevent this outcome and deprive the Roberts of their proceeds), proceeding with cl 14 and renewing the lease and not renewing the lease. Clearly the second was much more preferable to the Roberts than the third.

Since the litigation proceeded not on the basis that they were obliged to renew the lease, the trial judge’s conclusion that the concession to cl 14 was ‘extracted’ from the Roberts is untenable and mistakes the significance of the three possible outcomes.

Order: Appeal dismissed with costs

Garcia v National Australia Bank Limited (1998) 194 CLR 395

Relevant Facts:

• G and her husband executed an ‘all moneys’ mortgage to secure a loan to the husband in his business (Citizens Gold [CG]) and was later used as personal security

• The appellant signed 4 guarantees in favour of the respondent – three guaranteeing payments of debts of the business

• The appellant and her...