A recent decision of the Full Federal Court suggests that the scope of the unconscionable conduct provisions of the Trade Practices Act 1974 (Cth) ("TPA") may be narrower than previously thought.
ACCC v Samton Holdings Pty Ltd concerned the actions of a lessor towards the purchasers of a business conducted from the lessor's premises. The purchasers took an assignment of a lease over the premises but failed to exercise an option to renew the lease within the time permitted (which expired 3 days after settlement of the sale of business). The lessors refused to extend the time to exercise the option, and required the purchasers to pay $70,000 to a company controlled by the lessors for leaseholder rights.
The lessors were aware that the purchasers had acquired the business by borrowing heavily against their home and that the purchasers were financially dependant upon the income of the business. The lessors' representative adopted an aggressive and intimidatory attitude towards the purchasers over the matter of renewing the lease.
The ACCC took action against the lessors and their company alleging that they had engaged in unconscionable conduct contrary to s51AA of the TPA. It claimed that the purchasers were in a situation of special disadvantage compared with Samton Holdings. The Full Federal Court found that the purchasers were not operating at a special disadvantage and that the actions of the lessors, though avaricious and opportunistic, were not unconscionable.
The Court found that section 51AA of the TPA does not extend the equitable meaning of unconscionability, which is "towards the extreme end" of the scale of unreasonable behaviour. This finding quashes the suggestions of many commentators that section 51AA may be a sound basis for claim in business transactions to which section 51AC would apply.
Section 51AC prohibits conduct in business transactions that is unconscionable in all the circumstances. Section 51AC(3) lists some factors to which are relevant to a contravention. It is uncertain whether these factors extend the equitable definition of unconscionability. However, Samton Holdings is a strong restatement of the principle that establishing unconscionability requires more than mere unfairness or unreasonableness.
The ACCC has taken action against Westfield Holdings alleging unconscionable conduct in breach of section 51AC. This case may shed some light on whether section 51AC extends the definition of unconscionability. In the meantime, parties must tread warily in commercial dealings. Appropriate steps include taking great care in relation to termination of agreements, ensuring that all parties receive independent legal advice, and acting quickly to resolve disputes appropriately.
June, 2002
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